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com
Distributor Insights
ATLANTAIs the sky falling? Should distributors panic?
Probably not. But it might be time to be a little nervous.
A group of IDN supply chain executives told distribu-
tors and manufacturers at the recent Distributor Insights con-
ference that physicians in their communities are approach-
ing them about becoming employed by the multihospital
systems. Theyre tired, said one IDN executive, speaking
about physicians. They want work/life balance, theyre sick
o handling billing.` 1he IDN can proide the nancial inra-
structure those practices need to remain viable.
But the IDNs want something too. Supply chain ex-
ecutives want to instill some discipline into their newly
acquired physician practices. They expect physicians to
be more rigorous in their evaluation of new products
and in establishing and adhering to med/surg formu-
laries. They also expect them to be more conscious of
inventory control.
At the same time, the executives know that, just as
they cant fully control physicians on staff, they cant dictate
what their newly employed physicians will do. They are the
most willful employees of all, said one of the executives.
So, rather than dictate change, supply chain executives ex-
pect that they will have to work with their physicians to ef-
fect change. And they appear to be doing just that, moving
market share in powerful ways, particularly with high-ticket
physician preference items, such as implants.
Distributor Insights is a two-day forum that brings
together distributors, manufacturers and providers to dis-
cuss healthcare and supply chain issues. It is sponsored by
MDSI, publisher of Repertoire.
The IDN executives message
to distributors was simple: Change
the way you approach physicians.
If you really have new products,
we need them, said Rosalind Par-
kinson, director of material sys-
tems, The Ohio State University
Medical Center. But we need to
learn about them in a different
way. Suppliers should follow IDN
procedures for vendor access to
clinical decision-makers. And they
will be asked to defend their prices.
Whats more, in some cases, IDNs
may opt to act as distributors to
their physicians, cutting out their
physician suppliers altogether.
Though the landscape may be changing, distributors
shouldnt despair, according to those who spoke at the
conference. For one thing, although anecdotal evidence
suggests that physicians are seeking employment by IDNs
in large numbers, the statistics being cited are wildly diver-
gent. Furthermore, distributors that clearly convey their
value to supply chain executives, and then deliver it, will
probably be OK.
And, as PSS World Medical President and CEO Gary
Corless said at the conclusion of the conference, There
The rhythm
of change
IDN supply chain executives oer distributors and manufacturers
a glimpse into their world at the Distributor Insights meeting
Distributor Insights is a two-day forum bringing together manufacturers, distributors and providers.
www.repertoiremag.com | April 2011 | repertoire : 19
Distributor Insights
has never been a time when there were not a lot of chang-
es. Today we have an opportunity to help improve care
and the nancial positions o our customers.` Distributors
should be grateful for that opportunity, because without
problems to solve, none of us has a job, he said. Its time
to adapt and act.
Speaking on the IDN panel were Parkinson; Joe
Colonna, vice president supply chain management,
Piedmont Healthcare, Atlanta; Mike Switzer, corporate
supply chain officer, North Mississippi Health Servic-
es, Tupelo; and Michele Tarantino, vice president cor-
porate contracting, Carilion Clinic, Roanoke, Va. They
were joined by a panel of distribution executives: John
Sasen, chief marketing officer for PSS World Medical;
Kenny Wilson, vice president and general manager,
ambulatory care, Cardinal Health; Doug Shaver, senior
vice president, strategy and business development,
McKesson Medical-Surgical; and Bill Barr, general
manager for healthcare services, Henry Schein. Corless
offered closing remarks.
Piedmont
Piedmont comprises several acute-care hospitals as well
as two physician practices, with a total of more than 330
physicians. The IDN spends about $350 million a year
on supplies, pharmaceuticals and equipment. Its medical
practices account for about $2 million of that amount.
Though Piedmont has its own distribution center, it
does not provide distribution services to its physicians of-
ces, said (olonna. 1hat said, it does proide support to
physicians in the form of negotiating contracts, such as
serice agreements and agreements or oce supplies and
biomedical equipment services. Colonna said that Group-
Source, an aliate o the group purchasing organization
MedAssets, has helped Piedmont physicians save approxi-
mately $200,000.
Rhythm of change
Ohio State is a relatively small IDN, said Parkinson, com-
prising 1,200 beds, 45 outpatient sites and 140 aliated
physician practices. About 30 percent of the practices are
owned by Ohio State a change that occurred largely be-
tween 2008 and today. And she expects the percentage to
get much larger quickly.
