 |
 |
 |
|||
  |
 |
|
|||
          |
NEWS by Robert P. Bowen & Lisa DiMuccio-Conway When Amerinet opened its doors for business on June 16, 1986, its mission was clear – assisting healthcare providers across the country with delivering high quality patient care in the most cost-effective manner possible. While Amerinet’s mission has not changed in its 20-year history, the scope and involvement of Amerinet, and all GPOs, in the cost reduction and supply chain efficiency activities of their healthcare provider members have changed dramatically. The Early Years – 1960s to 1980s From the late 1960s to the mid 1980s, healthcare group purchasing was pretty much a cottage industry, marked by a large number of purchasing groups, many associated with state, local and regional hospital associations. In the early 1980s Voluntary Hospitals of America (VHA) emerged as a national alliance of large, urban teaching hospitals. As an alliance, VHA engaged in many activities and services other than group purchasing, but as would occur often with the formation of other alliances and groups to follow, group purchasing became the first focused area for cost reduction and revenue generation.
VHA’s impact on the GPO industry was profound. Suddenly, local and regional GPOs found their largest and most influential members shifting their group purchasing loyalties to VHA and the other large, national GPOs that began to emerge, such as American Healthcare Systems (AmHS) and Amerinet. The supplier community seemed to favor contracting with the large national GPOs because of the massive volume of business they represented and the ability to impact significant market share with a single agreement. The national GPOs often (but not always) achieved lower pricing than local or regional groups, thus accelerating the migration of hospitals from their local GPOs. To counter the loss of contract influence and membership to larger national GPOs, many local and regional groups formed alliances among themselves or aligned themselves with a national GPO to gain access to the expanded contract portfolios and lower prices. This naturally led to the next phase of the evolution of group purchasing – consolidation and expansion. 1990s – GPO Industry Consolidation and Expansion In the late 1980s and early 1990s, there were perhaps 100 local, regional, state and private GPOs in operation. As the large, national GPOs expanded rapidly, it became clear that smaller, regional GPOs simply could not create enough critical mass of business or resources to compete effectively in contract terms and pricing with the national groups. Through the ’90s, one by one, nearly all local and regional GPOs either disappeared totally or aligned themselves with one of the large, national GPOs for group contracting purposes. This was generally a successful strategy, as the local groups often brought continued local group loyalty and allegiance to the larger national group, while their members received lower prices through the large GPO contracts. By the end of the 1990s, the industry was dominated by fewer than 10 national groups. Mid-1990s – Emergence of IDNs and Health Systems Through the early and mid 1990s, hospitals came under increased cost pressures brought about primarily by DRG reimbursement, lower Medicare funding, expansion of managed care and rapidly expanding medical technologies. Through this period, many independent hospitals either became acquired by larger ones or merged to form integrated delivery systems designed to reduce overhead and increase efficiency and market leverage. As these systems emerged, one of the first cost reduction areas attacked was contract pricing. Large systems found that with a focused effort, they could use their GPO pricing as leverage and often drive pricing from suppliers even lower. This dynamic created a significant dilemma for some of the large, national GPOs that had steadfastly insisted upon exclusivity of GPO relationships and a high level of GPO contract compliance in order to maintain full benefit and return on their significant membership investment. Often, there were different sets of rules for large, influential systems and smaller independent hospitals or systems, which further strained those relationships. GPOs were faced with a significant dilemma – continue to try and enforce mandatory levels of contract compliance, which drove the contract pricing that they demanded, or loosen the compliance rules to satisfy demanding members, at the risk of falling short of their commitments to suppliers. Amerinet and all GPOs struggled with this issue, but at the end of the day, Amerinet realized that it was in business to help its members achieve maximum contract value, even if that meant a new, non-traditional business model. From this decision, the Amerinet Options program was born in 1998. Under this program, Amerinet would work with its large IDN members to identify specific contract enhancement opportunities, sometimes even outside the existing GPO contract portfolio, and to lend its skills and resources to develop unique, IDN-specific agreements for the exclusive benefit of that member. Amerinet would not share that contract information with other members, or use that information to leverage contracts for other members. Eventually, providing such flexibility to meet the demands of their largest and most significant customers would become the industry standard and would result in all major GPOs adopting this business practice. Today, more than 20 health system organizations have worked with Amerinet to negotiate more than 240 individual Amerinet Options contracts. These health systems have reported savings of up to 15 percent on top of the basic Amerinet contract portfolio pricing through this collaborative process. 