As one of the five largest, and technically one of the oldest, group purchasing organizations in healthcare, St. Louis-based Amerinet Inc. (www.amerinet-gpo.com) has enjoyed its steady climb to its current position of market prominence since its inception in 1986. In fact, the GPO reported delivering $310 million in contract portfolio savings and distributing $30 million in shareback funds to members in fiscal 2004, which ended September 30. Amerinet’s board also reported that member purchases topped $6 billion for the first time in fiscal 2004.

Amerinet launched several new initiatives last year, as well as acquired the oldest regional GPO in the nation and expanded its executive offices. Healthcare Purchasing News Senior Editor Rick Dana Barlow spoke with Amerinet President and CEO Robert P. "Bud" Bowen about the GPO’s activities in 2004 and its strategic direction ahead.

HPN: As president of Amerinet you’ve now assumed the office of CEO to oversee the GPO’s strategic direction. What are some of your initial plans right out of the gate? Why couldn’t you initiate these goals without the CEO title?

BOWEN: The changes that we’ve made here are really a lot less about me than it is about Todd Ebert stepping up and assuming more day-to-day responsibilities as president of operations for Amerinet and also with Wayne Thompson joining the organization as president of health systems integration. Those changes are allowing me to sit on the Amerinet board, obviously still as a senior member of executive management. But frankly, it allows me to get away from the day-to-day operations and management of the company and to spend more time in some of the strategic things that we need to be doing as an organization. Specifically, it’s my intention to try to get out and spend more time with the senior executives at our key members and understand what their needs are and making sure that we’re being responsive to their needs and potentially meeting with prospective members as well. That’s an important thing that I’ll now have time to do that I really didn’t before.

I also plan to put more time into some of the general industry initiatives that we’ve been involved in and have been very supportive of. We’re a member of NAHIT, the Coalition to Protect America’s Healthcare, which is going to be faced with a lot of challenges next year and certainly the group purchasing issues in D.C. are also something I’m very much involved in. Those are the key things that I’ll be spending more time on, especially now that Todd and Wayne will be taking on more day-to-day responsibility.

We recognize – and I think most GPOs recognize – that we all have to find ways to bring more value to our members. The members are obviously under severe economic strain, and the traditional GPO model needs to be expanded to make sure that we’re providing whatever areas we can for cost reduction and assistance to the members. That’s really beyond the traditional group purchasing. That’s probably the most important thing that we have to do.

By traditional group purchasing I’m talking about negotiating contracts, providing contracts with discounted terms and pricing. That’s obviously still a very critical and essential function of what we have to do. But we have to actually reach out and go beyond that. Our members are asking us to do a lot more than that. Data management support in our new company, Diagnostix, is a perfect example of that. It’s become clear to us that hospitals really struggle with the amount of data that they have to deal with. Keeping it all straight is just an overwhelming burden and they look to the GPO to help ease that burden and make it better for them.

We’re also moving into two other areas. We’ve had a program called Options for quite some time. We were really the first GPO to step out of the box and recognize that there are some product areas that our large IDN customers have the ability to drive pricing on their own. GPOs – at least Amerinet – shouldn’t be in the position of saying that we don’t want you to do your own contract; we want you to use our contract. The bottom line is that we’re there to serve the needs of the member. Rather than creating that line in the sand, our approach was to help them. We recognize that we’ve got to do more of that. We’ve got to make sure that we have the resources and the structure in place to be able to support more of that customized contracting for our large IDN customers.

We’ve dedicated resources to do this in our organization since the late 1990s. I like to think that Options actually is a pretty mature program of ours. It’s just a matter of keeping the resources in the pipeline to keep up with the demand. I think we’ve got the systems and mechanisms to do it. When we first introduced it, as you can imagine, there was a lot of concern raised from the supplier community questioning our customizing contracts we already had in place for a particular customer. It’s not an easy thing to maneuver through, but you have to stick to the fundamental concept that says, first of all, we don’t just go and do it just because the member wants a better price. Everybody wants a better price. But there are legitimate situations when the member can bring incremental value to the supplier – whether it’s through additional commitment or standardization or length of contract or any variety of things – then it is also reasonable for that member to expect better consideration in the arrangement. That’s what we facilitate.

