How about those physician offices you just inherited?

An interview with Henry Schein’s Dave McKinley

With a presence in the medical, dental and veterinary markets, Henry Schein knows all about distribution to small healthcare practices. In the medical field alone, its 400 field sales reps and 100 telesales reps service somewhere around 120,000 physicians every year. Although the company does not distribute acute-care supplies and equipment to hospitals, the company is very engaged in servicing hospital systems, says Henry Schein Medical President Dave McKinley. That’s a reflection of the changing market.

Years ago, the company focused on servicing smaller, independent physician offices. But since then, physician practices have grown in size and, as every Journal of Healthcare Contracting reader knows, hospital systems and IDNs have been busily acquiring practices for the past several years. As a result, supply chain executives are learning more about Henry Schein Medical, and Henry Schein is doing some learning of its own.

McKinley spoke with JHC recently about market developments and his company’s response.

Journal of Healthcare Contracting: Much has been reported on physicians selling their practices to hospitals, becoming, in essence, hospital employees. Are you seeing this among your customer base?

Dave McKinley: Yes. We’ve been watching this trend and trying to move with our customers for the last six years. In fact, we restructured our customer-facing team to include a Healthcare Services group, which focuses exclusively on building programs and solutions aligned with health system executives. Because we’re dealing with new stakeholders and needs, such as GPOs, electronic ordering and technologies, there is a different way of doing business; so we created a separate team who can really engage in that dialogue.


JHC: Is this trend – that is, health systems’ acquisition of physician practices – a threat to your physician business?

McKinley: We don’t think this is a threat, but an opportunity, because of our service capabilities to this site of care. All signs are pointing to the fact that patients are increasingly being cared for outside of the hospital’s four walls; this is our “sweet spot.”


JHC: In your experience, what do hospital/IDN supply chain executives typically expect of Henry Schein Medical once the hospital system has acquired a physician practice? How do you respond? Do those expectations change as time goes on?

McKinley: The expectations of supply chain executives vary, depending on the hospital system or group practice. Large group practices care about a high degree of service; supply chain executives want standardization. Especially for health systems, we focus on the basics – rostering sites, driving contract products and implementation of supply programs at the clinic level. While this sounds basic, it is a big undertaking in terms of time and resources.


JHC: Do hospital/IDN supply chain executives challenge your prices in the physician market? How do you respond?

McKinley: I think there’s an awareness on the part of supply chain executives that delivering a small parcel to a physician office or ambulatory surgery center is much more costly than delivering a pallet to the hospital’s loading dock. Not only are units of measure different, so is the geography. We have five major distribution centers (DCs) that support delivery to small locations, without incurring any extra costs related to breaking down of pallets, additional deliveries or cross-shipping products from multiple DCs. They are two different models, and the cost to serve is recognized.


JHC: Traditionally, it has been said that hospital sales reps have relatively little influence in the hospital’s selection of products, while physician reps have more influence. Would you agree? If so, what happens when the hospital system acquires the physician practice?

McKinley: Historically, our sales reps have been looked at as trusted advisors, who guide the physician with product selection and services. More and more, though, it’s also about service, and the ability to serve and support the contracts that health system leaders are signing with us.
The products that physicians use [in their offices] typically don’t have the same degree of complexity as those in the hospital. We don’t sell them implants, for example.
There’s been a big shift on the part of physicians [in their understanding of] the need to help hospital systems drive out cost. They understand the partnership formed between the system and the physicians. Certainly, healthcare reform has helped bring about some of that awareness. I think that physicians feel more supported by the selection of the supply chain executives – who are interested in standardizing as much as possible – today than they have in the past.


JHC: How can a non-acute-care distributor such as Henry Schein help physicians drive out cost?

McKinley: By going back to the basics, working closely with supply chain executives, and supporting the contracts with the business model they choose. It’s also about inventory management and ordering patterns. Ordering products every day is expensive and leads to inefficiencies. In fact, studies show that each order placed can cost an office up to $170. If we can get our physician offices to use our inventory management services, look ahead a little bit and order less frequently, and order contracted items, we can help the hospital and the physician office serve their patients more cost-effectively.


JHC: Group purchasing plays a big role in hospital/IDN purchasing, particularly for distributed items. What role does it play in the physician market? Does that change when a practice is acquired by a hospital?

McKinley: Hospital systems have chosen who they want to work with, so we work with all the major GPOs to support them. We’re trying to move compliance to the chosen products that best meet the physician office’s needs, the needs of the clinical lab, the ambulatory surgery center, etc. Over the past few years, GPO growth in our physician business has increased dramatically. Everyone is focused on cost.


JHC: How do you respond to an IDN supply chain executive whose IDN has just acquired some physician practices, and who tells you she prefers that one distributor service all the IDN’s locations – acute-care and non-acute-care?

McKinley: Everybody is trying to simplify their lives as much as possible, and choosing one distributor would be ideal. While some distributors say that they can service both the acute and non-acute sites of care, supply chain leaders we speak to are finding that using a single distributor has been challenging. Acute-care distributors are capable of delivering pallets, but breaking down products into small units of measure and delivering to individual physician offices is very difficult. As a result, many are looking to use two distributors – one for acute and one for non-acute – so that they can get the expertise and service levels each type of setting expects.


JHC: As hospital systems have acquired physician practices, what has Henry Schein had to learn about the acute-care market?

McKinley: We and the hospital systems are learning together. Our dialogue and sharing of capabilities has been beneficial.
The key to any change in healthcare is having an open dialogue, and trusting that we’re all working to achieve the same objectives. Building a level of openness and transparency allows us to learn about our customers’ needs, so we can address them better. And conversely, hospital systems have an opportunity to learn about our service capabilities. They can take a tour of our distribution centers, so they can see the differences between the acute-care and non-acute-care sides of the business.
We are adapting our organization to the customer. Many larger hospital systems don’t want sales representatives calling on them; they want service representatives, both internal and external. They want people who can support standardization, and who can work in partnership with their team to achieve greater compliance to contracts, so they can reduce usage and cost. They want to standardize their systems and get the best possible return on investment.
Because hospitals typically have so much more infrastructure than a single doctor practice, we have had to learn how to communicate the challenges that a supply chain executive may face. The cornerstone to address these challenges is to get started with the basics, then expand into the other services. Every health system has different needs, and although we offer other services [besides product distribution] – including EMR capabilities and revenue cycle management tools – we must customize these capabilities and services to each system. Customization and flexibility is key.

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