Success Takes the VA out of its Comfort Zone –Procurement Office Suspends Reverse Auctions

Not too long ago, I posted a press announcement made by Banner Health System and Premier. Briefly, the announcement identified the players (Banner is a Premier member); it talked about how the two organizations have successfully collaborated to reduce supply expense, eliminate variance and improve efficiencies; and it promoted as evidence a $41.5 million aggregate savings figure for 2011.

Frankly, the press release didn’t catch my attention based solely on that savings figure.  It was because Banner and Premier were proud of their accomplishment and couldn’t wait to tell us. I liked that. I found it refreshing, as far too many procurement departments are threatened by the prospects of their own success.

Savings figures have always been a double-edged sword. For example, does a successful competitive bid that creates a savings opportunity of 20% reflect a procurement department’s competence or will it be regarded as a sign that folks were asleep at the wheel? Is identifying a best practice that produces better patient outcomes and reduces supply expense a winning lottery ticket or a burden you quietly carry based on the advice of your superiors?

Far too often it’s the latter, and that needs to be fixed. Armed only with high school psych 101 as my guide, I nevertheless remain confident in saying that those who feel threatened by their own potential for success should probably find another line of work –or a new employer.

That’s why this week’s announcement by the Veteran Health Administration’s (VA) caught my attention. It has suspended its use of reverse auctions. Why? Well, according to just about every report and “inside source” on the topic, it was for reasons of self-preservation (i.e. staff, budgets, etc.). And when you listen to VA executives defend their decision, they don’t even dispel that notion. Instead, they come across like a kid whose face is covered in chocolate and yet denies having eaten any.

By most all accounts, including its own, the VA has been successfully using a hosted reverse auction service called FedBid. It has awarded more than $100 million in commodities sales through this service and saved a little over 7%. By the way, based on the use of FedBid, these last few years have been the first time in its history that it has ever reported a savings. In addition, the service has allowed the VA to achieve its small business award goals (80% of the awards went to small businesses with about half of those awards going to veteran owned companies). And according to member hospitals, general service levels have improved dramatically.

Jan Frye, deputy assistant secretary for acquisition and logistics at the VA, wrote in the March 3 memo that “we simply did not think through all of the unintended consequences of reverse auctions when we recently made the decision to allow their use. Suppliers are not particularly accustomed to a lot of competition, and reverse auctions stiffen competition.” Yikes! Did he actually say that as justification for suspending the program?

Of course, the real issue has nothing to do with a supplier backlash. Everyone who deals with the government complains. And keep in mind, we are talking about commodity suppliers here!

According to Matthew Weigelt, a long time VA insider, “the real issue is that someone high up in the VA realized that with the continuing success of the current reverse auction vendor relationship, their empire was for the most part becoming increasingly redundant.”

Say it isn’t so. Banner Health, a world class provider and Premier, one of our largest and most sophisticated GPOs, proudly announce wringing an additional $41.5 million in costs out of their supply chain in just 2011. That’s a figure that doesn’t even include the low hanging fruit of first run competitive bids. And in this corner: our massive and horribly inefficient VA system saves $7 million measured over a longer term and now indefinitely cancels the program that it identified as responsible?

That’s why the cliche’ “good enough for government work” exists.

It is hard to separate the honorable mission and proven dedication of countless VA care providers from the bureaucracy that they rely on for support. But someone should.

—Tom Finn

Comments

  • Paul Sherman:

    Mr. Finn, I believe you captured the essence of the issue nicely. Many of our front line folks are trying to provide care and support those direct providers, but have become increasingly stifled (no, strangled) by the bureacracy of acquisitions and contracting.

    I see it as a difference between consumers and customers. Consumers use the service, customers control the resources (I like using McDonalds as an example; children are consumers, parents are customers). In the VA, Purchasing and Acquisitions is beholden to their customer (headquarters), not their consumers (the people that use the products).

    It’s gotten to the point where it takes weeks to obtain repair parts for medical equipment, leading to canceled veteran care. It truly is a dangerous situation.

  • Phil:

    Tom,

    Interesting article, yet very disturbing, especially with my tax dollars being used for incompetent industry rejects! Fire em all….And replace them with more staff more budget dollars in contracting procurement etc to find MORE THAN 7% my god….And furthermore…you don’t need a service or a GPO to do your JOB….Just do your job yourself with a competent staff of industry professionals up to date with solid SCM principles and game over…ADD MORE STAFF, GET MORE LEAN….you don’t jeopardize these positions – you justify CREATING MORE!!!!!!!!!!

    Shame on these idiots!! Get rid of them…tooooooo many good people out there need good jobs…..

    Very Shameful,

    Best…

    Phil

    • Tom:

      Phil,

      I didn’t mention it in my post, but I agree with you 7% is anemic. Just the threat of a competitive bid is usually worth more than that…

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