2000 – Dot-com Fever Infects GPO Industry In 2000, the entire U.S. economy became caught up in the frenzy to migrate to Internet-based products and solutions to enhance a broad spectrum of business applications. GPOs were not exempt from the mania, as several of the large, national GPOs invested heavily in the promise of more efficient business models and significant investment rewards. This time period also saw the introduction of several new players, whose e-business, dot-com models promised to "disintermediate" traditional GPOs as the gatekeepers of medical product pricing. While most of these venture-capital-funded companies faded as fast as KMart blue jeans, some managed to quietly transform themselves into more traditional GPOs, although to this day they try very hard to identify themselves as something other than a GPO, despite their products (contracts) and their revenue sources (administrative fees). Sticking to its core business plan, Amerinet was one of the few that resisted the urge and pressure to jump aboard the dot.com train to wealth and riches. For Amerinet, it was very basic. Unless the Internet could deliver measurable value in the way of clear cost reduction benefit for Amerinet’s members, the company would not promote any EDI or e-business solution for its members. Amerinet also decided early on that e-commerce held little potential as a source of revenue or investment income. Amerinet’s core competency is group purchasing, not e-commerce. If Amerinet would endorse an e-business solution, it would be because of the value it brought to its members, not how much it would enrich Amerinet. Eventually, as the venture capital funding evaporated and most of the healthcare e-commerce companies dissolved, Amerinet would finally attach its support to GHX, the truest industry utility business model that emerged from the scores of pretenders. Amerinet continues to endorse GHX to those members interested in utilizing an e-commerce exchange to facilitate their business transactions electronically. Amerinet holds no ownership in GHX, nor derives any income of any type from its members’ use of GHX. While e-commerce promises tumbled from over-hyped claims to more realistic benefits, Amerinet and all other national GPOs did invest in technologies to make the vast amount of data and information that they produced available to their members in much more efficient and accurate electronic media, as opposed to hard copy paper. Amerinet introduced its ValuSource electronic catalog in a CD version in 1995 and migrated to an Internet version in 1998. All national GPOs have automated their contract portfolios and catalogs electronically since the late 1990s. 2001 – GPOs Under Attack In April 2001, The New York Times released its first article on the nation’s healthcare group purchasing industry, and the industry has been continuously on the defensive relative to its influence upon healthcare product purchasing decisions and its impact upon small, emerging technology companies. In addition to The New York Times campaign that questioned the appro-priateness of group purchasing activities, two U.S. senators, Mike DeWine of Ohio, and Herb Kohl of Wisconsin, have doggedly investigated a variety of possible actions, including legislation, to impose restrictions on GPO administrative fees and some of the commonly used contracting practices that drive competitive pricing. A series of Senate subcommittee hearings have resulted with the most recent being held in March. The outcome of the hearings to date has been inconclusive. There is little denial, even within the industry, that some of the activities and behaviors of some individuals and companies in the past have been inappropriate. The organizations involved have pledged to abolish such practices, and the industry as a whole has coalesced to establish an industry-wide "Code of Conduct" through the Health Industry Group Purchasing Association (HIGPA). In addition, nine of the largest industry companies have voluntarily formed the Healthcare Group Purchasing Industry Initiative (HGPII) to further address the issues and concerns about GPO activity. HGPII is patterned after a similar industry initiative established in the 1980s by the defense industry following a series of questionable behavior reports from that industry.
