OASC | BUYING POWER
Group Purchasing Perspectives
Learn about the options and assistance available to you from varying viewpoints.
By Erin Murphy, Contributing Editor
Are you getting the best prices on your supplies and equipment? It’s difficult to know the answer. You might be negotiating one-on-one with a supplier or sifting through the relative merits of various group purchasing organizations (GPOs). Certainly you’re cultivating relationships with representatives of major ophthalmic supply and device manufacturers and pharmaceutical companies.
Could you be doing better?
A Little Background on GPOs
The answer isn’t cut and dried, but it starts with understanding your options. GPOs have undergone some changes from the ASC perspective. Their original intent was to serve hospitals by setting up contracts with large manufacturers at reduced rates based on volume and commitment. The GPO passed along the savings and convenience of one-stop shopping to its members. As GPOs began to serve other facilities, ASCs could join a GPO but they didn’t get the benefit of aggressive hospital pricing due to their comparatively smaller purchasing volumes.
As GPO rates for ASCs and hospitals became comparable, ASC use of GPOs increased. However, GPOs limited ASCs to one exclusive contract. These limitations proved challenging, but finally, ASCs were permitted to join as many GPOs as they liked. Now administrators are able to compare GPOs, choose one or more that meet their needs and apply to join them.
GPOs are just one of several options available to ASCs to reduce spending through group purchasing. Other options may depend on the size of your business, your purchasing preferences and the support you receive from suppliers and professional groups. To get a clearer picture, consider these varying perspectives on the subject.
Multi-ASC Purchasing
Companies with multiple ASCs obviously use a high volume of supplies and therefore have excellent leverage for purchasing them. Still, they may be able to obtain even better pricing and convenience by using GPOs.
Lou Sheffler is co-founder of American SurgiSite Centers and Chief Operating Officer responsible for all clinical operations of multiple outpatient surgical centers in the northeastern United States. He uses GPOs for specific purchases.
“It works in the same way that consumer shopping does. You might join Costco and use it to buy items such as bulk paper towels, but you’d go to a smaller market with a larger selection to find an exotic spice,” Sheffler explains. “Similarly, through a GPO, we buy common general medical supplies such as syringes, disinfectants, sterilizing wraps, gowns, gloves and masks that are used by all medical subspecialties. Some GPOs also handle medications and anesthesia. It’s worthwhile to join a GPO for pricing and one-stop shopping on general supplies. And we can reduce prices even further if we’re willing to show loyalty to a vendor and sign a contract that covers several years.”
Sheffler doesn’t use GPOs for specialized ophthalmic products. For example, IOLs, phaco tips and viscoelastics for cataract surgery require a different approach. “For ophthalmic surgery supplies, we’re better off dealing directly with companies such as Alcon, AMO and Bausch + Lomb and creating competition between them for comparable products and better pricing.”
Single-ASC Purchasing
Administrators working at a single ASC don’t always find group purchasing to be the best financial solution. As Director of Business and Financial Development for San Antonio Eye Center and Executive Director of South Texas Total Eye Care, Albert Castillo supports the work of 41 surgeons.
“For a single ophthalmic ASC, there aren’t many resources for group purchasing. We get better prices for medical supplies such as gowns, drapes, blankets and IV tubing by shopping around online,” he explains.
Castillo also finds that he can negotiate the best price for equipment by shopping different vendors instead of sticking to one. Castillo is the Members Services Consultant for the Outpatient Ophthalmic Surgery Society (OOSS). He and other OOSS members reach out to colleagues to discuss negotiation tactics and pricing. OOSS itself offers a benchmarking platform that Castillo uses to track and compare his costs.
“The OOSS benchmarking platform helps us track costs at the facility, such as cost per cataract surgery and pricing for IOLs, to see if we’re in the right area compared to other members,” he says. “Larger facilities will get better prices, but we can adjust to get the best deal possible. For example, many OOSS members have a stand-alone ASC, but tying the practice to that ASC improves negotiating power.”
A little compromise by surgeons can save money as well, according to Castillo. After all, every physician has different preferences, and that can make supply orders very complicated.
“Within our ASC, we used the OOSS benchmarking tool to see our cost per cataract case compared to the average OOSS member. We’ve broken it down further to see the cost per cataract surgeon and found a range of nearly $200,” he recalls. “The range was so large because surgeons were using different supplies, so we got all of our surgeons together and we standardized everything, such as pre- and post-op instructions, medical supplies, IOLs, instruments, scheduling, consents and medications. Today, our cataract costs per procedure are within $10 for all doctors. The compromise simplified purchasing, and most importantly, it helped us control the cost per case. While we do allow for some exceptions, having a baseline standard for all physicians also makes ordering easier on the staff, improves efficiency and the patient experience.”