Physicians see that
consolidated provider
organizations might
include them. They hear
that hospitals will acquire
physician practices, and
gure that maybe its
better if they begin the
process now.
Rosalind Parkinson, director of material systems,
The Ohio State University Medical Center
Piedmonts Joe Colonna speaks to the DI crowd.
Carilion Clinics Michele Tarantino.
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Distributor Insights
Phvsician aliation with big proider groups is
changing, as we speak today, noted Parkinson. I notice
the rhythm of that change every day.
The trend toward physician employment began before
healthcare reform became law, said Parkinson. Physicians
see that consolidated provider organizations might in-
clude them. They hear that hospitals will acquire physician
practices, and gure that mavbe it`s better i thev begin the
process now. They read about accountable care organiza-
tions and think, mavbe it`s better to be aliated with the
hospital, which has the nancial inrastructure |thev lack|.
And they know cost management will be a priority for ev-
eryone in the system.
Cost management is key here, said Parkinson.
Thats something that has been lacking in many physi-
cian practices. We see physicians as having a supply
chain thats relationship-based, with frequent customer/
sales interaction. We feel that replenishment processes
are reactive. Theres a very low level of standardization;
and the technology used for replenishment is very anti-
quated. Hospital supply chain executives can help bring
change in these areas.
We are contract-based in our hospital supply chain,
said Parkinson. Were 97 percent compliant. And we
have introduced that part of our culture in our outpa-
tient sites. We have formal relationships with our suppli-
ers, with regularly scheduled interaction. The Ohio State
supply chain team regularly conducts quality reviews of
products, and expects vendors to supply data to support
their product claims.
The inpatient supply chain rests on scheduled, tem-
plate-based replenishment systems, added Parkinson.
Theres an emphasis on appropriate levels of inventory
being held at various levels, from the end user site, to the
distributor, to the supplier. Its a whole chain of logistics,
which starts with demand. Physician practices that be-
come part of the Ohio State system can expect to become
part of that chain.
Finally, said Parkinson, Ohio State expects its physi-
cians to adhere to a med/surg formulary, which calls
for end users to use only agreed-upon products. We
have an item master for items used in physicians of-
ces, and we keep it erv ocused,` she said. Onlv 6,000
items are included, though physi-
cians do have access to other cata-
logs for products that fall beyond
their day-to-day needs.
Highly integrated IDN
North Mississippi Health Services
provides healthcare to 24 counties
in northern Mississippi and north-
west Alabama, explained Switzer.
The IDN has six hospitals, 34 clinics
and four nursing homes. Of a total
of 350 employed physicians, about
110 are employed in the IDNs clinic
system, and the remainder are hos-
pital-based.
The IDN is highly integrated
from a supply chain point of view.
It has a centralized warehouse, re-
ferred to as the logistics center
(which is licensed as a drug wholesaler and manufactur-
ing warehouse,: a courier neet: centralized purchasing and
contracting; standardization of supplies; one e-procure-
ment system for all entities; and a centralized laundry. It
is building a centralized offsite sterile processing facility,
which should be operational by the end of next year.
Setting up warehouses is old hat for Switzer, who
has built several distribution centers in the past while
working or or-prot and non-prot healthcare proid-
ers. North Mississippi self-distributes many of its med/
surg supplies, but still uses distributors, particularly for
smaller-olume items. \e hae to be sel-sucient,`
explained Switzer, because in winter, we can be cut off
from two days to a week due to icy road conditions.
1he other issue is ll rate. Prior to acting as its own dis-
tributor, North Mississippi was experiencing ll rates o
a little over 90 percent.
Mike Switzer, North Mississippi Health Services
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Distributor Insights
Radical reorg
Carilion Clinic comprises eight acute-care hospitals and
a number of urgent/primary care and other treatment
facilities. Carilion owns 53 primary care practices and 83
specialty practices throughout southwestern Virginia, em-
plovs 600 phvsicians, and continues to take on more phvsi-
cians. Until 2006, the IDN was known as (arilion Iealth
System. But in that year, administration began a radical
reorganization, which led to its current structure.
In 2010, Carilion formed an accountable care organi-
zation, or ACO, and is involved in a demonstration project
with the Brookings Institution and Dartmouth Institute
for Health Policy and Clinical Practice. Accountable care
organizations were a big topic of conversation and angst
at the conference. ACOs were created by the Patient Pro-
tection and Affordable Care Act, otherwise known as the
healthcare reform law. The federal government has yet to
issue denitie guidelines on A(Os, but it intends to re-
ward inpatient and outpatient providers who work in tan-
dem to proide care or specic patient populations, and
who provide a measurable, high quality of care.
