HealthpointCapital's Interview with Jack Fleischer
While conducting informational interviews for our latest research report on GPOs, we were fortunate enough to have the opportunity to speak with Jack Fleischer, VP of Strategic Sourcing at New York-Presbyterian Hospital, The University Hospital of Columbia and Cornell. Mr. Fleischer leads the Procurement and Strategic Sourcing group at of one of the nations leading hospitals.
We have included excerpts from our conversation for our reading audience.
HC: Can you talk about your role, and your group, and what you are involved in.
JF: I've been here for two and a half years. I did not come to the hospital with a healthcare background. I came out of the retail industry. I had twenty-nine years of experience in retail procurement. So, healthcare was an entirely new venture for me, a new field. And I feel very fortunate to have wound up in what is today the number 6 hospital in the country (according to US News and World Report). After two and a half years of discerning what the differences are between corporate procurement and healthcare procurement, some things are very similar and some things are very, very different. For instance, this whole notion of group purchasing organizations was an alien world to me. I had never worked with functional groups within private industry similar to GPOs.
HC: What are some of the other differences?
JF: I think the biggest difference is why you buy what you buy. In the retail world why you buy what you buy is all about "How much can I sell?" and "What profit can I make?" and "What can I sell the most of?" If I'm buying ties for suits then, "What tie assortment is going to bring maximum sales growth and max my profit?" That is what drives everything that you do. Yes, you have distributor partnerships and some brands that you're building and you have private brand versus national brand, but at the end of the day it's all about building sales and profit.
On the hospital side, it's first and foremost all about clinical outcomes and quality of care for the patients. Everything that we do is driven around that. The secondary part of what we do concerns the financial health and welfare of the institution. Even though we are a not-for-profit organization, we still have a budget, we have a plan, we have operating goals, and my department's role is to support every operating department within the hospital in reaching that base of efficient sourcing outcomes for the institution. So, we make sure that we're examining all the facts and looking at all the options and making a decision that is both clinically sound and is financially positive for the institution.
So, that is kind of what the biggest difference is: why you buy what you buy. A lot of what we buy, especially on the clinical side, is driven by what the physicians and clinicians feel is going to provide the best clinical outcomes for our patients. When it comes to orthopedic implants, we work with the physicians, we work with the suppliers, we understand the supply chain, and then we try to bring solutions that are workable and in no way, shape, or form compromise the level of care and clinical outcome, but provide a financial incentive for the hospital.
HC: With whom do you interact at the vendor?
JF: It varies. Obviously, the majority of people who "grace our hallways" are sales and marketing oriented. At times these are different people who interact with the procurement department versus with the physicians but sometimes they are also the same. In a lot cases the people who are interacting with our physicians have hands-on, demonstrable abilities related to their products. Some are in more research-oriented areas. But the people we interact with predominantly here are sales and marketing individuals.
HC: Can you talk about your GPO relationships?
JF: We are members of VHA and we use Novation as our primary GPO. It's not an exclusive agreement, in that we run the vast majority of our volume through Novation, but from time to time there are other deals that come to the table that we have the opportunity to take advantage of. There aren't a lot of those, but we have done some business with other GPOs in the past. Right now about ninety-five percent of our GPO volume goes through Novation.
We don't do things automatically with GPOs "just because." I've heard of other institutions where their whole mission in life is to drive everything through the GPO. We tend to take a little bit more analytical view of it. If it's the right thing for the hospital, that's what we're going to do. But if there's an opportunity for us to source directly with the supplier at an advantageous price, for whatever reason, or, if it's the right product and the supplier just doesn't have an agreement with the GPO, we'll do what's right for the hospital. And that really goes all the way up to the senior level of our organization. It's constantly reinforced: "Number 1, do what's right for the patient. Number 2, do what's right for the hospital."
HC: Do you get penalized when you go outside Novation?
JF: The only sense in which we are "penalized" when we go outside Novation is that we don't receive the return of a portion of the Novation administrative fees. The biggest part of our financial compensation for participating in a GPO is the return of administrative fees and rebates. So, obviously, when we step outside of Novation, in those rare instances when we do, there is no negative other than that volume going through Novation may have produced administrative fees or rebates that we don't get. On the other side, we may be working with another GPO or, as in some cases, we may work directly with a manufacturer that doesn't have a relationship with Novation. Whatever deal we strike in these instances takes into consideration the "total cost of acquisition" and we do it because the overall outcome to the hospital will be better.
HC: What do you get from them besides your administrative and rebate fees? Are there intangibles?
JF: There are a huge number of services that are available to us. Some of them are services that must be purchased and some are services that are available to us as part of our membership. For instance, VHA and Novation have a program called Marketplace at Novation that not only does the electronic data interchange (EDI) on-ramping for us, but also gives us access to a lot of data and information on contracts and demand by supplier and category. It's an on-going service, but now that they have sold Neoforma to GHX, GHX is performing that same service. And you might ask, "How do those services get paid for?" They are essentially paid for on a transaction basis by the vendors who participate in them. But, unless we were a member of Novation, we could not have participated in the Marketplace at Novation services.
HC: Are the vendors footing that portion?
