E-Commerce and More.

Unless you're a dedicated shopper, purchasing is never fun. It means, by definition, having to spend money, and for many long-term care operators these days, this isn't easy when outgo exceeds income and facility bankruptcy is an all-too-real concern. The good news is that many vendors are as aware as anyone of the industry's financially perilous state. They realize that, to stay in business, they have to help their customers stay in business. And that is spawning creativity, including some major initiatives by companies that specialize in healthcare purchasing. AmeriNet/Broadlane, Medline and McKessonHBOC, for example, have all announced in recent months new strategies aimed at achieving much-needed pricing economies and purchasing efficiencies, and encompassing a new focus on long-term care. Here is how they shape up.

AmeriNet/Broadlane

Two major group purchasing organizations (GPOs) have joined forces and added an "e-commerce solution" to try to transform the medical supply landscape in acute care and long-term care. While AmeriNet and Broadlane have focused primarily on hospitals, their strategy includes approaching long-term care organizations, starting with the larger ones (Vencor and NCS are initial customers) and then moving toward the more regional operations. "There is a great opportunity in this sector for GPOs," says Steven Pfeil, associate with Broadlane's BuyPower Group Purchasing Organization. "GPOs have largely ignored this market, but long-term care operators are probably more ready now than ever for purchasing that will provide economic benefits both on product prices and enhancements to the purchasing process.

"We've tried for the past couple of years to package our contracts for long-term care," adds Mark Moyer, AmeriNet's vice-president of marketing. "We think our 'choice, voice and value' approach gives operators the purchasing flexibility that many are accustomed to."

Right now the GPOs see long-term care organizations as still committed to the traditional purchasing model, i.e., dealing one on one with specific vendors for specific products. This has the virtue of familiarity but falls short, from the GPO perspective, in two ways: lack of sufficient negotiating clout to drive prices down significantly, and lack of sufficient information to budget appropriately and identify purchasing inefficiencies. With a total membership having a combined purchasing power of $7 billion, AmeriNet/Broadlane believe they have the clout to get the best prices--and, as for the information gap, that's where e-commerce comes in.

"Nurses and others doing the purchasing for long-term care just don't have a handle on the data right now," suggests Pfeil. "Long-term care facilities don't have material management systems, or they have disparate information systems that don't talk to each other. To get any sense of the big picture, you have to pull data from multiple sources, which is very time-consuming and not always accurate." The benefits of e-commerce, at least theoretically Pfeil says, are twofold: (I) maintenance of a "data warehouse," housing all the data needed for various reports and automating the reporting process, and (2) real-time double-checks of purchase order accuracy, both at the time of ordering and at invoice, so that the buyer can be assured that the product, price and quantity are what was asked for. "There is considerable waste in the system just in reconciling invoices," Pfeil notes, "and overall it's estimated that the healthcare industry wastes $11 billion a year on the purchasing function."

How the GPOs' e-commerce approach would be structured for long-term care organizations was still being decided at press time. The two companies see their initial focus, however, on purchases of food and pharmaceuticals. "The investor-owned organizations will see the value of the combined GPOs," says Moyer, "while the smaller operations might say, 'If there is something we can do to improve our purchases of food and pharmaceuticals, let's do it."'

Medline

For a company that is the country's largest privately owned manufacturer and distributor of medical/surgical products, Medline takes its customers' financial welfare to heart in a big way. It not only helps facilities make purchasing decisions, but it also shares in the financial consequences if the decision is wrong. It's called the "cost capitation program," borrowing a leaf from managed care, but in a much more user-friendly fashion.

Basically, Medline amasses data on the facility's utilization of a product, purchased at a reduced rate, over three to six months and combines that information with data from the facility's monthly census reports tracked on a daily basis. The company then calculates the facility's cost per patient-day for that product. Should the facility's purchases in the future exceed that cost, Medline "eats" half the overage. If the facility saves money on future purchases, it keeps the savings up to a point and then shares them with Medline.

"We recognize that we have to help show facilities ways to drive down their costs of medical supplies," says Tim Dundon, vice-president of sales for the long-term care sector. "In helping with product selection, sometimes we might advise them to shift from a name-brand product to a more cost-effective privately manufactured one. We might advise moving to a higher-priced product if its quality will drive down its overall costs of use. Basically, we need nursing homes to survive if we're to survive. By the same token, nursing homes need a strong manufacturer/distributor in their marketplace. We believe this is the basis for a real partnership for both parties."

For its own e-commerce solution, Medline developed its own Web site featuring its 100,000-plus product catalog and online ordering capabilities for its customers. It will soon unveil a much-enhanced site that will allow customers to review previous orders and check product availability and order status.

Dundon notes that, as of now, the intermediate-sized chains appear to be moving more quickly toward the Internet to manage their supplies than the large chains and free-standing proprietaries. But, he says, this will change as the appeal of Internet-based purchasing broadens. "These organizations will have much better feedback and control of their purchasing operations with Internet access," he suggests, "providing this is the sort of added value that nursing homes want and need these days."

McKessonHBOC

Gary Keeler, the recently named president of McKessonHBOC's Extended Care Division, has an upbeat opinion of long-term care: In terms of electronic transactions, he says, it is one of the most advanced sectors in healthcare. Although the standard view is that long-term care trails just about everyone in adopting new technology, Keeler notes that more than 70% of his division's orders are processed via electronic media.

One reason for this is a bar code reading and tracking system called COMETS (using Telxon-type handheld devices or palm pilots) and an online ordering system called Red.e.Net. Earlier this year McKesson wedded COMETS to Red.e.Net. The result: e.COMETS, a purchase ordering system that scans inventory and enters product orders directly on the Internet at the push of a few buttons. Online users can investigate product pricing and availability in real time, and learn about new products offered by McKessonHBOC manufacturing partners who have been hyperlinked to its site. Purchasers get instant confirmation of their orders, and 95% of products are delivered the next day.

The system also serves as a data warehouse, where customers can store their purchasing data over time and then mix and match it periodically for reports useful in budgeting, forecasting, analyzing their costs per patient-day and recording their general ledger expenses.

"One thing long-term care facilities hunger for," says Keeler, a 17-year veteran, "is good information. There isn't much of it out there right now. This is a low-cost way to acquire the information they need and, in fact, they're doing it. I'm not sure people realize how far the long-term care sector of the healthcare industry has come in the use of technology."

Specialized Web Sites

Within the past year or so, Web sites have become available that allow healthcare product/supply purchasers to purchase or even sell items online. Two of the most prominent are:

Neoforma.com

A site that aims to expedite all phases of supply management, from planning to purchasing to ultimate liquidation (if applicable). It does this with three basic services:

* Neoforma.com Plan -- provides an interactive tour of facilities and facility plans showing layouts and products used (the basis of Neoforma.com's sponsorship of Nursing Homes/Long Term Care Management's Design Center)

* Neoforma.com Shop -- a unified marketplace of suppliers and customers

* Neoforma.com Auction -- enables review and purchase of used, refurbished and surplus medical equipment

medibuy.com

A self-proclaimed "buyer-centric" site that offers clients several means of access to products:

* eCatalog -- displays products at predetermined prices (including contract prices), available to "click and buy"

* eAuction -- enables review and purchase of used, refurbished and surplus medical equipment

* eSpecials -- displays promotional or excess inventory products available for purchase at deep-discount prices for brief periods of time

* eRFP -- allows would-be purchasers to describe desired products in requests for proposal ("eRFPs"), which are distributed among qualified suppliers who can submit bids for the purchaser's review and comparison