Carilion Clinic has made a substantial investment in
bringing on hundreds o phvsicians since 2006, pointed
out 1arantino. It has been a major nancial commit-
ment, made that much more challenging by the collapse
of the capital markets in 2008. But Tarantino believes
that unless inpatient providers make substantial changes
in their organizations, they will not thrive in a changing
healthcare environment.
In one more vear, we think, hospitals will be ned or
denied pavment bv |the (enters or Medicare & Medicaid
Serices| i a patient is readmitted or the same condition
within 30 days, she said. The government is moving away
from reimbursing providers for episodic care. Instead, the
emphasis is on keeping patients out of the hospital. Its
a bizarre notion, she said, because hospitals get paid for
caring for patients. So we have to reinvent ourselves.
In order to continue its mission, Carilion works dili-
gently to reduce non-labor expenses, including supplies
as well as purchased services, said Tarantino. The IDN is
a Premier member, but uses Novation contracts as back-
ups. And Tarantino is open to local, custom deals. If
you want to bring a local deal to us, thats great; well look
at it, she said.
Carilion chose to act as its own distributor some
time ago, pulling about $14 million of purchases from its
prime vendor in 1999. Today, it uses Cardinal Health as a
backup, and uses PSS for what Tarantino calls a hybrid
approach to supplying its 147 physician practices. The
IDN is pursuing cost-savings wherever it can. With the
help of Carilions clinical staff, Premier healthcare alliance
and the consulting rm Deloitte & 1ouche, the IDN was
able to identify $15 million in supply chain opportunities
and implement $8 million in recurring and one-time cost
reductions in l\10. 1he team managed to nd saings in
some unusual places. For example, Carilion saved $40,000
by bidding out bread, and it saved $72,000 merely by mak-
ing everybody drink the same kind of coffee. Tarantino
formed a new department to centralize sourcing, value
analysis and contracting functions.
Getting new products in the door
Even in those circumstances where IDNs employ phy-
sicians, supplv chain executies can onlv innuence - not
Any supply chain executive who
tells a supplier that he or she can
deliver 100 percent market share
from the IDNs physicians is blung.
We say to our physicians, Help us
get the things you need.
Joe Colonna, vice president supply chain management, Piedmont Healthcare
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Distributor Insights
dictate what those physicians do, according to those at
the conference. Said Colonna, any supply chain executive
who tells a supplier that he or she can deliver 100 per-
cent market share rom the IDN`s phvsicians is blung.
In fact, Piedmont has made a decision to avoid pressing
for the least expensive product. Rather, it is pursuing those
products and technologies that will result in the best out-
comes. We say to our physicians, Help us get the things
you need, he said.
Anticipate change, said Parkinson to the room-
ful of manufacturers and distributors. We have the
opposite perspective from you. The winners will be
those who join us to think about the common ground
we share. Physicians and hospitals need the quality
products you provide, and we need them to be provid-
ed in the most efficient way. Meanwhile, manufactur-
ers need to take advantage of distributors expertise in
taking waste out of the supply chain, in the form of
transportation costs, space considerations, FTE costs
and price.
Do your homework about the quality of your prod-
ucts, she continued. You have to help provide the data
that shows whv we need to change what we`re doing, |and
how vour product can help us| improe satisaction or
provider and patient, at a lower cost.
Finally, you need to be thinking about alternate
strategies for product introductions, Parkinson said.
Suppliers may resent the sophisticated infrastructures
IDNs have put in place to evaluate new products. The
best thing you can do is learn about them, she said.
Become educated on how hospitals are evaluating prod-
ucts, what these product-evaluation committees are, and
what ways you can work with purchasing folks to bring
new information to the institution.
Tarantino also asked suppliers to adhere to the IDNs
protocols for introducing new products. My department
says, Sell to us. We meet with vendors six hours a day. We
hae a erv dened process: we run cost analvses, and we
take opportunities forward. Carilion has three value analy-
sis teams, and physicians sit on all of them. Though the
IDN emphasizes value and product quality above all else, it
also expects fair pricing, she said. Were really scrutinizing
the data and asking, Is this product worth it? The supply
chain teams include clinical resource managers and RNs.
