Land of Opportunity

Ted Almon knows all about the mother of invention. It was out of sheer necessity that his company, Claflin Co., and Women and Infant’s Hospital formed their industry-setting stockless arrangement 25 years ago.

Editor’s note: Ten years ago, the Journal of Healthcare Contracting’s sister publication, Repertoire, launched the Medical Distribution Hall of Fame. It was intended to recognize individuals who have had a significant impact on the medical supply chain. (To visit the Hall of Fame, go to www.repertoiremag.com/halloffame.shtml.) Here is the story of one of this year’s inductees –Ted Almon, president and CEO, Claflin Co., Warwick, R.I.

Twenty-eight-year-old Ted Almon acquired a failing, $2 million regional distributor in 1976 named Claflin Co. and has grown it into a successful regional acute-care distributor, one of the last independents still standing in that market. He did it by hard work, courage, conviction and intelligence. And, he would add, luck.

“Every successful person I have ever met in my career, and there have been many now, was at some point ‘in the right place at the right time,’ in other words, just plain lucky,” he says. “This would certainly include me.”

Almon was born in 1947 at the Providence Lying-In Hospital, which, ironically, became Women and Infants Hospital, with which he launched one of the country’s first stockless programs in the country almost 40 years later.

He went into the Army in 1969 as an ROTC First lieutenant and was discharged in 1970 as a Second Lieutenant. During that period, Almon was assigned to Fort Bliss Texas, for training as a missile systems officer in anticipation that the enemy in Vietnam would eventually gain air capability. At Fort Bliss, he was selected to lead the first platoon of a new weapon system, the self-propelled Hawk, the first mobile medium-range guided anti-aircraft missile deployed by the U.S. Army. For his work, he was awarded an Army Commendation Medal, unusual for non-combat duty. As it turns out, he was never deployed to Vietnam.

His decision to get into medical sales was not really a decision at all. “In reality, I was just looking for a job,” he says. Military officers were in high demand at the time, and he found an agency that specialized in their placement. He interviewed with Herb Wise, a discharged Air Force officer, at Baxter, and got a job. “Ironically, at the time, Baxter was a smaller company than Claflin is today,” he says. Just six years later, Almon acquired Claflin Co., a small, almost insignificant distributor of Baxter products.

Almon’s uncle, who was a sales manager for Davol, knew the principals at Claflin and arranged for the discussions that led to the acquisition. Though the company was small, it had a solid reputation as well as access to all the necessary lines. “The owners jumped at the opportunity to see the company and their remaining handful of employees continue,” he says. The president agreed to stay on a year as president emeritus. “It was a perfect platform for an aggressive young salesman to build upon.”

Devil in the details
In the mid-1980s, Almon capitalized on what he characterizes as another lucky break – and a watershed event in the history of Claflin Co. At the time, Dudley Sisak – who today is Claflin’s vice president of operations – was director of materials management at Women and Infants.

“The distribution model then was, you had your local GPOs and lots of regional distributors,” recalls Sisak. The General Medical rep would come in to pick up his 15 or 20 lines, as would the Foster rep, the American rep, the Claflin rep, the Pilgrim rep, etc. “This would happen week after week after week,” says Sisak, who had begun his work at the hospital in the finance department. “There was no real vetting” of the sales reps or their companies.

The hospital – which was the birthing and neonatology center for Rhode Island – was facing a dilemma. It was in the process of affiliating with Rhode Island Hospital. That would mean relocating Women and Infants to a new facility on the Rhode Island campus. The reason was simple: “If baby and mother were compromised, the mother went to Rhode Island and the infant to Women and Infants,” says Sisak. Relocating to one campus would eliminate that problem.

But there emerged a major shortcoming in the impending affiliation, particularly for those in the supply chain. “All the necessary planning, regulatory approvals, and certifications had been completed and construction was in fact underway when negotiations between the two hospitals over a contract to provide certain support services broke down,” recalls Almon.

It had been the intent of planners that Rhode Island Hospital would provide all the supply functions to the new Women and Infants through a tunnel between the facilities. “As is often the case, this theoretical idea had many little devils in the details of its implementation, not the least of which was the current inadequacy of the host’s facilities to support even their own growing demand, and a rather gross misunderstanding of how different the product requirements of the two facilities would be,” recalls Almon. “There wasn’t even a receiving dock planned for the new Women and Infants, and there was no place to add one.”

Having read about a pioneering stockless program in Omaha, Neb., Sisak called the distributor, Koley’s Medical Supply (now Owens & Minor), to inquire about it. Then he approached his distributors – with mixed results.

“I asked my distributors, ‘If I bought everything from you, would you deliver to me five days a week?’” says Sisak. Several gave him a simple answer: “Absolutely not.” Not Almon, though.

Meanwhile, Women and Infants had created a task force to address the impending supply chain problem. Almon was invited to participate. “We agreed that the inventory management technique then heralded as behind the ascent of the Japanese auto industry, called just-in-time, could be adapted for use in a hospital,” he says. Claflin and Women and Infants struck a deal for a stockless program.

“All of it was driven by necessity,” says Sisak. “We had no options. But Ted really ran with it. He has that kind of vision. He was always convinced it was the way of the future. And [stockless] has grown faster than even he thought it would.”