Major Distributor
If you want to participate in a GPO, you can do so through the GPO itself or through distributors that work with a specific GPO. Bill Barr, Vice President of Healthcare Services at Henry Schein, Inc., (henryschein.com), explains that distributors drive savings in several ways, one of which is the use of a GPO strategy. The goal is to find the right purchasing program and combine it with the company’s portfolio of products and services to provide a “best-in-class” program.
“We work with the five major GPOs and several key affiliates. The GPOs develop membership rosters and negotiate contracts with manufacturers. As the world’s largest distributor to office-based practitioners, we access those contracts and sell to our clients,” Barr says. “There are additional types of strategies for driving savings, including bulk buying and tier access, in which we evaluate what a practice needs and perhaps aggregate volumes and spending to facilitate greater savings from a manufacturer. Working with a distributor partner allows clients to understand what programs are available to meet their needs. When designing and participating in a program, volume isn’t always king. Many programs are about commitment and I tend to favor committed programs because they allow us to meet the objectives that we define for a specific manufacturer, facilitating better contracting and pricing for the clinician.”
You Have Supplies — Now Get an Inventory System
Obtaining good group pricing is beneficial, but even greater economic advantages lie in carefully controlling your inventory, according to Lou Sheffler, co-founder and Chief Operating Officer of American SurgiSite Centers.
“We negotiate supply prices with outside entities, but inventory is a more critical internal factor and is up to you to manage,” he says. “The goal is to turn over inventory quickly — optimally once or twice a month — and tie up as little money as possible in items that sit on your shelves. Many people don’t realize that unlike doctors’ offices, ASCs spend more money on supplies than personnel. Supplies determine how much money you have in the bank and how profitably you run the business. You can’t save money on personnel, but you can play around with supplies if you have good information about pricing and inventory levels.
American SurgiSite Centers invested in an inventory management system to improve turnover and liquidity.
“We have nine surgery centers, where we handle about 60,000 eye surgeries a year. About 25% of our income goes to medical supplies, which means we’d better get supplies at the right price and we’d better control our stock. We’d be crazy not to use an inventory system,” Sheffler points out. “Before the inventory system, we were horribly overstocked. The clinical employees were afraid of running out of supplies, so they tended to overbuy to feel safe. Investing in an inventory system saved us a great deal of money. In a single surgery center, we managed to drop the shelved investment in the supply room from $200,000 to $100,000.”
Sheffler recommends that practices include inventory in the responsibilities of an administrative employee and allow clinical employees to focus on clinical work. With an inventory system, every medical supply has a barcode that is scanned by the employee who unpacks and shelves it. The scans tell the system how much you have on the shelves. Staff members scan items removed from the shelves as well, and the software reminds them when it’s time to reorder based on the desired stock level you’ve previously assigned. The system creates a reorder report and a staff member simply has to click a button to place the order.
“Even if you have a small ASC, you can use the electronic ordering systems provided by many of the large suppliers,” Sheffler says. “The alternative is to leave too much money tied up in inventory while your staff goes around checking shelves with a notebook, which also gives you no data about usage and spending. You need an inventory system.”
Barr looks at a new customer’s supply purchases in terms of choices and volume, and then helps that customer develop an efficient and economical plan.
“We meet people in ophthalmology who are very savvy with regard to purchasing, as well as others who are seeking help in this area,” says Barr. “As their partner, we identify ways to drive savings through group purchasing, but we also offer solutions that help the practice run more efficiently and profitably in this new age of health care. That might mean identifying the GPOs that sell the product mix a practice uses, comparing the advantages, negotiating a bulk buy, or even identifying products sold directly from the manufacturer that we can help them purchase as a liaison for a better price. There are many programs out there, and by walking them through the options, we maximize the savings for each individual facility.”
According to Barr, taking on the role of trusted advisor also means providing clients a transparent approach to programs being offered in this cost-conscious market.
GPOs and ACA Sunshine Laws
Did you know that the Physician Payments Sunshine Act in the Affordable Care Act (ACA) applies to physician payments from GPOs? Here are some quick facts.
The purpose of the Sunshine Act is to increase transparency surrounding certain physician arrangements. While GPOs can provide supplies at a reduced rate, they also charge administrative fees and other fees as part of their business. This raises questions as to whether those fees are reasonable, and who is receiving them. The Sunshine Act brings transparency to certain payments or other arrangements between GPOs and physicians. By way of example, ASCs are often run and led by physicians; if these same physicians are involved in setting up contracts with a GPO, that may raise concerns as a potential conflict of interest.
It only affects you if a GPO pays you. Just as in the case of manufacturers, GPOs must report certain payments they make to physicians. That might be payment for a consulting arrangement, speaking engagement, conference attendance, research or other interaction that results in a transfer of value. If you do receive money or other value from a GPO, you may want to have a system in place to document it and double check that your payment from that GPO reflects fair market value.