The second one, of course, was confidentiality. I really do believe that we’ve earned the respect of the supplier community. When we do these Options programs, which are basically one-off modification contracts for a particular member it’s important that we simply not take that deal and go to the next member and then club the vendor over the head with it. We’ve not done that, and that was their concern. So I think they’ve come to respect the process that we have and the integrity of it. It’s a very successful program. It’s a win for everybody.

I think we’re probably dealing with 30 or 40 of our members, involving about 150 contracts altogether. Of course, you don’t do these things for cotton balls. You do these for the big ticket items that have a big impact on the members.

That’s actually related to it but it’s even over and above that. That’s really the next area of the initiative that we’re very much into. This is a program that we’re expanding because it’s become so successful and so popular. That’s our Clinical Advantage program. It’s much the same in that it is a customized contracting effort for a particular system but it is specifically aimed at the traditionally difficult product areas for GPOs to tackle, which are the big ticket clinical preference product areas, particularly orthopedics and cardiology. Obviously, that requires clinical resources on staff at Amerinet, which we have, and a lot of data management in that particular activity. It’s a significant investment of ours. But the results of this program have just been staggering.

The answer to that is nothing. It would be nice to say that we’re going to do more of this but at the same time a little less of this. There isn’t anything that I could come up with that we have the liberty of doing less of. Everything that we have ever done historically is just as important as it always has been. We certainly need to continue doing it and we will. We’ve got to continue to provide a broad and deep portfolio of agreements to serve our membership. And all of the new things are going to be over and above, layered on top of what we already do.

In the next five years you’re going to see our dramatic growth probably coming from growing our IDN business. The main reason is because our business model is the one that’s best suited particularly for the large IDNs. Our philosophy of choice and flexibility and customized contracting has been our hallmark since Day One. That really resonates well with IDNs. They like the concept that Amerinet works with them to develop customized solutions for their needs rather than mandated compliance and mandated participation. We’re getting a lot of receptivity. We actually see ourselves almost by default facilitating a virtual alliance of IDN members around the country. It’s anchored by one of our owner companies, Intermountain Health Care. We facilitate a number of meetings, and they’ve been extremely popular and valuable, that bring together IDNs from around the country that are not competitive with one another. They create an opportunity to network amongst each other for successful strategies and tactics to improve their performance. It’s sort of taking on a life of its own. There’s a lot of demand for it. We’re facilitating it more and we’re looking into other areas where it can go.

I think the next one is in the spring. We hold these meetings once or twice a year. We respond to them as we can. It’s difficult for the members to get out. But they’re at least once or twice a year.

Amerinet was the first large national acute care-based GPO to step out into the nonacute care markets and that decision was made early on in our inception in the late 1980s. In fact, our relationship with MGMA goes back to 1988. It was a difficult decision because if you take a look at the spend in hospitals it’s obviously significantly greater on a site-by-site basis than it is in nonacute care facilities. Whether it was sheer brilliance or just coincidence, in any event, by being in the nonacute care markets – particularly the long-term care facilities, the surgery centers when they were just emerging as part of the continuum of healthcare, home health and large and rural clinics we developed an understanding of those different marketplaces and the fact that as providers they had different needs than acute care hospitals. Sometimes they required different products in the portfolio and different distribution channels. By understanding that early on we’ve developed a real strong position in the nonacute care markets. Only in the last few years have a lot of the other national GPOs decided that these are markets that they need to be in. You don’t just jump in and out of it. It’s a very unique industry and what was really exciting was in the 1990s when acute care hospitals began to come together in a frantic pace to form IDNs one of the first demands they had was "what was my GPO going to do to help me support four hospitals, three surgery centers, 10 physician offices, a home health network and two skilled nursing facilities?" We were right there.

Now the surgical hospital issue is a little bit different. That’s a very good market for us. We support that market well and we have some great relationships. But the issues surrounding that particular market are really more political and social than medical in nature. As long as they’re healthcare providers we’re going to be there to work with them. Whatever issues they have to work out are going to have to be sorted out in the political and social environment. But as long as they’re delivering care we’ll be there to support them with group purchasing.