Today, many hospitals and hospital systems tend to look at JIT/stockless as a given, but it certainly wasn’t always that way, says Almon. “When the trend began, it was mostly a cost shift from the hospital to the vendor, with the advantage to the vendor only that he became the sole or ‘prime’ supplier to the facility, and there was a big incentive on the hospital’s side to put as much as possible through the new channel to maximize efficiency.

“Once the vendor had several hospital accounts on the program, though, it became feasible to automate some processes that were performed manually, first in hospital storerooms and next in distributors’ warehouses. As throughput increased, productivity gains became possible, as warehouse shelving was replaced by automated carousels or flow racks, and conveyors moved end user orders swiftly along computer generated tracks.”

EHCR
As he was developing his supply chain expertise, Almon became heavily involved with the Health Industry Distributors Association, serving on its Executive Committee, Hospital Market Group and Educational Foundation, and, in 1992, as its chairman. (He was awarded HIDA’s Industry Award of Distinction in 1997.)

As chairman, he and HIDA President Jim Stover initiated a critical look at the healthcare supply chain, which they called the Paradigm Project. “[Stover] and I had both been where the rubber met the road, and we knew – or thought we did – where the industry was missing the boat from an efficiency standpoint,” he says. “We were warning people that staying the course with some of the processes in our channel – most notably, rebate processing, but there were many others – could be a road to disintermediation.

Their efforts, as well as that of late HIDA Vice President Chris Pancratz, resulted in the conversion of the Department of Defense and Veterans Affairs depot systems to commercial distribution.

The Paradigm Project was the precursor of a larger industry effort, the Efficient Healthcare Consumer Response, which in 1996 resulted in a report identifying more than $11 billion of waste in the healthcare supply chain.

EHCR became a call to action, says Almon. But the call wasn’t always heeded. “Some of us were hoping for things like more pricing transparency and an end to clearly wasteful practices, but most of those produced small pockets of profit for some stakeholders and proved rather resistant to reform.

“What the EHCR fueled, for the most part, was the healthcare version of the dot com phenomenon. Spouting the data from the study, a vigorous stream of startups claimed to have the solution through technology for the industry’s ills. Of course, we know now that virtually all of these enterprises, even those with the most fertile funding sources, eventually succumbed to the need to find a profitable business model.”

One survivor from the period is the Global Healthcare Exchange, or GHX, which Almon refers to as a public utility, albeit an unregulated one. “It provides many of the features heralded 15 years ago for such facilities, but quantifying the benefit to the supply chain is as yet unclear and even uncertain.

Healthcare reform
Just as he threw himself into identifying shortcomings and potential solutions to healthcare supply chain shortcomings, so too has Almon thrown himself into the topic of healthcare reform.

He is a frequent contributor on the topic to the Providence Business News, and is an appointee to Rhode Island Governor Lincoln Chafee’s Healthcare Reform Commission. He has served on a variety of task forces dealing with health reform, and is a member of the Legislative Affairs and Public Policy Committee of the Rhode Island Business Group on Health.

“Healthcare reform isn’t normal cocktail party talk,” says Sisak. “But it is to Ted.”

One aspect of the current healthcare system Almon finds distressing is what he refers to as the “perverse” fee-for-service system of reimbursement.
“The incentive created by our form of fee-for-service reimbursement is purely to provide more service,” he says. “There is no price competition, because these rates, once negotiated on the private side, and always on the public side, are fixed. Quality or effectiveness of the service is unaccounted for, and indeed, poor performance can often lead to the necessity for further service and more reimbursement. Talk about perverse.

“Where we are trying to get, of course, is some sort of global budgeting for healthcare, and there are a variety of proposals, such as bundled payments and pay-for-performance, which might move us in that direction. Conservative thinking is that the power of the free market must somehow be unleashed in medicine to contain costs. I like free markets as much as the next guy, but with the government already paying well over half of all healthcare costs, I don’t see how vibrant consumerism can ever be established.”

The point, says Almon, is that hospitals will continue to face challenges to contain their costs. “As they struggle with this transition, the very nature of their enterprise will change. Most hospitals already receive the preponderance of their revenue from outpatient activities. As for distributors and manufacturers, the spoils in this game will likely go to the nimble.”

Future for independents
Clafin is, and will remain, a family business. “We have a succession plan and we are working it methodically,” says Almon. “There are not specific replacements for the key managers and executives so much as a class, or new generation, of potential leaders who will, through their performance and our assessment of their strengths, sort themselves into the various slots.

“We hold ‘succession classes’ for the group where the senior managers are the faculty, and all topics we can think of that future managers might need to know are covered. We have separated our medical equipment business functionally and physically as much as possible, and have initiated separate strategic plans for each unit. We expect each business to grow, albeit most likely in different and separate ways.”

Though the hospital distribution industry has consolidated, Almon believes there will always be independent distributors. “They exist in virtually every segment of industry, but they are always challenged by consolidation of the customer base, which can create buying entities beyond their geographic or financial capabilities.

“We think technology and collaboration among independent firms will allow for new enterprises, which coordinate the efforts of separate fulfillment agents in a uniform manner, creating ‘virtual’ enterprises of much greater scope.”

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