Premier's purchasing group is striding into the thorny thicket of contracting for the specialized goods closest to physicians' hearts.
Called physician-preference items, those are products, such as pacemakers and orthopedic implants, that in physicians' views make or break procedures. They are among the most expensive items used in patient care. Yet despite their outsized contribution to materials budgets, physician-preference items have resisted the traditional group contracting approach of single-source contracts and preferred vendors.
Physicians and other clinicians often are wedded to the models or brands they used in training. Even when not attached to a particular brand, many doctors maintain that variation in patient conditions demands a wide spectrum of devices.
The doctors' stand runs counter to the popular group-buying strategy of driving purchases to one or two suppliers in return for significant contract concessions.
Against tough odds, Premier is beginning its push into contracting for physician-preference items with cardiovascular and ophthalmic products. Those contracts are being rolled out now, and in early 1999 the San Diego-based hospital alliance expects to complete additional contracts for orthopedic devices, including hip and knee replacements.
"We are looking at products that have come to the stage of maturity that there are multiple companies making quality products," says Charles Jacobson, M.D., executive vice president for clinical services at Premier. "It's the right time to standardize these product lines."
The stakes are big.
Premier estimates its 1,700 member hospitals now spend about $1.7 billion on cardiovascular products under its contracts. That figure could top $3 billion if Premier manages to amass a full line of contracts and win a completely faithful customer base.
What's more, Premier says its hospitals buy about $750 million in orthopedic products under its contracts and from $200 million to $300 million in ophthalmic-surgery products each year. Also assuming a full line of contracts and a faithful customer base, Premier believes those figures could rise to $1 billion in orthopedics and about $500 million for ophthalmic devices.
Overall, the alliance says it expects its physician-preference item contracts to save users between 5% and unspecified "double-digit percentages."
Leading the way in the cardiovascular field are pacemaker contracts with Medtronic, Minneapolis, and Guidant Corp., Indianapolis. Also under consideration or development, Premier says, are contracts for diagnostic and angioplasty catheters, heart valves and vascular grafts, and even stents, the tiny metal scaffolds that sink cardiac catheterization laboratory budgets almost as effectively as they prevent the reclosing of coronary arteries.
In ophthalmics, Premier has awarded a suit of contracts to Allegiance Corp., McGaw Park, Ill.; Allergan, Irvine, Calif.; Bausch & Lomb Surgical, Rochester, N.Y.; Becton Dickinson, Franklin Lakes, N.J.; and Katena Products, Denville, N.J. The deals cover everything from phacoemulsification machines, used to extract patients' opaque lenses, to the intraocular lens implants that take their place. The rollout to customers of the ophthalmic portfolio, designed to cover all the products necessary for cataract surgery, will be completed by year-end, Premier says.
Significantly, Alcon Surgical, Fort Worth, Texas, a leading supplier of surgical products to ophthalmologists, did not make the cut. Not every vendor popular with physicians can win a contract under Premier's selective approach.
Premier demurred in discussing the details of its contracting process, such as the omission of Alcon, but emphasized that the very doctors who would be affected by the supplier choices were involved in selecting the eventual winners. All told, Premier said more than 70 doctors from around the country have been involved in deciding which products and vendors should be included in the portfolios.
For all the fanfare, Premier may face a tough sell with members.
Many hospitals don't want their group purchasing organizations contracting for these products, says Patrick Carroll, a materials management consultant in Cypress, Calif. National groups, Carroll says, can't get the best deals for these specialized products because they can't compel sufficient commitments to generate significant discounts from manufacturers.
Many materials managers at the biggest systems already know how tough it is convincing high-powered specialists, such as interventional cardiologists and orthopedic surgeons, at even a few hospitals to standardize on particular products. Trying to implement specialty contracts across hundreds of hospitals nationally will either prove impossible or be achieved at the cost of feeble volume commitments that deliver only a small portion of the savings possible through more aggressive, local agreements, Carroll predicts.