We don’t look at it as a "win" in a competitive sense, but I’ve known that organization for a long time. In fact, Bill Doll was a friend and an associate of mine. As the discussions unfolded, culturally, philosophically and ethically the two organizations were very aligned, very compatible. We felt the merger of the two organizations yielded a lot of benefits for the members of both. That’s really what the win is. It’s not so much a competitive win, although it’s nice to get into a relationship like that, but it’s really a win for the members. It did a number of things for us. We’re particularly intrigued by their LLC business model, which is very consistent and compatible with what we’ve been doing with the IDNs in the customized contracting area. I think it’s the next level of sophistication for what we’re already doing. On the other hand, we bring to the JPC members a tremendous breadth and depth of contract portfolio that they were probably not going to be able to develop on their own.

Bill was a long time friend and associate. One thing about Bill: He was always committed to doing the right thing for his members. And I think that Bill would applaud the decision that was made by the JPC board.

What we thought we would do was facilitate members being able to evaluate emerging technologies. We had a pilot on that and floated that concept out, particularly to the small innovative manufacturers. We figured, what better way for them to develop their product to be successful than to get early input from users? We created a structure that would have allowed the vendor community to do that, particularly these small companies, and frankly, it died on the vine from a lack of interest on the supplier side. We had a number of members tell us that it was an exciting idea and they would love to participate in it but we could never get any traction from the suppliers so we walked away from it after the trial period.

It’s all tied to needing to reach beyond traditional group purchasing. I think it’s generally agreed that current GPO contract market is somewhere in the $65 billion to $70 billion dollar range across all the GPOs. But the product spend for hospitals and healthcare organizations outside of those contracts could be twice as much as that – $150 billion. So that’s a lot of spend on the part of the members that GPOs are not providing any benefit for. We were brought into the Diagnostics approach by a number of our large IDNs who said, ‘we’re getting killed with the data.’ Amerinet alone has 1,200 contracts. Goodness knows how many million line items of product. Those products are constantly changing, the prices are changing…I don’t really know how hospitals even keep up with the amount of data they’ve got to deal with. Again, they turn to their GPO and say, ‘you’ve got to help us with this.’ Or they turn to the vendors because certainly the vendors are providing a lot of these solutions as well. That’s the kind of thing that brought us into the Diagnostix business. It’s still in its start-up stage. We’ve had a couple of pilot projects. We’ve really shown some great results. It’s worth the investment on Amerinet’s part to support its members this way.

It’s all internal development expense. It’s not small, I can tell you that. I can’t get into numbers, but it’s not an insignificant investment because it’s very software- and data processing-oriented.

It’ll be well into seven figures.

Yes. It’s price file maintenance, price accuracy management, local and national contract maximization, non-contract product analysis.

We’re going to proceed slowly on this. We exist for the benefit of our members and right now we’re limiting it to our existing members. But that’s not to say that at some point in time that it might stand on its own. Right now it’s being done as a traditional support to our existing members.

Make sure that you’re not confusing different things here. The UPN is different than GLN. Very different. The UPN is a uniform product number. That’s trying to get all the stakeholders in the business to try to use a standardized format for how you number and identify a product. I think you know what a mess that is. Manufacturers have a number, and then each distributor takes that number and modifies it, and when it goes to the hospital a lot of times the hospital assigns its own unique number to it. Clearly the UPN is an initiative that everybody recognizes that we need to do. It’s just very difficult to get all the different elements of the supply chain to agree to adopt it at the same time and in the same way.

The GLN is a little bit different. That’s the identifier system for all of the different players in the supply chain – the hospitals and different delivery sites of the hospitals, the nonacute care facilities, the suppliers, even the GPOs. Having a standardized identifier system so that when you talk about a particular facility that is a purchaser or receiver of goods and services that everybody understands that there’s a single identifier for that entity. That’s what the GLN is all about.

Absolutely right. A perfect example: When we send a list of our members – people that are eligible to be on a contract – to our suppliers, wouldn’t it be wonderful if all we had to do is give them the GLN for those members? If it was already loaded in the supplier’s system so that there would never be any question of who was eligible to get a contract or not? Then the reporting would come back the same way. It would take so much of the rework and the inefficiency out of the system. CHeS has done a lot of heavy lifting on this and we’re one of the core members of CHeS. We certainly support that initiative.

Obviously, there’s been discussion about the potential need for additional laws. My feeling is that continued enforcement of the existing laws and regulations is really the appropriate thing to do. I just don’t believe that there is a systemic problem within the group purchasing industry. I think if you asked most provider organizations – most hospitals and systems – and even if you asked the majority of the healthcare supplier community, all would agree with that statement.

