2. A WORD ABOUT ME
Since 1978 I have been building experiences in strategy
development, organizational placement and national
contracting. Starting out by “walking the halls” in a
provider environment, I was able to obtain a working
knowledge of hospital infrastructure and process
interdependence.
Having developed National Account Platforms for three
Fortune 500 Corporations, I provided contracting activity
and implemented price-discounting strategy for products
spanning the influences of commodity to highly technical.
I have further developed “umbrella programs” for multi-
division companies that leverage synergies under a
shared service profile.
My background includes business relations with national,
regional and IDN organizations and produced successful
agreements in a wide array of products and services.
William McIlhargey
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3. Session Overview
Market awareness
health care supply chain, industry premise contributing issues
Starting the contract process
who is influencing, flow of funds and position in the mix
National vs local
what should you be thinking about
Maintain and/or expand your position
develop a customized platform for collaboration
A comment on negotiations
reactive versus proactive
Open discussion
William McIlhargey
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4. Healthcare Supply Chain Dynamics
Key Stakeholder Business Relationships
Wayne Thompson
2006 Health Policy Forum
William McIlhargey
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5. INDUSTRY PREMISE
Supplying Health Care requires an understanding of market
segmentation strategies and the ability to corroborate clinical
and economic selling activities.
Lack of financial alignment within the System hinders
collaboration among the stakeholders, while promoting price
inelasticity.
Continued growth of specialty hospitals and ambulatory
surgical centers siphon off profitable procedures from the
community hospitals and add to their financial concerns.
High profile expenses for medical devices & biologics continue
to elude cost restructuring, nurture the rift between clinical
and administrative factions, and enhance the natural tension
during the buying & selling process.
William McIlhargey
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6. CONTRIBUTING ISSUES
Clinical liability of physician
Installing best practices
Validating the value contribution of new
technology
Supply chain implications
Industry movement toward early disease
state treatments
No underlying platform for harmony
Buyers ill-equipped to balance costs and clinical needs
Supplier’s shielded from industry financial plight
William McIlhargey
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7. BUYERS POSITION
Historically, the clinical value of medical devices is not
accompanied with an economic justification that embraces
their financial viability to buyers entrusted with containing
costs.
Suppliers are viewed as utilizing clinical relations to
undermine hospital efficiencies, expanding buyer/seller
tension and turning a “deaf ear” to the financial crisis within
the Health Care System.
The resulting impact on purchasing decisions and related
efforts to standardize clinical techniques has been greatly
underestimated, furthering the rift between administration
and physicians.
William McIlhargey
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8. SUPPLIERS POSITION
Suppliers with a traditional focus on procedural issues, struggle
with the perceived inefficiencies of hospital economics and
become further entrenched in their primary mission.
With distribution channels geared toward education, delivery
and physician/surgeon acceptance, suppliers are not enamored
with the prospects of retooling their sales forces.
Recent history has indicated a lack of volume movement
through price concessions and make suppliers leery to “throw
good money after bad”.
William McIlhargey
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9. Resulting in a
POLARIZED ENVIRONMENT
This fragmented and seemingly hostile
environment continues to intensify,
providing an opportunity to innovative
companies willing to advance the
relations, understanding and
creditability needed to effect resolution
William McIlhargey
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11. What is a GPO
“an entity that helps health care providers – such as
hospitals, nursing homes and home health agencies – realize
savings and efficiencies by aggregating purchasing
volume and using that leverage to negotiate discounts
with manufactures, distributors and other vendors”
HIGPA
Role in the supply chain is limited to establishing and
administering contracts for the selection and pricing of
products – do not take either title or possession
Initially formed to obtain best bottom-line pricing for
medical supplies, now adopting business models to
deliver further value:
Contracting services
Experience sharing and networking
Information technology services
Operational, clinical and safety improvement initiatives
Technology assessment and advisory services
William McIlhargey
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12. Progression of Contract Selling
Traditional sales approaches initiate at the local level:
Facility =>
IDN =>
Regional Group =>
GPO
Important to understand the impact of
“overlapping” and the “glass house” effects
William McIlhargey
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13. Segments for Contracting
GPO Anchor Groups (9)
Accounts having national corporate offices with enough purchasing volume and
member support to disrupt the selling process at the local level. Generally they
will have their own sales and marketing teams and always involve marketing,
administrative or rebated fees.
Secondary Groups (<50)
Regional Groups representing geographical or Groups with offices in a regional
local affiliation or subgroups to larger organizations. Typically they will have a
common affiliation with local geographic focus.
IDN/Local Facilities (~500)
The most susceptible to clinical influences, IDN”s and some community facilities
are increasingly interested in negotiating agreements that meet the needs and
wants of their physicians, which will be benchmarked from national contracts.
