Thanksgiving was one day away. Tully-Wihr Company's management team could count its blessings, but 1998 had been a year marred by subtraction. Tully-Wihr, a distributorship based in Colfax, Calif., lost three of his best clients-hospital accounts worth hundreds of thousands of dollars annually-to Standard Register last July when the hospitals signed on with a group purchasing organization. That month, when the lease on Tully-Wihr's Hayward, Calif., office expired, "We had to downsize," George W. Smith, CFC, Tully-Wihr's vice president of sales, says, "and it wasn't exactly fun."

Other distributors can relate. Since the late 1980s, purchasing groups-and the guaranteed savings contracts they offer-have been a hot topic in the medical market. For distributors, a boiling point came in the fall of 1996, when Premier Inc., then the nation's largest purchasing alliance, awarded the document management industry's most lucrative purchasing contract to Standard Register and UARCO. "When Premier hit, we all were extremely concerned," says Eric Purdy, CDC, owner of Northern Business Forms & Graphic Services, a distributorship in Duluth, Minn. "In one fell swoop, we watched a lot of good sales representatives from a lot of good companies show up for work to find their clients all gone."

Some distributors feared the worst and fled the medical market, considering it barren. Others scaled back their efforts in the niche. If hospitals were committed to using one of the majors, they said, why target those clients? Why not call a spade a spade? Just call it quits? "Why we hung around," Smith says, "is because we thought we might get a call. We did, and it proved that we still had plenty of opportunity."

The day before Thanksgiving, one of Tully-Wihr's former hospital clients ran out of an emergency room form. According to Smith, a hospital employee said Standard Register couldn't get the form for several weeks. Smith had the forms printed and shipped to San Francisco that day. On Thanksgiving morning, he picked them up and delivered them to the hospital. "That was the straw that broke the camel's back," Smith says. "It was no secret that the ball was being dropped all over the place. The hospital was getting much less than they were used to in terms of service."

A few weeks later, Tully-Wihr regained the three hospitals it had lost, and the distributorship picked up four other hospitals in the same chain. "One of the hospitals was totally out of over 200 forms," Smith says. "That's totally out. It can be a horrible mess for hospitals when that happens." Tully-Wihr has hired 12 people since regaining the new business.

"This has been a major coup for us, and we couldn't be happier," Smith says. "Companies that end up on top are the ones who give health care clients the whole package, and that includes service. The more service and the more products you can provide, the more possibilities you have in the medical industry-even if people in health care are generally worried about price."

Inside Hospital Minds
Hospitals sign up with group purchasing organizations for good reason. Buying groups have cut billions of dollars from the nation's health care costs. At hospitals, materials managers and purchasing directors relish the chance to save megabucks on everything from surgical equipment to syringes.

Distributors point out, however, that printed documents often necessitate customization and personalized care. "Almost never are hospitals choosing to sign up with buying groups because of the forms management contract," says Michael Mason, CFO of The Elm Press Inc., a distributorship in Thomaston, Conn. "They're doing it for pricing on high-end medical supplies. Problem is, hospitals are told, 'By the way, all your printing is going to come from this specific company. You don't have a choice.'"

When hospitals sign on Premier's dotted line, they are required to buy at least 80 percent of the products stipulated in the forms management contract from one of Premier's vendors-Standard Register (which purchased UARCO in December 1997) and Moore North America Inc. Hospitals also agree to keep program pricing and terms confidential, to refrain from bidding or soliciting quotes for products included in Premier contracts, and to refrain from renewing or extending existing contracts with other vendors for those products.

James Garvey, COO of Premier Purchasing Partners L.P., the limited partnership through which Premier manages group purchasing, told the medical newsletter Hospitals & Health Networks in 1997 that Premier expected 20 percent of its owners and affiliates to leave because of its mandatory compliance stipulation. Virtually all, however, signed on. Today, distributors targeting medical accounts say serious dissension exists among Premier members and affiliates over the forms management contract. Premier officials refused to comment.

Rick Kuhlmann, an independent consultant to the health care industry specializing in forms management automation, formerly operated a forms management department for a hospital near Minneapolis. In late 1996, when the hospital signed on with Premier, he had to commit to either Standard Register or UARCO. "Until then," Kuhlmann says, "we were able to deal with whomever we felt best in dealing with. We had looked at national and local vendors and had found that local distributors were just better."

Kuhlmann had to say goodbye to three local distributors who had been supplying the hospital business cards, envelopes, stationery and commercial printing for as long as 30 years. "That's the part that crushed me," he says. "I had to sit there and give them the bad news. I couldn't look at them and say, "Hey, stick around.' I could throw them no bone."

Some industry veterans say hospital accounts are not as untouchable as many distributors think. But to overcome group purchasing contracts, distributors must provide more than service with a smile.

