Print Solutions Magazine

Two distributorships increase health care sales by nearly 300 percent in 2005 under the Novation contract, showing that distributors can compete with majors who once cornered the market. The increase
in sales was accomplished by focusing primarily on smaller hospitals and non-acute care facilities.

It’s been more than a year since Novation, the leading group purchasing organization in health care, initiated a contract with distributorships American Solutions for Business, International Business Solutions Alliance LLC (IBSA) and the direct-selling manufacturer, The Relizon Company.

The 2004 announcement that Novation, owned by health care alliances VHA Inc. and University HealthSystem Consortium (UHC), had made the switch to purchasing print solutions from distributors and a manufacturer rather than solely from direct-sellers was heralded as a validation for the distributor side of the industry. Prior to this, distributors rarely gained access to GPO-contracted hospital and medical facility accounts.

“When I started my distributorship it was hard to get into hospitals,” says Mark McKinney, president and CEO of IBSA, based in Indianapolis. “It still is if you’re not a member of an alliance like ours with a GPO contract.”

Both American and IBSA report increases in health care sales under the Novation contract of nearly 300 percent more in 2005 than the previous year. The companies view these sales numbers as confirmation that distributors can compete with the direct-sellers in the health care field. “We’re tracking along at the same pace as the majors with this,” says Craig McLain, COO of American, based in Glennwood, Minn. “We’re happy and I’m sure Novation’s happy.”

Novation agrees. "Novation's contracts with IBSA and American Solutions for Business are growing and have been very successful at meeting the document management needs of small and midsize VHA and UHC member hospitals and non-acute care facilities," said Barry Campbell, senior product manager at Novation.

Though both distributors declined to share exact 2005 sales numbers under the Novation contract, the GPO’s goal for American this year is $10 million in sales, according to McLain, and American is on track to meet that target. According to the GPO’s web site, Novation represents $25 billion in annual purchases of products and services that range from business products to medical and surgical equipment to environmental services and facilities.

American and IBSA cite their focus on non-acute facilities like outpatient clinics and X-ray centers and mid-sized to smaller hospitals as the reason for most of the sales increase. These facilities are growing in number but are often underserved. “We are a 530-person distributorship with a lot of coverage in second tier facilities,” McLain says.

Under the 3-year contract, with an option of an additional two years, American and IBSA were placed in the Tier 2 category that encouraged the distributors to concentrate on acquiring contracts with non-acute clinics and hospitals with 250 beds or fewer. But Relizon, Dayton, Ohio, (now a Workflow Management Inc. subsidiary) was encouraged to sell primarily to Tier 1 facilities: acute clinics and large hospitals with 250 beds or more. “That is what they wanted us to focus on but we’re not limited to those customers,” McKinney says. “We have a few customers that include larger hospitals.”

Rodney White, vice president of health care sales for IBSA, says because of the contract IBSA’s expanding customer list now includes INTEGRIS Health, a coalition of hospitals, rehabilitation centers, physician clinics, mental health facilities, independent living centers and home health agencies in Oklahoma, Antelope Valley Hospital in Lancaster, Calif., and a group of clinics and non-acute physician practices in Texas.

Brennan Murphy, the Novation account manager at American, says the Novation contract also helped American sell products and services to El Centro Regional Medical Center, a 165-bed general acute care facility in El Centro, Calif.; the Albert Lea Medical Center, 15 medical units in southern Minnesota and northern Iowa; and St. Vincent Regional Medical Center in Sante Fe, N.M., with a capacity of 268 licensed beds.

Murphy says American provides products in the 15 categories, the most categories under the Novation contract, but “we’ve seen strong sales in forms, envelopes and labels. We’ve even had sales of promotional products,” which major directs like Relizon initially did not offer. McKinney says that IBSA is focusing on “making a big push to electronic medical product sales.”

