A Matter of Faith

Consorta’s decision to become an equity owner of HealthTrust Purchasing Group signals the end of an era for faith-based group purchasing.

Schaumburg, Ill.-based Consorta announced in early January that it would cease contracting on its own, ceding that responsibility to Brentwood, Tenn.-based HealthTrust. It will continue to exist as a shared services organization, though greatly downsized. President and CEO John Strong said Consorta will trim its suburban Chicago staff from its current level of 110 people to between 30 and 40. Strong said he expects to remain with the organization.

At first glance, Consorta – with its Catholic roots – and HealthTrust – which serves primarily for-profit hospitals – would seem to make for an odd couple. But executives from both organizations believe their cultures are highly compatible, citing the fact that both are founding members of the Healthcare Group Purchasing Industry Initiative, which promotes and monitors ethics and business practices among hospitals and group purchasing organizations. “We’ve both been leaders in being transparent in how we work with medical suppliers in the way we contract, the mechanisms we use and the standards we set,” said HealthTrust President and CEO Jim Fitzgerald.

With the addition of Consorta, whose annual purchasing volume exceeded $5.2 billion in fiscal year 2006, HealthTrust will represent $13 billion in annual volume. That puts it ahead of Amerinet ($6.5 billion), but behind MedAssets ($15 billion), Novation ($25 billion) and Premier ($27 billion).

Months of dialogue
Consorta was founded in 1998 by the merger of two Catholic purchasing groups – Catholic Materials Management Alliance, St. Louis, and Diversified Health Services, Milwaukee. The organization suffered a blow in February 2006 when its largest shareholder – Ascension Health – announced its intention to leave the organization and join Dallas-based Broadlane, effective October 2006. Based in St. Louis, Ascension has 64 general acute-care hospitals in 19 states and the District of Columbia, and has operating revenues of close to $11 billion. But Strong denied that Consorta’s decision to join forces with another GPO had anything to do with poor performance on Consorta’s part.

“We just got off a record year,” he said during a telephone press conference held hours after the announcement was made. “We’ve been growing nicely. Our numbers were up 22 percent this year. We are doing this from a position of strength.”

Even so, Strong said that he and the Consorta board believe that the group purchasing market is growing more challenging, and that competition will only get hotter in the years to come. “It’s safe to say everybody in group purchasing has been talking to everybody else,” said Strong, adding that Consorta and HealthTrust had been in discussions for a year and a half prior to their announcement. “We took a careful look at the market. We’re convinced that after looking at all the variables out there, the combination with HealthTrust represents an overall incredible value for shareholders and members.” He added, “Suppliers recognize volume and commitment.”

Fitzgerald added that HealthTrust and Consorta members will benefit from the union in three ways: improved prices, improvements in distribution of administrative fees, and reduction of corporate overhead.

The faith-based factor
During the press conference, Strong questioned the logic of Catholic or religious-based purchasing groups in today’s environment. “Catholic collaboration is not a single reason to join a group purchasing organization,” he said. “Many current and potential group purchasing customers view their relationships with group purchasing organizations differently. They see us as a supplier of contracts vs. [an organization] in which they want to have membership.”

Nevertheless, Strong said he and the Consorta board are convinced that its values and those of HealthTrust are aligned. “We believe all 12 of our 12 shareholders will participate in the transaction,” he said.

What happens to contracts?
For the time being, Consorta and HealthTrust contract vendors will be left wondering about the fate of their contracts. “We don’t have a lot of clear-cut answers at this point, other than that we both have contracts in place,” said Fitzgerald. While stating that HealthTrust “will honor its contractual obligations,” Fitzgerald would not say whether HealthTrust would allow its contracts and those of Consorta to run their course prior to consolidation. “We have a tremendous amount of due diligence and planning to go through.”

Another question concerned the fate of Consorta’s custom contracting program. Consorta Custom provides staff dedicated to developing agreements for individual shareholders, while the shareholder maintains access to and support of Consorta’s agreement portfolio. One participant, Novi, Mich.-based Trinity Health, is said to have achieved $13.3 million in validated cost savings on $643 million in savings, with 82 percent of the savings through Consorta Custom agreements.

“We’ll be evaluating each of these different nuances and approaches to contracting,” said Fitzgerald. “As we do this, we’ll be able to communicate what our specific plans will be.”

Consorta’s future
When asked what Consorta will focus on in the years ahead, Strong said the organization will work with its shareholders to improve clinical evaluations and feed that information to the HealthTrust contracting team. He also said Consorta will hone its data-gathering and data-analysis techniques, again, to improve HealthTrust’s contracting strategies.

Consorta’s current membership encompasses more than 530 acute-care and 250 extended-care facilities throughout the country. HealthTrust supports more than 850 for-profit and non-profit hospitals and 1,200 non-hospital sites. Its largest member is Hospital Corporation of America, Nashville, Tenn., with 190 hospitals and 82 outpatient surgery centers. Another member, Community Health Systems, Brentwood, Tenn., operates 77 general acute-care hospitals in primarily non-urban areas in 22 states.

Collaboration among faith-based organizations will continue, predicted Lou Fierens, Consorta chairman and senior vice president of supply chain management and capital projects at Trinity Health. “One of the strengths of Consorta over the years has been … the common sponsorship, heritage, mission and purpose of the organizations that have been a part of it.”

Nevertheless, shared faith has little to do with contract prices on medical commodities, added Fierens. Regardless of whether a group is faith-based or not, “[i]t’s still the same game of saying what you do and doing what you say,” he said. “It’s about compliance, volume, commitment and being able to move business where additional clinical or financial value is offered.”

On that score, Consorta and HealthTrust have a lot in common, said Fierens. “Consorta and HealthTrust are both very lean organizations; we don’t have thousands of employees. And we have been focused on being true to the vision of the contracting co-operative. We have tried to stay very consistent with the vision of driving value through excellent contracts. When I look at HealthTrust, I see that same kind of priority.”

But it remains to be seen whether the new HealthTrust will be able to deliver compliance to the same degree as its for-profit members. “The culture of the for-profit systems from a pure purchasing perspective is to be admired,” said Bud Bowen, recently retired CEO of Amerinet and current principal of Medical Product Strategies, Cottleville, Mo. “There is no gray. It’s ‘You’re either on board, or we will find someone else to do the job.’ In the non-profit world, I don’t know a single non-profit entity that has shown the same fortitude to impose that sort of discipline on their procurement. How will these two cultures blend? Will Consorta, in essence, water down HPG’s high-compliance approach, or will HPG make the Consorta systems march to the tune?”