Minority Business Entrepreneur

March/April 2014

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Medical Necessity g CORPORATE STRATEGIES By David Garcia RATE STRATEGIES CORPO Cartwright MBE March/April 2014 27 When it became law on March 23, 2010, the Patient Protection and Affordable Care Act, known as ACA, joined Medicare and Medicaid as one of the most expansive social programs ever enacted. The effects of ACA, however, go beyond expanding access to health- care. One byproduct of the ACA is that healthcare pro- viders are shifting from a volume-based model to a quality-of-care model, adding pressure on providers to aggressively manage their bottom lines. In the past, medical providers received a sum of money for a patient coming in for a procedure, say heart surgery. If that pa- tient was discharged and had complications from her heart surgery, she would be readmitted to the hospital that performed the surgery and the provider would receive an additional sum of money. Part of the ACA changes this pricing structure—providers will now receive only one payment to care for the patient, incen- tivizing medical professionals to implement appropriate measures aimed at prevent- ing costly follow-up procedures down the road—procedures for which hospitals will no longer receive additional payment. Healthcare providers are unlikely to reduce physician, nursing and other medi- cal staffing just as ACA increases demand for quality medical care. That leaves supply cost management—the second largest expense category, behind salaries and benefits—as the most effective way to respond to ACA's cost mandates. Purchasing practices in healthcare, however, are unlike those in many industries where companies primarily buy directly from suppliers. Medical supplies—such as bandages, prescription drugs and surgical instruments, as well as high-end equipment like MRI machines—are in constant and predictable demand. Healthcare providers can lever- age their combined purchasing power through group purchasing organizations (GPOs) that negotiate and manage national pricing contracts with manufacturers, distributors and suppliers. Healthcare providers benefit from more competitive pricing but they also can and do purchase from non-contracted suppliers. To help their clients contain supply costs, GPOs continually source new suppliers that are both cost- effective and high-quality. Diverse suppliers that can deliver both are in especially high demand by GPOs like Irving, Texas-based Novation. The industry's leading GPO, Novation has contracts with more than 600 suppli- ers that provide about 90 percent of the products and services used by hospitals, academic medical centers, physician clin- ics, and ambulatory care, home health and long-term care facilities. In 2012, the most recent year for which data are available, the more than 100,000 members of VHA Inc., UHC, Children's Hospital Association, and Provista, LLC purchased approximately $43 billion in goods and services using Novation contracts. That included $424 million from diverse suppliers. "We see tremendous opportunities for diverse sup- pliers in this industry," says Mark Cartwright, senior director of supplier diversity at Novation. "Smaller diverse businesses are nimble and innovative. They can be much more flexible than larger companies in tailoring services to their customers' needs. And they can compete

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