Category Archives: Healthcare

Uh-oh … Looks like Chinese tire manufacturers are going to take a hit for health reform

Share This on Linked In

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

In “U.S. Adds Punitive Tariffs on Chinese Tires” (NY Times), Edmund L. Andrews states that:

The tariff, which will start at 35 percent this month, is a victory for the United Steelworkers union, a crucial ally in President Obama’s health care overhaul.

and that

the decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001. Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

It also looks like the Times has an editing problem. It’s not a punishment at all, unless you regard a penalty for mere success as punishment. The tariff isn’t connected to any misdeed by a Chinese company.

And the connection to health reform is rather tenuous. The union would continue to support reform even without this tariff.

At least this step is better thought out than former President Bush’s tariff on Chinese steel. That wasn’t connected to any misdeed either. Because the tariff applied to the steel only, and not to products containing the steel, it made it more efficient to build steel-containing products outside of the US. I don’t think this one will hurt the US car industry like the previous tariff hurt US steel fabricators.

It’s an unfortunate trend though. Rather than take the time to build a case against Chinese tire manufacturers on the normal grounds (dumping, safety violations, pollution) they took the lazy way out. There’s no way for the Chinese companies to defend themselves. The only response can be retaliation.

Dick Locke, Global Procurement Group and Global Supply Training.

The Cost of Big Business

Share This on Linked In

Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.

“There’s a kind of mentality in this sector that [settlements] are the cost of doing business and we can cheat.”

The above is a quote by Bill Vaughn, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports in response to the news that Pfizer had been fined a U.S. record $2.3B. (Yup, that’s a “B” not an “M”.) Apparently Pfizer was caught illegally promoting its pharmaceuticals by heaping all sorts of gifts such as golf outings, massages, and resort stays upon doctors.

This wasn’t the first time Pfizer had been caught – they are a repeat offender having had to settle such allegations by the federal government four times in the past 10 years. Ouch. This is going to need more than just a topical ointment to solve.

I have written before about what is so sad about these kinds of fraud cases and this case is so massively big that some the consequences and characteristics bear repeating:

  1. The $2.3B penalty is about 4.8% of Pfizer’s 2008 total revenue of about $48B. The penalty seems materially significant and could cause stock prices to fall affecting investor’s earnings.
    • This would appear to violate Sarbanes-Oxley COSO compliance framework aspects such as the Control Environment (also known as the “tone at the top”), Internal Controls and Risk Management.
    • Can we expect a change of corporate management and a refund of performance bonuses?
  2. The products involved in the illegal promotions included Viagra, Zoloft and Lipitor.
    • Is the prescription of unnecessary pharmaceuticals one reason why our healthcare system is so expensive and in crisis?
    • What are the health impacts to a person when pharmaceuticals are prescribed that they really didn’t need?
  3. What ethics examples are being set for current generations of employees and those up-and-coming sales representatives, doctors, and business executives?

But before we build a gallows for one, let’s consider the doctors who accepted these trips and gifts. Okay so Pfizer should not have offered but by the same token the doctors should not have accepted. If business ethics are not taught in medical school or promoted by the American Medical Association they darn well should be.

Taking this another step further it’s one thing for the doctors to accept gifts but it’s another thing for them to act on them. (Um … gee … that actually sounds a little bit like fraud itself!) If doctors (a) were persuaded to and actually did prescribe medicines without cause to patients who didn’t really need them, or (b) were persuaded to and actually did prescribe one company’s brand over another without regard to which brand was actually the better remedy, then the doctors themselves are also at fault here.

To me there are aspects of this case that parallel the disturbingly thought-provoking movie District 9. What affected me most in that movie is that I think the brutal and ego-centric representation of the human race and the various government, military, and gang players was dead-on accurate, and that unnerves me. I felt sorry for the victimized aliens who were more the “good guys” than the humans.

