Bob Simpson at LeeSar and Cooperative Services of Florida
– Blazing a new path
Dissatisfied with their national GPO's inability to meet the needs of both suppliers and clinicians simultaneously, Lee Memorial Hospital and Sarasota Memorial Health Care System decided to disrupt the status quo of the supply chain world in 1997.
By joining forces to form a regional contracting and distribution cooperative called Cooperative Services of Florida (CSF) and LeeSar respectively, they were able to give doctors a greater voice in contract selection and provide supply chain savings to their owners by driving high compliance to suppliers that survive a rigorous selection process.
The lynchpin, according to President and CEO Bob Simpson, is the ability to drive 90%-plus contract compliance, making suppliers eager to do business with the regional cooperative.
"Any supplier out there wants one thing, and that's to control market share," Bob says. "Based on all of our healthcare systems we represent, we can look at a manufacturer and say that we can drive compliance. Because of this, we collect pricing and terms that are second to almost no one else in the country."
All of this while meeting the clinical requirements of their physicians.
As part of our series on innovating supply chain contracting, we sat down with Bob to find out how CSF has made a success out of the complex trade of supply chain contracting.
MediClick: What makes Cooperative Services of Florida different from the national GPO?
Bob Simpson: I used to chair the committee of a national GPO in New England, so I'm familiar with the model. Their challenge today is that they've gotten so big that they can't drive compliance with their portfolios.
It's frustrating to the suppliers who've worked hard, put in a bid with a GPO, receive an award and pay the administration fee. The next thing they have to do is go out and sell themselves to the clinicians. Although they're told that 200 hospitals could buy their product, they find they have nothing until they go out and sell themselves.
We drive compliance. That's why my board and I have always discussed not letting this get any bigger. With four IDNs, we're at the max that I can manage while still driving compliance to the manufacturers and keeping my promise to them.
Some of the national GPOs have started to break off and form these regional sections around the country to let them drive smaller portfolios while supporting the national agreements. Why have they done that? Because they know they can drive compliance on a smaller level. And they've gotten too big to drive compliance across the board.
MediClick: What approach does CSF take to driving compliance?
Bob: The CEOs of both Sarasota Memorial Health Systems and Lee Memorial Health Systems originally founded CSF after their physicians complained they didn't have enough input into supply selection. Our GPO at the time used advisory committees to put together product portfolios it sent to hospitals for compliance. Our physicians wanted more input into that process.
So the CEOs made CSF the full authority to negotiate their contracts. Our process goes in reverse. We go to the end users of the products to find out what is medically and clinically acceptable. Not what their preference is, not what they've been trained on in medical school. I need some options so I can drive the best deal possible. Then we only negotiate with manufacturers who have products that are medically and operationally acceptable.
Second, I need clinicians to agree to use it. Doctors and nurses are scientists; they deal in facts. We need to show them the savings and the value and promise them that we're not putting anything in their hands that can harm their patient. Whether it is nursing, department heads, or physicians, they all sign off ahead of time.
Physicians now have input into the process, and we've returned cost savings to the hospital. We can promise suppliers that we will drive 90% compliance to the contract. This is how we are able to collect pricing and terms that are probably second to none in the country. We benchmark our prices against the national GPOs annually and consistently come in the top 5% in the country.
And now that we've given value to the suppliers, we've started collecting fees from them.
In fact, a very interesting phone call took place last week. I got a call from the CFO of Lee Memorial Health Systems, who just had a bonding organization looking at their books to decide how to rate Lee Memorial. They found a revenue stream that they hadn't seen before, and it was growing substantially. The bonding organization wanted to know what that was. It was the revenue stream coming from CSF. Because of that, Lee got a higher bond rating. For the first time to my knowledge the buying coop had a major affect on the bond rating of a major healthcare system.
MediClick: How does driving this level of compliance affect your relationship with clinicians?
Bob: Since we all have backgrounds in medicine, we can speak their language. Bill Tousey, a VP at CSF, is a former director of surgery and an OR nurse. I was a medic in Vietnam, and I still do surgery with my nonprofit. The doctors and nurses respect that.
Plus, they've all seen the program work. About two years ago, we did price benchmarking on orthopedic implants and found we weren't getting the value for our volume. The implant companies dealt directly with our clinicians, ignored us, and passed on increases.
Lee's CEO called a meeting one evening. He put on a nice buffet and invited the orthopedic surgeons, the implant companies, the board, and the press. He stood in front of the room and said "I have one question and one question only: Given our orthopedic implant volume, can anyone tell me why we're not getting the price we should for the amount of business that we do for you?"
You could have heard a pin drop.
We took a stance that night. The first three companies to come to us with the price we'd set would get our orthopedic contracts. The rest will hit the streets. The doctors were not pleased.
None of the orthopedic companies stepped forward so we had to delay surgeries because implants were not available at the price we wanted … for three days. Then there was a break: a small, unknown orthopedic implant company that had just 5% of our business said "we'll play." Then another company came forward. By the end of about two or three days, three unknown orthopedic companies came forward.
I told the surgeons they could start doing surgery, but they had to choose from three unknowns, not the big three. They doctors were still unhappy. Finally, they asked for a meeting with the CEO who asked me to come along. They asked what they had to do. We told them "we just need fair pricing. You can have choice, but we're not paying outrageous prices." And all the orthopedic companies came back in and played.
Thirty days later, it was time for spines. What did the neurologists say to us? "Give us the paperwork, we'll sign off, we'll do whatever you want us to do" because they saw what happened with orthopedics.
But that's the reputation we have. We drive compliance. And our medical staff knows that.
Next week, Bob talks with MediClick about replicating the Cooperative Services model.



