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Copyright © 2016


January 2011

Products & Services

New Technology

Widely used arthritis pill protects against skin cancer

A widely-used arthritis drug reduces the incidence of non-melanoma skin cancers – the most common cancers in humans – according to a study published in the Journal of the National Cancer Institute. The COX-2 inhibitor celecoxib (brand name Celebrex), which is currently approved for the treatment of osteoarthritis, rheumatoid arthritis and acute pain in adults led to a 62 percent reduction in non-melanoma skin cancers, which includes basal cell carcinomas and squamous cell carcinomas.

Celecoxib, a prescription-strength nonsteroidal anti-inflammatory drug (NSAID), reduced basal cell carcinomas by 68 percent and squamous cell carcinomas by 58 percent in patients at high risk for skin cancer. The decrease in the incidence of these cancers is much greater than that achieved through the use of sunscreen, which provides only moderate protection against squamous cell and basal cell carcinomas.

Unlike many other types of cancer in which there has been a decline, the incidence of non-melanoma skin cancers is increasing at an alarming rate and is beginning to occur more frequently in younger age groups. It is estimated that the direct cost of treatment for non-melanoma skin cancers in the United States exceeds $1.4 billion each year.

Half of the study participants received a 200 mg capsule of celecoxib twice daily and the other half were given placebo. Patients were evaluated at three, six and nine months, at which point treatment was completed, and again at 11 months, for the presence of new actinic keratoses, basal cell carcinomas and squamous cell carcinomas. Patients receiving celecoxib saw marked reductions in both cancers.

While COX-2 inhibitors such as celecoxib have beneficial effects, they are also associated with increased risk for cardiovascular and gastrointestinal side effects. In this trial researchers found no significant difference in the incidence of gastrointestinal disease, such as gastrointestinal hemorrhage or ulceration, in the two groups, nor did they observe a significant increase in cardiovascular adverse events, such as chest pain or heart attack, in patients who took celecoxib. The most commonly reported side effects included gastrointestinal disorders (12 percent) and infections (13 percent).

Authors believe there are several possible mechanisms by which COX-2 inhibitors such as celecoxib might slow or stop the progression of pre-cancerous cells to full-fledged tumors. COX-2 inhibitors may have an effect on the ability of non-melanoma skin cancers to grow and thrive. They may also suppress or weaken the cancer’s ability to invade surrounding tissue and spread from the initial site to other parts of the body. Finally, this class of drugs may have an anti-inflammatory effect on skin cancer development. Visit for the article. 




New name for familiar contracting category?

Despite budget-driven motivation, outsourcing remains taboo term

by Rick Dana Barlow

Whether it truly represents a new contracting category or simply remains a redressed term for outsourcing, purchased services currently enjoys some simmering popularity among healthcare providers and group purchasing organizations.

Aside from defining the term, one of the key issues just may be where a supply chain manager draws the lines distinguishing what external service providers and suppliers can deliver versus what his or her own internal team can do. Or maybe it represents some sort of hybrid akin to internally driven, performance-enhanced outsourcing.

Whatever the case, several GPOs have dedicated manpower and marketing behind the concept of purchased services, which seems to be gaining traction among their respective membership bases.

So what does purchased services really represent and how does it impact supply chain management’s influence and relevance?

With three supply chain executives Healthcare Purchasing News examined the concept of purchased services and how supply chain managers can help their organizations benefit from the contracting category as well as effectively manage the process.

Defining moments

One of the key challenges that purchased services faces as a contracting category is defining as precise as possible what it is and what it includes, as well as distinguishing it from outsourcing.

Ric Goodhue
Ric Goodhue

Ric Goodhue, founder and principal, Goodhue Planning Services Inc., Lincolnton, NC, issued his definition that played fast and loose with a touch of whimsy and a smile on his face. "It depends on which day of the week it is and which way the wind is blowing," he chuckled. "I’ve been in organizations that use the term ‘purchased services’ as a catch-all to supplement staffing during times when management couldn’t figure out what they wanted to do with regard to organizational structures. I’ve also seen its use rationalized to draw down bottom line expenses related to labor costs. In turn, outsourcing is construed to be an abdication of responsibility [and] accountability of a service – and can easily lead to increased costs with reduction in customer satisfaction."

But John Kautzer, executive director, Support Services and Distribution, Integrated Sourcing Solutions, ROi Supply Chain Solutions LLC, St. Louis, drew his line in the sand delineating purchased services from outsourcing.

John Kautzer
John Kautzer

"We define purchased services as those services performed or obtained from persons or companies other than employees of our members," Kautzer noted. "Generally, these types of services are not available from hospital-based departments or they are only needed on an interim basis. This is one of the factors that distinguishes purchased services from outsourcing." Kautzer cited as purchased services such examples as utilities, consulting, waste disposal, construction, insurance that doesn’t involve employee benefits, temporary employment or contracted labor, software, desktop print solutions and clinical services, such as lithotripsy.

