Continuum Health Partners in New York is bent on turning group purchasing upside down.
Early this year, Continuum made a splash by deciding to chart an independent course, leaving the group purchasing arena (March 30, p. 4). Now Continuum is taking the wraps off a one-stop purchasing and distribution shop as an alternative to group purchasing organizations. It hopes to sell its option to other hospitals in the New York area and ultimately farther afield.
"Once we market this to the tri-state area (Connecticut, New Jersey and New York), we're going to go national," says Joanne Foulke, corporate director for materials management at Continuum. "We're waiting until everything's perfect here."
Continuum, a three-hospital system with annual revenues exceeding $2 billion and supply spending of $150 million, was created through the January 1997 merger of St. Luke's- Roosevelt Hospital Center and Beth Israel Medical Center and the recent addition of Long Island College Hospital, Brooklyn.
Early on, the big system decided to take a sharp pencil to its supply ex-penses. A review of distribution options led to a thoroughly revamped approach.
Over the better part of the past year, Continuum purchasing and materials managers have been crafting a contract portfolio in which 85% to 90% of the categories offer only one product. "Once you standardize products, you standardize your protocols," Foulke says. And uniformity in products and processes is where the biggest savings lie, say many materials experts.
Continuum's experience has defied some skeptics' claims that integrated delivery networks will never get top-flight vendors to play ball the way they do with group purchasing organizations. "We will only work with the market leaders: They have to be No. 1 or No. 2," Foulke says. Contracting with the leaders, she adds, "has been no problem."
Continuum estimates it will reduce the cost of medical-surgical supplies by an average 7% over GPO pricing. Distribution savings may be almost as high.
Most of the Continuum contracts are sole-source with terms of three to five years, she says. They typically contain escape clauses for the system in case the vendor doesn't stay technically and clinically competitive.
Another key plank in Continuum's materials program is an off-site distribution center in the Bronx, which is managed by Caligor, the hospital supply division of Henry Schein, a Melville, N.Y.-based company that specializes in direct distribution to dentist and physician offices.
Caligor maintains consigned inventory under a constant replenishment program, according to Continuum. As a carrot to vendors, Caligor pays bills within 30 days, much faster than the New York average, says Foulke.
The warehouse and logistics support are an integral piece of Continuum's approach.
"We use the distribution center as a gatekeeper, (because it's) the only way to get goods into the system," says Marc Schessel, corporate director for manufacturer relations at Continuum. "We know instantaneously if someone is not complying."
Driving the materials management makeover is the staff of Beth Israel. Beth Israel was a founding member of the original Premier purchasing group that ultimately merged with American Healthcare Systems and SunHealth in 1996 to form the current version of Premier.
When Beth Israel pulled out of Premier to enter the new world of independent buying, people noticed. Now Continuum is hoping other hospitals will look to it again.
System independence in contracting decisions played a big part in the move to go solo. "We were in a GPO, and we used what they were using," Foulke says. "Now we select what's best for our hospitals."
Continuum is ready for expansion. Ultimately, the 82,000-square-foot distribution warehouse is designed to serve not only Continuum facilities but those of any other health systems in the area that sign up for the purchasing and distribution services.
Nationally, Foulke says, the Continuum team would work like consultants-offering the Continuum portfolio and working with systems to replicate the materials management and distribution pieces. Consulting fees, rather than the administrative cut levied by GPOs, would provide its financing, Foulke says.
To be sure, Continuum's strategy has limits. For pharmaceutical products, Continuum is buying through the New Jersey Hospital Association. For now, that means piggybacking onto the contracts of a GPO: HealthCare Purchasing Partners International, an affiliate of Irving, Texas-based Novation. But by year-end, Continuum expects to buy almost all drugs directly.
Down the road, Continuum views the distribution warehouse and transportation network as a platform for additional cost savings for participating hospitals through shared services such as copying, file storage, and laundry.
At the moment, though, the executives who've been working nearly around the clock to get the novel concept up and running are happy to have finished the first phase.
"We have a lot of spouses who haven't seen their loved ones much for 10 months," Foulke says.