Physicians' supply buying traditionally has been a haphazard affair, something that has only begun to take on an identifiable shape as doctors affiliate in ever larger and more integrated groups.
In a typical group practice, purchasing "is a situation where a staff person has a personalized relationship with a vendor who brings them doughnuts on Thursdays," says Pat Posten, a senior vice president of the San Diego-based group purchasing organization Premier.
Medical distribution companies and the hospital-oriented GPOs have shied away from serving practices not owned by hospitals because of problems with getting supplies to remote locations and with getting a bunch of doctors to agree to use the same drugs, gauze and tongue depressors.
"There's a big challenge in that this is a highly fragmented market and you're dealing with high volume but relatively low margins for vendors" because of distribution costs, says Andrea Overman, vice president of PhysicianLink Services, a subsidiary of the Irving, Texas-based hospital alliance VHA.
Even in large independent-practice associations, a loose organizational structure precludes most joint purchasing. "As an IPA model group, we leave it to individual physicians to do their own purchasing," says Rob Ramsey, vice president of finance for Hill Physicians Medical Group, a 2,500-member IPA based in San Francisco. "Frankly, (group buying) would take a whole department and a computer capability we don't have, all to achieve a result that would get very little recognition from our physicians."
What these physicians are missing, according to industry estimates, are savings of 20% to 40% on medical-surgical supplies.
While no surveys have been done of the entire physician purchasing market, it clearly is enormous. According to the San Diego-based GPO Group Physician Services, medical groups bought at least $24 billion worth of medical-surgical and pharmaceutical supplies in 1997.
And the market is growing. Surveys by SMG Marketing Group, a Chicago-based healthcare marketing and information firm, show the number of nonhospital diagnostic imaging facilities, outpatient surgery centers and medical group practices jumped to 18,230 in 1997 from 12,180 in 1995.
Those who don't use purchasing groups miss out on a range of services available to big buyers, such as help in reducing utilization costs and the ability to track clinical data.
But this situation appears to be changing. As physician groups face new limits on revenues from managed care, a growing number are looking at savings on supplies as one way to improve the bottom line.
"There's less pain in altering our purchasing practices than the alternative, which is to not have low enough costs to compete for managed-care contracts," says Roy Kaiser, purchasing manager for the Marshfield (Wis.) Clinic, a 525-physician group practice that operates 34 clinics throughout Wisconsin.
Marshfield is one of a growing number of large, highly integrated group practices that have started using their combined clout to negotiate preferred-price contracts with vendors. Through its own negotiated contracts and a buying arrangement with Milwaukee-based system Sisters of the Sorrowful Mother-Diversified Health Services, the clinic is on pace to hit its goal of reducing its approximately $30 million in annual supply costs by 20% by 1999.
"More and more, we are going to sole-source contracts," Kaiser says. "For example, we consolidated from about 10 endoscope repair providers to just one (Medical Surgical Specialties, Kalamazoo, Mich.). This has been a major adjustment for our physicians. Personal preference has been a way of life for physicians for a long, long time."
Whether a group practice should buy as a unit depends on its size and organizational structure, says Bette Waddington, a consultant with the Denver-based Medical Group Management Association. "Large integrated organizations with multiple sites like some MSOs can take advantage of cost savings from purchasing as a unit," she says.
"Most of the MSOs and (physician practice management companies) are large enough that they are able to negotiate favorable rates with vendors without going through a middleman. But most group practices are too loosely structured to carry that off," she says.
Historically, group practices didn't have access to group purchase rates unless they were linked to a hospital that was part of a GPO. But in December 1995 -- to meet the need of unaffiliated group practices to have access to a GPO -- Group Physician Services was founded. GPS is the fastest growing physician-oriented GPO; it serves the physician market exclusively and targets all forms of physician practices.
In the two years since it was founded, GPS has grown to about 6,000 members, defined as either individuals or physician groups. Though half of its members are in California, its president expects to see growing national interest as physicians are forced to look more at trimming practice costs.
"We see ourselves as differentiated from the (hospital-based) GPOs," says President Elizabeth Hoyt. "Our entire focus is the individual physician. We believe in educating our physician members about how to make better purchasing decisions."
Like other GPOs, GPS charges a monthly per-physician membership fee, a sliding scale topped at $195 a month per physician. As purchasing volume goes up, the monthly fee goes down.
GPS' program includes:
One GPO that has specialized in physician practices for a number of years is St.
Louis-based Amerinet's Value Care subsidiary, which has had an exclusive
contract with MGMA since 1988 to provide services to acute-care hospital-based
physician practices that are MGMA members.
"We don't do business with far-flung IPAs," says Amerinet President Robert
Bowen, whose organization has 2,100 group practice members representing 20,000
physicians. Amerinet did $130 million in business in calendar 1997.
"We do a lot of work with orthopedic doctors and oncologists," Bowen says. "Typically, a family-practice doctor doesn't need much beyond typical office supplies.
"We spend a lot of time educating physicians about the advantages of some of the contract incentives that typically kick in when 75% to 80% of your products are bought through our contracts."
Within the past year and a half, the two leading hospital GPOs have formed new purchasing units -- PhysicianLink Services and Provider Select -- to attract physicians affiliated with their member hospitals. So far, both represent smaller numbers of doctors than GPS and Amerinet (see chart).
VHA's PhysicianLink Services, formed in 1996, has 1,500 practice members representing approximately 5,000 physicians. It anticipates $100 million in 1998 buying volume. However, Overman says that figure should increase to $500 million by 2000.
PhysicianLink has 120 supply contracts, and is the only physician GPO that provides a full information systems program.
It endorsed three physician practice-management-information system vendors to help integrated delivery systems automate outpatient services.
The vendors are Medic Computer Systems, Raleigh, N.C.; Physician Computer Network, Morris Plains, N.J.; and the CyCare Business Group of Atlanta-based HBO & Co.
The three companies also agreed to integrate their administrative and managed-care offerings with that of MedicaLogic, a Beaverton, Ore.-based company VHA singled out two years ago to supply clinical automation to the outpatient setting.
In addition, last September VHA began an information systems program through the Internet. The private VHA "extranet" first will link 300 hospitals and, ultimately, will link the hospitals with their affiliated physicians, suppliers and patients.
Meanwhile, Premier's six-month-old Midwest pilot project, Provider Select, is scheduled for a national rollout later this year, says the new program's president, Bary Bailey.
"So far, we have only (got contracts for) about 65% of products and services physicians use in their offices. Ultimately, we'll have about 80% of physician products," Bailey says.
Dean Health Systems, a 400-physician medical group based in Madison, Wis., uses its affiliation with St. Louis-based SSM Health Care System to access Premier's hospital-based contracts. In 1997 Dean sliced just over $1 million from its supply budget of $31.2 million, according to Dan Waldrop, director of purchasing services. This year Waldrop's goal is to target utilization, "which is a much more complicated problem. Now you aren't just saying what products doctors can use, but how they should use them. That's the next big materials management issue."