Up Close

Propelling Premier to prominence

Becoming the first woman to formally lead one of the nation’s largest group purchasing organizations certainly makes history and carries with it significant pressure to succeed.

Becoming the first person to follow her carries with it equivalent pressure but not as much fanfare – not even if her successor is a highly qualified man.

Michael Alkire

That doesn’t matter much to Michael Alkire, who was elevated to the presidency of Premier Purchasing Partners LP, the group purchasing arm of healthcare alliance Premier Inc. upon the promotion of Susan DeVore to COO or Premier Inc., reporting to president and CEO Richard Norling. Alkire spent his first three years at Premier Purchasing Partners as DeVore’s No. 2 executive, or COO.

He’s been carefully constructing his own legacy at Premier, paving the way to the group’s next level of development while positioning the group in an intensely competitive market influenced by integrated delivery networks, self-contracting and distribution models and the potential for industry wide regulatory scrutiny.

Through it all, Alkire maintains a positive attitude about and outlook on his chosen profession and industry, confident that group purchasing as a concept, as well as GPOs in general, are here to stay.

Alkire joined Premier in late 2003, and he began to work closely with DeVore and other executives at the group purchasing arm to develop and implement a three-year transformation plan designed to increase shareholder returns and strengthen bonds with members and suppliers. Under Alkire’s leadership, the group has delivered approximately $900 million in owner-validated savings above and beyond year-to-year price discounts via group contracts and cash distributions to shareholders. In addition, Premier added about $1.5 billion in new purchasing volume during Alkire’s watch-to-date, and debuted a variety of data applications, including tools such as Spend Manager, Orthopedics Advisor and Supply Chain Advisor, designed to help members identify supply chain savings opportunities.

Prior to Premier, Alkire banked more than 18 years experience running business operations and business development organizations at Deloitte & Touch and Cap Gemini Ernst & Young. In fact, he served in a number of key leadership roles at Cap Gemini, including North American responsibilities for supply chain and high tech manufacturing.

Alkire agreed to answer some questions from Healthcare Purchasing News Senior Editor Rick Dana Barlow about why he entered the healthcare arena three years ago, how he plans to run with the ball that his predecessor handed off to him and where he sees Premier fitting in the marketplace in the future.

HPN: You succeeded the first woman to lead the group purchasing arm of a national alliance. How do you foresee your new role as president of Premier Purchasing Partners, differing from your previous role as COO to Susan DeVore?

ALKIRE: Susan has left big shoes to fill. She did a fabulous job of understanding our members’ needs and executed a plan that drove some of the highest CEO satisfaction in our industry’s history. I anticipate a great deal of continuity in my role and in our operations. Our leadership team is focused on working with our hospitals to drive lowest supply chain ratios in the industry. My role is to lead the effort within Purchasing Partners, our GPO. We’re the largest GPO by purchasing volume. We deliver comprehensive support and resources for our members, yet are able to distribute a greater percentage of revenues – 72 percent last year – than any other GPO. We are, quite simply, the largest healthcare alliance in the nation focused on improving patient outcomes while safely reducing costs. My job is to work with the rest of our leadership to further differentiate Premier and drive the needed value our members have come to expect.

Prior to Premier you spent nearly two decades with two of the leading accounting/consulting firms, Deloitte & Touche and Cap Gemini Ernst & Young, specializing in supply chain and high-tech manufacturing. How did those experiences prepare you for a top gig at Premier? What did you bring to healthcare group purchasing from outside the industry? 

I have had the privilege to work with some of the best organizations in America. In my various roles I have learned many best practices that have helped me at Premier over the last three years. My previous 
experience has also taught me a lot about how to help businesses become highly efficient while delivering a quality product or service. You cannot have one without the other, especially in healthcare.

But some argue that healthcare has a number of different challenges placed on it that other industries don’t experience, such as clinical product demand (doctor and nurse preference) and payer reimbursement cuts. Other industries really don’t have to appease ‘workers’ who require and consume considerable resources to generate revenue nor do they have to deal with organizations that only partially pay the bills for their direct customers. How much of a challenge was that for an ‘outsider’ like you to grasp, accept and work through? 

Learning a new industry is always a challenge, but we have a tremendous team here at Premier; it’s not a one-person show by any means. Like any industry, healthcare has its unique challenges. But increasingly, healthcare leaders are understanding that they can use the same tools that other industries use – like Six Sigma and the Baldrige criteria. Just a few years after its introduction, healthcare is now the largest category of applicants in the Malcolm Baldrige National Quality Award, for example. Ultimately, working with healthcare providers is all about building a platform to support the people who are focused on providing care for patients.

What in the healthcare field led you to leave corporate life outside of healthcare?

