Strategic sourcing built to meet needs and rigour of the healthcare system

As the cost of healthcare in Canada continues to soar, facilities are continually seeking ways to cut costs without sacrificing quality. In a dynamic industry such as healthcare, how does one manage to do this? An effective strategy is the collaborative power of a Group Purchasing Organization (GPO) that can leverage better pricing from suppliers based on volume. Medbuy is Canada’s longest standing GPO in the healthcare sector. Medbuy’s Senior Vice President of Member Services, Leslie McGill, spoke with The Canadian Business Journal to discuss the opportunities for healthcare facilities.

Making all supplies affordable

Medbuy was conceived in 1989 when three organizations (Grey Nuns Community Hospital in Edmonton, Alberta, Victoria Hospital in London, Ontario, and Saint John Regional Hospital in New Brunswick) reached out to each other with a need to manage and reduce supply costs. Since then, Medbuy has grown into a strategic sourcing powerhouse working on behalf of hundreds of hospitals and health care organizations across Canada from the biggest urban centres to the smallest rural communities. Fast approaching $1 billion in supplies purchased through its contracts with more than 150 suppliers, Medbuy is the benchmark for Canadian GPOs.

McGill acknowledges that hospitals have felt the financial crunch for several decades now and there has always been the push to save dollars in areas away from frontline care to minimize the impact on patients and on clinicians who deliver care. Basic hospital needs like medical and surgical supplies, pharmaceuticals, equipment, in addition to food and nutrition supplies, represent about 20 per cent of a hospital’s operating budget. This is an area of opportunity for hospitals to save money—precisely where Medbuy comes in. The core of Medbuy strategy is, quite simply, a pooling of resources. When hospitals work collaboratively, it opens up a wealth of opportunity for savings.

While volume aggregation is the basic premise behind any GPO, the strategies employed to achieve the best possible contracts for hospitals are what set Medbuy apart. “The landscape in healthcare procurement has changed dramatically over the past five years,” notes McGill. “Ten years ago hospitals found great value in working with GPOs for commodities where it was relatively easy to get coast-to-coast buy-in for a single supplier of items like cotton balls and tongue depressors.”

The value in single source commodity procurement remains today, but the pressure for hospitals to do more with their strategic sourcing partner has increased dramatically as they look to reduce costs away from the bedside without impacting the quality of care. “It’s one thing to have a single source contract for cotton balls used by multiple facilities from coast-to-coast,” says McGill. “It’s quite another to do the same for pacemakers. Our approach to strategic sourcing for supplies that are clinically sensitive is unique in the country. We always look to maximize our members’ volumes, and our sourcing strategies, be they single or multi-source in nature, result in supplier optimization which has a positive impact on both clinical and financial outcomes for all our members.”

Supplier optimization is critical from a clinician’s perspective. Having the right number of suppliers (not always one in many cases) reduces the risk for patients and the costs associated with managing negative clinical outcomes. It also increases the efficiency of clinical staff as there are fewer product protocols to manage in the care environment.

For purchasing managers whose job it is to find supply savings, there are several key affordability benefits that come from supplier optimization driven by participation in Medbuy’s processes, including fewer products to manage means a reduction in product handling and distribution costs; SKU reduction means easier maintenance of the procurement system; cleaner data reduces transactional errors, and fewer suppliers results in more efficient supplier management including fewer payments to process.

Breadth of product under contract

In order to meet any healthcare organization’s primary objective of improving the cost effectiveness and efficiency of their procurement practices, hospitals and regional health authorities turn to Medbuy because they offer the widest array of contracted products possible.

Over the past three years, Medbuy has engaged in a major expansion of the category of products they procure on behalf of their members. Today, their core contracts offer tens of thousands of SKUs with access to hundreds of thousands more through systems contracts. Medbuy’s contract categories span a wide range of products purchased by hospitals on a daily basis.

Medbuy also has the most comprehensive pharmaceutical contracts in the country. “Medbuy has a committee structure that facilitates direct involvement of our members,” notes McGill. “Our Pharmacy Committee is an excellent example of this highly engaged and participative approach. The committee is made up of hospital pharmacy directors from every member organization. We work with them to develop the most effective approach to pharmaceutical procurement. The result has been extraordinary. Our pharmaceutical contract portfolio is unmatched and has had a remarkable impact on hospital and provincial drug formularies.”

Effective procurement practices also mean looking at ways to reduce duplication in service. “Our members have asked us to do more for them as they grapple with other demands for their time,” says McGill. “We’ve responded through using a number of unique approaches, including the development of some highly successful partnerships, which have enabled us to bring considerably greater value to our membership in a very short period of time, without duplicating service and adding cost to the system overall.”

One such collaboration has proven to be highly successful for Medbuy and its members. Earlier this year, Medbuy joined forces with the St. Joseph’s Health System Group Purchasing Organization to offer procurement services for capital equipment and food. “Our collaboration with St. Joseph’s has been an outstanding addition to our service offering,” says McGill. “As word continues to spread about our CAPsource Program, more and more organizations are approaching us to assist with this highly complex area of procurement. As more organizations participate, overall costs will fall, and that’s what our business is all about.”

Systems create the foundation

To help navigate and manage procurement, Medbuy offers a series of web-based spend management tools that assist in managing contracts, accessing contract information, identifying new contract opportunities and uncovering potential new avenues for further savings. “Our system was specifically designed to help establish and manage contracts for members and maximize their savings potential,” says McGill. “In particular, we’ve made a significant investment in our Data Management program. We have looked at how it can not only augment our work, but also drive better value for our members.”

The Data Management Program maximizes any and all opportunities for supply savings. As part of the Data Management process all Medbuy’s members’ spend data is received on a monthly basis. It is aggregated, normalized for manufacturer name and number and is enhanced with the United Nations Standard Products and Services Code. Doing so allows Medbuy to utilize its business intelligence and decision support tools to analyze membership spending providing quantitative insight in to supplier performance, spend dynamics and market trends. Medbuy’s team of analysts is unique in the industry in being able to provide this valuable service.

The benefits of the Data Management Program are transformational both in terms of dollars saved—in the short- and long-term—and the way in which healthcare organizations are able to manage and utilize data for reporting, planning and future purchasing.

Member involvement

One of the hallmarks of the Medbuy philosophy is member involvement. Members participate actively in multiple levels of the organization, including in its governance structure. The 15-member Board of Directors consists of 12 members, the CEO and two external members. This involvement ensures member needs are reflected in the strategic direction and day-to-day operations. It also guarantees a level of accountability from Medbuy to its members.

“Member involvement really permeates every level of our organization. It was a founding principal of Medbuy 21 years ago and remains the same to this day,” says McGill. “We fundamentally believe in the principle of transparency, delivering that to our members so they can meet their own obligations.”

Medbuy is committed to its members and to developing the best services to tackle the new and emerging needs in the healthcare sector. This unwavering member focus and the value Medbuy has been able to drive will continue to take on increasing importance as the demands on the health system continue to grow.