In a previous article, I discussed the GPO/IDN Strategy as it relates to your company capabilities. An equally important part of the strategy is about your product. Just as all GPOs and IDNs are different (“ if you’ve seen one IDN, you’ve seen one IDN”), your strategy has to take into account the product or service you are selling and which GPOs and/or IDNs make the most sense to approach.
The evolution of GPOs and IDNs
Years ago, hospitals joined GPOs in order to help them negotiate the best prices based on large membership associations. As IDNs evolved, they reduced the number of staff needed to negotiate these contracts on their own. The model grew quickly as the GPOs wisely shared back a portion of the administrative fees with health system administration of their more compliant members. As you can imagine, when the CEO received a large check from their GPO, the next call went down to materials management suggesting, “how can we buy more from our GPO”? (and thus get bigger checks). As IDNs grew larger and their purchasing commitment stronger, forward looking VPs of Supply Chain rightfully questioned the value of the GPO and calculated whether they could revert to contracting on their own. But with limited staff, they had to go back to administration requesting significant capital to rebuild their contracting organization. With the constant crunch on costs, the answer was often “no; what’s plan B?” So what naturally evolved at that stage was a hybrid model. The hybrid IDN Evolves Most IDNs belong to at least one Primary GPO. Since GPO’s negotiate and maintain over 2000 contracts, it would be unrealistic and unreasonable for IDNs to replicate that model; hence they use the GPO for most “commoditized” products. This allows them time to work with clinicians on the high spend/high margin products such as cardiology, orthopedics, the constant barrage of new Products and the equally extensive spend in Purchased Services, the newest frontier in supply chain contracting.
GPOs serve their members and suppliers best with their original model of commoditizing products and code numbers and pitting suppliers against each other on price. While all the GPOs are working with specific members on clinical improvements and making great strides, as the clinical value of a product or service increases, the GPO‘s traditional contracting value tends to decrease. Here is a value continuum to consider:
Having said that, many large companies with physician preference products continue to contract with GPO‘s in order to protect their base and market share. The administration fees they pay while significant are often seen as an insurance policy against viable competitors being added to contract. Large companies with market share, direct sales organizations, and a large array of products will see value in both a GPO relationship as well as the IDNs within the GPO and IDNs acting independently. Of course, that requires a sales organization calling on all those various decision-makers.
So what if you are not a Market share leader?
While we have worked with multibillion-dollar company such as Staples and Waste Management, many of our clients have a better or disruptive technology and greater value but compete against market share leaders; their strategies vary by product.
They run the gamut from commodity, to clinically differentiated, to physician preference. Capital Equipment is unique in the contracting space. I’ll defer to a separate article on capital.
Most large commodity markets evolve into a two horse race. It’s very difficult to compete unless you have double-digit savings, ability to manufacture significant quantities, and the appropriate channels of distribution. Even at that, having market share is also a critical factor. One approach we’ve used with success is Diversity. All of the GPOs and many IDNs have diversity initiatives covering Women or Minority owned businesses, Veteran/ Disabled Veteran, even certified Small business. In a subsequent article, we’ll go into more detail on the challenges and opportunities of using a diversity contracting strategy. If you compete in this space gaining exposure through a GPO is valuable.
Physician preference items (PPI)
At the other end of the spectrum, Physician preference products are the bane of supply chain. They are sold to the physicians based on improving their outcomes and extending patients lives but often at an incremental cost to a traditional procedure. Experienced salespeople continue to find that the relationship with the physician is critical. While they often deserve a higher price, PPIs represent over 50% of the supply chain budget without an increase in reimbursement. We all want to live longer and have therapies for chronic illnesses that are at heart of the cost of population health. These companies have an identity crisis: as a National Account Manager from Medtronic lamented, “Are we part of the solution or part of the problem?” Of course, it depends who you’re speaking to. If you are not a market leader and have a better solution, more integrated IDNs (level III, IV) are important targets in building your story. The GPO contract can be valuable if the market share leaders refuse to bend leaving the GPO hungry for a competitive alternative. In this case, the GPO can be a valuable ally. Otherwise, the market leaders will continue to be a barrier supported by the GPO and regional aggregation groups since that’s what their members use.
These products or services need clinician involvement; often nursing and sometimes physicians are involved to evaluate the claims. Three challenges have evolved: the difficulty of being able to meet with clinicians in their departments due to their lack of time; restricted access due to vendor credentialing; and the need for Evidence-Based Clinical Proof. This category may be the hardest although could provide the most value to an IDN that has a clinically integrated supply chain that is addressing the “never events” mentioned below. A strategy that addresses clinical, C-suite, and Supply Chain can succeed with a sales team that has marketing support in presenting to these different influences.
We’ve found that one of your biggest advocates at an IDN level could be the Value Analysis Practitioner. They are the liaison between supply chain and the clinicians. If you have a product that improves outcomes and reduces costs significantly beyond price, Value Analysis can be a valuable ally. Check out www.AHVAP. org.
The Healthcare Industry Challenge
In my view, one of the biggest challenges in healthcare is to link the huge potential savings in reducing surgical site infections, HAIs, CLABSI, pressure injuries and medical errors with Supply Chain. Until supply chain is credited with the savings, they will continue to be judged on reducing price and spend from the prior year. With reimbursements cuts of 15–25%, progressive IDN’s are tackling these challenges; especially those leading the way to value versus volume and population health.
Finding the champions driving these changes should be key to your IDN strategy. If this describes your product or service, focusing on level III and IV IDNs with a clinically integrated supply chain should be your number one strategy. Getting to the clinical decision makers is still the key to success. GPOs have programs to address these challenges through their consulting arms, but you are competing with many different projects and relationships. However, if you’ve proven your value proposition with one of their major systems or shareholders, it may be worth the journey.
All of the major GPO‘s have an innovative technology event annually. While there are differences in how one defines innovation, this is a relatively inexpensive way to build awareness with key committee and decision-makers within a GPO most of whom represent key IDNs and hospitals within their membership. Innovative technology will be a focus in a future article on Products/services relative to the GPO/IDN strategy.
Author: Ken Murawski
Ken Murawski founded HealthCare Links in March of 1993 with a simple mission: to become a sales/marketing resource focused on Corporate Accounts–matching companies with cost effective products and services to major Healthcare Systems, Alliances, Integrated Delivery Networks and Group Purchasing Organizations.
Call me if you’d like to discuss a strategy that works for you. 914 953-9363.