Small buying groups fill niche

Wednesday, April 30, 2003

YARMOUTH, Maine — While the nation’s two largest buying groups revisit contractual relationships with the industry’s big manufacturers, a handful of small-scale buying groups continue to fly below the radar screen, cutting deals and getting by.

These boutique-sized buying groups are much smaller than the industry’s giants. Their cohesion is a function of personality, niches and alternatives. Since The MED Group and The VGM Group can’t be all things to all companies, opportunities have kicked open the doors for a handful of small groups.

Patient Home Services (PHS) in Sacramento, Calif. got its start in 1995 when Tim Waits, then president of The John Davis Company, wanted to leverage more buying power with Invacare. John Davis was a VGM member, but at the time, VGM did not have an Invacare contract.

What began as an intimate group of five companies has since grown into an organization that counts 80 companies as members. Much of that growth took off when Waits sold his company last year and began working full-time at PHS.

Waits carefully regulates the membership of the group to ensure that the product mix handled by PHS members is consistent with what he is trying to achieve for his members. For example, although PHS might pump up its membership roster with the addition of yet another drug store, if only 5% of that store’s business is DME, their inclusion could actually harm the group.

“They get better pricing but they don’t contribute to the overall volume,” said Waits.

And volume is everything when it comes to delivering value to manufacturers in exchange for discounts and rebates. But how to deliver that volume? That’s a challenge The MED Group is now facing as it renegotiates relationships with each of its members.

Enforcing purchasing compliance has always been a tricky proposition. “It’s totally unenforceable, or trackable,” said Waits. “To me, it’s crazy.”

Waits believes the best approach is slathered with honey. PHS does not charge its members a fee. Its revenues are, like much of MED’s and VGM’s, manufacturer-driven. In addition to contracting services, PHS provides political advocacy and a forum for networking. But the provision of those services is dependent.

“We provide encouragement, information and incentive for people who use our contracts — proportional to the amount they do use them,” he said.

Older than PHS, the Homecare Providers Co-op is still chugging along, albeit as a subsidiary of VGM. Though HPC founder Shelly Prial is no longer active at the group’s helm, the cohesive group he brought together still enjoys the fraternity of each other’s company.

“Since it’s not broke, there’s no need to fix it,” said Jim Schaefer, vice president of HPC.

But there’s more glue than nostalgia for HPC members. While HPC enjoys the benefits of purchasing agreements with Pride Mobility Products, McKesson and Red Line, VGM does not.

Like PHS, joining the North Carolina-based Charter Buying Association is a relatively harmless financial play at $400 per year. And like PHS, Charter has found safety in small numbers and a tight focus. The bulk of its 26 members are former Majors Medical franchisees. All of its members are mobility dealers.

“The members want to keep that focus on mobility,” said the group’s director, Beth Bowen. “We don’t want to branch out too much. Once, we tried to add bathroom aids, but it really didn’t fly.” HME