PITTBURGH – A leading healthcare institution and a technology company are marketing a computerized sourcing model to help providers and suppliers of medical and pharmaceutical products negotiate prices more efficiently.
The University of Pittsburgh Medical Center and CombineNet have teamed up on the initiative. Pittsburgh-based CombineNet has developed computerized approaches for making purchasing decisions based on factors such as cost and quantities of different types of supplies.
Three facilities, including UPMC, the Charleston (W.Va.) Area Medical Center, and Northwest Hospital and Medical Center, Seattle, are participating in the initial round of purchasing.
The three organizations expect to purchase $1 billion in pharmaceuticals and medical-surgical supplies through CombineMed. Supplier bids will be analyzed until April, when contracts will be awarded.
“What we’re doing is moving the entire supply chain process, which is almost all on paper, to electronic,” said Robert DeMichiei, chief financial officer at UPMC. “As an industry, we have to rely heavily on technology as a mainstay, changing what we do with staffing and workflow.”
The approach, called Expressive Commerce, will be offered to other hospitals and systems. Participating healthcare organizations will be able to engage in future rounds of negotiations with a wide array of suppliers, project organizers said.
The technology matches providers’ needs with suppliers’ sealed proposals, which are submitted via a secure Web site.
Proposals can be creative and include conditional options that produce price variations based on volume and market share-based discounts and rebates.
The offers also can include options for factors like payment terms, packaging options and substitute items, DeMichiei said. “The win could be more profit for the supplier and lower cost for the buyer,” he added.
The CombineNet technology centers around an engine that enables the analysis of disparate data to find the best option for an organization, said Tom Finn, president of the CombineMed venture.
Other industries have moved to similar approaches, he added.
“As an industry, we’re about 10 years behind corporate America in embracing these types of technologies,” DeMichiei said. “The technology will be a struggle for hospital systems. Many don’t have enterprise resource planning systems in place” to take advantage of this.
The approach differs from reverse auctions, which healthcare organizations have used to get low bids on supplies through an artificially short timeframe. Price is only one of many factors that affect Expressive Commerce bidding, DeMichiei says.
The organizers hope their initial efforts will serve as a proof-of-concept for group purchasing organizations, or GPOs, the large organizations though which thousands of healthcare organizations traditionally buy a wide array of healthcare supplies.
Other supply purchasing approaches haven’t been as successful. During the emergence of Internet applications in healthcare about seven years ago, dozens of companies sprang up, promising to facilitate supply purchasing and cut costs for hospitals.
Only a few have survived, and GPOs remain as the dominant approach for supply purchasing by healthcare organizations.