"Outsourcing tends to replace traditional hospital-based departments with contracted management of that area," Kautzer clarified. "This can be done using companies that specialize in the particular area where expertise is needed. Historically, hospital service areas have been the main focus of outsourcing that include housekeeping, dietary and engineering. It could be argued that GPOs are an outsourced resource providing contracting services that previously were developed and managed by the hospital supply chain team."

Nik Fincher
Niklaus Fincher

Yet Niklaus Fincher, vice president, purchased services sales & capital, VHA Inc., Irving, TX, blurred the lines between products and actual services as components of purchased services.

"VHA defines purchased services as ‘non-supply’ spend that impacts a healthcare organization’s operating margin," Fincher said. "While historically this area has been summarized as ‘outsourced services,’ today’s definition includes products, such as reprocessed surgical instruments, software, such as revenue cycle software, or management expertise in areas like laundry or food service."

But Fincher hedged a bit on whether GPO-offered purchased services contracting includes products and services the national GPO might not cover, or even custom contracting, which typically involves physician preference items, such as implants.

The contents of purchased services "depends on the GPO," he indicated. VHA has offered a purchased services contract portfolio for more than 12 years, according to Fincher. The portfolio represents approximately 80 services under contract, accounting for $3.5 billion in member services spending. "We believe the market we could touch in our membership could be as high as $17 billion, not including custom contracting," he added.

In addition to the purchased services portfolio, VHA also offers custom contracting on a fee-per-project basis that usually includes a guaranteed savings ratio. "In most cases the core of the custom offering is focusing on trying to help the healthcare organization identify and categorize their services spend," he said.

Strategies and tactics for purchased services success

Sources offer more than 25 key decision points and best practice tips for more effective and efficient management of purchased services by supply chain operations

• Identify your healthcare organization’s interpretation of what is considered "purchased services" so you know the categories you’ll be taking on.

• Run accounts payable file reports to attempt to identify how much spend is occurring in services.

• Work with your suppliers of services or your group purchasing organization to try to determine benchmarks for what your spend could be or should be.

• Assess where and what your spend is occurring on and determine where cost reduction might be achieved.

• Once you’ve created a cost reduction plan or strategy, make sure you have an executive sponsor who supports the plan and can remove obstacles to achieving the cost reduction goals.

• Recognize that there’s probably no catalog of services pricing to reference and that services spend benchmarks are virtually non-existent.

• Quality also is a key issue in services. Unlike supplies, services quality benchmarks tend to be more subjective.

• In services, you may spend more to achieve greater operational cost reduction or efficiency.

• Services providers range from "mom & pop" organizations to national companies with very different cost and capabilities. Location can play a key role in decisions. The cost margins are much more narrow than on supplies, leaving less room to negotiate.

– Niklaus Fincher, vice president, purchased services sales & capital, VHA Inc., Irving, TX

• Communicate with the users to determine specifications.

• Collaborate with Finance to perform solid unbiased financial analysis.

• Complete with your Finance team a financial analysis to determine true cost of purchased services, compared to the cost to provide internally.

• Develop a concise but detailed statement of work that will deliver the results you are looking for.

• Coordinate the effort with those areas that are – or will be – affected by the activity.

• Develop measurement tools (and ensure suppliers understand them) that clearly record the outcomes of the purchased service.

• Systemize to reduce costs.

• Standardize through collaboration with clinical users for long-term savings through lower management costs by reducing the number of products/services being managed.

Although these may be considered obvious by most, however, they are sometimes the most overlooked and/or forgotten.

– Ric Goodhue, founder and principal, Goodhue Planning Services Inc. (GPS Inc.), Lincolnton, NC

As in other contracting categories there are no silver bullets. Unlike clinical contracting, there may be a limited number of suppliers with the national reach to meet all your needs. Because of this, there will be the need to look at regional vendors to provide sufficient coverage for your members. As with any services category, local relationships will play an important part in the vendor selection process from your members prospective. The best way to overcome issues like this is data. Focus on the vendor as a company, not on the sales individuals themselves, and let your members drive the contract award process.

There are several things that ROi does when looking at any product category that apply equally well to purchased services.

• Clearly define the category you are trying to contract for.

• Take the time to know the market so do your research.

• Identify key stakeholders and get member input. Without the members input and buy-in to the contracting process you will not get the high compliance that drives successful contracts.

• Look to your clinical contracting processes as the template to develop contracts in this space.

• Evaluate suppliers on their ability to positively drive clinical, financial and operational improvements.

• Do not disregard regional service providers because there may be local political implications that could impact contract compliance. There are situations where true national vendors are limited and the inclusion of one or two regional vendors could improve your competitiveness and coverage for your members. Document destruction and vending would be two examples where this applies.

– John Kautzer, executive director, Support Services and Distribution, Integrated Sourcing Solutions, ROi Supply Chain Solutions LLC, St. Louis

Foggy bottom

Goodhue argued that purchased services’ fuzzy definition allows anyone to classify the category any way they want, and include a wide variety of products and services. Further, he noted that it would be "unrealistic" to delineate purchased services with either a GPO or non-GPO mindset. "Healthcare organizations are going to include what makes sense to them, unless prohibited by regulatory requirements from doing so," he added.

