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Going it alone in contacting and distribution with Bob Simpson
HPN: What is the structure of your two corporations, Cooperative Services of Florida Inc. and LeeSar Regional Service Center? Simpson: Cooperative Services of Florida was incorporated on May 27, 1997, as a not-for-profit corporation. The company acts as a purchasing cooperative for the Lee Memorial Health System and the Sarasota Memorial Healthcare System. Recognized by the state of Florida as a tax-exempt 501C3, LeeSar Regional Service Center is a limited liability company organized on Jan. 26, 1996, between Lee Memorial and Sarasota Memorial. Both of these entities function as independent organizations governed by a board of directors. This structure allows us a certain amount of independence and flexibility when it comes to looking at additional services and businesses that we would like to develop to help support the healthcare system. An example of this is the development of a record retention and management company that we are looking to develop in the future. HPN: What did you expect to accomplish by organizing self-contained self-distribution to the Lee Memorial and Sarasota Healthcare Systems? Simpson: I cannot take the credit for the vision of LeeSar and Cooperative Service of Florida. That vision was that of the chief executive officers of Lee Memorial Health System, Jim Nathan, and Sarasota Memorial Health System, Dr. Duncan Finlay. They were looking for ways of adding value to their systems and reducing operational cost and felt that the model they were participating in, although a good one, could be improved upon if they attempted to do it themselves. They took a giant risk in developing their own co-op in the hope that the manufacturing community would work with them if they could drive total commitment to the contract. They have been successful in doing that and have gained enormous value by going through this process. HPN: How is your operation different than a group purchasing organization? Simpson: Cooperative Services of Florida is a 5013C cooperative that works very closely with the manufacturing community to drive total compliance to every contract in our portfolio. We are very proud that all of our contracts with no exception drive 90 percent compliance. We achieve that by actually reversing the process that is taken by a typical group purchasing organization. Having had some history working in a group purchasing organization, I realize that the contracts are developed with input from an advisory committee and then marketed to a very large group of members in an attempt to drive compliance. Within a smaller organization such as ours we are able to work directly with the clinicians and the end users of these contracts and get compliance prior to the contract being executed. The participants sign off on a commitment form and agree to participate at a 90 percent compliance level during the term of the contract. Following that clinical approval and compliance execution, we then enter into negotiations with the suppliers and the suppliers know from the onset that if they are successful in these negotiations, they will see true market share shift and a true compliance during the term of the contract at a 90 percent compliance or above level. HPN: What led these IDNs to go in this direction? Simpson: The senior administration of both healthcare systems were constantly being approached by department heads and leaders of the clinical staff with their concerns about their lack of input into the selection of product they were being asked to use. In addition, it was felt that there was money being left on the table in dealing with a national GPO that we could, in fact, return to the hospitals if we worked more closely with the manufacturers on a more direct basis. Having said all that, it is really Dr. Finlay and Jim Nathan, the two CEOs, who like to call this operation their supply chain laboratory and have asked us to look into everything possible to pull cost out of supply chain and bring added value to their systems. That is really what leads us in the direction we are going in. HPN: How do you get buy-in from clinicians at the hospitals prior to signing contracts? Simpson: We probably have one of the largest structures of participation committees in any healthcare system I have ever worked in. From the laboratory, to radiology, to the surgery areas, to emergency areas, to general administration, we have committees that meet on a regular basis to discuss what products we are going to use and what value, total value, net cost value are brought to the hospital based on their buy-in from a clinical perspective, as well as an operational perspective and a true value perspective. We seek all that information from the end users prior to getting into negotiations on contracts and actually executing the contract. HPN: Med-surg distributors have been doing their job for decades and seem to operate on the thinnest of margins. That being said, why do you find it advantageous to distribute products yourself rather than using traditional distribution? Simpson: The LeeSar Regional Service Center was developed to deal directly with the manufacturers and distribute our product directly to the end users in the most cost effective manner. It is run on a very tight margin and is used for more than just the distribution of product. It is used for a storage area for sensitive records for the hospitals, as well as developing a low unit of measure delivery system that we find very advantageous for the hospitals. We realized getting into this that there are some very good distributors out there that do a very fine job. But we also realized that nobody does anything for nothing and that there was some profit, although no matter how slim, that made it worth the time and effort of these corporations to be in this business. It has been our attempt to eliminate that margin and return that value to our healthcare systems. We continue to work with some distribution houses in developing specialty need products, one example being customized surgical delivery sets. We truly believe in dealing directly with the manufacturer of a product wherever possible; it makes good operational sense in doing so. A good example of this is our recent acquisition of exam gloves directly from a manufacturer in Malaysia. We have actually purchased a total cargo container of exam gloves. If you look at those manufacturers, they are producing product for many different distributors in the U.S. and by purchasing that full cargo container of product we were able to eliminate the overhead we would have paid by buying it from a distributor. This is not the answer for everybody. Smaller healthcare organizations would have a difficult time justifying purchasing a full cargo container of gloves. That full supply of gloves would be less than a two-month supply for our healthcare systems, and thereby it makes sense for us to buy it directly. That is the type of thing we look at when we work through our regional service center and we think that brings added value to our healthcare systems. HPN: I understand that LeeSar is an authorized med-surg supply distributor. What advantages and disadvantages does that authorized designation