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At a recent NCI IDN Summit I participated in a provider/supplier panel and mentioned that one of the problems with the management of the capital supply chain is that there are different definitions of capital. I posed the question "Do providers and suppliers really know what the definition of capital equipment is?" That caused a rather quick and sarcastic response from a group purchasing organization executive in which he essentially told me that it was "something big that costs a lot" or something like that.

He further commented that it was because consultants make money confusing the issue. The audience laughed and, as I could never bear to be outdone, I responded with comments related to my experience in finding different definitions of capital through my extensive dealings with hospitals and IDN’s. I threw out my best line that was, "if providers and suppliers could speak in the same language we wouldn’t need consultants, so obviously they don’t." I think every supplier and consultant in the room applauded. Touché! But honestly winning or losing sound bites does little to advance the topic.

For most of us capital has been defined as something costing more than $500 and comes from the capital budget. Surprisingly, even today, for many of us that’s the way we still think about it. Unfortunately, that is not always the case, and if both sides would take time to review their policies and process there could certainly be breakthroughs.

I know we all had and still have the highest hopes that one day all healthcare products, including capital, will flow through a viable electronic commerce system. To that end I, as many of you, tried to sort through the maze of healthcare e-commerce companies in the late 1990s with their great promises of Wal-Mart type efficiency. Today, we basically have one viable option, and that is GHX. But while capital-based e-commerce was going to be possible someday the priority is and was pharmaceuticals, medical/surgical products and other consumables. To be honest, I understood that because of the traditional $500 or "something big" definition.

However, I was invited to a GHX forum on capital some years ago and to their credit, they involved all capital stakeholders in the equation.

During this open dialogue I heard things regarding the definition and acquisition of capital equipment I had never heard before. For example, there was no consistent definition of a capital dollar threshold among these very prestigious suppliers. I was not only taken aback I was thrilled that there was some variance. What I heard was that some considered capital acquisition thresholds at their facilities to be above $1,000, $5,000 and all the way up to $15,000. What? How did the suppliers in the room, including me, not know this? They also spoke of how they looked at some items as "repair parts" vs. capital and highlighted a $250,000 example of a repair part that flowed through the repair budget and not the capital budget process.

So what does it all mean if both sides don’t understand the implications?

The negative regarding capital and
e-commerce is rooted in the assumption that all capital is probably configurable or customized and would not be able to flow through "the system." From what I thought I heard that day, some of that is probably true. The question both sides need to ask is can the product I am selling or the product I am buying be redefined to vastly facilitate its movement through the supply chain?

I know every capital supplier thinks that its product is state-of-the-art technology and would never want to have it reduced to a repair part or circumvent the capital process. But if moving your product more easily through the supply chain had a positive impact on your revenue, profit and market share (RPM), wouldn’t that at least make you review your process? As for providers, if you could move a product quicker through your supply chain by reviewing your definition and dollar thresholds wouldn’t that be a worthwhile exercise?

We must be honest that the more traditional capital process is costly and slow. To prepare mounds of paper on both sides vs. the benefits of a "mouse click" should be obvious.

I know that a provider’s legal and finance people must have input to any changes you make in how you account for capital. Someone in your organization is the expert in this area and should be tapped. If you championed the dialogue in your hospital or IDN the result could be very rewarding.

The way you look at this issue can influence all the factors or your RPM. If your competitors define this better than you do your patients and physicians just may be headed in their direction.

From the supplier side, start the dialogue with your customers and stakeholders. See if you are managing your products for utmost supply chain efficiency or not. As with the providers, if you can define your products in such a way they move quicker through the supply chain than your competitors that also helps your RPM.

Within the last year I met with C-suite executives from a well-known IDN regarding developing a custom IDN contract. One of the components was to discuss utilizing the relationship we both had with GHX. I was instructed to have a conversation with their vice president of materials management. I set the appointment and although well-received he told me that moving capital through their e-commerce initiative was not a priority for them at this time but he would be glad to discuss this with me at some future date.

I returned to my company and discussed my experience at this IDN with our e-commerce team. To my great surprise my IT colleague told me that this IDN was now close to being our biggest user of e-commerce and routinely purchased "capital" through the system.