Mr. Vaughn’s observation describes the steamy underbelly of some healthcare companies & healthcare providers. This is analogous to when police officers are caught selling drugs from the evidence room or abusing their authority for their own benefit especially when it conflicts with protecting and serving the law-abiding public, or when politicians abuse their power for their own self-interests.

This case is about nothing more than greed sustained by a lack of integrity and a failure of fortitude to do the right thing. The people who could put a stop to fraud like this seem too reluctant to do so in lieu of favouring their own self-interests, so I’m hoping for an alien invasion by a more ethical species than ours.

Norman Katz, Katzscan

Claro’s Crystal Customs

Our last post on Claro re-introduced you to Claro and their successful sourcing practice. Today’s post is going to cover the other parts of their consulting practice and their particular areas of specialty.

Claro now has four primary areas of specialization:

  • Sourcing & Procurement
    From Spend Analysis through Contract Management to Procure-to-Pay, Claro has capabilities across the sourcing and procurement spectrum and their partnership with Ketera (acquired by Deem) allows them to not only utilize modern e-Sourcing tools on a client’s behalf, but leave them behind as well. (Of course, a client should do its own analysis of marketing leading and best-of-breed sourcing and procurement solutions, including Ariba (acquired by SAP), BIQ (acquired by Opera Solutions, rebranded ElectrifAI), Emptoris (acquired by IBM, sunset in 2017), Enporion (acquired by GEP), and Iasta, among others, before blindly choosing the Ketera solution, because, even though Ketera might be the right fit, it might not.)
  • Insurance and Claims Management
    First party and third party claims management on behalf of insurance companies and organizations that need to make a large number of insurance related claims
  • Healthcare
    Revenue Cycle Management, DRG/Clinical Documentation Support, Healthcare Process Improvement, Self-Pay Management, Drug Discount Programs, and other healthcare services. Claro has worked with over 450 hospitals across the US both individually and in health systems of up to 25 hospitals. They’ve also worked with large academic medical centers.
  • Bankruptcy
    Claro has just started a new bankruptcy practice out of their New York office to help those clients that are being hit hardest by a market that has given us the double whammy of stagflation.

Their background gives them particular strength in insurance and healthcare. For example, they recently helped one of the largest insurance providers in the country optimize their benefit plans to save themselves, and their clients, millions of dollars. They’re also one of the few consultancies that has leave-behind software for hospitals that helps those hospitals improve their service offerings while capturing more insurance payments.

Furthermore, in healthcare, they can help a hospital save money and increase revenue by helping them improve their DRG/Clinical Documentation. In the US, there are now approximately 700 Diagnosis-Related Groups and the proper classification of a diagnosis is critical as the benefit paid to a hospital for a given illness is often fixed based on the original DRG classification. Misclassifying a complex pneumonia as a simple pneumonia can cost a hospital hundreds, if not thousands, of dollars. Claro’s expert group, which includes medical doctors, can help a hospital improve it’s processes to insure that the diagnosis is correctly captured every time and that the hospital is able to claim all of the insurance premiums that it is due.

When you combine their insurance expertise with their healthcare process expertise and their sourcing expertise, one quickly sees that they often do their best work in hospitals and health care systems as they can improve efficiency, save money, and increase insurance billings in a single project. They’re definitely one of the few small jewel consulting firms to look at if you’re a health care provider.

Claro’s Crown Jewels

Last year, I blogged about how you could achieve Clarity with Claro in your sourcing projects. Since then, Claro has been named one of Seven Small Jewels for 2008 by Consulting Magazine. I was in Chicago recently, so I decided to catch up with Bart Richards, who is now a Managing Director of the Sourcing Group.

Over the past year, their sourcing practice has been growing by leaps and bounds as more and more companies are trying to find savings opportunities in an inflationary market where cost pressures on all sides are causing financial hardships across the board. The good news is that they have been successful as there are still savings to be found when the right categories are addressed, but the better news is that they understand that, in today’s market, cost avoidance is king as simply holding prices static can provide you a significant advantage over a competitor who sees their costs rise 10% to 30%.

