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| HPS: Staying Focused |
| Health Solution Spotlight | |||
| Written by Amanda Gaines | |||
| Tuesday, 01 April 2008 | |||
 Jerry Welsh details how this group purchasing organization is growing with strategic alliances and a commitment to keeping customers the number one focus.
 Jerry Welsh, President A few years ago, HPS realized competitive pricing was not enough in the medical and pharmaceutical markets. The perception amongst its 2,600-plus members was that if national pricing was not available, the company’s pricing was not competitive. In 2002, HPS affiliated with MedAssets, a national GPO. The affiliation not only gave HPS’s members a sense of comfort, it allowed HPS the ability to grow and further strengthen its services. “We have pharmaceutical, laboratory, medical, and high-tech diagnostic equipment contracts with MedAssets—everything other than what we’ve carved on a regional basis, such as food and office supplies,” Welsh said. “Much of the contracting we were doing inhouse is now in the hands of MedAssets.” Power of affiliation HPS has been pleased with the affiliation. “From the supply chain side, when we visited with MedAssets, we saw a superior technology base to anything we had seen in the market,” Welsh said. “The affiliation gave us the ability to connect our members with the right price.” MedAssets’ systems allow HPS customers’ cost and billing departments to talk to each other, improving their ability to know the cost of their products and services and ensuring they are charging an appropriate price. Additionally, the systems adhere to the governmental set parameters on what can be charged. Since the partnership, HPS’s business has grown roughly 25% annually, and the company now has more than 900 contracts. The partnership also initiated a larger change within HPS. In 2006, HPS officially changed its name from Hospital Purchasing Service of Michigan. Over time, the name no longer fit the full scope of the company’s customers, which now include public schools, universities, and county and state organizations. “We did not offend the founding core base of customers—the hospitals—because they always called us HPS,” Welsh said. “The majority of our board of trustees are hospital CEOs, and it was the abbreviation they’d been using for years. We did our research and made sure we weren’t cutting off our nose by shortening our name.” Added value One of the first major evolutions of HPS occurred in the 1970s. At the time, the company was a member-owned medical supply warehouse. Along with major medical supply dealerships, such as Carestream (formerly known as Kodak and CR Bard), the company had a number of dealerships for furniture, decorative finishes, and food service equipment. When the company transitioned to contract negotiator, it kept the furniture dealerships because many of its members used those services. In the early ’70s, HPS was one of only a few GPOs that negotiated contracts for customers and gave them an equal level of participation. The move transitioned HPS out of touching or ordering the product while maintaining the connection to both sides of the purchasing and supply chains. As for the furniture and other dealerships, HPS members continue to save money. “Architects and designers tend to bid to people they’ve worked with for years,” Welsh said. “We found by working with designers, our members had access to other lines of furniture while saving money.” More than 30 years ago, HPS worked with one designer and an assistant. Today, it has two designers that handle roughly 80 projects a year. The design center provides about 30% of the furniture and equipment direct sales. However, unlike other services the company offers its members, the design center is not covered under member dues. The thought process, Welsh explained, was that not all members want the service, so why charge everyone? “It is billed on an hourly basis or on a design contract where we sit down with the customer based on the size of the project and sign a design agreement,” he said. “Many HPS members continue to purchase furniture and food service equipment via the pre-established dealership programs.” Strategic balance Since June 2007, HPS has added six people to its 32-person team. The company is clearly growing, and although Welsh is excited about this growth, he’s found balancing the company’s budget has become more challenging. “There are a lot of temptations in the GPO world,” he said. “Just the temptation of taking administrative fees or not.” HPS handles about $700 million of business each year. On average, other GPOs find 1.2% of their revenue from administrative fees charged to suppliers. Although that additional $8.4 million would come in handy when balancing the books, neither Welsh nor his team are ready to walk away from what the company has proudly stood for throughout the past 60 years. “We’re numbers oriented, but we’re also very people and service oriented. By not charging administrative fees, we are continuing to carry out the mission this company was built on, and this is a process that has worked for us from day one,” Welsh said. “We are proud to continue saving our members money by striving to support a healthy bottom line.” |
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