I’ve had a lot of dialogue directly with the antitrust subcommittee folks that have been involved with this. I truly believe that they are interested in the same thing we are. Their primary objective here is to make sure that there is an open and competitive marketplace for medical products and devices, which is exactly the way we feel and the way most GPOs that I know feel. GPOs thrive on competitive environments. Uncompetitive environments stifle what we try to do. I don’t think there’s any motivation beyond that. I’m optimistic that continued dialogue with the Senate subcommittee and the views and opinions from all the different parts of the supply chain will help us come to an agreement in this issue. I believe everyone involved wants to ensure that there is an open, competitive, level playing field so that all appropriate medical products and devices that need to be in the system are available, and that members have the ability to use the products that meet their needs the best from either a clinical or economic perspective. And it’s all done in a proper and ethical way. I don’t think there’s anything more to it than that.

In terms of the exemption on the administrative fees? I don’t believe the Safe Harbor protection for administrative fees is in jeopardy now. I think if administrative fees were being used as a shield to cover inappropriate behavior then that’s a different story. But I really don’t get that sense from the subcommittee.

That would be a risky strategy for someone to do. The important thing to understand is the guidelines in the safe harbor suggest that fees of 3 percent or less are reasonable for the services a GPO renders to their members and their suppliers. I can’t speak for other GPOs but if you take a look at the overall average administrative fee I can assure you that for Amerinet it’s significantly less than 3 percent. If there is a contract at a little more than 3 percent there are dozens of contracts that are well below 3 percent. The overall cost, if you want to identify it as such, for those services is far less than just taking the $65 billion times 3 percent. It’s not anywhere near that.

Amerinet’s long-standing philosophy has been to provide its members with choices of suppliers. So the sole-sourcing contract issue is not nearly as much for us as it is for some other organizations. It doesn’t directly impact us. But on the other hand there are times when market dynamics either dictate that a sole-source agreement is the only thing that’s available or perhaps the value from that is so compelling to the member that to do otherwise would be irresponsible, then that’s another decision that has to be made. It’s important to understand that sole-source contracting is a widely accepted business practice of nearly all industries, including the federal government. It’s not illegal. It’s not even unethical. It’s considered good business. The greater question, which has been raised, is not necessarily sole-source contracts per se, but to ensure that participation on sole-source contracts by the members is done on a voluntary basis without penalty. The members need to be the ones to decide if they want to participate in a sole-source agreement and that they understand what the implications are and that it doesn’t compromise any of their other needs. They should be free to do that. That’s the way we operate. We don’t have a lot of sole-source contracts. We do have some. But I’m not aware of any supplier concerns or complaints about the way we’ve done it when we’ve done it in the past.

We don’t own our members’ facilities. Nor do they own us. So they don’t have any financial interest in our success or failure. As a result, we have to earn our business every single day on every contract for every member. Our members are threatened with economic survival. They ensure that they’re getting the best deal they can on every product before they use our contracts. They put our contracts to the test every single day. Last year, our contract purchases increased by a little over 7 percent. We estimate the savings to our members was in excess of $300 million. We shared an additional $30 million in cash back to our members. And we added 4,000 new members. Those things suggest that if we weren’t delivering legitimate cost-reduction value to the members those numbers wouldn’t be where they are.

Well, as you know, Rick, for a long time this was a personal struggle for me. I’ve been part of Amerinet from the very first days of its conception. To me the Capital N was part of what differentiated Amerinet from all the other ‘Little N’ companies. But being part of an ever-evolving dynamic organization that’s been known for innovation and leadership, when the marketing folks told me that the ‘Big N’ had to go I just had to accept their wisdom and move on. We had a suitable ceremony to retire the Big N, and I’m proud to say that it now hangs on a plaque that was presented to me by the Amerinet employees in a prominent place in our office. And I want to thank you for being so sensitive to my feelings.

What was more difficult was that for 18 years whenever anybody dropped the Capital N I was all over them. [Laughter] At our Annual Supplier Update in October 2003 I had to stand up there in front of the room and drop the banner on the new logo with the small N and I had some humble pie to eat!

[Laughter] No, it has a fixed residence here on my wall. I can send you a picture of it if you want? HPN