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Amid Pricing Fights Kuhlmann, the health care consultant who previously worked in a hospital's forms management department, says hospitals without forms management departments are more interested in vendor relationships. "This may seem surprising," Kuhlmann says, "but quite frankly, there aren't a whole lot of hospitals that do have [forms management departments]. The ones that have forms management people could care less about [which vendor] brings the forms, as long as they get them on time and they work. The ones that don't typically hate to switch vendors." No matter how hospitals are organized, Kuhlmann says, when they analyze the ability to reduce overall costs, they sometimes discover that distributors can match or beat the big boys. Although contracts differ in pricing terms, most offer hospitals either a guaranteed savings percentage-save 'x' percent the first year, then different percentages each additional year-or a capitated pricing agreement, sometimes referred to as capitation. With capitation, an end user and vendor agree on the amount expected to be spent in a specific time period. The parties generally agree to share costs if the set amount is exceeded, or share surplus if the expenditure falls below the target amount. Standard Register's Premier contract is capitated. Officials at buying groups cannot discuss pricing terms, but distributors close to the medical market say end users miss the terms UARCO introduced in its Premier contract. Before UARCO won the contract, Tim Webb, then UARCO's president and CEO, challenged his employees to develop a pricing model simple enough to be placed on the back of a business card. Per ply pricing was the result. Hospitals paid a set amount per ply per unit for committed products. Because payment was not contingent on size, quantity, construction or other specifications, Premier members received the same price advantage for new, repeat and changed orders. Some distributors say they've kept or regained business because they now offer a similar pricing plan. Into New Territory VHA and UHC currently have existing forms management contracts with Standard Register and Moore, respectively. Standard Register's began in 1978; Moore's began in 1995. Both contracts are non-committed, meaning hospitals gain monetary incentives for using the vendors, but hospitals are not required to buy a percentage of products from any specific supplier. Four companies submitted bids in July for Novation's new document management contract, which will be awarded in October or November and will begin Jan. 1. Campbell refused to name the four companies or to reveal whether the contract was going to be single-source or otherwise. He did say, however, that there is no indication that Novation's document management contract will be committed in the near future. Campbell says VHA's document management contract has remained non-committed largely because hospitals want to use local distributors. "From the get-go," he says, "we've been built on the idea that hospitals want and deserve flexibility in whether or not to participate in purchasing programs. That's one reason why VHA has been less forceful in pushing compliance than some other purchasing organizations have." Campbell says approximately 70 percent of Novation members rely on the buying group's vendors for traditional business forms, and about 50 percent rely on them for all document management products. The amount left over is far from small potatoes. Lynn Gentry, Novation's director of public relations, says that last year document management ranked between 10th and 15th out of the buying group's 400 supply categories in total volume. VHA's current contract with Standard Register, which was worth approximately $128 million last year, gives hospitals two options. The first option is a "basic program," in which products are separated into tiers. Hospitals potentially gain higher discounts for using products in higher tiers. Tier 1 (the lowest tier) includes custom continuous forms, label/form combinations, continuous labels, custom unit sets and mount sheets; Tier 2 includes letterhead, envelopes, business cards and commercial printing; Tier 3A includes stock products such as computer paper and filing products; and Tier 3B includes e-forms and design software. The second option is a "cost management program," which does require hospitals to commit to using Standard Register for a certain percentage of products over a specified period. Campbell says the cost management option, intended to help hospitals gradually reduce the number of printed documents they use, gives end users "more incremental savings off of price" than the basic program. "My two cents is that VHA tells hospitals, 'the more people who are part of this, the better it is for you,'" Osborne says. "Some hospitals hear that and believe it. But we had a hospital attracted to VHA and we said, "If you like VHA because you get a rebate, then we'll give you that rebate if that's what you want.' We can compete no matter what purchasing groups throw our way." Beyond Today's Battle Mason of The Elm Press says his distributorship, which has thrived in the health care market for 15 years, sells to a hospital that recently signed with a purchasing group. The Elm Press and the hospital have an existing contract that will expire soon. "Committed contracts haven't hurt us yet," Mason says, "but we know there's going to be pressure for that hospital to go with the [group purchasing organization's] preferred vendor." Victor Losure, vice president of The Elm Press, expects the distributorship to continue to succeed because of its flexibility and responsiveness. In 1993, a hospital nearly took the distributorship's sheet-fed business away because it wanted a single-source provider. The Elm Press, which initially was excluded from the bidding process, gained the entire