State laws still apply. If you live in Minnesota, Massachusetts or Vermont, you’ve already been subjected to the sunshine laws in those states. Some of those state’s specific provisions may still be relevant, even now with federal laws in place. For example, the federal law doesn’t have a gift ban, but if your state has one, the ban will still apply.
Watch this in 2015. One of the provisions of these laws was the creation of a database — Open Payments — to include information about payments received by physicians from industry. The first reported database covered the period August 2013 through Dec. 31, 2013. Its release was less than incident-free in September 2014.
At the end of June 2015, data covering calendar year 2014 will be released. One concern about the release of this data is the potential to trigger enforcement activity, either through government data mining or whistleblower activity. In addition, because this program requires the submission of information to the government, the government may, in turn, opt to audit manufacturers or GPOs to ensure the data submitted is accurate and complete. Failure to provide accurate and complete information may trigger financial sanctions against the manufacturer or GPO up to $1.1 million.
Source: Abraham Gitterman, Arnold & Porter LLP in Washington, DC.
“In today’s web-based environment, many websites offer opportunities to save 20% to 30%. That isn’t practical, and it’s impossible for them to support that claim without knowing exactly what you’re going to purchase. The market has driven competition among distributors and manufacturers, so such a dramatic spending cut isn’t likely,” Barr says. “As part of our partnership, we dive deep to determine what a client is currently paying and explore their genuine potential savings.”
Eye Care GPO
Although many GPOs offer only general medical supplies, it’s possible to purchase ophthalmic-specific products through some of them. The Alliance (thealliancebg.com) is a GPO that began as an optical buying group focused on dispensary fulfillment. When the GPO aligned with its parent company, Surgery Partners, it expanded to include the supply needs of eye care practices and ophthalmic ASCs.
“Alliance is unique in that we’re the only optical buying group with a med-surg GPO. We have about 300 ophthalmologists in our med-surg program,” says Kim Bratcher, Operations Manager at The Alliance in Monmouth, Ill. “We’re affiliated with MedAssets, which has relationships encompassing about 22,000 manufacturer contacts. Our core business is eye care, and through our optical offerings and MedAssets’, we deliver basic surgical needs and eye care-specific supplies. The MedAssets affiliation even allows us, in some cases, to piggyback clients onto major hospital contracts for even lower pricing.”
The Alliance also has a pharmaceutical affiliation with a distributor named CuraScript (curascript.com). According to Bratcher, this is the final piece of a one-stop shopping relationship with eye care practices and ophthalmic ASCs.
“We take eye care clients from the dispensary to surgery. They can source everything they need. Cataract packs are an exception because although we can source them, IOL manufacturers specialize in cataract pack pricing, so we recommend that most clients buy through the manufacturer for the best price,” she says.
Bratcher reviews clients’ supplier or inventory lists, comparing their current spending on consumables and pharmaceuticals with the costs for members of The Alliance. The result is a list of alternatives. Some members choose The Alliance for all of their needs, while others choose relevant components.
In one final tip for saving money, Bratcher notes the member might save money using non-branded products. “Doctors might prefer a specific brand of certain products and have no preference for others,” she explains. “If doctors elect to use quality non-branded products for some of their purchases, they can decrease costs even more.”
OOSS Initiatives
OOSS has several initiatives under way to address supply management considerations.
“Our benchmarking program, with consulting support from Albert Castillo, enables members to track and compare supply costs over time and identify ways to improve their results,” says Kent Jackson, PhD, Executive Director of OOSS. “Given supplies can represent 25% or more of the total cost of operating an ophthalmic ASC, our members are keenly focused on how to acquire the best and most affordable products and services in support of the patients and physicians they serve.”
To better support members’ centers, the OOSS Board of Directors is committed to a strategic initiative called OOSS Advantage, featuring the quality and cost advantages that OOSS members represent as providers of surgical care and as preferred business customers.
According to Dr. Jackson, “Our OOSS Advantage initiative includes development of a directory that features an ever-widening range of industry partners that value the work of OOSS and offer products and services of particular interest to our members. In the process, some partners are choosing to offer advantaged pricing and/or other value-added services and resources to our members as preferred business customers.”
The future of OOSS Advantage, as described by Dr. Jackson, “…includes exploration of the full range of products and services that are most valuable to our member centers and the providers and buying groups like The Alliance and Henry Schein that serve the interests of both.
“That’s the next step. Once we identify individual providers and buying groups that serve our membership locally, regionally and nationally, we can approach them on behalf of our members,” Dr. Jackson explains. “A final piece will be to share insights and best practices for purchasing, negotiating and managing supplies through member networks and educational programming.”
It’s clear that when making purchasing decisions, you have the support of colleagues, professional groups such as OOSS, supply distributors and GPOs, and others. When combined with your own business knowledge, you can feel confident that your purchasing decisions are sound. ■
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