William McIlhargey
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14. Mechanics of Contracting
& Financial Flows
GPO Agreement for
Membership pricing of goods
dues
Administrative
Surplus fund fee (% of sales)
distribution
Agreement for
distributor fee
Hospital Manufacturer
Rebate
“Dealer into
Distributor fee stock” price
Contract price Chargeback
for goods
Distributor
William McIlhargey
Confidential Group
The Lewin 14
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15. Membership Savings
Financial Benefits of GPO Relationship
Financial Benefit to
Average Value, as
Hospital/Health
Percent of Purchases
System
Price Savings 7.72%
Dividends 1.85%
Labor Savings 0.84%
Combined Benefit 10.41%
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16. Degrees of Pricing Flexibility
Manufacturer List Price
Baseline GPO Contract Price
Price with Volume Commitment
Price with Market Share Commitment
The Lewin Group
May 2003
William McIlhargey
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17. Administrative Locations
NATIONAL GROUPS
NATIONAL GROUPS
REGIONAL GROUPS
REGIONAL GROUPS 1
FFS/DAPA – Government
FFS/DAPA – Government
VISN --Government
VISN Government
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18. VOLUNTARY
Location – St. Louis, MO.
A voluntary GPO stated to be second in the number of member hospitals
with 1,900 hospitals and 33,000 non-acute care facilities. Members are
generally from more rural in nature than other voluntary groups
Shareholders
AmeriNet Central - Warrendale, PA
Intermountain Health Care - Salt Lake City, UT
Vector - Providence, RI
Annual Purchasing volume = $6.5 billion with $35 million in share-back
funds, placing Amerinet fourth in total purchasing volume
Divided into five product development units that develop agreements in 12
contract areas
William McIlhargey
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19. PROPRIETARY
Investor
Location – Dallas, TX
Privately held GPO with Tenet as its flagship System. Has had some
success in attracting other proprietary groups and highly visible IDNs.
Representing nearly $10 billion in spend, their most notable members
include; Advocate, Ascension, Christus, Continuum, Kaiser
Permanente, Kindred, Universal, US Oncology and The Health
Alliance of Greater Cincinnati
These services are focused on contracting, purchasing, clinical and
pharmacy cost management, labor, capital equipment and information
management.
William McIlhargey
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20. Health
Maintenance Plan
Location – Oakland, CA.
Kaiser Permanente is the largest nonprofit health plan in the United
States, serving 8.2 million members in 9 states and the District of
Columbia. They are an integrated health delivery system, providing
the entire scope of care for members. Kaiser operates 38 owned,
not-for-profit hospitals in California, Oregon and Hawaii.
Kaiser Permanente is composed of Kaiser Foundation Health
Plans (nonprofit, public-benefit corporations), Kaiser Foundation
Hospitals (a nonprofit, public-benefit corporation), and the
Permanente Medical Groups (for-profit professional organizations)
Kaiser facilities are known for their contract compliance
William McIlhargey
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21. PROPRIETARY
Location – Brentwood, TN
HealthTrust’s (HPG) membership includes nearly 600 Acute Care
facilities and 148 Surgery Centers.
Unlike many GPOs, there are no membership fees, however HPG
does not allow its members to belong to more than one GPO.
Their portfolio represents approximately 500 vendor relationships
and over 300,000 products with yearly purchases of over $7 billion
HPG has eight full-time Advisory Boards comprised of nurses,
doctors, clinicians and hospital management providing input on
contracts typically for a 3 year term
William McIlhargey
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22. PROPRIETARY
Religious
Location – Chicago, IL
With 13 shareholders, representing 520+ acute care
facilities and over 54,000 beds, Consorta mainly represents
religious sponsored healthcare systems (over 60% of all
Catholic hospitals in US)
Projected contract volume is $4.2 billion, providing $104
million in cash returns to its members (76.3% fee return)
Besides its contracting services, Consorta provides; capital
equipment group buys, clinical pharmacy program and
custom contracting
William McIlhargey
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23. GOVERNMENT
Location – Hines, IL
The US DVA National Acquisition Center (NAC) is the
federal government GPO, located in Hines, IL.