HGPII defines a set of five core principles, embraced by all participating GPOs, and conducts a detailed annual survey questionnaire of all participating GPOs to define specific policies and procedures of their ethics and business practices. In addition, all participating GPOs agree to participate in an annual best practices forum to exchange respective policies and procedures relative to openness and transparency, and the organization defines the best practices for all organizations to emulate. HGPII is open to all organizations that engage in the business of group purchasing within the healthcare industry. Despite these voluntary industry initiatives and the lack of any new evidence of inappropriate behavior in recent years, there remains a strong possibility that there will be an attempt to restrict the business practices and funding of group purchasing organizations through legislation, regulation or both. The industry will continue to work aggressively to insure the highest level of ethics and integrity but will strongly oppose any efforts to reduce the effectiveness of group purchasing in controlling the costs of products and services within the healthcare industry. Ultimately, the compelling need of the nation’s health care providers to keep prices as low as possible should override the desires of manufacturers of healthcare products to increase their prices and profits through the weakening of GPO business practices. 2003 – Addressing Physician Preference Items Several forces converged to bring physician preference items to the top of materials managers’ agendas by 2003 – decreasing operating margins, increasing prices on physician preference items and lagging reimbursement for new technology. Healthcare providers realized that cardiology, orthopedic and spinal implants could account for as much as 40 percent of their supply budgets and 50 to 100 percent of their reimbursement for the full length of stay. Because preferences for suppliers and products vary from hospital to hospital, and even from physician to physician, custom contracting often produces the best results for reducing costs on these implants. Industry best practices show that two keys to success are involving the physicians and backing the effort with reliable data. To help members take a new look at procedures using high-dollar implants, Amerinet responded with Amerinet Clinical Advantage, a collaborative process for reducing costs. In 2003, an Amerinet facility saved more than $1 million on cardiology implants with the very first Amerinet Clinical Advantage project. By the end of fiscal year 2005, Amerinet members that utilized the process had saved more than $14 million. Currently, more than 45 additional projects are currently in process. 2004 – In the first half of the decade, supply chain management emerged as a key financial issue for healthcare providers. For most health systems, cataloging exactly what they purchased and at what price is difficult, even in pharmacy. At the same time, continuing financial pressures have more and more health systems looking for ways to clarify, quantify and analyze their purchasing activity in an effort to improve operating margins. Healthcare providers planning to upgrade their facilities, information technology and medical equipment are increasingly looking to fund these initiatives through operations. The answer to finding the capital often lies in the supply chain, which represents a third of all operating costs and holds opportunities for significant cost savings and cash generation. Healthcare providers need new tools
to: • Manage contracts • Reduce supply chain expenses • Identify and eliminate pricing variances within their systems • Negotiate custom contracts To assist healthcare providers in identifying and acting on supply chain opportunities, Amerinet built a team to establish data-driven supply chain tools for its members. Diagnostix, the resulting subsidiary, presents actionable data that enables facilities to tap into their supply chain and generate funds. Health systems that utilize Diagnostix services improve margins with two software tools – AccuPrice for daily pharmacy pricing audits and AccuSave to provide a clear view of purchasing data and take advantage of the most appropriate price. In just one year, 60 locations are using Diagnostix software tools. They have saved a range of 3 to 10 percent on medical and surgical purchases with AccuSave and 0.5 to 1 percent on annual pharmaceutical purchases with AccuPrice. A Look Ahead at 2006 As healthcare providers plan for the future, GPOs must anticipate their next major needs. Because Amerinet understands the importance of a healthy operating margin, its members can expect to see even stronger tools for creating new revenue streams and reducing expenses. As Amerinet enters its third decade of operations, initiatives for 2006 include: • New revenue cycle management tools • Information technology investments • Supplier recognition Additionally, Amerinet will continue to deliver on its margin improvement value propositions by creating partnerships with healthcare providers to improve their operating margins and to maximize both supply chain and revenue cycle performance. The primary emphasis is on increasing margins to generate new capital to fund the technology investments, construction and remodeling projects, physical plant improvements and staff investments that create a competitive advantage in the organization’s local markets. By creating these partnership opportunities Amerinet members are able to accelerate toward total spend management with innovative programs and initiatives including a total customer-focused portfolio. HPN Robert P. "Bud" Bowen retired on March 31 as Amerinet chairman and CEO. Lisa DiMuccio-Conway is Amerinet’s senior director of marketing. For more information, visit www.amerinet-gpo.com. |
June
|
|||
| |
|||||
|
|
|||||
 |
|||||
Glancing back on two decades of Amerinet...
