A new era in purchasing: interview with Paul Alper, President, Alper Associates, Inc.

Nursing home purchasing managers appear to have arrived at a crossroads: On one hand, the pressures on their price-consciousness are intensifying, as Medicaid reimbursement continues to be uncertain and Medicare, through its new Prospective Payment System (PPS), focuses unprecedented attention on cost reduction. On the other hand, facilities are being held to ever-higher standards of quality performance, both for OBRA surveys and in responding to the challenges of managed care and "alternative provider" competition. Simply shopping based on price alone won't work (if it ever has), yet how can facilities ensure that they're getting their money's worth, and then some, for the purchases they make?

Consultant Paul Alper, who recently made the transition from manufacturing to counseling manufacturers and distributors on performing their best in today's environment, has a few suggestions to offer their facility customers. Alper spent nine years as vice- president and general manager of the healthcare and PURELL consumer products divisions of GOJO Industries, widely known throughout long-term care as a manufacturer of skin care products, particularly the PROVON line. based on that experience, he shared his perspective on the old days and new ways of purchasing in an interview with Nursing Homes/Long Term Care Management Editor Richard L. Peck.

Peck: What, in your experience, have been some of the errors commonly made in purchasing by long-term care facilities?

Alper: Most purchasing managers in this field are highly competent and quite sophisticated, so I wouldn't say that there have been errors so much as missed opportunities. Those opportunities today involve finding the right business partners among the medical/surgical manufacturers and distributors out there who serve the industry. If the goal of a facility or chain today is to meet residents' needs and to strive for improved outcomes at the lowest possible per-patient-day cost, these partnerships are critical.

Peck: Are long-term care manufacturers and vendors ready, willing and able to partner with facilities in running their operations?

Alper: Absolutely. There are a number of high-quality players across the spectrum of resident care products and services who are extraordinarily focused on this important opportunity in longterm care.

Peck: If a facility or chain wants to set up such a partnership, what does this entail?

Alper: The first step is preparing a clear and well-thought-out Request for Proposal (RFP), spelling out in detail the specifications, service requirements and desired outcomes concerning the particular product category. The idea of the RFP process is to keep subjectivity to a minimum and to level the playing field, so that everyone understands exactly what the facility wants. Then, once a partner has been selected, the facility or chain must work with the manufacturer or distributor to ensure compliance with the partnership arrangements, whatever the agreed-upon purchases and value-added services may be, because this is what will achieve the goal of driving costs out of the system.

Notice that this process is the opposite of the "cherry-picking" approach to purchasing, in which facilities choose from multiple competing vendors simply to acquire products; purchasing in this way does not allow the facility to take advantage of opportunities to decrease "costs to serve."

Peck: The RFP approach may be new to several providers out there. What does it take to do it right?

Alper: The first important step is to involve all the stakeholders - all facility management staff who might be impacted by this decision - in putting together the RFP. What does each stakeholder think he or she needs and wants in terms of products, services and exact specifications, and what does everyone agree would be a good measure of success? All of this, once agreed upon, should be spelled out in the RFP. Manufacturers and vendors should then be given an opportunity to ask questions and get clarifications about the RFP while they're preparing their responses. Facilities should also avoid making ad hoc changes in the RFP as the process goes along, unless new information makes doing so absolutely necessary, because no one likes a "moving target."

You then need clear, objective measures whereby you evaluate the submitted proposals, followed by a quick decision and an explanation to all parties as to why you made the decision. The idea behind this is to have everyone come away from the process, whether as winner or loser, with a clear understanding of what happened. They should come away from this at least feeling satisfied that the decision was judicious. They will respect you as a purchaser and perhaps work even harder to get the agreement next time.

Peck: What about group purchasing? Might this achieve the same ends?

Alper: The key question is, will the group purchasing organization (GPO) - or any potential partner in the supply chain - add value that will help the facility do well in today's financial and regulatory environment? Specifically, what are the core competencies that the GPO offers that make it unique or different in adding value to the purchase? This doesn't mean simply negotiated prices. Rather, what added competencies does the GPO bring to help reduce the costs to serve? If a facility or chain already has such a relationship with a GPO, that's good. I would have to say, though, that on a product-byproduct basis, the best place to start would be with the manufacturers and distributors.

Peck: Short of these close working relationships with suppliers, and moving more toward the classic purchasing model, how might facilities approach the old conundrum of "buying cheap" versus paying more for quality to save money over the long run?

Alper: If a manufacturer is marketing a product that it says is high-quality with low in-use or life-cycle cost, saving money over the long run, you need good data to evaluate that claim. One way to get such data is to establish, in conjunction with that manufacturer, a beta site test. It needs to be of sufficient size and duration to yield meaningful data, and it has to be representative of the facility or chain as a whole so that you can extrapolate the findings appropriately. Any manufacturer that has been an established longterm care player for a period of time should have the methodology available to help the facility get this done, and in relatively short order. If the beta test works as projected, management's decision can be rationalized and supported with good data.

Peck: Given the fact that many facilities are really under the financial gun these days, the temptation may be to simply "buy cheap" and let the future take care of itself. Is there some way to reasonably pursue a policy of "buying cheap?"

Alper: Though most management in my experience, especially that of the chain operations, has been pretty reasonable in balancing price, quality and long-run cost savings, there are always those facilities that will simply stick with the lowest price, regardless of other considerations. In that case, I think it is very important to establish at least minimum performance standards and specifications. A good RFP can accomplish this, provided that all professionals - purchasing, clinical and otherwise - have a say in its development. Minimum performance standards are necessary to avoid foreseeable quality problems down the road.

Peck: What role might inventory management play in good purchasing practices these days?

Alper: This is another opportunity for partnership, in this case typically with a distributor; some distributors have very sophisticated capabilities of cost-tracking, bar coding and logistical support. Working with a distributor in this way, the facility can develop sufficient information to establish routine, standardized ordering practices. That is the key to taking costs out of the system - routine, standardized ordering instead of arbitrary purchasing as needed. Achieving a "routinized" approach is where today's sophisticated distributor can be of extraordinary value to a facility or chain. Particularly when it comes to the challenges of dealing with PPS and consolidated billing, some distributors have great programs available, and these should be explored.

Alper Associates, Inc., established in 1997, offers consultation in business development, new product introductions, executive search and resource partner selection for manufacturers and distributors of healthcare and related products. For further information, [phone].