NAC has over 1,890 contracts with annual expenditures of
more than $5.1 billion for supplies and services. It is one of
the largest government procurement and supply agencies,
supplying drugs, medical supplies and equipment to VA
Facilities and other Government agencies
By law, only 20% of any VA facility’s medical supply
purchase dollars can be spent through non-contracted
sources
NAC contracts may be used by VA Medical Centers, Military
Hospitals, Dept Indian Affairs and some not-for-profit
agencies
Confidential
William McIlhargey
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24. VOLUNTARY
Location – Alpharetta, GA
Serves more than 22,000 healthcare providers nationwide with purchasing
power exceeding $12 billion
Medassets is the third largest GPO by purchasing throughput with access to
over 1,100 contracts and over 700,000 line items
MedAssets, Inc. also operates Aspen Healthcare Metrics (clinical and supply
chain consulting) where pricing is shared with its hospital clients across the
US . . . “physician preference items, for instance, account for about 40
percent of total supply expenditures, with prices continuing to rise. But
through our strategic business partner, Aspen Healthcare Metrics, we can
reduce PPI expense by 5 to 18 percent—guaranteed.
Has submitted IPO
William McIlhargey
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25. VOLUNTARY
Location – Irving, TX
Is the health care industry’s leading supply services company and serves a
total of 2,400 members in VHA and UHC, as well as a select portfolio to
Healthcare Purchasing Partners International
Novation manages over $26.5 billion in annual purchases and through its
affiliations represents: 26% of community hospitals, 76% of academic med
centers, 30% of admissions & 29% of total surgeries
Voluntary Healthcare Association includes 2,200 “community-owned” health
care facilities located in 48 states, while University Healthcare Consortium
represents 200 academic health centers
William McIlhargey
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26. VOLUNTARY
Locations – Charlotte, NC
Premier is owned by 198 not-for-profit health care organizations that
operate or affiliate with over 1,500 not-for-profit hospitals
Alliance members purchase more than $17 billion in contracted purchases
and has returned $188 million, 58% of fees collected
With over 1,300 contracts for use in all areas, Premier is the second largest
GPO by purchased volume
Premier’s groundbreaking Hospital Quality Incentive Demonstration Project
with the Centers for Medicare and Medicaid Services tracks the
performance of more than 270 participating hospitals, receiving financial
incentives for best practices
William McIlhargey
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27. Trade Associations
HIGPA – the Health Industry Group Purchasing Association is the preeminent trade
association for GPO’s. Their annual Expo’s traditionally bring buyers and suppliers
together under an educational and networking platform. HPG and Broadlane are not
members of this organization.
HIGPII – responding to recent Senate investigations, the Healthcare Group
Purchasing Initiative was created to promote and monitor best ethical and
business practices in purchasing for hospitals and other healthcare
providers. The goal of the Initiative is to assure ongoing adherence to
published ethical and business practices.
FAH – The Federation of American Hospitals is the national representative of
investor-owned and managed community hospitals and health systems throughout
the United States. Along with AHA & the AMA, The Federation is considered one of
the most politically influential organizations on health care policy. The Annual Public
Policy Conference and Business Exposition is highly regarded in networking the
politics and business aspects of healthcare.
William McIlhargey
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29. Growing in this environment
requires a mindset . . . . .
. . . . . and a commitment . . . .
. . . . . . . to do something different
William McIlhargey
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30. Strategy Recommendations
Underlying Premise:
Nothing happens without a surgeon sale . . . . . FIRST!
Contracting is always more effective at the lowest common denominator
This in mind:
1. Create a matrix of existing personnel to establish relationships with
targeted groups . . . Sls Mgr national/regional . . . Agents local
2. Specific attention to proprietary groups and local religious subgroups
3. Develop a strategy (driving clinical and economic relations) involving a
corporate & sales team responsible for integrated groups . . . ie. Kaiser,
Mayo, Henry Ford, Cambridge Alliance . . . .
4. Promote business planning within each strategy with; budgeted support,
milestones and accountability
In short:
establish visibility with select national and regional groups and . .
. . drive activity at the local level
William McIlhargey
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31. Five Key Performance Steps
1. Develop a Strategy for your Territory
understand the Rules for Engagement
2. Create a Plan for Price/Contracting
customize each approach
3. Simplified Account Planning
basis for understanding local influences
4. Nurture contract innovation
consider a menu of offerings
5. The Art of Negotiations
can not be an emotional issue
William McIlhargey
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32. A Word or Two on Negotiations
Intuitive selling process Current Sales Behaviors:
Position the Sales Process N
e
g
Gather Information Sell
o
t
i
Identify/confirm needs
a
t
e
Position the product
Start Close
Submit proposal
Behavior modification New Sales Behaviors:
Selling and Negotiations are
not separate processes but Sell
integrated
Negotiate
Start Close
William McIlhargey
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33. Consequences
$$ Revenues
Flat
Missed
Margins, Discounts
Opportunities (total/partial)
Income/Profitability
Precedents Set
Lost Marketshare for the Future
Open the Door
to Competitors
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34. OPEN DISCUSSION
Don’t let emotions dictate your
contracting outcome!
Keep issues in perspective
“we all work for
something . . . . .
or someone”
William McIlhargey
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