The Internet is clearly a power player in the health industry, threatening to take market share and territories from all kinds of health-related companies. But in the home medical equipment business-where one-on-one service is the core value-added-the industry's buying groups are not worried.

The way they see it, they are much more than just group purchasing organizations. They and their members have forged strong personal relationships and a sense of shared purpose. They have a strength in numbers, they say, that adds up to more than great prices on product from manufacturers.

Until an Internet company creates a site that matches their personal service, GPOs say they will have few dotcom apprehensions. "Go to Medtrade, and you'll see at least 20 booths staffed with people who know nothing about home health care who think they are the future," says Jim Walsh, president of VGM Management, Waterloo, Iowa. "If you ask them what they know about wheelchairs or ventilation equipment, they don't know anything-but they still claim they're the future because they have a dotcom after their name and somebody gave them a billion dollars to spend.

"I can't say they're wrong, but my bet is you're still going to have to know something about the business in order to be in it. So, we're keeping our nose to the grindstone, maintaining our substantive knowledge of the business that our members are involved in every day and providing the tools necessary for them to do their jobs."

BEYOND PRICE TAGS Why are GPOs so confident with their market position and their ability to serve providers? "The answer is value-added," says David Miller, president and CEO of Lubbock, Texas-based The Med Group. "The rationale behind any buying group anywhere is not just to go out and get 100 or 1,000 guys, combine purchases and go beat up a manufacturer on pricing; it has to be value-added to both the vendor and the member."

That's why Miller says the hair on the back of his neck still stands up when The Med Group is referred to as just a buying group. "The fact is, we're a provider network that is into marketing, education, training, consulting, management programs and oh, by the way, we also negotiate contracts with manufacturers."

GPO top brass believes it's this value-added element that trips up most Internet suppliers and distributors, even if they have low prices on product. According to Walsh, however, today's online suppliers can't beat a GPO price. "Most of the pricing we've seen on the Internet is substantially higher than the pricing you can get as a member of a group," Walsh says. "There's no savings on the Internet yet. I'm not saying that won't change one day, because if you get some volume purchasing going on-whatever way it's done or whatever medium it's through-you're going to get the sellers to pay attention."

Walsh says price isn't the only issue with smart buyers. "One of the things people find out who've been in business long enough is that the cheapest price isn't always the cheapest price," he says. "You may get the world's best price on a product, but you're not going to get the service that goes with it or the exchange privileges, information, sales assistance or a lot of the bells and whistles that you're used to getting with a GPO. If you buy your product in the cheapest possible way from a vendor whose only advantage is that he's offering you the lowest price possible, you better be ready to make those sacrifices."

STRATEGIC SERVICES Sacrifices are part of business, says Walsh, but he questions whether the low price is worth sacrificing industry and product knowledge-things providers might have to give up if they take the Internet route, he says.

"What a broker on the Internet can sell you by a drop-ship in bundles of 100," Walsh says, "isn't going to be as good as the guy who calls on you every week, knows how the product works inside and out, will help with sales presentations, will help with clinical reference materials and will generally be your assistant in selling your product to the end-user. Internet brokers aren't going to be able to do that for you."

According to Sheldon Prial, president of Homecare Providers Co-op, Melbourne, Fla., dotcoms can't beat GPOs when it comes to informing members of new market opportunities, teaching them how to turn the opportunities into new profits and generally supporting the growth of providers and the industry as whole.

"We, as an organization, are very active in the politics of what's going on in our industry," Prial says. "Today, for example, you need the representation we give you, acting as the go-between between providers and the national and state associations."

To serve their members well, Miller says, GPOs have to get involved in a variety of business issues. "About 87 percent of our staff has nothing to do with vendor contracts," he says. "It just goes to show that there are a lot of other things going on when it comes to reimbursement consulting, technical training, education, distance learning, management consulting, personnel issues and so on."

In fact, The Med Group surveys of its members have shown that their No. 1 concern is employee issues-how to "find them, hire them, train them, motivate them and keep them," Miller says. "That's why we work on a lot of other things than vendor contracts, and that's why I think we're attractive to vendors-because we make their customer, our member, a better customer for them."

SERVING THE SUPPLY CHAIN In addition to serving their members, GPOs must also provide vendors new service in this age of e-commerce. Like providers, manufacturers look for the best deals to boost profits. And according to Miller, this is something else a GPO can offer that the Internet can't.

GPOs, he explains, are like ecosystems in which everyone involved feeds off each other in a sustainable way. "I'm not dumb enough to think that [price] isn't very important to us and to our members financially," Miller says. "But unless we have better-educated members-members with better marketing tools, a better competitive advantage-then they're not going to sell more stuff. And if they don't sell more stuff, then the manufacturers aren't interested.

"Vendors are interested in one thing, and that's incremental volume," he continues. "We know that the industry is only so many billions of dollars a year, and you can only pass [market share] around to different manufacturers so much. What they want to see is the real growth that comes from the industry.'

