Buying group saves money for hospitals, nursing homes, schools

Northwest Ohio Shared Services (NOSS) was started in 1979 as a group buying initiative of the Hospital Council of Northwest Ohio, a 501(c)(3) organization that represents and advocates on behalf of not-for-profit member hospitals and health systems. But NOSS grew too large for the council, so in 1993

"We also wanted to go and recruit nonhospital entities," said John Pilewski, vice president / COO. Today, NOSS is a large marketing organization whose accounts include nursing homes, schools, and prisons in addition to hospitals, clinics, and physicians' offices. Two marketing people and a customer service representative round out the staff.

For about ten years, NOSS bought only for hospitals. In the late 80s it branched out into nursing homes. Schools were brought in when Catholic orders that were customers for their nursing homes asked if they could buy food for their schools through NOSS.

"So we didn't actively recruit the first schools," said Pilewski. In the last few years, however, NOSS has been recruiting small community school systems like Fostoria, Van Wert, Montpelier, and Western Reserve mostly in areas where it already has nursing homes and/or hospitals.

By the end of 2004, NOSS had about 70 schools, which Pilewski calls almost an untapped market. Which is a good thing, as there aren't many hospitals or nursing homes being built. "We've saturated that market," he said. New to the food program in 2004 were county jails in Erie, Sandusky, and Ottawa Counties.

Group buying has been around for at least 30 years, but the structure has changed over time. In the 70s, hospitals got together and bought just on a regional basis. Then in the eighties, groups in non-contiguous metropolitan areas joined forces to increase their volume and lower prices still further.

In 1996, NOSS joined a national buying program called Amerinet. Such programs have in excess of 10,000 members, and discounts to NOSS members increased substantially. In 2004, NOSS switched from Amerinet to the MedAssets network for medical and housekeeping supplies. Food contracts are handled separately.

When you think about a hospital, said Pilewski, it could conceivably buy everything it needs through the group - large pieces of equipment, housekeeping supplies, food, pharmaceuticals, and medical supplies. Nursing homes buy some medical supplies, but food is their biggest category. And schools join NOSS primarily for the food program, as do jails.

NOSS currently has upwards of 140 members in its food program. It has 173 members in total - and growing. "We just added two school systems last week," he said.

The benefit that accrues to members varies by what they buy and how much they buy. Because some contracts offer tiered pricing, higher volume users qualify for a lower price. But smaller facilities enjoy significant discounts since they were at such a pricing disadvantage before signing on with NOSS, according to the organization.

Because they serve just one meal a day in most cases, schools are NOSS's smallest customers. Although the director of a system sometimes makes a decision for all locations, each school building is listed and counted

separately for delivery purposes. "But there are hardly any schools that don't qualify for the minimum," said Pilewski, which on the non-perishable grocery category is just $250 per delivery.

"There are no unusually large minimums or anything like that," he continued. The only difference a new customer will notice is lower prices, according to Pilewski. Customers also benefit from a rebate program NOSS designed with national manufacturers that returned over $100,000 to members in 2004. "We have set up contracts with about 150 companies the likes of Tyson or Kellogg's the name brands that you would know from grocery stores," said Pilewski. NOSS returns 100 percent of what it gets back from the vendors, unlike some groups, which keep a portion as an administrative fee, according to the organization.

That works out to a quarterly check for several thousand dollars for a hospital, said Pilewski. A few hundred dollars for a nursing home. It amounts to less than $100 for one of the private nursery schools NOSS serves in Toledo. "But it's found money," he said.

So are there any negatives? Why wouldn't a physician's office, clinic, school, or nursing home choose to take advantage of the lower prices that result from membership? Usually it's due to brand loyalty.

When the national group negotiates contracts, they do look at market share leaders, said Pilewski. But even if NOSS is able to offer four vendors of a particular item, a potential customer still may have a favorite brand that's not carried. Take x-ray film, for example.

"We have Kodak film under contract," said Pilewski. And Fuji. But not Konica, not Sterling. And with x-ray film, there's not just the film but the ancillary sets and slides that go with it. "If you change out the film, you've got to change a lot of other things as well," he explained. So a buyer has to step back and take a long look before switching brands.

Brand preference pertains even with something as simple as food. If a customer is used to the driver who delivers the milk and the days he comes and how he puts it on the shelf, that customer may not be open to changing vendors - especially if it's a local company. "And I understand that," said Pilewski.

To illustrate the savings a prospective member could garner through NOSS, Pilewski will ask for copies of invoices for the previous few weeks. Armed with information on what the organization is currently buying, from whom and for how much, he shows what they could do with the group.

"There's no obligation or cost to that," he said. The organization will then have two decisions to make: whether to join NOSS and if so, which products to buy.

Four times a year, NOSS holds an event for the food service directors, dieticians, and cooks in its food program. Food vendors that sell through NOSS serve a buffet and put on an educational program that offers continuing education credits. The presentation might be about food safety, including safe handling and storage. "That's a very big topic," said Pilewski. But most often the event features a vendor demonstrating how to use its products - like Sara Lee showing how to turn their plain pound cake into fancy desserts. The latest program was on decorating for special events such as school board meetings or physicians' dinners.

"We have very good attendance at these meetings, both from the vendor community as well as our member community," said Pilewski. A recent gathering drew in excess of 100 people. "And this is during their work day," he said.

During most of November Pilewski was out of the office, doing good news sales calls with all his customers - the prime agenda topic being: "Here is your rebate check that we collected for you.