The use of film in traditional (analog) radiology declined in 2000 at a rate of about 5%, just as it had declined for each of the past 5 years, according to industry sources. The exact opposite proved true for film used in conjunction with digital modalities.
Ray Russell, Greenville, SC,-based director of hard copy imaging systems for Agfa, says, “It’s estimated that US hospitals and freestanding radiology imaging centers printed five sheets of digital modality film for every man, woman, and child in the country during 2000. That’s more than in previous years, although the rate of growth in use of this type of film is slowing slightly because of the offsetting effects of picture archiving and communications system proliferation and the accelerating movement toward all-digital radiology departments.”
Russell reports that digital film use is on the upswing for at least two reasons. First, more image capture equipment capable of capturing digital images is in operation today. Second, new examination processes and utilities designed for those pieces of digital equipment are continually reaching the market; this serves to make them more useful and, by extension, more widely used.
Unfortunately, as the use of film for digital modalities escalates, so do expenditures for film stock and related products such as processing chemicals, pharmaceuticals, and film jackets. At larger institutions, these costs can easily exceed $1 million annually, Russell states.
The good news is that the? prices paid can be trimmed anywhere from 5% to 20% or more, according to Bruce Gower, general manager, corporate healthcare, Agfa Medical Imaging, by facilities that join a group purchasing organization (GPO).
“GPOs aggregate the buying power of their members in order to negotiate deeply discounted pricing on all kinds of medical equipment and supplies, not just film and related items,” says? Gower. “Some GPOs have hundreds of members and others have thousands. The bigger the GPO, the more clout it can leverage to command the best price on goods.”
Membership in a GPO is typically open to radiology enterprises ranging in size from solo practices all the way up to departments at the largest of institutions. Indeed, the Health Industry Group Purchasing Association (HIGPA), a trade organization, estimates that 98% of US acute care, not-for-profit, nongovernment hospitals participate in one or more of the nation’s 600-plus GPOs.
GPOs are nothing new, though. They date back to at least 1910, when a purchasing cooperative called the Hospital Bureau of New York opened for business. GPOs from that era and on into the 1970s were chiefly local or regional affairs, but by the 1980s, GPOs with nationwide scope began to emerge and dominate the field. Now, according to HIGPA, close to three fourths of all expenditures for health care equipment and supplies are negotiated through GPOs. HIGPA reports that those expenditures, in 1999, amounted to $128 billion; they would have totaled closer to $148 billion were it not for the discounts secured by those GPOs.
When Saint Joseph Hospital in Orange, Calif., first joined one of the nation’s largest GPOs-Premier, Inc-it was spending close to $600,00 annually on film.
“Previously, we had a secured on our own a contract with an x-ray film manufacturer wherein we paid list price less 50%,” says Larry Westen, MS, Saint Joseph executive director of materials management. “It was a good, but not great, arrangement; fairly standard for an enterprise of our size.
“However, in our first year with Premier, the film contract we were then able to participate in was list price less 71%. That right there saved us $80,000 a year in film costs. This contract also featured a price lock-in for the first 5 of its 7-year duration. It was an absolute blockbuster of a deal for us.”
Westen explains that, in order to gain such advantageous pricing, Premier, Inc, San Diego, Calif,? generally looks to contract with the vendor that is the first- or second-ranked market-share leader in a particular commodity, such as film.
“Premier could elect to contract with companies that have only a small share of the market, but this wouldn’t guarantee supreme quality of product,” Westen asserts. “By contracting only with market-share leaders, the high level of clinical quality is going to be there-otherwise, these companies wouldn’t be market-share leaders.
“Also, most Premier contracts today are dual-sourced, which gives us GPO members some flexibility in who we can buy from. This allows us choices in breadth of product line. However, pricing on dual-sourced contracts is usually less aggressive than single-sourced contracts.”
Saint Joseph Hospital is owned by the Saint Joseph Health System, which is an original owner-entity of Premier. There are 250 such owner-entities of Premier, and more than 1,800 hospitals are members of this GPO. An interesting aspect of GPOs-Premier included-is that members typically participate in securing the contracts.
