Posted by: captainfalcon | July 14, 2010

Group Purchasing Organizations

This is an interesting article. I expect George Clooney will film it with Shaw’s ex-wife’s shaky-cam, if he has to. Here’s a taste. Does anyone else find Tommy Thompson’s cameo vaguely creepy and difficult to explain?

In 2004, Garrett Bolks, a Tulsa native who had spent twenty-four years working in the medical supply business, brought the first X-ray-detectable surgical towel to market. It was a simple invention—nothing more than a strip of blue waffle-weave cloth about the size of a hand towel, with a flexible ribbon of barium sulfate tucked into one corner of the hem. But it promised to eliminate the problem of towels being accidentally left to fester inside the body after surgery, and it garnered attention in high places.

After learning about the product through a friend in the summer of 2004, then Secretary of Health and Human Services Tommy Thompson invited Bolks out to Washington, where they discussed it over steaks at a local restaurant. Thompson liked what he heard. “It made a heck of a lot of sense to me,” Thompson recalled when I spoke to him in January. “I thought, Why hasn’t anybody thought of this before? This should be the standard in the industry.” After leaving the Bush administration the following year, Thompson agreed to sit on the company’s board and began talking up Bolks’s product in speeches. Bolks also landed a contract to sell his towels to the venerable Cleveland Clinic.

Nevertheless, Bolks couldn’t manage to make inroads with the GPOs, even when his X-ray-detectable towel was the only one on the market—and soon enough he had competitors. By 2006, Bolks had sunk more than $1 million of his own money into the venture, and was running out of capital. So when a Dallas-based GPO named Broadlane put out a bid for surgical towels that year, he decided to go all out. Not only did he offer his towels at pennies above cost, he also called in his connections, including Thompson, who personally put in a call to Broadlane. “I brought out as many big guns as I could,” Bolks recalls. “Because I knew this was my last chance.”

But even this was not enough for him to land the deal. Instead, Broadlane chose to go with ordinary, non-X-ray-detectable surgical towels from two established players, Medical Action and Medline. On its face, this choice made little sense. According to internal Broadlane documents, the quality of Bolks’s towels was on par with competitors, and his bid was nearly 20 percent lower than any other company’s X-ray-detectable products. It was also lower than the non-X-ray-detectable towels Broadlane chose. By all appearances, Broadlane went with a more expensive product that offered fewer benefits for patients.

Broadlane’s executive vice president for supply chain services, Michael Berryhill, said via e-mail that he could not comment on the reasons for the decision, though he emphasized that the company and its member hospitals weigh a number of factors beyond price when choosing which bids to accept, including “the reputation and reliability of each potential supplier” and “the transaction costs associated with having more suppliers on-contract compared to a lean supply chain.” But Diana Smith, a former director of surgical services at Broadlane who was privy to the selection process, sees the situation differently. “It should have been a no-brainer,” Smith told me when I met with her in Dallas. “Garrett had a good product, and it was cheaper than everybody else’s. But GPOs make their money by charging vendors fees. And if you get a percentage of sales, going with a lower bid from a little company just loses you money and pisses off the big vendors with multiple contracts.”

Smith, who provided the information on which bids were chosen, adds that the tricky part for GPO executives is getting member hospitals to sign off on higher-priced contracts, something she says Broadlane did by presenting the statistics in ways that, though technically accurate, were often misleading. In the case of the towel bid, hospital administrators were shown a PowerPoint presentation (a copy of which she gave to me) indicating that going with the Medline and Medical Action bids would save them between 6 and 29 percent. But this was relative to the same companies’ bids the previous year, not the bids offered by other vendors. “Our job was to bamboozle hospital CFOs and purchasing managers,” Smith explained. “My boss used to call it getting them to drink the Broadlane Kool-Aid.”

Hat tip.

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