“IBSA understands that the print business is changing and we understand that new technology is coming down the pipeline,” White says. “So we thought it was in our best interest and in the best interest of our affiliates to keep them informed and up-to-date on these new technologies.” In March, IBSA held a health care boot camp for affiliates. Suppliers of color-coded filing systems, electronic medical records and radio frequency identification systems (RFIDs) put on seminars.

White says part of the electronic medical products push includes sales of electronic medical records, a growing market sector now that the Health Insurance Portability and Accountability Act (HIPAA) requires hospitals and physicians to adopt stricter standards of documenting medical records while maintaining privacy of patients. They are also required to transfer more insurance information electronically. “We have a vendor, Visionary Medical Systems Inc. out of Tampa, Fl., that specializes in physician practice software and has a great solution for EMR,” White says. IBSA is also pushing RFID technology to help maintain hospital inventory. “The cheaper chips or non-active chips can’t be read outside of a range of two feet,” he says. “But the active chips, which can broadcast at greater distances and are more expensive, can be really useful for capital security. For instance, if you had a respiratory machine valued at several thousand dollars, it would be worth the investment in a chip that could track that piece of equipment within a hospital.”

Freelance writer Katherine House contributed to this report. LaShell Stratton is an assistant editor of Print Solutions magazine. Email your comments to lstratton@PSDA.org.

For several years, Congress has considered restricting the purchasing power of health care GPOs. Some industry leaders say those limits would promote greater competition and give hospitals and physicians more access to an open marketplace. Others argue that it will only stifle competition and innovation. Currently, three draft bills are being considered by the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights that would place restrictions on Health Care GPOs: “The Medical Device Competition Act,” “The Hospital Group Purchasing Organization Reform Act,” and “The Ensuring Competition in Hospitals Purchasing Act.”

On March 15, the subcommittee held a hearing where both sides of the industry, including the Healthcare Group Purchasing Industry Initiative (HGPII), of which Novation is a member, and the Medical Device Manufacturers Association (MDMA) testified for and against the proposed legislation.

“Hospitals will directly suffer from this straitjacket approach to group purchasing that would result from the bureaucracy created by these bills,” wrote HGPII Chairman Al LoBiondo. “A one-size-fits all GPO framework would stifle the current competitive environment that encourages innovative solutions and creative efforts to further increase savings and improve clinical outcomes.”

“Since this process began in 2002, GPOs have not seemed to take the subcommittee’s request for reform seriously,” testified Mark B. Leahey, executive director of MDMA. “While GPOs publish codes and develop new initiatives that claim to have reformed the industry, their actions indicate otherwise. They continue to contract in exclusionary and anticompetitive ways, including bundling across companies and products, executing long-term contracts, engaging in sole-source contracts, awarding no-bid contracts, collecting excessive fees and preventing caregivers and hospitals from access to a free and open marketplace of competitive products.”

Novation distributors American Solutions for Business and International Business Solutions Alliance LLC (IBSA) said though they are keeping an eye on legislation being considered on Capitol Hill, neither expects that what is currently before the Senate would have any impact on them for now.

“I personally don’t think it will affect us at this point in time,” says Rodney White, vice president of health care sales for IBSA. “They’ve been dealing with this issue for about 10 years on the Hill. The sticking point is that GPOs may not allow smaller vendors, smaller distributors, to compete but IBSA is the best answer to that. We’re funneling business to these distributors across the country. If the government shuts down GPOs, they’re only going to hurt the people they’re trying to help.”

“We don’t anticipate any changes,” says Craig McLain, COO of American. “If anything, from our perspective the proposed changes would be positive for American Solutions for Business. It opens the door for more companies to compete. But I think we’re already starting to see it anyway with what the GPOs are doing voluntarily.”

“Novation’s efforts to work with small and diverse suppliers and those that manufacture new technology has resulted in more than 150 supplier and distributor agreements and nearly $1.4 billion in annual sales for the participating companies,” said Novation in a statement issued for this article. “Novation will continue to lead efforts, through its association with HGPII, to avert legislation that would jeopardize the way hospitals use GPOs.”