As I explored the opportunity before joining Premier, I was so impressed with the passion everyone expressed about their work – about working in healthcare. It really is a mission as much as, or more than, it is a business. Once I started having interactions with the people who run our member hospitals and saw what they are doing in their communities, that feeling really started to rub off on me. Our organization – the alliance of hospitals we represent – is making a real difference in figuring out ways to improve patient care while safely improving the efficiency of our healthcare system. It’s an exciting place to be.

You were instrumental in Premier Purchasing Partners developing and implementing a three-year Transformation Plan (officially achieved in two years – as in 2005) to boost purchasing volume and member ROI, as well as beefing up Premier’s database offerings. Now that you’re in the top office, what are some key goals you’d like to accomplish within the next three years and why? 

Now that we have established the industry benchmark for distributions by any GPO, let alone a full-service alliance like Premier, we intend to maintain that high standard. So efficiency will continue to be front and center. But we are in a strong growth mode as well. Our member hospitals set about to transform American healthcare in ways that make it more effective and efficient when they created Premier 10 years ago. The more hospitals that join us in that mission, the better. We expect to add probably another $60 million in value to our owners over the next three years.

How? Will you provide a few examples? 

We will continue to implement new internal efficiencies; launch new analytic tools and resources to help members identify and capture savings and we’ll continue to innovate and excel in group contracting. For example, we’ve launched what we call Passport to automate workflow within Purchasing Partners and we’re formalizing our strategic sourcing approach to deploy resources most effectively based on the category of product for which we’re contracting. We’ll use automated methods more on lower-volume commodity products and focus our manpower on categories that involve new technology and physician preference. Our investment in enabling tools and data over the past several years has made this approach possible.

What’s your opinion on the whole GPO antitrust-safe harbor debate with the government and a group of vendors?

Healthcare affects everyone so any organization in healthcare has to be open to stakeholders with questions and concerns. We welcome any opportunity to share the great work we are doing to help hospitals improve quality while safely managing costs. Interest and scrutiny of our entire healthcare system will only grow over time and everyone involved with healthcare must be accustomed to that. That said, the real focus should be on how we can all work together to improve patient outcomes while safely reducing the cost of care. That's where our focus should be.

As distributors, manufacturers and a variety of service companies (including consulting firms and online exchanges) offer supply chain consulting and data management services how do the national GPOs remain competitive and relevant in the marketplace? How about Premier – with its healthcare alliance model – alone? 

A few years ago, a lot of people were predicting the demise of organizations like Premier. It hasn't happened, even remotely. In fact, the opposite has happened. We're more relevant and more robust than ever. Why? Healthcare in America is still fundamentally a local service. Yet there are huge challenges that are difficult or impossible for hospitals to solve at the local level. Not-for-profit hospitals created Premier as a way to share knowledge, needs and resources and to gain the benefits of national scale and presence.

The answer to your question around providing consulting is simple; we are uniquely positioned to provide the most relevant consulting in the industry. Our consultants interact with our sourcing teams on a consistent basis so they are aware of the products and new technologies entering the market. Our quality engineers are imbedded in the data solutions so they are able to provide relevant consulting in a real time mode.

Today, Premier is the largest alliance in the nation focused on improving patient outcomes while safely reducing costs. We operate the largest database of its kind in healthcare, with information on clinical outcomes and associated costs; we help hospitals evaluate and save money on $27 billion worth of products and services they purchase; and we operate the largest policy-holder owned, healthcare professional liability company in the nation. Our members are saving lives and money.

Indeed, healthcare, by and large, is a local service so how can an organization like Premier, with its roots in amalgamating volume buying and information sharing on a national level, truly compete cost effectively on a local level? After all, it costs less for a distributor to deliver supplies in bulk or low units of measure more frequently to fewer hospitals in concentrated metropolitan areas than it does for a distributor to deliver small quantities to the myriad non-acute care facilities scattered around the nation.

Distributors’ answer to that involves two classes of trades with different margins. So how does a national GPO compete effectively (e.g., generate revenue for itself while saving money for the customer) on the local level?   

We have a number of strategies for customizing our offering to the needs of local healthcare systems. The ways we structure contracts and facilitate collaboration among hospitals in a state or region are among those. It’s important to remember that we are an alliance owned by hospitals. Our corporate goals revolve around the performance of our member hospitals. Our focus in Purchasing Partners is on helping them safely reduce the cost of care. The proof of the value we’re delivering is in the results: We’re the number one GPO by contract volume in good part because of the degree to which our existing members take advantage of the savings we offer. 

A small but slowly growing number of integrated delivery networks (IDNs) have been experimenting with self-contracting and self-distribution models with varying degrees of success. How do the national GPOs remain competitive and relevant in the face of this development? 