The truth of the matter is that if your organization is still focussed on cost savings, and you are focussed only on strategically sourcing those categories you know you can save on, you’re actually losing money. How can this be? Let’s pretend that you source steel and services (or petroleum and travel, or energy and telecom, etc.). Let’s also say that you spend 10 Million on each category and that it is your expectation that you can only save on services. If put all of your effort into strategically sourcing services, you could probably save 20%. But steel prices have more than doubled over the past year. If you simply delegated steel to an e-Auction, you’re likely to find your steel prices increase 90%. Although that would be good compared to the market, that would be very bad if focussing all of your efforts on this category could have resulted in a price increase of only 60%. By focussing on savings, you saved 2M on savings only to lose 3M on steel — for a net result of a 1M loss. Not very smart. Today, it’s more important to focus on those categories that have substantially increased in price since your last sourcing event, or that are rapidly rising in price, than it is to focus on the few remaining categories that might yield savings. Because if you don’t, you find that you save a dime only to lose a dollar.

This is also why it’s critical that an organization’s sourcing performance metrics, as well as incentives and bonus plans, revolve around cost avoidance and not cost savings. After all, as I have said before, there’s no such thing as savings, because if you really can save money, it simply means that you shouldn’t have been paying that much in the first place, and that you are paying a price that should have been avoided! Now, I know it is more work to define avoidance metrics than it is to define savings metrics, but the payoff is worth more than the price. Furthermore, there are a number of on-line resources, such as the article archives and blog entries provided by Next Level Purchasing (now the Certitrek NLPA) and the wiki paper on the e-Sourcing Wiki, that you can use to guide your efforts, standard pricing indexes that you can use to precisely define average raw material price increases since your last sourcing event, and a number of consultants (including the doctor) who can help you define the right metrics as well as the right sourcing sourcing program.

With this knowledge, Claro has been successful both at finding savings for their clients in categories such as services, travel, and benefit plans as well as controlling cost increases and keeping them to a level that is usually significantly less than market average by focussing on those categories that the client can buy in bulk, hedge against, or lock in longer-term preferential agreements. They’re still saving an average of 10%+ in a number of categories for their average client, but more importantly, they’re reducing expected cost increases in key categories by 10% to 20% or more, which provides for better overall cost containment across an organization than simply focusses on the low hanging fruit.

A number of examples of their success stories can be found in the numerous case studies on their web-site, and if you want to know whether or not they have sourced a particular category recently, and what sort of results you could expect, you can contact them for more information and additional case studies relevant to your situation at any time. They’re more than happy to take your call, or your e-mail, and Bart Richards can be reached at brichards <at> theclarogroup <dot> com.

Our next post on Claro will talk about the other services Claro offers as well as some of their particular areas of expertise.

Why do Hospitals Struggle to Run like a Business?

Today’s guest post is courtesy of Andy Monin, President and CEO of VendorMate (acquired by GHX, acquired by Thoma Bravo) and fellow blogger over on Vendor Compliance.

I’ll join Michael Lamoureux et al. in opining that of all industries, healthcare has the greatest opportunity to benefit from e-Procurement.

In my opinion, Healthcare Materials Management professionals have the toughest job in all of supply chain management. These professionals could only wish that their job was merely to find the best products at the best prices. Unfortunately, they have many more pressing factors that dictate their daily activities and purchasing decisions, and it’s the combination of these factors that would make the centralization and automation of e-Procurement particularly beneficial. Here are just a few of the complicating factors that trouble hospital materials managers.

#1 Compliance

Hospital Materials Management professionals have a myriad of regulatory and compliance requirements that put a strain on their operations, staff and resources.

To start with, unique government regulations burden hospital materials management professionals by requiring extensive data collection and process modifications.

