Apply Scalpel To Sourcing

University of Pittsburgh Medical Center teams up to offer E-sourcing to health-care providers
The University of Pittsburgh Medical Center, which has invested in several health-care tech ventures, is at it again. It has teamed with decision-support software vendor CombineNet to create a company that provides computerized sourcing services to the health-care sector.

CombineMed initially will electronically connect medical- and surgical-equipment and pharmaceutical suppliers with hospitals and other health-care providers so suppliers can more easily bid for providers' business. The company plans to expand the Expressive Commerce platform to other areas, such as letting health insurers bid benefit plans to employers, says Chuck Bogosta, managing director of UPMC's office of strategic business initiatives.

Health care is behind other industries in using technology to optimize sourcing, Bogosta says. That's in part because health-care purchases are complex and often driven by factors such as a surgeon's preference for an instrument with a special handle.

Expressive Commerce, which CombineMed will make available to other hospitals and health-care providers, lets suppliers offer sealed bids, including those that could help hospitals identify cost-effective options, such as alternatives to a surgeon's favorite tool, Bogosta says.

Computerized sourcing offers more flexibility than reverse auctions, which can't support the complexity of what's involved in health-care purchasing, says CombineMed president Tom Finn, who formerly was executive VP at CombineNet. Expressive Commerce lets suppliers include conditions or constraints, such as discounts, rebates, and differing payment terms.

The technology provides buyers with tools to analyze the bids and identify proposals that best meet their goals such as cost savings and improved value, Finn says.

The system has potential to provide huge savings and generate lots of innovative ideas, AMR Research analyst Mickey Rizza says. It not only allows suppliers to electronically bid and negotiate proposals but also provides buyers with tools to cherry-pick the best opportunities, she says.

UPMC plans to purchase the bulk of its pharmaceutical and medical supplies this year through CombineMed. Two other hospitals--Charleston Area Medical Center in Charleston, W.Va., and Northwest Hospital and Medical Center in Seattle--have signed up to participate. The three health-care providers are expected to purchase about $1 billion in supplies this year using the system. In its first iteration, Expressive Commerce will include 100 suppliers with more than 44,000 items.

UPMC, which buys nearly $1 billion in supplies annually, expects to see a quick return on its $2 million investment, Bogosta says. The medical center already tested Expressive Commerce twice--last fall to buy cell phones and last summer to buy $25 million worth of drugs. CombineNet and UPMC will split revenue from CombineMed. Finn says hospitals and health-care providers will pay CombineMed a percentage of the savings they get from using the system.

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