“Our Saint Joseph Hospital executive director of surgical services, for example, serves on Premier’s task force for negotiating surgical services contracts,” says Westen. “This particular task force consists of six OR directors, six materials managers, and six surgeons. They are aided by Premier’s support staff. They talk to one another by conference call once a month and meet face to face once a year. As a committee they decide who Premier will contract with. What’s good about this is that the contracts are sought out and negotiated through a process that is member-driven.”
Russell observes that GPOs lately have begun offering an even broader array of services, such as consulting. “Most GPO members don’t have the staff to evaluate all of the complex decisions that are part of the purchasing process, so GPOs are stepping forward with guidance to help them construct purchasing programs that will deliver the best value and make their purchasing processes more efficient,” Russell says. GPOs also want vendors to become involved in advising members. “Here at Agfa, we’re working with members of Premier and several other GPOs on strategies for reducing the amount of film stock they keep in on-hand inventory,” Russell says. “One strategy we often talk about is standardizing. For example, many radiology departments own film imagers made by different companies, but each brand requires use of its own proprietary film stock. By standardizing around a single brand of imagers, an enterprise would, therefore, need only one brand of imager film, instead of the two or three they previously had to keep in inventory.” He continues, “Usually, any time you decrease your film purchases to just a single brand, you’re going to end up automatically keeping less inventory on the shelf. That represents a savings right there, as well as a boost to cash flow created by freeing up capital that otherwise would be tied up in inventory.”
By any measure, it is fair to say that GPOs now wield considerable power in influencing purchasing decisions. Even so, GPOs face daily, relentless assaults on that power. Many of those assaults originate within the ranks of their members and take the form of what is known as off-contract buying. “In off-contract buying, the GPO member does not purchase products from the authorized list of vendors,” Russell says.
Off-contract buying is harmful to GPOs because vendors sign pricing contracts based, in large part, on the GPO’s assurance that it will deliver a certain (high) volume of purchases to the vendor. If member utilization of these contracts is poor, vendors then have grounds for subsequently raising prices or refusing to renew contracts. Either action carries the potential of creating dissatisfaction and, possibly, defections among those GPO members who have obeyed the organization’s rules, only purchasing from the approved list of vendors.
Westen suggests that GPO members engage in off-contract buying whenever they are able to negotiate on their own a better deal with the vendor or perhaps a rival of the vendor.
“We support Premier contracts wherever and whenever possible, but in addition to Premier contracts we also have a number of Saint Joseph Health System contracts-some of which predate our ownership position within Premier, he says. “Our policy has been that health system contracts take precedent over Premier contracts. However, as the health system contracts have come up for renewal, we have allowed most to expire, clearing the way for exclusive use of Premier contracts.
“The few health system contracts we’ve chosen to renew have been those involving companies with which we have enjoyed long-term business relationships. Some of these contracts are better than what Premier could give us.”
Russell, meanwhile, indicates that off-contract buying is unusual where purchases of film and related items are concerned.
“Film stock and processing chemicals available through GPO contracts are items that are already priced about as low as anyone is likely to find anywhere,” says Russell. “There’s no point in going off-contract for those materials.”
Still, enterprises sometimes buy film and related consumables off-contract. However, they do so for reasons not always having a direct connection to price.
“Occasionally, what happens is that the GPO member has a private contract with a vendor that was in effect at the time the member joined the GPO,” Russell says. “Since the contract is there, the GPO member’s radiology purchasing department continues to use it. In part, that’s force of habit, but it’s also taking the path of least resistance. Extricating oneself from an existing contract arrangement can be costly and time-consuming if there’s no escape clause in the contract.”
With radiology film seemingly destined to join the buggy whip and the bustle in the dustbin of history one day, it may come as a surprise to learn that film manufacturers are continuing to pour significant amounts of time and money into the quest to improve the performance characteristics of that particular medium.
