Problem Solver: Pete Allen, Novation

Problem Solver: Pete Allen, senior vice president, sourcing operations, Novation

The challenge: Adapting to members’ changing needs

From the pages of JHC: Allen stepped into Novation roughly 10 years after Congress started scrutinizing the activities of GPOs. The rap then was that GPOs blocked out small manufacturers and innovative companies. That scrutiny has had a lasting impact on group purchasing organizations, and Novation is no exception.

“We have an extremely robust program” for small companies and those that are disadvantaged-, women- and minority-owned, he says. “We believe that not only do we have a responsibility to provide contracts to these entities, but also it is the smart thing to do, because much of the engine of growth in the communities we serve, as well as the innovation that occurs in all aspects of our lives, comes out of small companies.”

What’s more, Novation welcomes manufacturers of innovative technologies, he adds. “If a company has a unique technology that advances care or the cost position for our members, it can get an award mid-contract-stream.”

Novation has a long history of multisource contracting. But its members’ needs are changing, and Novation is changing with them, says Allen.

“In a survey, we found over 90 percent of the CEOs and CFOs of our hospitals would be willing to exchange high, high levels of commitment for lowest price.”

In January, Novation introduced a committed portfolio for what it refers to as high-spend-commodity categories, including med/surg, pharmacy, office products, lab distribution and others. The portfolio has a two-year term, effective Jan. 1, 2011, through Dec. 31, 2012. “It’s good for the manufacturer, good for the hospital, and good for us, because it allows us to deliver lowest price,” says Allen. “And we can take out a lot of redundant behavior in today’s marketplace – that is, the renegotiating for commodity products that takes place at individual hospitals.”

Although the program focuses on relatively non-controversial product and service categories, Novation continues to work with its members to help them reduce the cost of physician-preference items, says Allen.

Regardless of whether physicians are employees of the healthcare system or not, CEOs are discovering the value of sitting down with their physicians and talking about the economics of delivering care, he says. “Physicians have a vested interest in keeping the hospital viable. They are getting a lot more sensitive to the need to work collaboratively with the hospital.” Physicians and hospitals that collaborate can save tens of millions of dollars on their acquisition of clinically sensitive products, he adds.

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