I interviewed Ashok Muttin who discussed Healthcare Supply Chain at Cross Roads- Changing Landscape & Cost Implications.
Ashok, there are a lot of changes happening in the healthcare supply chain in the US, referencing our conversation of last year, you had predicted that GPO’s are going to consolidate and change business models, we are seeing that happening now, what do you think is contributing to this activity?
I think there is a realization that the traditional GPO model has lived its course supplemented by the increasing number of regional, local and national coalition and integrated delivery networks (IDN). Many of these coalitions and IDN’s are forming their own group purchasing and benefitting from the same.
Do you see this as a positive development, will we see cost of healthcare coming down?
Ashok: We at SupplyCopia definitely see this as a positive development for all the stake holders i.e. patients, care providers and suppliers. We have always believed in the power of the group purchasing as a concept, a lever to reduce costs but weren’t particularly fans of how the traditional models were implementing that concept.
What kind of model do you see emerging from the current developments and where do you see the future?
Obviously, many models will emerge from the current events. Two notable models that will have a profound influence on the cost of supply chain are:
a. Traditional GPO’s morphing into more of technology enabled, end to end solution companies vs purely a fee based model. They will build or buy parts or entire supply chain management solutions from smaller technology companies. However, this may take some time as they still need to figure out the monetization model. There is a fair amount of challenge involved in communicating this message to both hospitals as well as suppliers.
b. Local and national coalitions will take more daring steps towards a self contracting and distribution model with or without their GPO partners. Our read on the situation is that this transformation will happen in two phases, phase 1 will be a hybrid model and phase 2 is more leaning towards being entirely independent.
At least in the next 3-5 years, we see both the models coexisting and over a period of time, they may merge to become one or entirely new models could emerge with the entering of Amazon, Alibaba into the competition mix.
How is this situation going to benefit the common man?
More competition means lesser cost of goods and hopefully these savings are passed on to the patients by the hospitals either in terms of lower procedure costs, more people being treated, more economically disadvantaged people being care, less write offs and hence no more closing of hospitals for lack of funding etc. We have reason to believe, Alibaba and other outsourced manufacturing companies will become more daring and bring their products and services directly into the providers via their coalitions and integrated delivery networks (IDN’s). Today, these manufacturers are delivering a $10 product directly from China into American homes and making money, we assume they will penetrate the providers as well.
Are you involved with any health systems creating their own coalitions or integrated delivery networks? If so, what challenges and opportunities do you see?
We are involved with a number of health systems, some are smaller in size while others are huge and complex. Our advice is to “start with the end in mind” i.e. clearly define why do you want to create an independent delivery network- questions to consider:
Are you creating this network to service your own facilities or do you see this as a new revenue generation model, incorporating new members? If the answer is former then solution is somewhat simpler, in that case we measure their desire and appetite for risk for creating an integrated model with self distribution or in partnership with an established organization like FedEx, UPS and others. These organizations would need to then plan for strategic sourcing, category management and contracting staff. The other option is to continue to leverage their current GPO contracts to the extent it makes sense till such a time they are able to develop their end to end infrastructure.
If it’s a revenue generation model then obviously the solution is a little more complex. We recommend to our clients not to fall into the trap of replicating a GPO like model and extract fees from the members. There is a great opportunity for them to create what we call as “virtual private network”, where in the coalition would provide a technology platform to its members, real time visibility into their spend pattern, cost savings recommendations, ease of executing transactions and measurable results all delivered on the cloud. Easy to adopt, scalable and extensible. In this model, they would become net revenue generators.
All this is great, where do you see weakness or failure points in this journey?
Listen, any journey worth taking is not going to be easy. A sure way to succeed is to plan for contingencies and as Andy Grove liked to say “The paranoid survive”. Be paranoid about what can go wrong, anticipate it, plan it and be ready to iterate as often as possible to get to the optimum solution.
The biggest weakness in implementing such a unique model is lack of technology backbone and advanced data analytics to understand and support buying behavior. Organizations can partner with us or others to fill this gap and then take a holistic model that can be used by even smaller hospitals that may not have the maturity to execute a solution of this nature on their own.
About Ashok Muttin
Purpose Driven Entrepreneur Reinventing Healthcare Supply Chain