Still, it’s relatively safe to include freight management, linen services and reprocessing single-use medical devices as purchased services components.

With linen services, for example, "the supplier provides the linen at a cost and manages the process of exchange/replenishing inventory, controlling shrinkage, etc.," Goodhue said. "However, changes to that process remain the responsibility of the owner who may or may not delegate it back to vendor. That’s why it is critical to not only have supply chain management involved, but legal as well."

While Kautzer contended that purchased services remains dominated primarily by services, he acknowledged that the border can be soft.

"Vendors in this broad category can offer both," he noted. "For example, a company that offers restoration services for floors may also offer a line of products to help maintain the floor surfaces after the initial restoration work is completed."

Even so, purchased services remains a gray area.

For example, Fincher cited distribution as a function that could be included in the category, especially if the service is consulting, and the consultant is providing the solution, such as centralized distribution for an integrated delivery network. Further, shelving existing laundry services at individual IDN facilities and creating a centralized laundry service that collects and distributes to each facility could be another example, he noted.

Because questioning whether a product or service belongs in purchased services can be too frequently answered "could be" vs. yes or no, "it’s critical that the decision be a collaboration between supply chain management and finance," Goodhue emphasized.

"I believe that ownership and management of the product or service will determine its classification," he continued. "If the product or service is subjective and impacts the management of distribution, then I believe it’s a ‘personal’ service. However, if the product or service is ‘canned’ with few variations available, such as debt collection, bookkeeping, etc., then it’s a purchased service." In short, centralized generic or non-custom service more easily fits within purchased services than customized or specialized service.

ROi uses a couple of methods to determine if a service or product belongs in the purchased services category, according to Kautzer. ROi’s regimen first involves the internal definition that provides ROi staff with a general framework to present contracting opportunities to members. Secondly, ROi gathers actual member input that serves as a litmus test for proceeding.

"We present our ideas and suggestions for a category to our members," he said. "If they agree we have defined a product or service as appropriately fitting into the purchased services category, then that is where we place it. In addition our committee or service line structure provides for significant input from our members during the contracting process, including recommending vendors to be a part of the RFP process, and ultimately selection of the vendor, to provide the service being contracted."

In fact, ROi separated distribution services from other contracting areas and are in the process of consolidating them within the support service contracting team, according to Kautzer. As a result, support services manages the distribution contracts for environmental services, food service, med/surg acute care and alternate site and imaging supplies. Because ROi also operates as a med/surg supply and drug distributor, support services handles the logistics agreements between manufacturers and ROi’s consolidated service center.

Silver lining

Despite a subjective definition and content variability, purchased services the contracting category remains popular in terms of provider interest and a considerable growth area for contracting organizations like GPOs.

"Many organizations are looking to scratch, dig, and claw through the layers of categories and classifications of expense that have traditionally been wrapped up in a simple single line on the budget without understanding what constitutes that particular category of expense," Goodhue indicated. "The current focus is to drill down into the meat to determine if it’s all fat or does it just warrant trimming the excess, such as services, using a ‘Lean’ approach?"

If anything, purchased services should motivate supply chain management to work with finance to break down miscellaneous budget categories into more granular parts, he agreed.

"Finance and supply chain management are becoming like conjoined twins," Goodhue added. "They go everywhere together – sometimes kicking and screaming – but go they do!"

Even so, Goodhue attributed purchased services’ popularity gains outside of supply chain management to turf defense. "It’s another means of reducing the workload that non-supply chain management units have historically defended against turning over to supply chain management," he noted. "The ‘I know what I want and need and can get it cheaper, quicker and better than the supply chain management staff’ mentality is being eroded by economic forces resulting in force reductions requiring the clinician to spend more time at the bedside and less time filling out requisitions to get day-to-day operational needs met."

Fincher, however, purported that purchased services offers healthcare organizations the opportunity to reduce cost that directly affects their operating margin.

"If you reduce the cost of a supply item, you’re still paying out some cost," he said. "If you reduce the cost of a service, that reduction means the money never leaves the bank. However, unlike supplies, the amount spent in services has been more difficult to determine, and benchmarks for cost reduction are virtually non-existent. Supplies generally have a catalog or list price. Services don’t. Supplies arrive via the loading dock, services enter through every access point in a healthcare organization and are more difficult to track."

Kautzer, however, pinpoints purchased services as a strategy for GPOs to fill in contract coverage gaps.

"While group purchasing has done a good job of focusing on contracts for clinical commodities and specialty clinical products, we have not focused heavily on the non-clinical areas," he said. "With the continued development of contract portfolios, it is my opinion that many GPOs are having difficulty identifying additional clinical areas of sufficient breadth to make contracting a worthwhile endeavor. The current focus on purchased services is the result of member demand and the GPOs’ desire to offer a broader set of solutions to their members. At ROi we are seeing the member demand being generated by the senior management teams at the hospitals. With a solid track record of savings generated for clinical products hospital management is asking for help in other areas."

Related article:
Purchased services may spark C-Suite, clinical connections


         Clinical intelligence for supply chain leadership