No one on the panel predicted a widespread shift by
IDNs to self-distribution. We recognize there is a tre-
mendous skill set in distribution, said Parkinson. Theres
a short half life of technology that continues to improve
eciencv, both in warehouses and oer the Internet, and
our distributor is constantly reinvesting in that technol-
ogy. Ohio State would have a tough time keeping up with
such technology while continuously working to improve
patient care.
That said, others, including Carilion and North Mis-
sissippi, have made the choice to self-distribute to one de-
gree or another. I dont see everybody doing what were
doing, said Switzer. In fact, he said, there are probably
no more than a couple dozen IDNs that could attempt
it. Still, more IDNs are hiring supply chain executives
from industry to help them improve their operations, he
pointed out. That trend, in turn, could lead to more self-
distribution models.
Become educated on how hospitals are
evaluating products, what these product-
evaluation committees are, and what ways
you can work with purchasing folks to
bring new information to the institution.
Rosalind Parkinson, director of material systems, The Ohio State University Medical Center
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Distributor Insights
Tough love
The distributor executives might
not have liked all they heard, but
they seemed prepared to deal with
it. And they urged manufacturers to
do the same.
Its great that IDNs are talk-
ing about |medsurg| ormularies,`
said Cardinal Healths Wilson. To
manufacturers, we say, We love
you, but things have changed. We
will have to carry fewer products in
our warehouses.
\e`re working or |manuac-
turer| partners who are willing to
understand the concept of total
cost, said Wilson. We are looking
at formularies we can bring to these
IDNs. And if Im a manufacturer, I
have to be thinking about this too.
It was Wilson who said that even
if distributors and manufacturers
might not have reason to panic, they
should be a little nervous. Were
looking at a supply chain with less
products, but with greater value
from those products.
PSSs Sasen, meanwhile, em-
phasized that because of their very
different service-level requirements,
phvsician oces will continue to
need assistance from their primary
care distributors. Many physicians
oces, een those that hae been ac-
quired by IDNs, are fairly small and
lack the services of purchasing agents
or materials managers.
\hat`s more, phvsicians` oces
often experience a high degree of
turnover, said Sasen, who raised
this scenario: Suppose the person in
the oce who has been trained to
run the chemistry analyzer decides
to take another job. The practices
routine could be disrupted. Its in
cases like this that the sales rep can
help keep that practice running and
productive. Similarly, many skilled
nursing facilities continue to need
We need some perspective
on the problems were
facing. If it ever feels like a
burden, get in line behind
the 16 percent who are
unemployed, who would
love to have your problems.
Gary Corless, PSS World Medical President and CEO
PSS CEO Gary Corless.
Distributor Insights
the assistance of their primary care distributor reps
to run ecientlv.
The meaning of clarity
While the discussion was thought-provoking, it
didnt lead to any clear-cut, universally accepted
answers to the challenges facing suppliers today.
And thats OK, said Corless. Sometimes clarity
means understanding that the denitie answer
doesnt exist, at least not yet, he said. Yes, reading
and attending conferences is good, even necessary.
But at some point, we all must make our own judg-
ments about the direction things are moving, and
then move, he said.
Corless said he divides the world into three
things: Stuff thats hard to miss, stuff thats easy to
miss, and stuff that we shouldnt miss. Stuff thats
hard to miss includes macroeconomic challenges,
about which were all aware, he said. Theyre not
going to end any time soon. And, at least as far as
healthcare is concerned, these challenges predate the
current recession.
Meanwhile its easy to miss the fact that today
is NOT the hardest time in which to make a liv-
ing, regardless of what one hears on the radio or
1V, said (orless. Just 60 vears ago, we were re-
covering from a devastating world war, for exam-
ple. And really, if were arguing with our spouse
about whether the thermostat should be set to 70
degrees or 73 degrees, or whether we should get
the high-def TV or not, things cant be all that
bad. We need some perspective on the prob-
lems were facing, he said. And problems? If it
eer eels like a burden, get in line behind the 16
percent who are unemployed, who would love to
have your problems.
And stuff we shouldnt miss? Dont forget to
see the opportunity in all the changes taking place
today, Corless told attendees. In the past, physi-
cian-oce suppliers considered their mission to
be serving caregivers who happened to have busi-
nesses. Now, we have the opportunity to service
businesses that provide care. We dont want to take
the heart out of it, but we have to help our custom-
ers see themselves that way too.
There is the opportunity for reward, so long as
we dare to admit to things that are going on, even if
we dont like them, he said. Now, adapt and act.
Thats what were paid to do.