An untapped small business market: Hospitals

5 minute read

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Experts say small
businesses may be missing out on one of the biggest American economic sectors.

Growing Healthcare
Market

Growing healthcare
spending comprises 17% of the U.S. GDP and exceeds $2.7 trillion. Nearly
one-third of that spending —close to $1 trillion last year–is in hospitals,
often the biggest local employers and purchasers of goods and services. Yet
many small businesses rarely consider marketing to hospitals.

Hospitals purchase an array of products and services, from
food to laundry, from legal and accounting services, to lawn care, information
technology and janitorial, as well as drugs and medical supplies. An estimated
75% of that purchasing goes through large regional and national group
purchasing organizations (GPOs), such as Premier and Vizient.  GPOs contract with
suppliers of goods and services, from medical devices and drugs to nonclinical
products in large quantities, offering discounts to hospital clients and
charging administrative fees. According to industry surveys, 98% of all
hospitals belong to at least one GPO.

Many hospital and GPO
purchases go through supply chain and logistics firms like Owens & Minor
and Cardinal Health.  And about
one-quarter of hospital spending comes directly through contracts with
hospitals.

So how can small businesses
tap into that huge market to become hospital vendors and suppliers?

Mike
Schiller, senior director of supply chain for the Association for Healthcare
Resource & Materials Management, an arm of the American Hospital
Association, said GPOs offer “a great way for small businesses to enter the
hospital industry.”

Schiller
said industry manufacturing and distribution associations assist smaller businesses
to access the hospital market. “Associations sponsor trade shows for small businesses hoping
to promote their brands and products. Those offer great
networking opportunities,” Schiller said. “They often lead to one-on-one
conversations with hospitals, health systems or GPOs.”

He advised small businesses
to focus on value, patient satisfaction and patient outcomes. “They need to
have strategic conversations about how both organizations can benefit,” he
said.

Understand the market

Richard
Manson, president and CEO of the Nashville, Tenn.-based surgical supply firm, SourceMark, said small businesses should first understand
what the healthcare industry is and what drives it.

He said hospitals are divided into
numerous categories, by ownership model, geographic location, services and
sponsorship. He said that the hospital’s ownership and affiliations determine
how they make and who authorizes purchasing decisions, from a local hospital
purchasing agent to a remote corporate department or a GPO contracting with the
hospital.

Ash Luthra, president
of Chicago-based medical device manufacturer and distributor LSL Healthcare,
said understanding client needs is crucial to succeeding in the hospital supply
market. “When we deal with hospitals, we must meet their specifications at all
times. We make medical kits by the millions, but must remember that each case
is used on an individual patient. The quality must be built into each case.
With hospitals, you must get your product to them on time.”

In addition, he said,
small manufacturers should be ISO (International Organization for
Standardization) compliant to meet the uniform specifications for medical
devices.

Luthra advised small
businesses to perform self-assessments to examine their production capacity,
explore their service area and determine whether they have sufficient credit
lines or capital to back up their orders. “That assessment will give them a
good idea what kind of market they can go after, whether they should focus on
local hospitals or join a large GPO.”

Todd Ebert, president
and CEO of the Health Care Supply Chain Association, a GPO trade group, said small
businesses sometimes enter local hospital supply chains with innovative
products and services. Ebert pointed out that every GPO offers websites explaining
their processes and practices. “Some manufacturers don’t need a GPO and can
build up their own distribution network, while others feel GPOs bring access
and value and offer visibility to thousands of potential customers,” he
explained.

“Everyone is looking
for products that can improve patient care or reduce costs. Once you get a
contract, whether through a GPO or otherwise, the work isn’t over,” Ebert said.
“You have to keep promoting it and be
ready to demonstrate its value proposition.”  

Heart surgeon Hilton
Hudson, M.D., started his Munster,
Ind.-based company initially publishing and selling healthcare books for women
and minorities to pharmaceutical companies.

Hudson said the trade
publisher HPC (formerly Hilton Publishing Company) also is a service provider
to more than 3,000 hospitals. “You have to be more than just a ‘me too’ vendor.
We approach hospital systems with a keen focus on savings, efficiency,
centralization and how to cut out unnecessary fat and costs. We focus on
processes and management.” The full-time surgeon advised small businesses to
become “solution providers”.

Focus on quality

Timothy McCarty, sales manager for the
Lenexa, Kan.-based supplier of bariatric surgery products, SizeWise, said Sizewise
now contracts with hospitals in almost every major health system nationwide and
every major national GPO.

He said corporate growth has derived from focus
on product quality and consistency and the cultivation of relationships. “At
the end of the day, the oldest sales adage remains true: people buy from those they
trust. Take advantage of any networking opportunities you can in your community
to seek out hospital vendors or staff members. Create a groundswell of support
from the bottom up.”

He recommended obtaining
a Federal Supply Schedule position with the Veteran’s Administration pointing
out that the VA now has a mandate to contract with small businesses and offers
assistance with that process. 

Mark Cartwright,
senior director of supply diversity at the GPO, Vizient, said most suppliers
who contact hospitals directly are referred to GPOs. Cartwright said all GPOs
have dedicated supplier diversity programs, which provides opportunities to
qualifying small businesses owned by women, ethnic minorities and veterans.  They should also know when current contracts
expire and register with the U.S. Small Business Administration (SBA), which
determines whether their company meets the small business eligibility guidelines.
“It doesn’t cost anything and only takes a few minutes to complete,” Cartwright
said. “The SBA offers many free tools to small businesses.”

He said much GPO
growth in recent years has been in non-medical arenas, like information
technology consulting, office supplies, debt collection and language
translation services. He said most GPOs have supplier registration systems and websites
that include contract bidding information, allowing small businesses to prepare
for bids, discover contract requirements and partner with other small businesses
or bigger suppliers. Businesses need the financial investment, infrastructure
and staffing in place “because the hospitals assume you are ready when they sign
that contract.”

Cartwright said that healthcare
is a highly regulated industry and businesses need federal compliance programs
in place and may require capital investment. “Many suppliers know this from
other industries and know about IT and cybersecurity assessments,” he said.
“Their processes and procedures need to be tight.”

He also noted that
most hospitals use third party services to insure their contractors and vendors
are up to speed. He said vendor credentialing systems verify whether the systems
are legitimate, licensed and up-to-date on their taxes.