As a medical device representative for more than 10 years, Murray Walden saw firsthand the staggering amount of perfectly good medical products being thrown away and was convinced there was a better, more efficient way to put these items to use and to keep them out of landfill.
He left his job in 2012 and started H-Source, a Spokane, Wash.-based technology company that offers a private marketplace for hospitals and surgery centers to buy and sell medical products, equipment and pharmaceuticals to each other.
Two years in, Walden brought on John Kupice, who has a background at Ernst & Young with Enterprise Resource Planning Systems (ERP) and experience running a tech company. As CEO, Kupice is tasked with tackling an industry with high barriers to entry due to complexity, regulations and long-standing sourcing processes built on contract negotiations and relationships.
Several hundred healthcare facilities actively use the H-Source marketplace today, and more than 1,000 facilities—about 20 percent of all registered hospitals in the U.S.—are contracted.
Waste360 sat down with Kupice to discuss the benefits of this type of system and the technology behind it.
Waste360: What service does the H-Source platform provide?
John Kupice: H-Source allows healthcare facilities to access a private network and collaborate to buy and sell non-controlled pharmaceuticals, medical devices/supplies and capital equipment in an online marketplace platform. Member facilities can transact with the entire H-Source community, limit interactions to a specific group—such as by IDN, geography, association or specialty—or license the marketplace software for their own internal use for self-distribution or single warehouse applications.
Waste360: How does it work?
John Kupice: Qualified facilities register and create a free member profile, giving them access to the marketplace. Hospitals then list idle, overstock or slow-moving products they want to sell. Sometimes they request that an H-Source rep visit their facility on a routine basis to pull idle inventory and put it in a quarantine area to sell. Facilities list their items on H-Source via an Excel spreadsheet upload, one item at a time, or have an H-Source team member post items for them. Facilities set their own prices.
Facilities also can purchase inventory from multiple facilities, place it in their cart and check out using H-Source as their single vendor. H-Source handles all billing, payment and reporting tasks. H-Source assists members whenever needed with listing items, finding buyers and sourcing items they want to purchase, since most facilities are typically stretched thin.
No registration or membership fees are required. H-Source charges the seller a fee of 15 to 35 percent when the listed item sells, depending on the amount of involvement on the part of H-Source.
Waste360: What is the technology behind it?
John Kupice: H-Source has built a cloud-based (SaaS), proprietary platform, available on any device with a web browser. It is a comprehensive marketplace platform with extensive reporting on the backend to identify cost recovery and savings by facility, department and cost center. We embed data visualization tools for data analysis. We use industry standard databases hosting service providers for reliability and scalability.
Waste360: How does the platform eliminate waste for hospitals and medical systems nationwide?
John Kupice: The healthcare supply chain wastes billions of dollars every year by discarding perfectly good products, devices and equipment. That waste not only burdens our supply chain budgets but also contributes a significant volume of waste in our landfills, and much of it is usable assets that don’t need to be there.
H-Source provides a platform that makes it easy for facilities to recover costs by selling their excess inventory to other hospitals, reducing the amount of unused, unexpired products that get thrown away. Hospitals can repurpose equipment and reduce medical and pharmaceutical waste to achieve a more sustainable supply chain.
Waste360: How does H-Source recover costs?
John Kupice: Healthcare facilities often throw excess or unwanted inventory into bins to be taken to the landfill, allowing for zero cost recovery and, in fact, incurring disposal costs. Sometimes facilities will donate the items, where there may be a small tax benefit, or they may use an auction or third-party liquidator to get a few cents on the dollar return.
With H-Source, facilities set their own prices on the items they sell and routinely recover upwards of 40 to 50 percent by communicating with peer facilities directly. Users realize greater cost recovery working with each other directly versus working with an auction house.
Waste360: How much has the system saved overall?
John Kupice: H-Source has recovered $10 million for member hospitals selling items on the H-Source marketplace in the last 12 months. Conservatively, that translates to another $5 million in costs saved by member hospitals purchasing those items on H-Source at a reduced rate.
Waste360: What are the most commonly traded medical materials via this platform?
John Kupice: A wide range of items are bought and sold on the H-Source marketplace—from everyday items such as blades, staplers, cath lab supplies, mesh, sutures, guidewires, ligatures and crash carts to capital equipment such as surgical beds, surgical microscopes, robotics and MRI equipment.
Waste360: What are the biggest challenges implementing this system at healthcare facilities?
John Kupice: Healthcare supply chain professionals see the products that get thrown away, but they rarely understand the money that represents. The cash value of items that get discarded and the simplicity of selling those items to other facilities that need them make a compelling case to look to H-Source before discarding inventory.
The national average profit margins for hospitals in 2017 was 2.1 percent and trending down, meaning it takes $48 in revenue to make $1 in profit. With such tight margins, any money recovered from inventory that would otherwise be discarded has a significant impact on cash flow.
For example, Colorado hospitals saved more than $1 million in the first quarter of 2018 by buying and selling items with each other, from basic disposables to MRIs, infusion pumps and Da Vinci scopes. At a 2.1 percent margin, that $1 million savings would have required $47.6 million in revenue.