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Last Updated: May 29th, 2012 - 03:07:02 

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Priceline-Style Purchasing Power for Cancer Drugs
By Nora Fascenelli
Apr 19, 2008, 20:09



Taking a lesson from the Priceline.com approach to purchasing power, OneOncology Inc. launched a new service today that promises to simplify the oncology drug-supply chain and lower drug costs for small practices.

OneOncology unveiled an impartial electronic negotiating network that relies on familiar technology. It allows the open market to negotiate the lowest possible price on a product line-item basis using a completely transparent process.

“Dramatic changes are taking place in the oncology market today,” said Steven Kirchof, OneOncology’s CEO. “Today, the pharmaceutical distribution business is a bloody red ocean, and it’s difficult for the participants to distinguish themselves.”

Instead of competing in this overcrowded market, Kirchof told HONI that OneOncology is following a fresh "Blue Ocean Strategy" in keeping with the principles described in the book with the same title, by W. Chan Kim and Renee Mauborgne.

“In markets like this—where distributors write the rules—the small practice has no leverage whatsoever. Half the practices, the larger practices, are buying their drugs at less-than-average sales price and realizing reimbursement rates that based on ASP plus 6 percent. The rest of the practices, especially the small, physician-owned practices with just one or two doctors, are paying significantly more than ASP and getting reimbursed at the same ASP plus 6 percent rate,” Kirchof said.

OneOncology’s solution allows practices to drive the inefficiencies out of their buying methods. Using electronic negotiation technology, OneOncology’s system combines individual orders from community oncology practices. Drug distributors can then bid on large, guaranteed blocks of drugs that are ordered on a line item basis. It’s a transparent process that allows the practices to see how distributors are pricing drug transactions.

“This is a tried and true technology,” Kirchof said. “The cost savings realized in some industries is enormous. For example, telecommunications and construction saw savings of 30 to 35 percent. In the energy and fuel industries, there were savings of 3 to 5 percent.”

The benefits that community oncologists stand to realize are substantial, Kirchof said. In addition to lower costs for their drugs, he said practices will also find their staff will spend far less time on administrative tasks involved with shopping and ordering drugs. The physicians will be able to eliminate market basket and bundled contracts, and have more control over how they treat their patients. “It’s a system that will promote efficiency and simplify the decision-making process within the office.”

Of course, not everyone will be thrilled with the new system. “There is always a pain point, and the distributors are the ones who will be asked to absorb the fee,” Kirchof said. “We are the intermediary, negotiating the price on behalf of the practices. Distributors will pay a fee to OneOncology.”

Still, Kirchof said, distributors stand to gain a great deal. “They can increase their top and bottom lines by increasing sales. Larger volume is an efficient electronic marketing format which will generate savings in sales and marketing expenses,” he said.

Distributors will also be able to access new markets through aggregated demand. “They will be able to bid on the block of purchasing six times per year. As it stands today, distributors’ contracts lock up business for long periods of time—usually one to two years. That’s not good for the marketplace and it increases costs,” Kirchof said.

Kirchof said OneOncology’s approach reduces distributors’ costs in two ways. “First, there is just one set of transparent terms for the entire marketplace—net 30 days. Second, few practices today bundle their shipping. Instead of ordering once each week, they tend to place many orders separately. With our system, shipping can be done in bulk, and that will allow the distributor to trim costs.”

Manufacturers of pharmaceuticals will also realize benefits, Kirchof explained. “Manufacturers will be able to keep control of the ASP, rather than allowing ASP to be controlled by other forces,” he said.

The issue of counterfeit drugs is never far from the news front, but Kirchof said the contracts require that only qualified distributors be permitted to be involved in the process. “There is complete providence and direct source-to-manufacturer transactions, which also allows the manufacturer to have better tracking of the data,” he said.

Although there is a likelihood that value-added features like educational and networking opportunities folded into the pharmaceuticals market might be lost, Kirchof thinks transparency benefits everyone. “After all, is it worth paying hidden higher prices, or would practices rather pay directly for those things? Unbundling hidden ‘advertisements’ and agendas like conferences in Bermuda is a good thing,” he said.

Kirchof likes to quote Barry Russo, CEO for the Center for Cancer and Blood Disorders in Fort Worth, Texas, who said, “Without margin, we have no mission.” OneOncology is set on unifying the oncology community and bringing about the changes that are needed to make practices healthier, Kirchof said.

“Community oncology today is in jeopardy,” Kirchof said. We’re seeing more and more practices closing. We’re seeing bankruptcies in community oncology centers. This ends up denying patients access to the finest cancer care system in the world. We’ve been dealt a set of cards and given the rules of the game. We’ve got to play within those rules. It takes creativity and innovation to change the rules, and that’s what OneOncology intends to do.”

OneOncology begins registering community oncology practices and the drug distributor network in mid-June. Pre-registrations are being accepted. Visit OneOncology.com for more information.


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