JF: Yes, vendors are bearing most of the expense of EDI, but they, and we, gain tremendous operating efficiency by transmitting data electronically instead of manually. That is one example.
Another example is this. VHA has a number of clinical initiatives that they work with the hospital on that are not necessarily procurement-related. Again, because we are members of VHA, we are able to benefit from those. There are a number of activities such as conferences, educational opportunities, and projects that they conduct within our facilities that come as a result of our membership. Then, in terms of staffing, they have a local office, VHA Metro, which is actually right here in this building. They are here to service New York Presbyterian and all of the system hospitals in the New York Presbyterian Healthcare System, as well. So there are a lot of non-procurement, non-financial benefits that come as a result of the GPO.
HC: Does that save you staffing in your own group?
JF: Yes, it does in some cases. We just launched a new program with Novation called "Custom Contracting" which is a good example of this. In some cases there are also consulting services that we can buy from because we are members. They have dramatically changed their business model recently. Today everything on the consulting side is kind of "a la carte." "If you want to engage us for the following project, you can do that. Here is what the fees are. We'll deduct them from your administrative fee returns."
HC: So, it's almost like a coupon?
JF: No, I'd look at it a little differently- it gives the members more control and visibility of their own resources and the ability to use VHA and Novation services for the things that are really important to their institution.
Then, in addition to that, there are huge opportunities for networking and interfacing. I belong, for instance, to a large IDN group called "LISN", which is made up of the largest twenty or so hospitals in Novation. It meets three times a year and has phone calls about once a month to discuss industry issues. For instance, the recent big issue was this whole issue of Medicare DRG changes and the effects on reimbursement to hospitals which should have a significant impacton not only us, but eventually also on suppliers. It would affect large academic institutions and larger institutions in general, moreso than the smaller hospitals. This is the kind of issue that would be discussed by big institutions. We would ask, "How is this going to affect your institution? What are you looking at? How are vendors reacting to this? Are there other things that we should be working on collectively?"
HC: What if GPOs were to go away?
JF: Then I believe we would suffer. But you get on both sides of the issue. I know a lot of small companies feel that the GPOs are a hindrance to their being introduced into the marketplace. But I really think there are many more positives to having GPOs versus not having GPOs.
HC: How does a small company get on your radar screen when they are not affiliated with a GPO?
JF: For a small clinical company to get on our radar screen, they generally are first noticed by one of our physicians or clinicians. Because we are an academic institution aligned with two world-renowned medical schools (Columbia and Cornell), many new products, even from the smallest of companies, are noticed and explored by our clinical professionals. Also, in PSS, we attend events such as NCI's "IDN Summit" where new suppliers are free to approach us and open dialogue on their goods or services. There are very few new suppliers, to be honest with you, who are introduced solely by the GPO. When you go to the annual VHA leadership conference, they have a product area for GPOs and a product area set up for new technology. That's fine. And we get mailings, several times a month, from VHA about new products or contracts.
Once someone in the institution proposes actually using an item in treating patients, then we have a very formal process of administrative and committee reviews that report up to our medical board. Procurement and Strategic Sourcing is very involved in many of these situations but certainly not the ultimate decision maker.
Now, if it's a small company in the commodity category, particularly in the non-clinical space something that's not so specialized, they pick up the phone and call and we're happy to see them. And that happens more often than you would think. And it has nothing to do with our GPO relationship. We don't have a closed door. We never tell people "We won't see you unless you have a GPO relationship." Maybe other institutions do that. But it would never occur to any of my folks to close the door for any other reason than that the business proposition does not sound intriguing. We have people who call up to offer services, for instance, and say, "We can save you three thousand dollars on your FedEx bill." In a two and a half billion organization we don't have the "bandwidth" to work on projects that small. So we might say to that vendor, "Gee, we're sorry, we have larger priorities and limited resources."
HC: How do you get the clinician's view of the decision for the product purchasing?
JF: For any sourcing organization in a hospital that is the "Holy Grail." That is why we have spent so much money and put so many resources into Clinical Sourcing. The team spends a large part of their time interfacing with our physicians and our physician leaders and our clinical committees, new technology committees, and just on personal, one-on-one relationships with physicians. It's not only to get opinions and direction, but also to engage them in conversations with suppliers so that we speak with one voice. We want to have them not only tell us what they want to use, but also to help us get to an advantageous point. So, for me, when it comes to clinical sourcing, the entire "Holy Grail" is all about meeting the needs of the physicians and maintaining or improving the clinical outcomes while doing what's right financially.
That is the whole job. It's one-on-one, in many cases. There's no substitute for personal engagement. You can't do it all by email. You can't make "proclamations." When I first came here, the Chief Medical Officer, who is now our COO, reinforced one thing continually in the interview process: "You have to engage physicians and clinicians. You can't do it without them."
HC: Thank you for taking the time to speak with us today. You have a very impressive group here.
JF: This is a great institution. I pinch myself every day I'm working here. When you change industries a little bit late in life you don't usually wind up in a first-quartile operation. Usually when you change industries you are in maybe the third or fourth and then work your way up. I'm just so fortunate to wind up in a place like New York Presbyterian. It's a wonderful institution with great leadership and, most of all, it's doing great things for patients.
