Developing “single entity” thinking
In January, the AROK Purchasing Coalition will mark its third anniversary aggregating the volume of VHA hospitals in Oklahoma and Arkansas. The Journal of Healthcare Contracting spoke with Charles Griffin, CMRP, corporate director materials, St. Bernards Healthcare, Jonesboro, Ark., about AROK’s development since its founding in January 2008.
The Journal of Healthcare Contracting: What was the original mission of your regional purchasing coalition?
Charles Griffin: The original mission and scope was the aggregation of VHA Oklahoma/Arkansas member supply volume to go to market with standardized committed purchasing volume. The coalition’s goals have included:
- The formation of a coalition substructure that would enable members to be recognized as one large system.
- Enhanced pricing structure resulting in one price.
- Product price reduction from aggregation and standardization of members’ volume.
JHC: Has the coalition grown in size since it began? Are you open to new members joining?
Griffin: We have lost some original voting members for various reasons, and we have gained some affiliate members. We currently have 16 voting members, with several affiliate organizations that are aligned with the voting members.
JHC: Have you found the coalition is providing members with more advantages than originally expected? What are these advantages?
Griffin: I believe that there initially was some fear within the membership and a belief within the vendor community that we would have some success with initiatives involving “commodity” items, and that the coalition might eventually bog down or dissolve as we moved on to more difficult projects. I had a vendor representative laugh about the AROK concept and ask me if we planned to “save a million dollars on bedpans.” That vendor has now pretty much lost all business within the AROK coalition. No one is laughing at us these days. And, we did save some money on bedpans.
JHC: What are the top three initiatives AROK pursued in 2010?
Griffin: At press time, AROK has completed 21 initiatives in 2010 and expects to work on another 14 before the end of the year. Since its inception, the purchasing coalition has completed 39 initiatives. As of Aug. 1, 2010, AROK has realized a total actual savings of $5.8 million, and since the fall of 2008, it has realized $9.285 million in savings. Our top three initiatives for 2010 include custom procedure trays (CPTs), standardizing to one med/surg distributor, and pneumatic compression products.
JHC: How has being part of a regional purchasing coalition enabled members to leverage their buying power?
Griffin: It is all about commitment to the supplier. We make a decision to opt in or out on a particular initiative before we go out for bid on committed initiatives. The manufacturer or supplier knows exactly how much business is on the table as they prepare their bids. Once AROK makes the commitment, we then have to implement the contract. Doing what we say we will do builds respect and interest in AROK within the vendor community.
JHC: Is this something your members have become better and smarter at over the years?
Griffin: We get better all the time. Working as a single entity is like anything else. The more you practice and the more success you have, the better you get.
JHC: Can you explain your process whereby your supply chain executives meet and make their decisions?
Griffin: Initiatives or project ideas can come from either member organizations or from the VHA/AROK staff. The AROK staff analyzes the members’ usage data and looks for commonality in spend. Based on the analysis, there is discussion among the members of the operating committee and AROK staff. We reach a decision on whether to go out to bid as a committed initiative or, if there is a great amount of existing standardization already, approach the vendor for a contract tier enhancement for the whole group. AROK has an executive oversight lead from the VHA Oklahoma/Arkansas regional office (Scott Snider, vice president of market management/supply networks) and a supply network manager from VHA (Brenda Lee). We also have an analyst who supports the scrubbing of the data in order to provide members an analysis on each initiative (e.g., savings opportunities, market share reports, spend reports, etc.).
The AROK executive committee, made up of our member organizations’ presidents and CEOs, has made a renewed and strong commitment to AROK. I feel that I have very strong support from the top and I believe that is the case with our other members. It’s a good feeling to know there is alignment between our executive committee and the operating committee.
JHC: How often do member organizations and/or the VHA Oklahoma/Arkansas staff meet, and how do they arrive at purchasing decisions?
Griffin: We have a scheduled monthly meeting. Once per quarter, we meet face-to-face. The other meetings are held via teleconference and webex.
JHC: Does the purchasing coalition only work off of the GPO’s contracts? If so, why?
Griffin: We give a huge amount of preference to Novation agreements. In fact, we may only have one contract that is not aligned with Novation. Working within the national Novation portfolio is critical to the success of AROK and all VHA supply networks. This allows us to have the foundation of the national agreement and at the same time bring Novation suppliers committed volume, which gives them the incentive to recognize AROK LLC as a single entity. On a national level, Novation has already narrowed the field to those manufacturers or suppliers that are willing to offer best overall value.
JHC: How do you ensure that the interests of each of your facilities are considered and that each facility’s needs are met?
Griffin: The AROK structure is one vote per member. New initiatives are discussed at length, and members have an opportunity to opt in or out before we go out for bid. We recently succeeded in standardizing to a single med/surg distributor for all AROK members. That was a very difficult initiative. Most of our members had long-standing relationships with selected distributors. But, we were able to work through a process that allowed all members to have input and get the information they needed to allow us to come to a new consensus. We are now with Medline Industries
as a coalition.
JHC: How difficult is it to get buy-in from each of your facility’s physicians and staff when it comes to purchasing off the coalition’s contracts?
Griffin: We have had several clinical preference initiatives, such as custom procedure trays, advanced wound care products and chest drainage products, which involved extra work. Our approach to these initiatives has been to involve a clinical liaison from each organization to assist in the evaluation of the product. This clinical liaison reports to the AROK operating committee and provides feedback on the specific product. So far, this has worked well. We are in the early stages of serious discussions about physician preference items, both at the executive committee level and operating committee level. We are working on a standard roadmap that outlines how to approach this issue in our organizations. In 12 to 18 months we should have a better idea of how we are doing.
JHC: What have been the greatest rewards you have reaped, individually and as a coalition?
Griffin: From a personal standpoint, I thoroughly enjoy collaboration with my peers from other facilities. I think that when you get a group of professional peers in a room and discuss what you do and how you do it, everyone comes away with new ideas and all of our organizations benefit. As a coalition, I think the greatest reward is that we have come to respect and trust each other and, with every meeting, I feel more of a sense of “oneness” within the group. The better we learn to think and operate as a single entity, the more value we can bring to our organizations. With a group like AROK, everyone in the room is working toward a common goal. We want to make our organizations as financially viable as we possibly can. We meet often enough that we have come to know each other. We can discuss initiatives and even argue sometimes, but we most usually come to a decision.
JHC: If you could change one thing about the way your purchasing coalition works, what would that be?
Griffin: I am not sure that I can suggest a change in our overall structure or the way we operate. I am very pleased with that. I am the type of person who, once we get an initiative started, wants to get it done and move on to the next one. When an initiative bogs down or doesn’t move along steadily, I get frustrated. I am constantly trying to think of ways to work through our initiatives more efficiently and quickly.
JHC: How do you envision the future of your purchasing coalition in five or so years?
Griffin: It is my hope that we can continue to develop “single entity” thinking, and that the vendor community will recognize and respect that even more than they do now. I also hope we can move that “single entity” identity into the physician-preference market. Every member of our coalition is vitally interested in providing quality products for the care of our patients. No one wants to bring non-quality products into our facilities. With the financial challenges we all face, we have to find a way for healthcare organizations and physicians to work together to make objective decisions between different brands of quality products. There is an old saying, “No mission, no margin – no margin, no mission.” I believe AROK can be instrumental in ensuring we continue to have both.