How do you whet the appetites of healthcare organizations for Web-based purchasing? First, try feeding it to the dogs.
That is the strategy of Managed Health Care Associates, a privately held, family-owned group purchasing organization that is offering an electronic marketplace to its veterinarian members. So far, the results run completely counter to what everyone else reports about e-commerce and group purchasing on the human side of healthcare.
In the year or so since CapsuleNet was first launched, the division of the Florham Park, N.J.-based GPO has ballooned more than seven times-to 570 members from 75. Those members are purchasing supplies round the clock, at a $10 million-a-year clip.
Even more astonishing, nearly 100% of the members are complying with CapsuleNet's one hard and fast rule: Purchasing must be done exclusively through CapsuleNet's Web site.
Indeed, other group purchasing organizations that are taking months, if not years, to ramp up Internet ventures and acclimate cautious healthcare organizations to the wily ways of Web-based purchasing may be barking up the wrong tree. Based on the experience of the MHCA, it works a whole lot easier if membership is restricted to the barnyard set.
Granted, at this point veterinarians represent just a fraction of the $3.5 billion in supplies that flow through the MHCA purchasing portfolio each year. But thanks in part to the burgeoning vet business, the GPO with more than 100 employees recently doubled its second-floor office space to 10,000 square feet.
On a recent Monday afternoon, Dale Bizzari, a senior personal account representative for CapsuleNet, is ensconced in her cubicle with photographs of her two beloved dogs surrounding her: 17-year-old Spuds and 14-year-old December's Darling Diamond Girl. A licensed veterinary technician, Bizzari is one of 21/2 staffers who keep CapsuleNet's Internet customers purring.
For example, on this day she took a call from a customer who last week ordered 13 cases of electrolyte solution at $12 per case. The delivery, which should have taken three days by ground, never arrived. Bizzari called the distributor and learned it was on back order. The distributor promised to call the customer with the explanation.
Bizzari's benevolent eyes watch over virtually every online transaction. She sees that at 2: 02 p.m., a $323.27 order for a pre-surgical testing kit came in from a veterinary clinic in Fresno, Calif. She can tell from the information on-screen whether the distributor picked up the order, and if not, she will nudge them with a call.
In total, CapsuleNet deals with 26 distribution companies handling both human and veterinary supplies.
CapsuleNet also offers its customers a complete accounting of their transactions and ordering habits. With a click of a mouse, they can know when they last ordered a product and what they paid for it. If they misplace an invoice, they can go online and retrieve it. And Bizzari is always there to walk tentative customers through the procedure.
"They like to be talked to," she says. "They like to know there is someone working behind the computer."
MHCA employees describe CapsuleNet as Chief Executive Officer Lawrence Irene's "pet project." Five years ago on an impulse to try gentleman farming, Irene purchased a foreclosed stable of 30 hunter/jumpers in the rolling hills of New Jersey horse country.
Irene says he knew nothing about horse breeding, although he did know something about group purchasing. His family-owned company had been buying supplies in bulk for the long-term-care industry since 1989. Three years ago, the MHCA branched into the acute-care side as well.
During conversations with the vets who came to treat his horses, Irene soon learned that they knew as little about his business as he did about theirs. They compared notes, and the vets soon realized that in many cases, they were paying a much higher price than Irene's long-term-care customers for the same products.
Irene decided it was a market segment ripe for his intervention, and designed a division just for the veterinary market.
He quickly discovered, however, that vets had many of the same problems that plagued the long-term-care industry in the late 1980s. It was a highly fragmented market, he says, and vets were accustomed to buying from a slew of different distributors because most distributors carried only select product lines.
And for some reason, charge-backs or discounts for doing a large volume of business were practically unheard of in the animal provider community.
"We had to come up with an alternative GPO for veterinarians," Irene says.
About a year and a half ago, Irene discovered a small Atlanta-based Internet ordering site for vets called CapsuleNet. Irene bought it for an undisclosed price, but he says the investment was "modest" compared with numbers he's heard from other GPOs.
Irene merged CapsuleNet with his fledgling veterinarian buying group. The merger didn't resolve the distribution problem, Irene says, but it made the process a little easier. Instead of calling up a long list of distributors, a veterinary clinic purchaser can visit the site, make one order, and the items will be funneled to the appropriate vendor with the click of a mouse.
Where there is some overlap with human products, veterinarians can enjoy discounts, thanks to the MHCA's long-term and acute-care connections. A veterinary clinic treating companion animals might have as much as 40% crossover with human products, Irene estimates; yet until the MHCA stepped into the arena, veterinarians rarely were able to do business with companies that supplied human products exclusively.
Rather than giving volume discounts, veterinary distributors are more likely to offer specials, although it's hard for customers to keep track of all of them, Irene says. CapsuleNet easily communicates these to its online customers by an electronic alert system.
Pamela Martin, nursing coordinator for Veterinary Specialty Hospital of the Carolinas in Cary, N.C., has been ordering supplies almost exclusively through CapsuleNet for more than a year. A so-called referral hospital that handles tertiary cases and also has an evening emergency room, it has a staff of 75, including 13 doctors, and buys about $200,000 of medical supplies annually.
Martin says the CapsuleNet Web site practically has eliminated the need to contact distributors, reduced the amount of time she spends on purchasing by 15 hours per week and shaved about 20% off what the animal hospital used to spend on supplies. CapsuleNet also offers an inroad to some human products that were inaccessible before, she says.
It's magic as far as Martin is concerned.
"I haven't a clue (how CapsuleNet is making money)," she says. "They are creating a tremendous amount of business for the distributors, so I assume they are being paid a commission."
Although the company won't disclose financial information, it is turning a profit on CapsuleNet, says Raymond Schwartz, corporate vice president for operations. To garner interest in the site, vendor transaction fees, a common revenue source for GPOs, are temporarily on hold for the veterinary distributors, as are $39 monthly membership fees.
The site is making participation easy for vendors, which "has opened up discussions that will lead to the development of contract programs with the distributors," Schwartz says.
In the meantime, profits are generated through the contract items and administrative fees the MHCA receives from vendors on the human side of medicine, Schwartz says.
Irene says there are some lessons that translate to the human side of e-commerce and group purchasing. The MHCA is taking it slow to make sure it gets everything right, but there are plans to expand into the physician market and then its core long-term and acute-care business.
The physician market should be an easy leap from veterinarians, Irene says, because there are a lot of similarities, particularly in the fragmentation of the two markets. The ease of wiring up group purchasing on the nonacute-care side of medicine also has been borne out by Innovatix.com, a subsidiary of the Greater New York Hospital Association (Oct. 9, 2000, p. 36).
Hospitals are another story. Irene notes that wholesalers such as McKesson HBOC and Cardinal Health have spent millions on their own online purchasing systems. He wonders if GPOs partnering with Web sites will be able to step in and pre-empt them so easily.