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Texas Company Using Free Market Competition and Technology toReduce...



Hospitals and health systems are both labor intensive and asset intensive organizations. According to estimates by MEMdata, LLC, U.S. hospitals spend an estimated $35 billion on equipment purchases each year for items ranging from CT scanners and MRI machines to patient monitoring equipment and nurse call systems. The equipment budgets of even the smallest rural hospitals often run into the millions, while larger health systems can spend over a hundred million or more each year. Equipment comes at a hefty price for hospitals, with some assets, such as cancer treatment devices, costing millions per single machine. A challenge for hospital management is that, unlike consumer products, there is rarely a showroom floor to visit and almost never a window sticker to review. In fact, virtually none of the most costly medical equipment has a price tag, nor is pricing published on the manufacturers's websites. In order for a hospital executive to know the price, they must call the manufacturer or distributor and get a written quote. The fact that it is considered improper for hospitals to share pricing data only further contributes to a blind market with extreme price variation.



In the late 90s, Bob Yancy, an asset management salesperson in Texas, spotted the trend of extreme price variation and thought there might be a business model to help hospitals ensure they get the best prices on equipment. It'ss incredible, says Yancy. One hospital might pay $250,000 for an ultrasound unit, while another pays $120,000 for the same machine. Yancy and his wife began researching the matter and in October of 2000 the couple launched Medical Equipment Management Data, or MEMdata. I quit my sales job and we took a big risk hoping it would pay off, says Yancy.



And pay off it did. What the couple had stumbled upon was a little known fact at the time - that group contracting methods used by hospitals to purchase capital equipment are not competitively priced. According to Yancy, since before the Internet existed hospitals had been buying equipment the same way, and most of them still do. While the world changed with new information technology, hospitals continued to rely on traditional purchasing methods and contracts to purchase equipment. We designed a better method using free market competition coupled with technology.



From its corporate headquarters in College Station, Texas, MEMdata conducts a competitive bidding process for hospital equipment that they call electronic Request For Proposal, or eRFP. Roughly similar in concept to eBay or LendingTree.com MEMdata'ss service combines data, competition, and volume purchasing to obtain competitive price quotes from multiple manufacturers for each equipment purchase. The resulting eRFP reports are posted to a secure online account and identify all options at the lowest prices for the hospital. The resulting data is archived in MEMdata'ss pricing database which they use as a benchmark to compare against similar future purchases. When hospital personnel are ready to buy equipment, they simply log on to MEMdata'ss website and pick the technology that'ss best for them- usually at prices dramatically lower than a hospital'ss contracting process or buying consortium can obtain. The process has documented dramatic successes for MEMdata'ss clients, including:



> $1,000,000 in savings for Columbus Regional, Columbus, GA on cancer treatment devices;


> $423,519 in savings on an MRI and cardiology equipment for Bromenn Healthcare in Normal, IL;


> $318,534 in savings on a CT Scanner for St. Joseph'ss Health System in Paterson, NJ;


> $506,000 savings on cancer treatment devices for Forum Health System in Youngstown, OH;


> $180,869 savings on a cardiac cath lab for Intermountain Healthcare in Salt Lake City, UT;


> $99,968 savings on ICU monitoring for Centegra Health System in Woodstock, Illinois, and;


> $270,520 in savings on a CT Scanner for St. Luke'ss Regional in Sioux City, Iowa.



St. Joseph'ss Healthcare System in New Jersey has used MEMdata since 2004. This service works, says Jack Robinson, CFO. We are a 1,000 bed teaching system with two acute care hospitals and in this economy we have to be efficient at everything we do. St. Joseph'ss has identified savings in excess of $4,600,000 using MEMdata. We decide who to buy from, while MEMdata gets the best price. They give us an entire equipment purchasing process backed up with the sharpest database in the industry. The service pays for itself several times over. There have been numerous purchases where the savings on a single item exceeded MEMdata'ss entire annual fee.



Other hospitals and health systems agree. From its humble beginnings as a home-based consultancy, MEMdata has grown to serve hundreds of medical facilities of all types. For hospitals willing to try the service, MEMdata provides a compelling guarantee of performance. Basically, if we don'st save money for our hospital clients we don'st get paid, says Yancy. Our program fee is guaranteed to be funded by the savings we achieve, so we have to perform. Using a pay-for-performance model makes the service self-funding and risk free for our clients.



Despite the guarantee of performance, growing the business has not been easy. Any unique business model is going to have its challenges, says Robinson. For MEMdata, the savings they achieve challenges the status quo, so it takes strong executive oversight to ensure hospital staff use the service consistently. Yancy agrees. Our process is different from the way hospitals have historically acquired assets. Convincing today'ss hospital leaders and other organizations in the healthcare supply chain has not been a walk in the park. Yancy adds that since the beginning of the recession, the business has gained momentum. Healthcare as a whole is beginning to warm up to the fact that they can employ innovative processes and technology to reform healthcare,'s he says. America always innovates its way out of recessions. Our goal is to convince hospital leaders one at a time, guarantee our work, and use free market competition to reform this one piece of a larger healthcare industry.



For more information: LeeAnna Butler, MEMdata Communications, 979.695.1950 x109


Jack Robinson, CFO, St. Joseph'ss Healthcare System, 973.754.2023






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