give you? As an authorized distributor how do you unravel the distributor/manufacturer rebate system? Simpson: The LeeSar Regional Service Center is an authorized med-surg supply distributor and as such we are treated just like any other distribution house is treated across the country as it relates to receiving product and negotiating the net cost of that product for the end users. We find it very advantageous in receiving bulk buys and larger quantities of purchases through our regional service center and in doing so reducing the actual end cost of the product. The other advantage that we are able to address and receive where it is appropriate to do so rebated dollars from the manufacturers that would have gone to authorized distributors that we would have used in the past. The negative part of this is that in many cases a hospital receives priority in delivering the product that a regional service center does not. When there is a stat order, it becomes a challenge for us to make the manufacturers realize that we are actually owned by the hospitals and are calling them in on behalf of the hospitals. To address this, we have most recently put all the purchasing authorities under one roof. The purchasing for the buying cooperative, the purchasing for the distribution center and the purchasing for the hospitals directly are all now functioning out of one centralized office under one director of centralized purchasing, which allows us to coordinate those efforts to prevent any issues we have had in the past from reoccurring. HPN: Where have you found your biggest savings? Simpson: We find our savings in many different areas and in no one particular area. The actual acquisition cost we find to be more effective typically ranges between 7 percent and 11 percent below national GPO pricing. We also find we were able to pay our suppliers at a much better terms than the hospital could directly. Our typical payment terms are between 15 and 30 days, so we receive early payment discounts that are a savings to our institutions. Most certainly but not finally, one of our biggest savings is cutting out steps from the supply chain. Supply chain management will tell you that from the time the product is made to the time it is consumed to move it as cost effectively as possible. The more hands and the more people in that process, the more cost is added to the actual cost of the product itself. The real challenge we face here is to eliminate as many hands from the time it is made to the time we consume it. HPN: What has been the most difficult aspect of a self-contained program? Simpson: The largest challenge we face in this whole process is communications. For this process to work, it takes a real team effort of many people both on the consumer side with our department heads and clinical people, on the manufacturing side with all levels of representation from the organizations, and from the people within LeeSar and Cooperative Services structure itself. The communications have to be very strong between all these entities for this to function and function well. If the consumers feel they are not being serviced correctly by our organization, they will do what every other consumer does: Find another way to get the products they need to take care of their patients. We have to make sure through strong support and communications that this doesn’t happen. From a manufacturer’s standpoint, strong communications about the value that we bring in compliance is critical to our success in continuing to get their support. We spend a lot of time with communications both internally and externally. HPN: If you had the opportunity, what would you do differently? Simpson: This is probably the most difficult question I have been asked in the whole interview. You never want to second-guess people that have worked so hard to put a process in place and that I am honored to have an opportunity to direct. Diversifying the process more would be something I would take a look at if I had the opportunity to start this again. I would think that the possibility of working with a broader group of manufacturers, and we are working on that now, and to offer a broader menu of services to our end users would be something I would revisit. Those are the things I would look at differently if I had the opportunity to do so. HPN: What’s the most critical element in developing a successful program of self-contracting/self distribution? Simpson: There is a list, but one of the most critical certainly starts with senior administration. If you don’t have the support of your chief executive officers of your healthcare system and their immediate leadership team, it just isn’t possible to do this. We are very fortunate in having a senior leadership team at Lee Memorial Health System led by Jim Nathan and a senior leadership team at Sarasota Memorial Hospital led by Dr. Finlay who live eat and breath supply chain management as much as I do. That is very rare in healthcare. Most CEOs just do not have the expertise in that area. These gentlemen believe very much in what we are doing and support it on an ongoing and daily basis. That is critical. The other critical elements as I said before are communication and the real ability to build a team effort in working toward accomplishing the end goal of an effective supply chain. That team effort involves a lot of people. It involves the suppliers and the manufacturers that make the product, it involves the end users who consume the product, and it involves all the people that are responsible for getting it to them as effectively as possible. So the ability to put together that critical team and developing the common goal is very critical in the success of what you are trying to accomplish. HPN: What advice would you give other IDNs that are looking for a supply chain solution who might look at your Florida process as an example? Simpson: I would say to them it is worth the risk to look at it. Unless we in the supply chain profession are willing to take these risks, our supply chain model simply won’t change. Our healthcare systems not going to be receiving more reimbursement; they will be receiving less. As they receive less they will have to find ways to cut costs. We are the people they should come to to make that happen. HPN |
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Robert Allan Simpson, CMRP, has been involved in healthcare for more than 25 years. He served as the director of operations for Northeast Red Cross Blood Service during the famous blizzard of 1978. Simpson was director of materials management and project coordinator and assisted in building the first USDA Human Nutrition Research Center at Tufts University in Boston. He also led led the effort to centralize materials management services for Neponset Valley Health System and later joined Healthcare Services of New England. Simpson held several executive positions at TFX Surgical Group and in 1995 served as international president of the Association for Healthcare Resource and Materials Management. He is also the founder and board of trustees member of Project Perfect World. Simpson is currently president and CEO of LeeSar, the supply chain management division of Lee Memorial Health System and Sarasota Memorial Healthcare System.
