As the associate director of corporate contracting for the Yale New Haven Health System (YNHHS), Beth Vinson finds herself overseeing the negotiating and contracting of tens of thousands of items each year — from band-aids and pillows to pacemakers and defibrillators. In fact, Vinson says her healthcare network — one of the largest in the region and featuring hospitals in Bridgeport, Greenwich and New Haven — spends more than $300 million annually on supplies and equipment.
But as the Affordable Care Act increases pressure on healthcare providers to drive costs down, Vinson and her colleagues have turned to an emerging landscape in the medical supply management industry: online markets. For the first time, hospitals like those in YNHHS can contract for supplies via an online marketplace.
Traditionally, explained Vinson, who has been in the supply chain industry for more than 25 years, hospitals have contracted for medical supplies through large national Group Purchasing Organizations (GPOs), which account for nearly 70 percent of medical supply purchases in America, according to the Healthcare Supply Chain Association, a national trade group which tracks industry data.
“As a large academic medical center health system, we have historically leveraged our size to negotiate a larger percentage of our contracts directly with vendors,” Vinson said. “While we will continue to purchase medical equipment and supplies through large GPO’s, we have found that we can also contract and negotiate for many items directly with suppliers due to the size of our network.” For some product lines like crutches, Vinson explained, online tools can help drive efficiency. “Our approach is about speed to value,” she said.
That’s because, while group purchasing from national GPOs has shown to save hospitals significant money — an estimated $33 billion a year nationwide — it can take a GPO six to 12 months to negotiate the contract; and they typically lock in terms for up to three years.
“Larger [healthcare] networks like ours want to optimize flexibility and have more control over our supply chain,” Vinson said.
It’s a reality that some GPO’s have transformed into a market opportunity. Troy Kirchenbauer, general manager of aptitude, a subsidiary of Texas-based GPO Novation LLC, which manages more than $75 billion in annual supply spend by healthcare providers, now oversees an online platform that could spur greater competition and lower costs for healthcare providers.
Kirchenbauer describes aptitude — which makes hundreds of thousands of medical products available through a large contingent of vendors — as an Amazon for the healthcare industry. “Hospitals are under pressure to reduce costs and demonstrate transparency,” Kirchenbauer said. “Their reimbursement levels will be reduced [under the Affordable Care Act] if they can’t show they are reducing [delivery] costs.”
That’s a big challenge in a healthcare industry where innovations — such as the development of gender-specific knee replacements — can drive costs up. “By reducing the associated costs of buying and selling medical supplies, we can help hospitals drive prices down, maintain their margins and still deliver quality,” Kirchenbauer said.
It’s a model that seems to be producing results. Among its more than 550 hospital clients nationwide, the aptitude market represents more than $8.5 billion in spend potential — reducing costs by an average of 10 to 15 percent, Kirchenbauer said.
The results for Yale-New Haven’s healthcare network — which started using aptitude in May — have been promising. “We’ve been able to save time and costs with this approach,” Vinson said. And the savings extend beyond simple price reductions. “Over the past six months, we’ve seen that we can reduce the amount of time it takes to negotiate a contract from 90 to 120 days to an average of 38 days,” Vinson said.
It’s not just hospitals that are benefiting, according to Kirchenbauer. The online supply business, it seems, is also good for small regional or local vendors, who are able to compete for contracts with some of the nation’s leading hospitals. “Smaller vendors are able to save time in the sales process by better understanding the needs of [prospective] hospital clients and the type of business they [the vendor] can best compete for.”
Even larger associations, such as the Northeast Purchasing Coalition — comprised of more than 100 New England-based hospitals and with a collective annual supply spend of $1.6 billion — are starting to use online supply purchasing.
And that recognition, coupled with continued cost savings, will help fuel what Kirchenbauer sees as a growing industry. “If today, between 30 and 40 percent of the healthcare supply chain is managed directly, with the advent of online markets, I think it’ll be 50 percent within the next three to five years.”
That’s good news for supply chain professionals like Vinson, who foresees more complex medical devices being available online, as more vendors adapt to new supply chain realities.
“We’re confident it can help us get to the best price in the market sooner and enable us to contract more efficiently,” she said. And, she hopes, more transparent, cost effective healthcare.
