Publisher’s Letter June 2011

The Unintended Consequences of Reform

Physician alignment has been happening for the past few years and according to our recent study on page 26 (The Distribution Dilemma), it looks like it will not slow anytime soon.
It makes sense that physicians want to align closer with hospitals and IDNs, as so many factors make it more difficult to practice medicine autonomously. When they were in medical schools, many physicians probably never imagined the severe changes they would be facing when it comes to healthcare IT, changing reimbursement and just the complexity of running a practice and giving great care.

As hospitals and IDNs have to form into a more comprehensive network of care to be eligible for recognition as an Accountable Care Organization, bringing on physicians is a welcomed addition. In our survey, we tried to explore what the addition of these physicians may mean to the supply chain process for the Hospital or IDN as they service these stakeholders.
One of the surprising themes that came to light in the survey was that hospitals and IDNs expect their current prime distributor to service their organization system-wide. It surprises me that the supply chain respondents seem to think that the distributors set up to service the acute care setting would be ready, willing and even able to provide good service to the newly aligned physician offices.

Supplying a hospital with full cases and pallets of products at contracted prices is a much different competency than servicing a physician office. I also thought the cost of servicing the two different settings would be more apparent to our respondents, but time and again they responded that they expect the same cost for two very different settings.
The other trend that came up repeatedly is self distribution, or what I like to refer to as direct distribution. Now more than any time in the past it seems like the drums of direct distribution are beating louder and louder. But in no uncertain terms, the respondents say the reason they are interested in handling distribution themselves is not to save money but to gain control.

It will be interesting to watch as our nation’s hospitals, IDNs and physician offices assemble to provide care in a post reform era and its unintended effects on the supply chain.

Thanks for reading this issue of The Journal of Healthcare Contracting.

John Pritchard About John Pritchard

John Pritchard is the publisher of The Journal of Healthcare Contracting as well as The Major Accounts Exchange (The Max).

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