  • Stark Law/Anti Kick-back Statute
  • OIG Medicaid/Medicare Fraud/Sanction List
  • OFAC (Patriot Act)
  • FDA/USDA Recall Management
  • Pandemic/Epidemic Readiness

Few other industries have to deal with these uncoordinated requirements. Each one is an independent initiative. On top of that, these and other regulations begin to impact not just who the hospital does business with but also who can come into the facilities.

For example, vendor representatives that have access to procedural areas are required to provide immunization documentation, product competency information, HIPPA/privacy policy acknowledgements and Operating Room safety documentation prior to gaining access. Failure to capture and monitor these thousands of documents from hundreds of representatives that are coming and going from year to year puts the hospital at risk of failing internal/external audits that can jeopardize Medicare/Medicaid reimbursements.

#2 Reimbursement Dependency

Do not underestimate the importance of Medicare/Medicaid reimbursements. Hospitals across the nation are suffering from revenue that does not keep pace with the rising cost of service. Increasingly stringent and flat levels of reimbursement from Medicaid, Medicare and insurance companies continue to erode hospital revenues and jeopardize the solvency of many health systems; however, the vendors selling to hospitals continue to report rising revenue and earnings year-over-year.

The documentation — of compliance, of diagnostic codes, etc. — means that the inflows and outflows of cash are not as simple as the typical procurement flow from purchase order to invoice to payment. A slip in any one of these steps leads at best to a dispute with Medicaid, Medicare and insurance companies. At worst, it’s a legal issue.

#3 Taking Advantage of a Fragmented Space

There are over 5,000 hospitals in the United States. This means that a large percentage of a hospital’s supplier base and subsequent spend is with vendors that are significantly larger than the hospital. Individual hospitals have little negotiating leverage for pricing or service. Add to this the fact that many medical devices and drugs are sole sourced due to the proprietary nature of these technologies, hospitals are beholden to the suppliers despite the fact that hospitals are the largest distribution channel for those same suppliers.

Group Purchasing Organizations (GPOs) have stepped in to play a role in reducing costs. Hospitals are typically members of at least one GPO. Just as the name suggests, these GPOs reduce hospital costs by aggregating the spend of their participating hospital members. However, these organizations have squeezed the suppliers and most GPOs are realizing that you can only squeeze so much blood out of a turnip. Therefore, they are now attempting to deliver value tools to enable hospitals to more efficiently manage their operations. Time will tell if GPOs can morph their place in the hospital supply chain and deliver on the promise of being a trusted advisor rather than just a middle man for band aids and gauze pads.

#4 Physician Preference Items

Managing the complexity of physician preference items where patient care can be impacted is a restriction that is unique to healthcare purchasing. Frequently, Physician preferred items take precedence over cost savings, innovation, and efficiencies. Unfortunately, these items may be tied to conflicts of interest that are difficult to uncover and monitor. Is that same “more senior physician choosing to continue to use plaster casts because it is in the best interest of patients and quality of care? Or has the physician neglected to take on more innovative products from other vendors because the existing vendor of plaster casts takes him to elaborate “education sessions” in Lake Tahoe every year? Who knows?

#5 And a Mint on the Pillow

A few months back, I heard from one doctor that said his hospital is moving away from calling patients “a patient” and using the term “customer”. Wow!!!! That is a change of philosophy that might not be the in the best interest of patient care. Sure, individuals have to take charge of their healthcare and become educated consumers of these services. But the phrase “the customer is always right” doesn’t jive when dealing with patient care issues. Physicians are making life and death decisions based on years of experience and education and shouldn’t have to debate with a patient’s “WebMD, Google search, Super Bowl ad self-diagnosis and prescription”.

Vendors are a necessary and critical extension of the health system and therefore place a delicate balance on vendor/buyer/doctor/patient relationships that require greater scrutiny. If e-Procurement can eliminate some of the distractions — by holding down costs so that more people can receive quality care, by documenting compliance and sniffing out conflicts of interest — then the benefit of moving to this model cannot be denied.

Thanks, Andy!