Through Client Doors
Hospitals under most purchasing contracts are allowed to farm out 10 to 20 percent of their documents to non-preferred vendors. Some distributors take advantage of those opportunities. Another strategy-one that can yield higher returns-is selling products not mentioned in committed contracts.

Standard Register's Premier contract, which ends on Halloween 2001 and includes a possible 2-year extension, encompasses custom continuous singles and multiples, custom unit sets, custom continuous or unit sets with labels affixed or collated, custom continuous labels, custom continuous mailers, single sheets, pre-collated sets, custom labels (non-pinfeed and rolls), custom envelopes and electronic forms. Moore's Premier contract includes but is not limited to custom forms, stock health care claim forms and digital services. Many contracts, including Premier's, do not mention two of the fastest-growing segments of the industry-commercial printing and ad specialties.

"You have to be diverse to survive," says John Osborne, president and CEO of Midwest Single Source, Wichita, Kan., and a former DMIA Board member. The distributorship is the sole provider of ad specialties to one hospital. It also sells a large amount of cut sheets to hospitals. Midwest Single Source uses its Xerox DocuTech™ to produce at least 20 percent of the documents needed by its medical clients. "It's nice to be able to come in and get a couple of orders," Osborne says, "but hospitals are really looking for forms management companies. You can't make a serious impact unless you can sell a complete system of solutions. That's the direction most hospitals need their vendors to go."

Three years ago, Osborne headed 158 miles due south-and his emotions were going in the same direction. A state teaching hospital that had purchased all of its documents from his distributorship had been bought by a chain of health care facilities tied to a purchasing group. "It was very substantial business," Osborne says. "Then one day they said, 'Sorry, but adios. We love you, but goodbye.'" Soon after, Osborne drove to Oklahoma City to close the distributorship's branch there. "We had the bullet in the gun, and we were ready to shoot," he says. "We were ready to kill the branch entirely. But when I got there, I got an interesting surprise."

The state teaching hospital, which had hired a consultant team to suggest efficiency enhancements, had called the Oklahoma City office earlier that day. "They wanted to know if we would consider re-taking their account," Osborne says. "No matter who the hospital tried, they couldn't perform up to the requirements of the hospital. They needed our responsiveness." Midwest Single Source quickly took the client back. "Sometimes [hospitals] don't like it when they hear, 'You have a contract, so you have to do this.' That's why products-even ones that are covered [under contracts]-tend to eke out to distributors."

When FORM reported on Premier in April 1997, Susan Schrupp, former manager of support services for the Materials Management Division of the Premier Purchasing Partners program, said it was too early to detail exactly how and when mandatory compliance would be enforced. Buying groups strongly encourage compliance because they negotiate pricing in part by telling participating vendors how many hospitals and health care organizations are part of their network. Most buying groups receive annual rebates that generally are tied to total volume. "I know of clinics that have said, 'No way, we'll do what we want to do,'" Osborne says. "Nobody seems to be checking the 80 percent [committed to preferred vendors under terms of the Premier contract]."

Laura Yandell, media relations manager at Premier, says the organization has a Compliance Task Force consisting of 12 to 15 employees to check that the contract's terms are met. As with most contracts, Premier includes an escape clause based on non-performance.

Premier refused to comment on the number of hospitals that have used the clause, but says it's pleased with the service provided by its forms management vendors. Because Premier's forms contract is dual-source, the organization strongly encourages members who are unsatisfied with their current vendor to use Premier's other one. Experts say the dual-source setup helps buying groups promise national coverage, even in rural areas.

In Nacogdoches, Texas, a town between Dallas and Houston, Ken Warlick says hospitals demand-not just expect-down-home service. "Yep, we're way out in the boondocks," Warlick says. "Distributors in these areas need to know that they don't have to walk away from the health care industry, and that includes hospitals and clinics. There's still a good amount of business that can be done. When a hospital needs a form to operate on a day-to-day basis, they're going to find a way to get them the way they want them. If a hospital isn't getting what it needs, it's not going to shut down."

Warlick, president of Sunbelt Business Forms in Nacogdoches, lost two hospital accounts to Premier. But when the hospitals realized they couldn't get the level of service offered by the distributorship, Warlick says, "they just kept filling in with us." Sunbelt Business Forms, which operates four in-house presses, regained the hospitals' cut sheet business and 4-color work, as well as some continuous forms business. "The process can be slow and cumbersome," Warlick says, "but it's a worthwhile strategy to say, 'We're here if you ever need us.'"

Warlick and some other distributors expect Premier to loosen the compliance stipulation of its document management contract to give hospitals more flexibility. "Committed contracts make sense for commodity items, but not forms and printed documents," Warlick says. "I think everyone's starting to realize that. I don't think they're going to hold up for too much longer." continued on page 2

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