Editor’s note: The big issues of the day – “big,” as in consolidation of providers and suppliers – were aired at last fall’s Market Insights conference in Dallas. Speakers from some of the country’s biggest IDNs and regional purchasing coalitions talked about the market, their strategic positioning in it, and their expectations of suppliers.

As IDNs and RPCs grow, so too do the challenges – and benefits – of getting everyone to move in the same direction

Market Insights is a continuing series of educational programs from MDSI, publisher of The Journal of Healthcare Contracting.

Speakers included Geoffrey Brenner, Texas Purchasing Coalition; Tim Bugg, Capstone Health Alliance; Curtis Dudley, Mercy Health System (speaking about the Healthcare Transformation Group); Mike Switzer, North Mississippi Health Systems Inc.; Chris Baskel, Spectrum Health; Jan Lea, vice president, supply chain, Methodist Health System, Dallas, Texas; Shaun Clinton, senior director, acute care services, supply chain management, Texas Health Resources; John Burks, Baylor Scott & White Health, Dallas; Peggy Naas, MD, vice president, physician strategies, VHA; and management speaker Dan Nielsen.

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Texas Purchasing Coalition: Virtual system

Consolidation is an accelerating factor in the healthcare market, said Geoffrey Brenner, president, Texas Purchasing Coalition. “It’s a natural market dynamic; simply look at the recent mergers and acquisition activity among providers, payers, and suppliers,” he said. This dynamic affects regional coalition models, such as TPC, a regional purchasing coalition comprising several Texas-based healthcare systems representing $500 million in annual supply purchases. In addition to its own regional contracting portfolio, TPC has partnered with MedAssets as its primary group purchasing organization.
“Several of our member organizations have been acquired or merged with others,” said Brenner. Both for-profits and non-profits have been involved.

“Given the uncertainty in the industry, there are a lot of scale-based conversations taking place,” he said. “Conversations are not only taking place between large integrated systems and stand-alone providers, but also between systems.” For example, Baylor Health Care System and Scott & White Health recently merged, forming a large IDN comprising 43 hospitals and more than 500 patient care sites. “A lot of this activity is being driven by innovative providers in response to healthcare reform,” he added.

Provider consolidation presents challenges – and opportunities – for RPCs, such as TPC, and their members, said Brenner. “Our value proposition has always been that of a virtual system that drives strategic aggregation models,” he said. But as hospital systems and IDNs expand, their needs and expectations of a regional purchasing coalition change. “In response, we must think differently about how we create value.”
At the same time, RPCs such as the TPC help stand-alone providers achieve valuable economies of scale that help them remain independent. “There are many reasons why healthcare providers merge, but one of the key drivers is to gain efficiencies and scale,” said Brenner. “TPC helps stand-alone organizations achieve many of the contracting efficiencies and scale that historically would have required a merger. So the pressures driving consolidation also create opportunities for models that preserve independence.”

Big trends
Some other big trends affecting TPC and other providers:

  • Economic pressures are beginning to trump legacy relationships. “Healthcare is still a local business based on relationships,” said Brenner. “However, as economic pressures continue to increase, we have witnessed many long-standing relationships come under evaluation.” As an example, the TPC ended its long-term relationship with its former GPO in order to align itself with MedAssets. “Increasingly, relationships that aren’t delivering the desired economic value are going to come under fire,” he said.
  • Increasing boldness. “Consider the Baylor-Scott & White merger,” Brenner continued. “Current and looming changes within the healthcare industry created the climate where a merger of this magnitude could become a reality. It’s a very bold step that I believe will benefit the patients served by the new system. Escalating pressures are prompting providers to consider bolder alignments.”
  • System thinking. “Bold alignments that drive significant value are not limited to mergers and acquisitions,” said Brenner. “TPC is proof that independent providers can exhibit boldness and vision by working together and thinking like a system. System thinking requires a willingness to make very tough choices. TPC members are thinking like a system, and as a result, they are engaging with their physicians and suppliers in a collective manner. Many of these decisions and operating principles are no different than those of a merged system. My observation is that TPC members’ willingness to venture into increasingly more difficult decisions is becoming greater and greater.”

Texas Health Resources: Engaging the right people

Texas Health Resources comprises 25 owned, operated, joint-ventured and affiliated hospitals; more than 250 physician clinics; and 21,000-plus employees. So is it any surprise that its supply chain team is using electronic communication technologies to keep everyone moving in the same direction?

Supply chain at Texas Health Resources has been a centralized, corporate function since 2001, explained Shaun Clinton, senior director, acute care services, supply chain management. The department is responsible for contracting, purchasing, information systems, mail/courier and more. Three regional directors manage the operational side of supply chain – i.e., logistics and product movement – in the IDN’s three zones.

Clinton worked for Cardinal Health (and its predecessor med/surg company, Baxter Healthcare) for almost 17 years, primarily in logistics consulting and e-business. “One thing I learned on the other side of the desk is how to set priorities,” he said. “That really helped me when I came to [Texas Health Resources].” With a management degree in supply chain operations and years of experience working with hospitals on logistics, “I know how supply chain is supposed to work,” he added. “And I will spend the rest of my life trying to help healthcare supply chain conform to that.”

At the Market Insights conference, Clinton shared some of the projects in which he and his team are engaged.

  • Online value analysis toolset. Premier Inc.’s ValueAdvisor tool helps supply chain manage value analysis several ways, said Clinton. For example, it helps the team engage a larger number of users in the process. “We’ve gotten so large as a system, in order to capture a larger population, we’ve had to move online; we can’t fit everyone into a room any more,” he said. “And it’s not just that the tool allows us to engage more people in the process, but it allows us to engage the right people, especially those who are bedside. They have always been the toughest audience to get in a room, because of the criticality of their jobs. Getting them engaged is vital.”
  • Virtual trade show platform. Texas Health Resources is beta testing an online “trade show” application, allowing users to “walk” a convention floor, visit product booths, even interact with sales reps in real time. “There are a few reasons for sales reps to be in our facilities; one of those shouldn’t be to [bother] clinicians about products. The trade show will be a vehicle for [clinicians] to see the latest and greatest technologies,” and it offers them 24/7 access to them, he said. “Suppliers like the idea as well, because it maximizes the audience they can reach.”
  • Executive dashboards. IDNs such as Texas Health Resources are getting more disciplined about what they report and how, said Clinton. “Premier helped design dashboards that, at a glance, allow my boss and others to see what we’re working on; what compliance is across the system; which entities have adopted the products we’re looking at. At a glance, they can see what we’re doing.”
  • Non-acute integration. This year, Clinton and his counterpart – Nate Mickish – on the non-acute-care supply chain intend to engage the IDN’s non-acute-care entities in the value analysis process. Up until now, supply chain’s efforts have been focused on getting the 250-plus physician practices onto a common information system, and onboard Henry Schein’s distribution model. The next challenge is to move the non-acute-care entities onto Premier contracts. “It’s really important that they access Premier contracts, just as the acute-care space does,” he said. The goal isn’t just to create more volume and better pricing, but to drive all sites – acute and non-acute – to common product standards. “A standard supply chain is a safe supply chain,” he said. “If you’re a nurse working in a physician office, and you eventually go to one of the acute-care facilities, I’d love for you to see the same products there. You feel comfortable, you don’t need training. Standards have existed at Texas Health Resources for a while, but as we pull in more non-acute sites and surgery centers, we add a new wrinkle to it.”
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