account by partnering with another distributorship. "That's when we truly realized the beauty of being a distributor," Losure says. "It's critical that you can offer hospitals a basket of goods along with great customer service. When they have a problem, they don't want to hear, 'Wait, I have to talk to my manager, who has to talk to his supervisor, who might get back to you later.'" One employee at The Elm Press works on-site at a hospital two and a half days each week. The distributorship, which is designing a service program for the client that includes revised methods of delivery and billing, eliminated the need for a forms coordinator in the hospital's purchasing department. "We have a philosophy where we look for long-term relationships," Losure says, "and sometimes you have to be creative. Customer service can be a great thing, but distributors need to show clients how they can affect the almighty dollar." Purchasing contracts haven't been an ailment to Purdy of Northern Business Forms & Graphic Services. "No doubt, we've had a touch of luck," he says, "but the main reason why we're still succeeding in the medical market is because we do our best to make sure [our hospital clients] know why we're there-to help them accomplish their goals." To do that, he says, distributors must understand how doctors, nurses and other hospital employees transfer information. "For the patient sitting in bed after a hernia operation, we want to know how many forms that guy has to fill out. And for goodness sakes, let's not make him do anything twice. That's the mentality we feel we need to have. We have to do everything we can to make our presence known." Purdy works closely with a client's in-house print shop, which produces most products except labels, continuous forms and 4-color work. "The print shop is really their baby, so we're exploring ways to get more business into it," he says. Purdy's wife Lisa provides typesetting services for the shop. "There's really one thing I can say about selling to hospitals," he says. "It's absolutely possible, no matter the challenges. If you're an independent distributor, and you care about what you're doing, you can kick it into 'overdrive' and have success selling to these accounts." The central issue in challenging group purchasing organizations is that buying groups bring discounts. But not everybody wants to use the products buying groups provide-especially when service is lacking. For that reason, distributors remain in demand. "There's no doubt about it," Warlick says, "there is plenty of opportunity here." Darin Painter is an assistant editor at FORM Magazine.
A Non-Committed Powerhouse In 1997, VHA combined its supply operations with the supply chain group of University HealthSystem Consortium in Oak Brook, Ill. UHC included 78 teaching hospitals and 38 associate members. The new buying group is called Novation, the health care industry's largest supply cost management company. It started operations on Jan. 1, 1998. Combined, Novation and Premier have nabbed an estimated two-thirds of the nation's hospital contracting volume. The Bid for a Billion VHA and UHC currently have existing forms management contracts with Standard Register and Moore North America Inc., respectively. In 2000, those contracts will be history. The new one, says Barry Campbell, Novation's senior product manager of business products, "will be worth in the neighborhood of $400 to $500 million. And that's just for traditional business forms. When you start talking about things like commercial printing and 4-color work, it will be more than $1 billion." Campbell began looking for potential suppliers in September 1998. He spoke with about 12 companies. "We wanted to proactively find ones who could provide comprehensive coverage," he says. "Obviously, we wanted to speak to people looking at where document management is going and not where it has been. Electronic issues like EDI and e-forms were important considerations." In early July, four companies submitted bids. Campbell, who refused to name those companies or to reveal whether the contract was going to be single-source or otherwise, plans to award the contract next month. Campbell says there is no indication that Novation's document management contract will be committed in the near future. Novation officials did briefly discuss making hospitals commit to using its preferred vendors for business forms, office supplies and computer supplies, he says, "but at this point in time, it's just talk. There's nothing firm about developing that." Color Content of Printing in the Medical Market Options for Small Distributorships "Hanging around and looking for the possible mistakes of national vendors is not always a wise strategy," says Rick Kuhlmann, an independent consultant to the health care industry specializing in forms management automation. He formerly operated a forms management department for a hospital near Minneapolis. In late 1996, when the hospital signed on with Premier Inc., he had to commit to either Standard Register or UARCO. "From what I've seen," Kuhlmann says, "smaller distributors are going to be the ones who can make an impact if they decide that technology is the way to go." What small distributors lack in capital they can make up for in cleverness. Some distributors have taken the "if I can't beat 'em, I'll join 'em" approach, partnering with national vendors to supply non-traditional products such as commercial printing and design software. Another possibility is partnering with Xerox, Danka and other digital providers that don't offer many products hospitals need, such as label/form combinations and unit sets. "That can be a great in," Kuhlmann says. "If you can partner with someone to offer a single-source solution, you can offer a more comprehensive option for medical clients." The Medical Market is Healthy
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