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In the past, it was common for many medical groups, particularly smaller groups, to run business operations like a "Ma and Pa" shop.

It was the norm to purchase supplies from one — or only a few — local suppliers. Practices paid full retail for products. The supplier would often have a salesperson make a visit to the practice to personally take orders and visit to insure vendor loyalty. Most groups did not plan their purchases of high volume items. These inefficient and costly habits could simply be passed onto the patient via higher fees.

Today's healthcare environment, with the reduction in reimbursement in Medicare and managed care, has reduced the opportunity to shift these costs to the patient.

Group purchasing associations developed by independent physician associations (IPAs), local medical societies, the Medial Group Management Association and other group purchasing organizations such as Amerinet and Volunteer Hospital Association are giving both small and large groups the same purchasing power as national corporations.

Groups such as these offer significant savings such as the one with the pediatric independent association (PIPA) as an example discussed in this article.

The marketing and purchasing of supplies have taken on many new forms in the last several years enabled by general technology advances in businesses at large. It is now an everyday experience to receive "blast fax broadcasts" or e-mails from current vendors or other vendors hoping to capture business through the use of technology. The uses of both voice and data technology have made it easier and more cost efficient for both the medical group and the supplier. Groups are taking advantage of the competition and consolidation. Suppliers are using low prices, loss leaders and matching prices as tools to the advantage of both small and large groups.

In asking groups what motivated them to work with these purchasing alliances the number one answer was "better prices;" "reducing inventory" was second. The average medical group cannot afford to hire someone who is experienced in purchasing. These purchasing alliances offer groups discounts on everything from drugs to computers.

The reason for the success of these alliances is the purchasing technique as expressed with good customer service, overnight shipments, dated billing, product availability, accuracy of shipments, usage reports and educational services for the products provided.

A good example here in Memphis in which a pediatric IPA built on its relationship with another IPA is Pediatric Independent Practice Association (PIPA). PIPA and Cumberland Pediatric Foundation/IPA in Nashville started as a loose alliance to share information, to provide better healthcare for children and to act as an advocate for children's healthcare in Tennessee. It was during this relationship that the opportunity arose to combine the purchasing and use the larger number of physicians participating to obtain better pricing.

J. William Appling and Associates, working with PIPA and Cumberland, looked at their needs for consistent low prices, accessibility, and labor savings, reducing copier equipment expense and customer service. It was also important to have state-of-the-art connectivity between practice and the supplier.

OfficeMax provided PIPA and Cumberland "retail connect" cards. These cards allowed individual groups to access contractual pricing as a one stop solution. Accessing contracted rates by swiping this "smart card" at every OfficeMax location or by use of the Internet made it convenient and cost effective to do business.

The uses of smart cards and other state-of-the-art connectivity tools are becoming more popular in group purchasing alliances. This particular alliance provided PIPA a savings of 60 percent in printing costs and 30 percent on regular office supplies. Historically, one-half of a typical group's supplies have come through local retail arrangements, but with these new nationwide agreements, the savings are substantial.

Innovations and communications technology have impacted local medical groups such as those in PIPA in a positive manner. It is clearly understandable how results show that a dramatic swing from local retails to regional and national purchasing arrangements that still maintain that local feel are successful. Creative companies have seen an opportunity to capture new markets by taking advantage of technology and lower transportation costs and medical groups have benefited through lower prices, fast and accurate service and extras such as usage reports and educational materials for better planning. Medical groups are casting their vote overwhelmingly by changing their buying sources.

The supplier and physician are reaping the benefits of technology. Medical groups that embrace the use of technology in managing their practice help them to also embrace the use of technology for clinical operations.



Editor's Note: This is the first in a series. Next month, Appling will explore the best use of technology in the physician's office.



Bill Appling is principal of J. William Appling and Associates, a consulting and management firm to physicians headquartered in Memphis. Appling also teaches an ambulatory healthcare program at the University of Memphis.


February 2007

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