Finding a Balance: Bettering Costs & Care with Bulk Buys

Cath lab directors must balance the availability of products such as stents with costs in an environment where demand can change quickly. Bulk buying may help keep supplies up and costs down but at the risk of overstocking and obsolescence. Should cath labs go lean, go large or try to find a sweet spot in the middle?

Bulk buying allows hospitals to purchase a large quantity of a product in exchange for a price break, typically at the end of each quarter or the end of the vendor fiscal year. This supply inventory model can result in significant cost reductions for an institution, especially because vendors may be overstocked or attempting to meet sales quotas. However, savings are contingent on two factors: the product must be frequently used and would have been purchased regardless of the deal.

“Bulk buying is a good thing,” says James Adams, contract manager at Advocate Health Care in Downers Grove, Ill. “But you need to do your research.”

If a product such as a stent is purchased from a vendor, it is often subsequently owned by the hospital once it is on the inventory shelf. Cath labs that buy large quantities that then become obsolete are forced to use their remaining supply before purchasing newer, possibly superior items. Similarly, expired products become money losers. Thus, knowing what products are used most often not only helps eliminate waste when reordering, but also brings cost savings.

Bulk buying is done in all areas at Advocate but it is not done often because it is an involved process, explains Adams. “You can bulk buy for multiple categories including stents, but there are many factors that you must address before instituting a bulk buy. If you can’t use up your purchases before your product expires, it’s a failure.”

A budget also needs to be determined, as money may be paid up front for the product. “You don’t want to outlay so much upfront cash that you handcuff other services that may be vital to your customers,” says Adams.

A larger supply of products calls for more storage space, which needs to be assessed and acquired prior to buying in bulk. Technology is another important factor to consider. “You have to know the environment and outlook of the category that you are buying in,” Adams explains. “You don’t want to bulk buy a product with the knowledge that a product with better outcomes and a reduced price is being released the next day.”

Consignment—an arrangement with the vendor in which the product remains in the hospital’s possession until it is used—is the final component of bulk buying that should be considered. If the product expires, it is replaced by the vendor at no charge. This works particularly well with stents because the types of patients and their stenosis coming into the hospital are unknown. A variety of stock is therefore needed to cover all sizes and meet every patient’s needs.

Bulk buying in action

Although bulk buying is done sparingly at Advocate, the strategy is used in an average of 80 percent of purchases at Banner Health in Phoenix, according to Tina King, contract administrator in the supply chain, and Sue Hellriegel, RN, clinical supply program director. They hope to reach their goal of utilizing bulk buys for 98 percent of their purchases by working closely with cath lab personnel.

At Banner Health, bulk buys are written into all contracts. At the end of every quarter, cath labs send their inventory requirements to King, who then determines the types of products that are needed in bulk.

“We only bulk buy what we use per quarter per vendor and we do not over-purchase,” explains King. “Our manufacturers predict product usage based on what was used the previous quarter, offering little risk of things being left on the shelf for too long.”

If there are leftover devices that have not been implanted in patients, they are returned to the manufacturers. King and Hellriegel say that Banner saves approximately $2 million a year.

They bulk anywhere from five to 15 devices, though there are core commodities that are in the 100s. They never bulk buy on more than three months of products to effectively cut costs and reap savings.

“It’s important to keep in mind that there are some devices that may never have to be bought in bulk,” says Hellriegel.

In the end, the supply inventory model that works the best for any given cath lab may come down to familiarity and foresight. “The bottom line is that you need to know your products, vendors and the landscape of cardiology to effectively bulk buy,” says Adams. “Strategic planning is the recipe for success when it comes to bulk buying.”

Beyond Bulk: SharedClarity’s Approach

Although bulk buying offers cath labs the opportunity to maintain stocked inventory shelves while cutting costs, it is not the only supply inventory model available. SharedClarity, a joint effort between UnitedHealthCare and four health systems, favors a strategy known as collaborative contracting.

Utilizing data from a clinical vetting process that evaluates the performance of high-tech products, SharedClarity selects what it determines are the most effective medical devices for patients and negotiates affordable purchasing agreements with manufacturers for its members. In mid-February SharedClarity selected Medtronic to provide bare metal and drug-eluting stents to its members and customers.

“Our members commit a significant portion of their volume toward our contracts,” explains Mark West, president of SharedClarity. “Every one of our members has seen significant double-digit decreases in product prices.”

Unlike bulk buying, SharedClarity contracts allow members to purchase fewer devices at a market-leading price, minimizing the risk for expired product.

“Some members still like to do a bulk buy with a month or two of inventory in addition to collaborative contracting,” he explains. However, the gap between the base product price and bulk price is often not significant, according to West.

Bare metal and drug-eluting stents were the first products to be collaboratively contracted with SharedClarity, and West reports large success thus far. “We are foreseeing the same type of results with other stents,” he says.