Going it alone in the Corn Belt: Iowa Health System saves millions without GPO help - News

Healthcare Purchasing News, Oct, 2002 by Curt Werner

While most of the world that dedicates itself each day to the buying and selling aspects of med-surg supplies and various other medical equipment items has been either running around wondering what (if anything) hit them this year or simply laying low, hoping everything will blow over, one maverick provider, at least, has been working quietly behind the scenes to prove that "we don't need a GPO anyway, thank you."

That entity is tucked away in plain sight in the Corn Belt at Iowa Health System, a previously unheralded 10-hospital chain spread out over 300 miles of farms and ranches in the Hawkeye State. There, hospital officials didn't need a Senate inquiry, a series in The New York Times, a Code of Conduct or a protest from small-device manufacturers to decide that they already possessed enough critical mass in the form of purchasing power packed into their well-oiled system to just say no to GPOs and negotiate their own supply contracts. What's more, Iowa Health, an IDN that by acquisition had been at various times a shareholder of both Premier and Novation, began doing it nearly two years ago.

Established in 1993, the Iowa Health System is one of the state's largest employers and its largest healthcare provider, employing more than 17,000 people statewide. Last year, nearly 275,000 individuals were wheeled or walked into its emergency rooms, and close to 100,000 people were admitted. With more than $1.3 billion in revenues, and budgeting some $225 million for supplies and another $85 million for capital equipment, clearly the volume is there. Now, Iowa Health is making size work to its advantage and has saved millions through a program of self-contracting that its leaders believe is serving the system well. For instance, according to figures supplied by Dan McDow, the system's chief operating officer, Iowa Health this year expects to save an eye-opening $8.2 million on $56 million in contracts.

"Two years ago, finances dictated that we decided we had to come up with a robust business plan," says McDow. "We looked at our GPO situation and how we utilized them, and we found that it was a very high percentage. We had to take some costs out and wanted to see if there was a different way, so we began to look at self-contracting IDNs." Among the IDNs McDow and other Iowa Health officials spoke with a Florida-based collaborative group now known as the LeeSar Co-op that purchases supplies for Sarasota Memorial and Lee Memorial Hospital in nearby Fort Myers. "We thought that we could do this," says McDow. "So we told Novation and Premier what we were up to, that we were all in the same boat of reimbursement shortfalls. I don't want to disparage the GPO model, which works well for other organizations, but we did some sampling and found a false ceiling on contracts and felt we could do better."

Iowa Health tossed aside its affiliations with Premier and Novation and officially began awarding contracts last Jan. 1, though preliminary work started months before that.

The move to self-contracting is no snap. McDow says the strategy requires a combination of leadership and internal expertise with some refined organizational development. "This is not for the weak," he warns. "You must take risks and take a leadership role to promote change. If you don't have internal expertise, then you need to go out and find some. Plus, you need to have a culture that understands change. An accelerated organizational-development structure gets us all moving very quickly to show manufacturers that we were serious about what we were doing. Even so, some manufacturers were still shocked that we could do it. The whole thing is about relationships and how we believe in a quality product."

Even in the early going, Iowa Health has not just aimed for low-hanging fruit. Some major supply areas have been targeted for change. One is a switch in suture suppliers, traditionally a tough sell to clinicians. That contract was moved to United States Surgical Corp., the Norwalk, CT-based unit of Tyco Healthcare, business that had been under the Johnson & Johnson wing of Ethicon Inc. To pull off the switch, which McDow admits was a difficult process, clinical validation, as he calls it, was needed. "We got to the point of clinical acceptability and engaged the docs," he says. The point was ultimately accepted and the change was made. The system has more recently changed vendors in contrast media and in radiology film, also enjoying money saving success.

"Areas in which clinicians have critical involvement can make or break you," says McDow. "If you think you have their support, there are still all kinds of problems that can take place." Iowa Health organized resource teams and other ad hoc teams and mounted an e-mail campaign to promote change. Every two weeks, clinicians and logistics people met and strategically selected spokespersons for the cause.

The internal purchasing and contracting structure at Iowa Health is surprisingly ordinary. No central purchasing department for the system exists and each of the 10 hospitals has its own purchasing department and staff. But there is a difference in that those 10 departments primarily perform expediting and logistical functions. "Really what they do is adhere to the contracts we sign," says McDow.