I interviewed Ashok Muttin who discussed Will IDN’s (Integrated Delivery Networks) Replace the Current GPO Model and Impact the $600B Supply Chain?
It’s nice to speak with you today, Ashok. Today I’m looking forward to this interesting topic about will IDNs, or integrated delivery networks, replace the current GPO model and impact the $600-billion supply chain? Before we start, can you provide a brief background of yourself?
Sure, Dustin. First of all, thank you very much for having me; it’s a pleasure to be here. Since you interview a lot of great people in the supply chain area, it’s a pleasure to be here. I am the founder and CEO of nogpo.com. We are an exchange or a marketplace that brings the suppliers and the hospitals on a common platform so that they can conduct business without the middleman, i.e., the GPOs.
Can you start by explaining what IDN is?
IDN is short for integrated delivery networks. This is nothing but a chain of hospitals or a group of hospitals deciding that they have enough mass and enough volume within their hospitals, so they create an integrated delivery network with or without the participation of the group purchasing organizations so they can basically leverage the volumes they have and be able to get better prices from the suppliers and also be able to share best practices within their network of hospitals.
Why are they becoming popular?
Dustin, as you know, the GPO model has for all practical purposes has lived out its course. GPOs are the only industry that were allowed by the government to officially, accept a 3 percent commission on the volume that passes through their hands. Over a period of time, that 3 percent has increased to anywhere from 15 to 16 percent, and the integrated networks are realizing that it’s cheaper to build the supporting infrastructure. They can pretty much do the majority of the buying directly from the suppliers, and, thereby, they don’t have to pay this enormous amount of money to the group purchasing organizations, and they can better run their supply chains and also better control their relationships with the suppliers. That is not happening today, so the GPOs control all of the flow of the material and information that passes through these entities, so IDNs are interested to create their own network and, hence, manage their own destiny.
How are they different?
They are different from the perspective that they are building their own infrastructure, they’re managing their own processes, they are improving upon the technology infrastructure they already have. If you really look at an IDN world, that’s what should have been happening in the first case. GPOs are an anomaly as you would realize because they’re only in the health care industry, whereas none of the other industries actually have a middleman apart from the dealers and distributors.
IDNs are creating a different network, a different outcome, and I am sure the continuation of the IDNs will proliferate and more and more group hospitals will think of creating their own IDNs, and, probably, they will go to the next step of saying, “When we put all this infrastructure in place, we’re managing our own destiny. Do we really need the GPOs, are they relevant anymore?”
Can you talk about what challenges they face?
Sure. Creating the IDN is the first step in any integrated delivery network becoming an independent, but that doesn’t mean the success is guaranteed. If you really look at it, starting an IDN is a great vision, but the great vision can be undone by poor execution, right? Even within an IDN if the underlying processes continue to operate as usual, then that means they’ve only put a Band-Aid on a very serious business ailment.
The second thing is, one size does not fit all. Acute and non acute facilities each have their own requirement, and those IDN requirements have to be built in in order for somebody to start either a new IDN or improve upon the existing IDN.
The third point is: sub standard data that results in substandard savings. In the health care industry, the data, lack of it or the quality of the data plays a big role, so it’s very critical for an IDN to invest in data standardization and to maintain that uniform catalogue pricing, recalls and replacement information, now with the new GS1 coming in, so they would need to invest in that area.
The fourth one is: They have multiple IT systems, and there is a lack of real-time integration. An IDN, if you will see when they start this journey, oftentimes they are dependent on the GPOs to provide some technology infrastructure, and they acquire some technology on their own and when there is a merger-and-acquisitions situation; that system actually gets a lot more complex. The systems really don’t speak the same language—they don’t talk to each other—as a result of which they’re all in silos; you can’t get the information out. If you can’t get the information out, that means you can’t get the business intelligence.
And last but not least is: The health care industry has been very slow in embracing the cloud and the SaaS technologies. Now, that is a combination of either a fear about the patient confidentiality, the HIPAA compliance, and so on and so forth. The ability to embrace these newer technologies, would greatly help an IDN either somebody building a new IDN or improving upon an existing IDN because it’s very powerful.
How can existing IDNs become more successful? And what can new IDNs do to lay the groundwork?
I think the foremost question is to be able to clearly define why you’re forming an IDN. Do you have a Cultural ethos in the company where you can bring about these changes? IDNs are going to require a substantial amount of investment in terms of people, process, and technology. The way to cover all those bases is to build some of the supporting services on top of that core technology; then they are building an ecosystem that helps them to work really effectively with the suppliers and be able to remove all those obstacles that can be in the way of success.
Thank you, Ashok, for sharing your views today on this topic.
Thank you very much, Dustin. It’s been a pleasure speaking to you, and I look forward to, as always, your posts and informative posts on LinkedIn. Thank you.
About Ashok Muttin
Purpose Driven Entrepreneur Reinventing Healthcare Supply Chain