According to Bob Korenblat, president of Boulder, Colo.-based GPO Pharmaceutical Buyers, GPOs have a competitive advantage because many dotcoms are "charging manufacturers a healthy percentage for any transaction that goes through, and manufacturers aren't willing to do that. Internet companies are shifting the cost, not taking the cost out. But the Internet should take costs out of the equation."

GOING THE WEB WAY The Internet still has a way to go before it becomes a stable link in the HME distribution chain, but even today, it serves the useful function of pushing GPOs to streamline their operations.

"The Internet can be an important supporter of the buying group," says Wayne Kay, senior vicepresident of supply chain development for Neoforma.com, Santa Clara, Calif., and former president and CEO of the Health Industry Distributors Association. "It can permit them to shift some of the resources they've spent in managing contracting and pricing issues-a lot of which is done by fax, phone and mail. It can also help them streamline and speed up the process such that their resources are available for other things of more value to their members, such as educational and marketing tools.

"A lot of people thought years ago that if distributors got their act together in the medical/surgical supply area and were really effective, that it would be the death of the GPOs as we know them," recalls Kay. "But we've seen that that hasn't been the case. GPOs are still alive and well and appear to be offering true value to their members beyond the 'I'm getting a better price' mentality. Providers know they're getting measurable performance, and I think if the buying groups within the home care market are truly providing added value to their members, then the GPOs are going to remain confident with their market position and are not going to be easily replaced."

Miller concurs with Kay. "I think there is a definite place for the Internet with us when you talk about using it for communication and collaboration on projects, for answering questions and as a data resource for providers," Miller says, adding that these opportunities are "expanding and getting enriched every day with the growing power and the speed of the Internet and with the growing number of people becoming familiar with its use."

THE FUTURE OF GPOS Most GPO executives agree that the Internet's impact on GPOs is still about two years off. But GPOs don't appear to be too concerned about when that day arrives.

"Our mission statement at Med reads, 'Partnering to enhance our members' success,'" Miller says. "The key word in that statement is member. That is our customer, and if we're not focusing on them, if we're not delivering service ormeeting their needs, then we go away. They have no need for us."Pri al puts the same stock in the growing importance of member service. "If we buying groups continue providing education to members and teaching them how to better run and manage their business, then we will be able to be successful," he says. "If we can't teach our members how to make more money and how to be successful, then they will start to ask themselves why they joined us in the first place." HC

If the Internet has had any effect on the amount of product moving through group purchasing organizations, you wouldn't know it. Indeed, the leading home medical equipment GPOs say business has been great, particularly since the first of the year. Most also say this trend will continue into the foreseeable future.

The numbers seem to support this optimism. According to the Health Industry Distributors Association's annual Homecare Financial Performance Survey, nearly three-quarters of survey respondents belong to GPOs. -J.P.P.

Will dotcom companies become serious players in the home medical equipment industry? It depends on a number of factors-not the least of which is how much service they offer.

According to David Miller, president and CEO of The Med Group, Lubbock, Texas, e-commerce companies that focus solely on saving money and moving product can hurt the home medical equipment industry's lobbying efforts in Washington.

To his way of thinking, Internet suppliers that just drop-ship their products undermine the notion that HME providers are more than equipment jockeys.

"For 34 years now, since the advent of Medicare back in 1966, we as providers in this industry have been reimbursed on equipment, but it's always tied to the equipment price," Miller says. "We've never been able to charge for the professional service we deliver. I guess we are dumb and slow both because we can't seem to get the message across that it's not the hardware alone you're paying for-it's all the service and effort that goes into providing that piece of hardware to the patient."

"We never get to add on for evaluations or reevaluations," he continues. "And what about the fact that a third of the personnel expense in this industry is for billing and collection? That's a service provided to the patient, yet it's not built into the equipment cost."

"As long as there is a need for patient care, there will be a need for the local provider," Miller says. "But if you start buying off the Internet, what you're really saying is, 'You know what? There's nothing to this service element. All you need to do is drop-ship the product, and the patient can do the rest.'"

And that message can be dangerous in this industry, according to Miller, who says the e-commerce of HME "may be another opportunity for the industry to shoot itself in the foot.

"Despite our opinion and the industry's opinion, the Internet is here to stay and business is going to be done over it, both business-to-business and business-to-consumer," says Miller. "And as long as there are personal physical needs, there will always be a need for a local health care provider, whether it's a physician, nurse or, in our case, the equipment provider."

Miller agrees that certain types of products can be sold over the Internet-such as disposables, commodity items and products ordered on a regular basis-but he says products such as wheelchairs shouldn't be sold over the Internet. To address just this issue, The Med Group has written a position paper that sets standards for which products should not be sold over the Internet-and under which circumstances. The company is seeking industry manufacturers and leaders to endorse the paper. -J.P.P.