Small group, huge benefits

For SCM Alliance, bigger isn’t necessarily better.

It’s not that SCM Alliance Inc. (SCMA) has shut its doors to new members. Quite the contrary, according to Executive Director John Little. “The regional healthcare cooperative is open to new members, but only those with a high level of commitment to contract standardization and senior executive involvement,” he says. “Ultimately, it is up to the SCMA board of directors to decide which organization is a good fit.”

Indeed, the organization may be small compared with national GPOs, but its members reap huge benefits, says Little. When members commit to SCMA, they give just shy of 100 percent, and it pays off. The Florida-based alliance, which is structured much like a group purchasing organization rather than a regional purchasing coalition, focuses on providing members with three advantages:

  • Price reductions in the neighborhood of 10 to 17 percent.
  • Rebates/revenues paid directly to members.
  • Direct member input regarding developing new contracts and adding new members.

In an interview with The Journal of Healthcare Contracting, Little discusses SCMA’s recent success and plans for the future.

The Journal of Healthcare Contracting: When was SCMA started, and what was its original mission?

John Little: SCMA began in 2003 with three health systems seeking greater control of their supply costs and supply chain destiny, and seeking a competitive advantage in providing better care for their respective communities. SCMA members decided to hire CoalesCo, Inc. to develop and run its GPO operations. In our management services role, the majority of my time is dedicated to running SCMA.

JHC: How has SCMA grown in size since it began?

Little: SCMA started out with three founding members: Martin Health System (Stuart, Fla.), Bethesda Health System (Boynton Beach, Fla.) and Boca Raton Regional Hospital (Boca Raton, Fla.) Our new members include Jupiter Medical Center (2009, Jupiter, Fla.), Indian River Medical Center (2010, Vero Beach, Fla.) and HealthFirst (2011, Rockledge, Fla.). They are slowly converting to SCMA accounts. We are open to new members upon board approval and directions. The current CFOs handpick new members who are not competitors and have the same level of commitment to SCMA.

JHC: To date, how much savings has SCMA achieved for its members?

Little: Through June 2011, SCMA has saved its members just under $100 million.

JHC: Can you explain the process whereby board members and executives meet and make decisions?

Little: SCMA is governed by six board members, who meet at least four times each year to discuss the group’s strategic direction and potential new members. We also have a 12-member senior executive advisory council, made up of myself and the CFOs, CNOs and COOs from each of the member organizations. This group includes the SCMA president, vice president, secretary and treasurer, and they meet six to eight times each year to ratify contracts, and establish the direction and commitment to new contracts. We also have 15 councils (representing various specialties, including materials, cardiology, pharmacy, surgery, etc.), which meet monthly to discuss contract strategies (with regard to new and existing contracts) and evaluate the vendor mix and new contract options. The councils also work with prospective vendors during the clinical validation process. They may be evaluating three to five product areas at any one time. So, for instance, they will evaluate surgeon glove vendors on everything from clinical value to delivery capacity.

JHC: How do board members/executives select potential vendors and award new contracts?

Little: From start to finish, the SCMA members evaluate potential vendors to see which make the most sense. When necessary, vendors are clinically approved in the validation process, with the final say coming from SCMA members. We do all of the clinical validation up front, before any bids go out. So, vendors are not solicited for competitive contracts until they have passed the clinical validation and pre-commitment process. Being a small, six-member group enables us to do this. And, vendors appreciate this. It enables them to earn the contract and feel they have a fair shot at earning SCMA’s business. They understand the terms and expected commitment/compliance level up front and can step up to the plate with their best offer. All SCMA contracts begin with a particular council, which decides on a contract type and compliance level, and which vendors are deemed acceptable. Once the council has finalized its process, SCMA sends out a Solicitation for Committed Contract to vendors that have been pre-committed. While councils make recommendations regarding contract awards, ultimately the senior executive advisory council makes the final decision. Typically, there is no tiering. Most SCMA contract awards are sole- or dual-sourced single contracts. We have proven that SCMA can drive market share. Today, we have over 175 contracts, the majority of which are committed. Vendors are working hard to earn our business.

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 alliance’s contracts?

Little: Getting buy-in can be challenging, depending on the product category. Sometimes this can take a couple of weeks, sometimes a couple of months. Part of the process is to ensure our physicians are aware of different products and their value. The communication of any contract category is delivered by each member council liaison to their respective organization. Recently, SCMA delivered a dual-source committed contract for cardiac rhythm management devices. The process was driven by the SCMA board, the senior executive advisory council and the cardiology council. With regard to all contracts, SCMA members develop validation and pre-commitment at each of their respective shops, and it is managed across the entire membership. As part of this [process], each member meets with its respective physician constituents accordingly.

JHC: If you could change one thing in the way your alliance works, what would that be?

Little: Our challenge has not been with regard to our contracting/pre-commitment process and driving compliance, but rather with the time it takes the hospitals to come back to the table. We would like to speed up this process across all six member health systems. Hospitals can get very busy with their own operations. Furthermore, data collection can be challenging. So, ultimately we are working towards a common database across SCMA.

JHC: How do you envision the future of SCMA?

Little: We are constantly challenged, as most hospitals are today, to do more with less. Reimbursement is declining and operational costs are increasing. SCMA has challenged us to rapidly build our contract portfolio by adding more product categories and driving greater commitment. We will be stronger, but not necessarily bigger. Other health systems have knocked at our door. Some have been turned down due to a lack of commitment and conviction. We do foresee more new members coming on board, but our growth will be based on new members recognizing SCMA’s ability to drive commitment and value. This isn’t only about dollars.

Comments

  1. Nick DeFrancesco says:

    i have been in the materials management field for close to 40 years. My career has taken on many roles in this field from buyer to supervisor and materials manager as well as developing my own Purchasing Consulting business the last 13 years. I have been a customer of almost every purchasing group and actually have worked for a few on some special assignments in my current purchasing consulting business.

    i applaud this organizations model, philosophy and members. i am a big believer in not wasting time which includes wasting vendors time unnecessarily. The clinical evaluation model practiced ahead of the bid process is a great idea.

    True commitment by members is such a key to drive compliance, keep the group solid, and demonstrate vendors that you deliver the goods. All too often too many health care facilities use the groups or try to, to gain leverage. Product and system utilization reviews is also a major key to reduce expenditures not just a unit cost. There is still a lot of waste and throwing away money on products that are “overkill” in many environments.

    Excellent article on what appears to be a forward thinking group.

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