Can both parties win without price being the decisive factor? It comes down to a closer relationship between distributor and IDN.
Today’s suppliers are attempting to differentiate themselves in their IDN customers’ eyes through the services they offer, and the manner in which they offer them. Many of those services are delivered the old-fashioned way – that is, by flesh-and-blood sales reps and account managers. But many are delivered in the form of sophisticated software applications. In fact, suppliers are working overtime to provide IDNs with tools to help them manage the mundane tasks of inventory control and internal distribution, so that contracting professionals can spend more time on product standardization and contract compliance.
Integrated Provider Solutions
One supplier – Cardinal Health – is retooling its sales organization to more accurately reflect and serve its changing IDN customers.
“Vice presidents of materials management have traditionally looked at opportunities to bring prices down,” says Steve Inacker, president of Hospital Supply Distribution, Cardinal Health. “But those opportunities aren’t there anymore. There’s nothing left on price. So these vice presidents have educated their bosses that there are real dollars [to be saved] in supply chain efficiency and the process improvement area. And they’re going after them now.”
Cardinal Health has noticed something else occurring among its IDN customers. “IDNs are becoming more integrated than they have been,” says Inacker. “Three years ago, there was much more of an informal alliance within them. Today, they’re more unified.” As they are becoming more integrated, IDN executives expect their suppliers to be as well.
That doesn’t necessarily come easy to $75 billion companies like Cardinal Health, with multiple businesses and divisions. Nevertheless, last year, the company began implementing its Integrated Provider Solutions program, in which an account leader and account resource team assume responsibility for marshalling all the company’s resources in the service of individual IDNs.
So-called corporate programs are nothing new to Cardinal Health and its predecessor companies – Allegiance Healthcare, Baxter Healthcare and American Hospital Supply. But Integrated Provider Solutions brings the concept a few steps further.
“We have had a corporate sales team and a longstanding tradition of individuals who have worked in the corporate sales arena,” says Mark Rosenbaum, president of sales for Integrated Provider Solutions. “That program over the years has realized some solid success É But we’ve come together and acknowledged that it’s still not as good as it could be. We need to look at other ways to make ourselves more manageable and friendlier to work with from the customer’s perspective.” The company crafted the new program after conducting more than 180 customer interviews.
Integrated Provider Solutions calls for each IDN to have an integrated solutions vice president at its disposal. That person is supported by a team of individuals with expertise in Cardinal Health’s various offerings, such as pharmacy and med/surg distribution, Convertors, V. Mueller, SP, Alaris Medical Systems, Pyxis, etc. “We can’t expect any one of our reps to be an expert on [all of Cardinal Health’s offerings],” says Rosenbaum. “But we can expect and hold individuals accountable for orchestrating the way we call on a hospital.”
At press time, the company had rolled out the program in the Southwest, where eight vice presidents hold responsibility for approximately 50 IDNs. (The company intends to implement the program nationwide in the next 24 months.) “If you look at these eight individuals, they have very different backgrounds,” says Inacker. “Some are senior consultants on the pharmaceutical side of our business, some have been logistics and materials individuals, others have been senior people with Pyxis and Alaris. All are individuals who can look at the top level of the IDN and help them define what solutions will really work for them.”
“This isn’t a brand new rep,” adds Rosenbaum. “They’ve been in the industry for awhile; they understand the workings of the hospital. They know the various departments, and are good, solid, tenured, experienced and successful individuals.”
Uncovering customer need
Like Cardinal Health, AmerisourceBergen is seeking to take its cue from its IDN customers. “Our differentiation points really drive back to customer need,” says Nick Toscano, corporate VP, business management, Health Systems Solutions. “We don’t make anything, nor do we provide information technology on a broad scale. But we do focus on our customers’ needs and try to understand how we can deliver value on an ongoing basis.”
Toscano himself reflects the company’s desire to do just that. Prior to joining the company in July 2005, he was vice president for strategic support services for Virtua Health, Marlton, N.J., where he instituted a self-contracting and self-distribution program. Prior to that, he served as senior vice president of group purchasing for the New Jersey Hospital Association, and as vice president of materials for the West Jersey Health System in Camden, N.J.
