Smart Moves

By Laura Thill

They started with buying power in mind, but today’s successful RPCs are mining opportunities for supply chain and clinical improvement.

The last 10 years have brought for striking changes in the hospital supply chain landscape. While hospital systems have continued to take advantage of the benefits provided by their GPOs, by the mid-2000s, it became clear there was much to be gained when independent hospitals and IDNs joined forces to create regional purchasing coalitions. The original intent of these coalitions was to “collaborate on the reduction in supply chain costs through commitment and aggregation, operational consolidation, and shared resources,” according to David Gillan, senior vice president, supply chain aggregate services, Vizient, Inc. Today, RPCs – or aggregation groups – continue to enable members to work collectively to realize greater savings and benefits than would be otherwise be possible. In short, the aggregation group model has become increasingly sophisticated, he points out.

“Today’s aggregation group model is data-driven, clinically credible and effectively connected through technology,” says Gillan. “The model offers integrated tools and resources that are practical for members’ day-to-day use. The tools help ensure they are sourcing the most clinically effective supplies and that their efforts are helping to improve patient care.”

Indeed, whereas in years past, purchasing coalitions focused on achieving incremental sourcing value, “today’s aggregation group model serves as a forum for members to learn, improve and build together,” says Gillan. “By doing that, they will continue to accelerate their performance. For example, when working in the physician preference area, these groups will get subject-matter physicians together to discuss value analysis, data and the specific use of various practices and products. While the primary focus of this is to help with the contracting process, an intentional by product is the exchange of data and best practices by clinicians and other key stakeholders.”

That said, purchasing coalitions continue to offer their members the same historical value as well, including:

  • Buying power leverage
  • The ability to share and utilize data to make decisions
  • Peer-to-peer connections to rapidly apply best practices and drive innovation
  • The opportunity to identify and drive performance improvement initiatives

Bigger and better
The better-performing aggregation groups have developed the governance and operational processes necessary to be successful, notes Gillan. “Health system leaders and their staff members who support aggregation groups understand the value they bring to their facilities,” he explains. “Members maintain their commitment to the group and make decisions that are in the collective best interest. At Vizient, we have continued to invest in the aggregation groups’ success by building and refining support, sourcing, analytics and stakeholder engagement required for high performance.”

Still, one might wonder if purchasing coalitions – like all organizations – will need to take steps to avoid losing steam, and if so, what strategies they will adopt. As they continue to expand, “aggregation groups will need to shift to issues beyond purchasing volume or buying power,” says Gillan. “Their collective performance will need to become more focused on best practices and performance improvement, utilizing sophisticated data and analytics to help members make decisions. Ultimately, effectiveness will depend upon the members’ commitment to each other, continuing to expand the aggregation group’s scope (areas in which they choose to focus their efforts), and the ability to continually improve their processes and engage key stakeholders. Members will need to continue to invest in their aggregation group, as many higher-complexity areas require specialized resources or processes.

The role of the GPO
The GPO-RPC relationship has been – and continues to be – important to the success of purchasing coalitions, according to Gillan. It has been an opportunity for both sides to “learn and improve together,” he points out. “RPCs look to the GPO to provide support in sourcing and data analytics to help the aggregation group make strategic decisions. GPOs continue to support RPC goals and play an integral role in the supplier relationship with aggregation members.”

In addition, GPOs and RPCs have been successful at developing innovative programs, he says. “An example is aptitude, LLC, a Vizient subsidiary. aptitude recently collaborated with a large aggregation group to develop an online reporting platform to further enable transparent and strategic relationships with suppliers. This new data sharing service will allow the aggregation group to share purchasing patterns, predictive spend analytics, performance metrics and information about the competitive landscape for new insights, which can be translated into cost-saving opportunities.

“Strategically, the GPO-RPC relationship is important to ensure future success,” Gillan continues. “GPOs have the knowledge, experience and data analytics to help RPCs develop protocols and processes to improve operational efficiency. In addition, GPOs work closely with RPCs and suppliers to ensure they have access to new technology and innovations that can lead to achieving better patient outcomes. At Vizient, our view is that we should be an indispensable partner that works increasingly closer with our members through these forums, [which, in turn,] transition the business from being price-focused to utilization-focused.”

Moving forward, Gillan is confident that purchasing coalitions will continue to play a significant role in healthcare delivery. “Historically, aggregation groups have primarily been price-driven and focused on lowering supply costs by leveraging economies of scale and various forms of commitment in exchange for greater value. Moving forward, these groups must be more strategically aligned as they work to identify ways to reduce product and clinical-practice variation, while also using clinical insights around the performance of products. The future model will rely more heavily on data-driven decisions, clinical integration and clinical care pathway optimization for maximum operational efficiency and optimal patient care outcomes.”

A strong foundation

In 2008, when Vizient (then VHA) formed its first committed RPC, Vizient SupplyNetworks ™, it introduced its members to the concept of “formally structured supply networks [designed] to provide the additional commitment, governance, operational processes and stakeholder engagement that are critical to success, especially as these groups began to move into more difficult product categories,” explains David Gillan, senior vice president, supply chain aggregate services, Vizient, Inc. The concept took off, resulting in substantial saving for its members. In 2015 alone, aggregation efforts saved members over $283 million.

Gillman credits the success of Vizient’s aggregation groups to their strong foundational support. “Start-up initiatives require a significant amount of effort to build the right support foundation,” he points out. “Understanding and addressing obstacles early, such as decision-making processes, operational protocols, aggregation group commitments and agreement on focus areas, all must be determined and agreed upon. Then, hospital executives, supply chain leaders, physicians and other clinicians have to work together to implement the new structure.

“Successful RPCs understand that they must work together and make decisions that benefit the group, not the individual health systems,” he continues. “Vizient’s aggregation groups have been successful because of the foundational support we provide to the members, along with the analytics and decision-support tools tailored specifically to aggregation groups. Vizient continues to invest in resources and the process improvement necessary to continue to deliver greater value through the aggregation groups.”

About the Author

Laura Thill
Laura Thill is a contributing editor for The Journal of Healthcare Contracting.
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