Vizient voices support for market competition, backs GPO future
Since 2016, Amazon has been sowing the seeds and laying the groundwork for expanding in a number of areas, ranging from brick-and-mortar retail to grocery and most recently to healthcare. At press time, the company agreed to team up with Berkshire Hathaway and JP Morgan Chase & Co. to form a separate healthcare company that provides services to their employees “that is free from profit-making incentives and constraints.”
Some healthcare industry observers initially thought Amazon’s fact-finding efforts in healthcare rules and regulations as well as supply chain activities portended a massive venture into the business-to-business side of operations that complemented a business-to-consumer reach on a grander scale. Their efforts led one prominent publicly traded group purchasing organization to issue a formal statement last November about perceived market upheaval simmering to a slow boil. Premier Inc.’s statement is here. Because of its public listing and stature, Premier officials declined to address the “Amazon effect” directly with Healthcare Purchasing News, preferring to let its statement stand.
But officials from Vizient Inc., Premier’s market-leading competitor in group purchasing services based on annual purchasing volume and member organization totals, agreed to field some pointed questions from HPN Senior Editor Rick Dana Barlow about Amazon’s perceived advances into the healthcare supply chain. Pete Allen, Vizient’s Executive Vice President, Sourcing Operations, proffered his company’s view on the competitive landscape now and going forward.
HPN: As Vizient establishes itself as a performance improvement company with integrated sourcing programs, what’s to prevent an online exchange, particularly one like Amazon, from usurping from Vizient and other GPOs all of the heritage contracting, purchasing and distribution transactions on which group purchasing was founded? GPOs know healthcare better? Customer loyalty and trust? Not enough margin? Why?
ALLEN: These questions drive to the core of the healthcare GPO industry’s evolution. In the current healthcare environment, we don’t think the “legacy” transactional functions can exist separate from performance improvement. Here’s one example of how integrated purchasing is essential to overall performance improvement:
Vizient is working with hospitals to enhance the financial and operational metrics of the orthopedic service line by aligning 25 orthopedic surgeons around a certain procedure. We are helping the hospital analyze clinical and supply data to understand how the different devices and processes used by the various surgeons impact patient outcomes relative to the organization’s cost structure (i.e., are outcomes a function of product cost, or can we achieve the same or better outcomes with less expensive products and process improvements?). We’re benchmarking the hospital’s performance against peer hospitals around the country to identify best practices. We’re also facilitating discussions between the surgeons and the hospital’s supply chain team to consider product and process changes that would maintain or improve the quality of care while lowering the costs associated with the procedure.
Working cross-functionally to build consensus and align clinical and business goals is central to Vizient’s service model and an essential part of the value we deliver. An online exchange is not set up to address any of these critically important issues—or to develop this level of trust and partnership. Hospitals are clearly looking for these services, and we are far better equipped to deliver them.
From Vizient’s standpoint, how much sense does it make simply to let all of that “group purchasing” business go in favor of clinical consulting, data management, workforce improvement, etc., in much the same way Kodak jettisoned film and IBM jettisoned PCs?
We don’t see the “group purchasing” as separate or standalone transactional business, but rather an essential component of healthcare performance improvement, alongside offerings like clinical consulting, data analytics and management and workforce, improvement.
What if Vizient’s dedicated hospital customers demanded that Vizient (and other GPOs, respectively) to “be more like Amazon” in your online transactional and logistical capabilities?
The services Vizient offers today have been built from insights from healthcare providers on the ground, and we are always working with our customers so we can evolve to better meet their needs. We maintain a 22-member Board of Directors that includes executives and clinicians from around the country who are directly involved in Vizient’s strategic decisions.
It’s also unclear that hospital members want us to “be more like Amazon” or other online exchanges because health systems don’t make purchasing decisions in the same way general consumers do. Most hospitals use some type of procurement and ordering technology to ensure that the right products are stocked in the right place at the right time. These systems are designed to minimize or eliminate product variations that could increase costs or impact utilization, safety or quality, and many are tied to inventory levels to ensure just-in-time delivery. Many of the transactional and logistical capabilities that online exchanges have brought to consumer-retailer relationships are efficiencies that hospitals and GPOs have been developing for years, albeit in ways that are very specific to the healthcare environment. For example, for more than five years we’ve offered our online portal, aptitude, along with procure-to-pay and other online exchange options.
What I hear you saying is that a GPO like Vizient understands its healthcare organization customers better than an Amazonesque organization would because that organization would be more interested in increasing transactions and moving product more efficiently and satisfying customer demands for quick service?
What we are saying is that we continue to believe that Vizient’s model, supported by the largest volume in the industry, a suite of complementary services/analytics and our long-time provider relationships, can — and does — drive value in the healthcare industry. At the same time, we also believe that the healthcare industry is facing tremendous pressure and upheaval, and in response, we continue to look for new and innovative ways to serve the needs of our members and continue our role as their indispensable partners. Hospitals need and expect partnership in problem solving and high levels of support are essential for anyone serving hospitals in this space.
Amazon is exploring how to operate within HIPAA guidelines, seemingly portending a much deeper dive into the healthcare industry, which could encompass consumer/retail and trade. Could not a company like Amazon jump into performance improvement and integrated sourcing just like Vizient and other GPOs if it simply hired hospital/IDN/GPO supply chain execs, doctors, nurses, etc., just like the dot-coms did nearly 20 years ago? Why?
The healthcare industry is rapidly evolving with mergers, acquisitions, and expansions shaping the next phase of care delivery. Over the years, Vizient itself has grown through strategic mergers, acquisitions, and service expansions to fully integrate our group purchasing expertise to create a comprehensive performance improvement company.
The good thing about competition is that it inspires innovation, which ultimately will make the health system stronger. We have been anticipating this move by Amazon for several years, and we continue to watch closely. At the same time, we work closely with our members and suppliers to continue to innovate, improving our product offerings and service delivery to better meet the needs of healthcare providers now and well into the future.
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Rick Dana Barlow | Senior Editor
Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].