There will always be a certain number of organizations that will search for new models. That's a very positive thing and we applaud them for it. Rather than a trend, this is a basic, healthy aspect of any market. We have some of the largest IDNs in America in our membership, along with hospitals and health systems of all shapes and sizes that derive value from our services every day. The larger challenge for Premier from a growth standpoint is the fact that 97 or 98 percent of hospitals already belong to an organization offering group purchasing services.     

Healthcare providers are quick to note, and most national GPOs have agreed over the years, that the national GPOs are not as effective in working with the areas of physician preference products, such as orthopedic implants, because those consumption and contract negotiation issues are more facility- and physician-centric and local. How do you respond to that assessment? Is it changing? How and why? 

Managing the cost of physician preference items is a challenge for hospitals, physicians, suppliers, basically every stakeholder in the healthcare system. We see our role as providing insight from our databases; best practices from across the alliance; contracts that facilitate hospital efforts; and consulting support when needed. A little known fact about our Physician Preference consulting practice is that it is one of the largest in the industry. Through our unique data capabilities, we are increasingly able to connect clinical outcomes with cost implications. That's the sort of information that our hospitals and physicians use when they sit down together and work through these issues. 

Several vendors in the physician preference item category require that their customers sign contractually binding pricing confidentiality agreements. How do these pricing confidentiality clauses affect group purchasing, expense management consulting and hospital control over pricing information? 

Premier has several comparative databases that we have developed to help our members drive additional value in this challenging area. Through these clinical benchmarking databases, CardiacFocus, OrthoFocus and SpineFocus, we are able to identify significant pricing variation and opportunity for standardization, utilization changes and overall expense reduction. This information is always blended and blinded so there is no inappropriate sharing of data. However, it's extremely valuable to our members to be able to identify their opportunities through this type of tool. If members have inadvertently signed away their ability to submit this data through supplier confidentiality clauses, that opportunity disappears.

What can – and should – GPOs like Premier do about these clauses?

We have been working to educate our members on this issue. It is in their best interest not to sign these clauses.

What are some of the biggest challenges GPOs – like Premier – face and some of the biggest misconceptions hospital CEOs and supply chain managers have about GPOs and managing those relationships? How can these challenges and misconceptions be overcome?   

We find that hospital CEOs and materials managers are very well informed about the benefits of participating in an alliance like Premier.   

There’s a growing movement calling for fiscal transparency in healthcare. How much sense – ethically and fiscally – does it make for a privately held company like Premier to provide transparency and still remain competitive? Who should have access to this information? Should it be limited to shareholders? Should it include affiliates? What about anyone? How much information conceivably should be released? And finally, is transparency really good for competition or is it a red herring designed to deflect attention from other issues?   

Healthcare is a public trust. All stakeholders have to accept – and hopefully embrace – an appropriate level of transparency. We publish a detailed financial statement on our Web site and share openly the details of our compliance with both the industry Code of Conduct and our own, more stringent code.    

During the last few years, bundling, rebates and sole-source contracting seem to have gotten a bad rep. Why? And how do you counter those opinions to show the value of all three to provider facilities?  

Each is simply a tactic that can deliver value if used correctly. Our member hospitals, via our contracting committees, decide whether a given tactic is appropriate given the type of product for which we're contracting. Bundling of unlike items is not appropriate, but hospitals sometimes prefer to buy related products together – some types of equipment and consumables, for example. Sole-source contracting is not appropriate for physician preference items but can drive tremendous savings in the commodity arena. 

Some in the healthcare industry contend that member hospitals should finance GPOs through service fees rather than GPOs being financed by vendor-paid administrative fees. Does this make any sense? Is this a viable business option? Will that really solve perceptions of alleged anticompetitive practices? Why? 

One of the reasons Congress created the safe harbor under which GPOs operate is in recognition of the value GPOs deliver to suppliers. GPOs reduce selling and marketing costs and administrative overhead for suppliers. Because we are owned by our hospitals, we have no outside shareholders, equity investors or other constituencies that we have to satisfy financially. Our goals are totally aligned with our owners, which is to create the best contracts in the market and return as much of the administrative fees as operationally possible. A system in which hospitals pay for GPO services would result in community hospitals – which have slim operating margins - underwriting services to medical suppliers, which typically have much more comfortable operating margins. It would be an illogical approach. 

Do you believe the safe harbor exemption from the Medicare anti-kickback statute will ever be eliminated or modified? Should it? Why? If you think it will be modified in some ways, how? And what difference will those modifications make?

We’re sensitive to the needs of all stakeholders in healthcare, but we put patients and the hospitals that serve them first. The current system serves them well. HPN