In the fall of 2002, John Stevens, director of materials management at 254-bed Lawrence & Memorial Hospital in New London, Conn., got a free, no-strings-attached offer he couldn't refuse from Broadlane, a San Francisco group purchasing organization founded by Tenet Healthcare Corp.
Under a pricing arrangement negotiated by Broadlane with St. Paul, Minn.-based St. Jude Medical, Lawrence & Memorial could purchase pacemakers for $4,985 each-a $300 savings from the price Stevens said he had negotiated with St. Jude himself. Mrudool Patel, director of hospitals and surgery centers for Broadlane, suggested Stevens "try out" that contract and others, including a distribution contract with Owens & Minor for medical surgical supplies, without any obligation to join Broadlane. Within several months, the hospital was charmed into signing a contract, promising to use Broadlane as its primary GPO and relegating its former GPOs-Amerinet and HealthCare Purchasing Partners International-to the sidelines.
"It did not take long," Stevens said. "But one thing I was insistent on was that I would use (Broadlane) as our primary GPO and look at its contracts first, but by no means did we want to commit to them totally. My line was `My job is to save money for the hospital, not make a GPO rich.' "
That attitude is fine with Broadlane, which is confident that once a hospital samples its contracts, it will get hooked to the entire portfolio, Patel said.
Welcome to the brave new world of hospital group purchasing, where it's now a buyer's market for hospitals. Competition is stiffening among GPOs, state and federal lawmakers are threatening legislative oversight of GPO business practices and senior-level hospital executives are now focused like lasers on squeezing out savings from their supply expenses. Those converging forces are inducing GPOs to do just about anything to differentiate themselves from their competitors and lure hospitals into their fold (See the Group Purchasing Survey pullout section beginning after p. 20).
Broadlane's telemarketing program is perhaps unique among GPO marketing strategies. Quietly instituted three years ago and unbeknownst to many of Broadlane's competitors, a dedicated staff of 27 makes "cold calls" to hospitals around the country, offering free trial deals in all product categories. The Broadlane sales staff places more than 200 such calls daily, targeting in particular small and medium-sized hospitals as well as the alternate-care market-surgery centers, physician offices and diagnostic centers-one of the fastest growing segments in the GPO industry. Telesales customers now number 300 hospital customers who are selectively accessing Broadlane contracts in this way; 146 of those hospitals have subsequently signed exclusive contracts with Broadlane, officials said. They estimate that the telesales department has contacted half of the nation's hospitals in this way.
The strategy in some ways breaks new ground. Formed to marshal the purchasing volume of a large group of hospitals to leverage lower prices and achieve economies of scale, GPOs traditionally have tried to nurture loyalty and compliance among their members to achieve the best pricing possible. A GPO interloping on these relationships by offering a free test drive of selected supply contracts could threaten to undermine those efforts. That's why for nearly all of the national GPOs except Broadlane, membership is a requirement for accessing supply contracts.
"It's a different approach clearly and different from what we do. We're interested in providing sustainable cost reduction in the supply chain for our members and by simply offering a contract by itself-I'm not sure that's going to help achieve sustainable cost reduction," said Jody Hatcher, senior vice president of Novation, the nation's largest GPO by purchasing volume. "The market is more competitive than it has ever been right now." All GPOs are now resigned to the fact that most hospitals belong to more than one GPO, he added. "The practice of hospitals using multiple GPOs is not that different. Maybe the aggressiveness by which they are doing it and the focus is unique," Hatcher said.
Similarly Susan DeVore, president of Premier Purchasing Partners, said Broadlane's "foot-in-the-door approach" is markedly different from Premier's strategy, which is to market its complete portfolio of approximately 1,100 contracts. Though Premier would not be happy to learn that any of its member hospitals were purchasing supplies on the side using Broadlane, "we are not going to get into the way of customers driving supply chain savings," she said. That represents a big change in attitude for Premier, which at one time tried to maintain rigid control over the purchasing habits of its members but in recent years has embarked on a new, more flexible approach toward contracting (March 22, p. 6).
In total, 856 hospitals, including the 300 telesales hospitals, are accessing Broadlane contracts, according to the company's response to Modern Healthcare's GPO survey. The telesales program also services more than 800 surgery centers, 650 diagnostic centers and 10,000 physician practices, Broadlane reported. Privately held, for-profit Broadlane would not disclose its financials, but from 2003 to 2004, the telesales business will see a 300% increase in sales and customers, said Chris Peasner, Broadlane's senior vice president of client services.
Though telemarketing is considered a nuisance to most consumers, Broadlane uses it as a tool to develop long-term relationships with hospitals, said Charles Saunders, Broadlane's chief executive officer. Hospitals that choose to sample contracts are only required to first sign an agreement for that particular product in compliance with the federal "safe harbor" statute that allows GPOs to operate. After that, the sales staff offers support, establishing "online relationships" that hopefully lead to broader commitments from hospitals.
"This is an introduction to Broadlane. It expands the relationship with Broadlane," Saunders said. "I don't see any reason why small and rural hospitals can't have the benefit that larger organizations have."
Though the Broadlane sales staff is cold-calling prospective customers, they don't do it without some intelligence on the hospital. Peasner said the best opportunities seem to be with smaller hospitals using smaller GPOs such as MedAssets or Amerinet rather than hospitals that are shareholders of behemoths such as Premier or VHA, one of the joint owners of Novation.
Indeed, Philip Ragland, chief of purchasing for 190-bed Palm Springs General Hospital in Hialeah, Fla., said he was purchasing from MedAssets when Broadlane came in and offered its services for free, although membership fees for MedAssets were very inexpensive. After signing on with Broadlane, he continued the hospital's membership with MedAssets but did not access as many contracts through them, he said. Eventually, MedAssets dropped its fees "when they found out I was heavily into Broadlane," Ragland said. "I told them upfront: `This has to do with what is best for the hospital.' "
Officials at MedAssets declined to be interviewed for this story.
Telemarketing is not for everyone. One hospital Broadlane has not called is 811-bed Bloomington (Ind.) Hospital, a VHA member and loyal Novation customer. "Probably the reason is we belong to Broadlane, but we don't use them very much at all," said Bob Majors, Bloomington's director of materials management. Bloomington is purchasing under Novation contracts 86% of the time, he said.
"It doesn't cost a cent and the portfolio is available to us to use as a backup if necessary. I think more and more hospitals are looking at using more than one GPO," Majors said.