Tom Boon, vice president, sales, customer satisfaction for Agfa, says, “Research and development investments in film are not going to go away any time soon just because everyone is acquiring digital modalities and picture archiving and communications systems. Where those investments are most likely to be focused, however, is on those films used in the most stringent imaging applications, such as mammography.”
Boon continues, “I think we can also expect to see much investment in dry-imager films. Every time there is an innovation in the equipment-a new imager or a new process for an existing imager-there has to be a corresponding innovation in the film that the equipment will use. For example, at Agfa, we’ve had to develop new films to go along with new products we’ve recently unveiled, such as our DryStar 4500 imager. This is a small-format 8×10-in and 10×12-in online system designed mainly for computed radiography and digital radiography applications.” He adds, “By the fourth quarter of this year, we’ll roll out a digital mammography version of the DryStar 4500. It will have high throughput, as well as media specially tailored for digital mammography.”
Russell continues, “Other times, you get noncompliance because the GPO member may have a standing lease arrangement with an imager vendor, and the lease still has a year or two to go before it runs out. If the vendor is not under contract to the GPO, the radiology enterprise may decide to continue buying film for that imager directly from the vendor, since the vendor’s film is the only one that will work with that particular equipment.”
GPOs, of course, try their level best to discourage off-contract buying. One major GPO attempts this with the aid of a contract clause that commits members to purchasing 90% of needed products from the vendors on the GPO’s approved list. That gives members with previously established and still-active private contracts a means of comfortably letting those relationships run their courses; at the same time, it ensures the fidelity of members to the GPO’s contractors. Included in the same clause is a stipulation that members may not independently solicit price quotes from suppliers who are on the approved list, nor may they use the prices negotiated by the GPO as the basis for seeking even deeper discounts from the vendors.
Other GPOs have sought to improve compliance by increasing the contact that they have with their members’ purchasing department personnel, going so far as to place their own people onsite, part-time or full-time, to function as compliance monitors and enforcers.1 Those GPOs that cannot devote the resources needed for that level of intervention usually rely, instead, on their ability to track purchase histories electronically and detect those members whose buying patterns are suggestive of an enterprise that is buying off contract; once it has been identified, the GPO can then have a representative call or visit the wandering member for a nonthreatening discussion of how to make better use of the GPO’s contracts and, thereby, save money.
Posits Westen: “If the GPO has a contract that requires 90% dollar compliance and the health care entity is at 89% or 88% compliance, it’s unlikely that the manufacturer will demand the GPO penalize the health care entity. Where you see manufacturers demanding the GPO do something about the situation is when the health care entity’s compliance is significantly below the requirement.”
Some GPOs are eliminating compliance problems by striving to make ordering easier than ever. The way this is accomplished most often is through the Internet. GPOs-recognizing the power, versatility and convenience of the World Wide Web-have been setting up e-commerce sites which allow radiology administrators to venture online and order film stock and chemicals from the computer right on their desks.
Other GPOs allow their members to utilize electronic data interchanges (EDI) to connect direct to vendors for order submissions. “In our enterprise, we have a fully integrated materials management information system with true EDI and e-commerce capabilities built into it,” Westen says. “We’ve looked at e-commerce a number of times over the last few years. For us to use it via the Internet, it would require that we take information out of our existing system, enter it into another system on the Intranet to place a transaction, when literally all I have to do is keep the information in my existing system, hit a key and transmit an order to a vendor.
“Premier doesn’t get involved in the supply-chain part of it. They are strictly a contract negotiator. The implementation of the contract is left up to the individual hospital members.
“All in all, though, I’d have to say that our experience with Premier has been very good. We like it for many reasons-convenience, flexibility and, most importantly, cost savings. Premier has been important to us in the past. It will continue to be important to us in the future.”
Rich Smith is a contributing writer for Decisions in Axis Imaging News.
- Compliance rates in the eye of the beholder. Repertoire. Available at: www.medicaldistribution.com/rep/Rep_2001_April/toc.htm. Accessed June 11, 2001.