Johns Hopkins discovers joys of single-sourcing

March 10, 1993

Good timing isn't everything in capital equipment purchasing,but it helps. Two hospitals owned by Johns Hopkins Universityrealized significant savings by bundling a large imaging equipmentpurchase and sourcing it to a single vendor. More purchasers are

Good timing isn't everything in capital equipment purchasing,but it helps. Two hospitals owned by Johns Hopkins Universityrealized significant savings by bundling a large imaging equipmentpurchase and sourcing it to a single vendor.

More purchasers are looking at single-sourcing to exploit economiesof scale and squeeze savings out of the painfully expensive equipmentprocurement process. The biggest discounts, however, are reservedfor players with the purchasing clout to bargain head-to-headwith the major vendors.

The Johns Hopkins purchase involved more than $10 million inradiology equipment for Johns Hopkins Hospital and Francis ScottKey Medical Center in Baltimore. Siemens Medical Systems beatseveral other manufacturers, including U.S. heavyweight GE, towin the contract for equipping the hospitals.

About 60% of the equipment went to Johns Hopkins Hospital,which opened a new outpatient center last May. Equipment purchasedfrom Siemens for the center included two MRI scanners, two CTscanners, mammography units, radiography rooms and R/F rooms.

At Francis Scott Key, the contract involves replacing all equipmentin the hospital's radiology department as the department movesinto a new acute care wing under construction. The equipment consistsof a 1.5-tesla MRI scanner, two CT scanners, an angiography suite,radiography rooms and R/F rooms. The wing is scheduled to openin the first quarter of 1994.

SIEMENS WON THE HUGE CONTRACT in part because of the company'saggressive pricing strategy during the bidding process, accordingto Mark A. Finnical, the Siemens sales representative who handledthe Francis Scott Key portion of the purchase. Siemens' achievementwas especially noteworthy because GE Medical Systems originallysupplied much of the equipment the hospitals were now replacingwith Siemens products.

"We knew cost was going to be a major factor based onthe amount of equipment they were going to be buying and whatthey were trying to achieve, and so consequently we addressedthat directly," Finnical said.

Also working in the hospitals' favor was the sluggish stateof the imaging equipment market at the time the bids were submittedin the fall of 1991. Johns Hopkins and Francis Scott Key foundthat they were big fish in a small equipment purchasing pond,according to Dr. Stanford M. Goldman, radiologist-in-chief atFrancis Scott Key.

"At the time we were purchasing, most hospitals were ina retrenchment phase," Goldman said. "Both our hospitalswere in a situation in which we needed equipment and we used thatretrenchment to get a good price. It was a rare situation in whichyou had an extremely large bid of equipment at a time when themarket was tight."

Going to a single source for a large purchase has advantagesbesides just price discounts, according to Steven H. Lipstein,executive director of the Johns Hopkins Outpatient Center.

"All things being equal on the quality of the equipment,going with a single vendor for multiple modalities gives you improvedservice, improved pricing and improved access to future enhancements,"Lipstein said.

Bundling with a single source is not without its pitfalls,however. Often radiologists develop an affinity for a particularvendor's equipment that they are reluctant to abandon.

"Sometimes it's difficult to get everybody to agree ona single vendor for all modalities," Lipstein said. "Theremay have to be some compromises in terms of functionality in orderto take advantage of whatever pricing is available."

Radiologists can usually be brought into line by pointing outthat the savings gained through single-sourcing can be used topurchase more equipment, according to Lipstein.

Hospitals, however, may find it necessary to go outside themajor multimodality vendor universe for certain equipment. Neitherultrasound nor nuclear medicine equipment were included in theJohns Hopkins/Francis Scott Key deal.

Which hospitals should consider single-source purchasing? Primarily those with big budgets and well-timed purchasing schedules.

"If you're going to purchase five pieces of equipmentover the next 10 years, that's not going to buy you nearly asmuch leverage and as much purchasing power as it relates to service,technology and price, as if you have a defined package in a two-or three-year time frame," Lipstein said. "It's veryinstitution-specific. I think it worked out well in our case."