“I still agree with the expression, ‘When you’ve seen one IDN, you’ve seen one IDN,'” says Toscano. “Each has different wants, needs and desires. So we’re getting very close to our customers. One reason I’m here is to represent that customer internally.”
McKesson Medical Surgical has seen a change in the demands of its IDN customers, says E.V. Clarke, president of acute care sales. “Historically, their demands were more transactional – lower price, basic quality. Now, IDNs are looking deeper into the supply chain. They’re looking for solutions in process design, work flow design and integration of technology.” IDNs are looking to their distributors to drive out costs that at times exceed the distributor’s gross profit in a particular account, says Clarke. In most cases, they’re finding those savings in their own operations – often, with the distributor’s help, perhaps in the area of contract compliance, product acquisition management or internal supply chain processes.
Technology is a big part of the solution, says Clarke. “The combination of integrating supply management solutions and technology solutions is the go-to-market strategy of McKesson. In fact, among the customers who choose us, nine out of 10 cases, they’re also choosing a technology solution.” For example, IDNs are eager for bar-code solutions that can take point-of-use information and automatically decrement inventory from their materials management systems.
Today’s suppliers are developing a suite of automated solutions to attract and retain IDN customers. AmerisourceBergen is no exception. “Our information technology systems support overall clinical outcomes,” says Vice President of Clinical Integration Strategy Susan Stinson. “We provide the processes to support the whole chain of events that occur in order to deliver care,” including reconciling patients’ medications and making sure that all are bar-coded.
The company’s ECHO ordering and reporting system provides simultaneous access for multiple network locations, and its Market Share Report helps the IDN verify actual performance figures against those of the manufacturer, and manage performance-based contracts. Its Contract Management Tool is a Web-based application enabling IDNs to easily access contract information, and its Contract Compliance Exception report displays off-contract purchases along with contract-equivalent alternatives.
Cardinal Health reports that more than 80 percent of the hospital orders it processes are electronic. Its members-only Web site gives customers access to product availability, order status, order tracking and proof of delivery. With its entelligence system, customers can review product history and service-level data, and analyze supply costs by product line, department or manufacturer. The company also offers automated products to help customers with medication management, order management, clinical utilization, staff optimization and medical supply inventory management.
Owens & Minor’s WISDOM2 Web-based decision support tool enables IDN purchasing departments to view their purchase activity with all med/surg manufacturers and suppliers, retrieve contract and pricing information across all their inpatient and outpatient sites, monitor contract performance, and identify opportunities for product standardization and contracts.
McKesson Corp.’s Web-based Supply Management Online system provides access to ordering, accounts payable, reporting and analysis, and inventory management. The system includes a Contract Omit Report, which tracks omits on contracted items and serves as a resource for submitting claims to manufacturers. Its Fulfill-Rx system is said to facilitate medication-cabinet refilling, automated reordering, bar-code-driven replenishment and real-time inventory valuation. And its EconoLink ordering system checks orders for contract compliance.
Indeed, relationships between IDNs and their suppliers appear to be maturing, with some give and take on both sides. For example, IDN executives appear to have backed off their demands for a single price for all of their acute and non-acute-care sites, says Inacker. “The cost-to-serve is very different from a physician’s office to the acute-care-hospital setting,” he says. And IDNs understand that. “They realize we can’t go to 600 physicians’ offices at the same cost as six acute-care hospitals.”
At the same time, suppliers are modifying their approach to their IDN customers. “In the past, all sales organizations were based on every sales rep going out and selling as much as they could,” says Inacker. “That’s what the industry was all about. I’m not saying that growing our market share isn’t important. But now, we want to do it in a different fashion, in a way that works more effectively for the customer across all units.
“We’ve determined that it’s not just about going out and selling as much as we can. In fact, when we talk to IDNs today, we tell them, ‘We hope to succeed in selling you less, but also being more efficient and getting a greater market share, and ultimately allowing you to realize more efficiency and effectiveness in your supply chain.'”