When Marilyn Townsend learned that Truman Medical Center, her best hospital customer in Kansas City, Mo., had signed on with group purchasing giant Novation last year, she feared the consequences for her small but feisty minority-owned distribution company.
She had been through this before. Controlled Environment Products, of which Townsend has owned a 51% stake since its founding in 1990, once distributed a host of medical-surgical products to another area hospital, University of Kansas Medical Center. That all changed in 1998 when the 433-bed Kansas City hospital joined national healthcare alliance University HealthSystem Consortium.
Earlier that same year, UHC had founded Novation along with VHA, making Novation the purchasing manager for 6,600 healthcare organizations, including the members and affiliates of VHA and UHC.
As a small distributor with only 10 full-time employees and no history with Irving, Texas-based Novation, Townsend was effectively shut out from doing any more business with the University of Kansas Medical Center.
"Essentially, that was that," Townsend says. "I understand Novation and UHC offered a great savings, but it restricted who could bring you that distribution. It was impossible to compete against national distributors like Allegiance." Allegiance Corp. is a McGaw Park, Ill.-based subsidiary of Cardinal Health.
So Townsend understandably assumed her business would take another hit a year later when Truman signed on with Novation, even though Controlled Environment had been doing business with the two campuses of the 517-bed medical center since 1992.
"There are only single-digit profit margins (in the distribution business)," Townsend says. "Monetarily, (the loss of one hospital) isn't hundreds of thousands of dollars, but it's a loss of presence in the marketplace, and that can be just as devastating."
But the negative outlook quickly turned bright thanks to the convergence of a motivated director of materials management at Truman named Greg Smith and Novation's launch of its Historically Underutilized Business program (HUB), which gives small minority-owned companies like Controlled Environment the chance to compete with big national outfits.
Townsend's experience would seem to indicate that integrating minority-owned businesses into the supply chain is simply a matter of having people with power willing to do so.
As fashioned by the HUB program, Controlled Environment has a three-way agreement with both Novation and Truman. The contract in essence allows Truman to buy through Controlled Environment at the Novation-contracted price with suppliers. That gives Townsend and her company a calling card when she knocks on other Novation members' doors, though it's ultimately up to the hospitals to decide whether to give her their business.
Truman had a longstanding commitment to using minority- and women-owned businesses even before Novation entered the picture, Smith says, but as far as encouraging suppliers to use a specific minority-owned distributor, it's pretty much up to him.
"One of the most effective ways (to encourage suppliers to use minority-owned distributors) is to intercede between the manufacturer and distributor and tell the manufacturer, `If you want me to use you, you have to set up a viable minority- or women-owned business that can bid on it,' " Smith says. "You have to play hardball."
Smith says he gave prospective GPOs the same ultimatum, only he didn't have to do much arm-twisting with Novation. Because of the HUB program, the time was ripe. Novation not only eagerly asked him to identify a HUB distributor, the company invited Smith to sit on its HUB council, he says.
Smith subsequently told Novation he wanted Controlled Environment to be Truman's secondary distributor, which gave Townsend's company access to a lot of Novation agreements with suppliers it didn't have before, he says.
As a result, Controlled Environment's volume of business with Truman has increased by 40% in eight months and should nearly triple by year-end, growing from $300,000 worth of distributed medical supplies annually to more than $800,000, Townsend says.
And because it can tap into Novation-negotiated contracts, Controlled Environment's product line has increased by about 12 new items. Now in addition to items such as plastic can liners, surgical tapes and electrodes that it sold before, Controlled Environment is distributing Becton Dickinson & Co. needles, syringes and catheters; respiratory products; and personal patient-care items.
In addition, the Novation stamp-of-approval has opened doors to other Novation hospital members in the Kansas City area. Townsend is even rekindling a relationship with her old customers at the University of Kansas Medical Center.
Controlled Environment is one of a dozen minority- and women-owned companies that have agreements with Novation since the HUB program was inaugurated in late 1999, says program director Traci Kirchenbauer.
To date, Novation's members and affiliates have purchased $1.7 million worth of supplies from minority- and women-owned businesses, according to Kirchenbauer. That's small potatoes compared with the $14 billion in annual purchases the GPO manages, but the goal is to eventually reach the point where 15% of member purchases are flowing through HUB businesses, she says.
Once the playing field is leveled in this way, Townsend says that Controlled Environment can compete with the brawniest of companies.
"We're a good business first," Townsend says. "I don't think (the HUB program) has given me anything other than an opportunity. If I didn't deliver, and I couldn't compete, the fact that I'm female and African-American wouldn't get me a hill of beans."