Five mid-Atlantic health systems
Bringing about profound change within one organization calls for time, deliberation and ultimately, hard decisions. Now multiply that by five organizations.
Five years ago, a group of mid-Atlantic health systems began exploring a virtual network to accomplish things they couldn’t do independently, including group purchasing. In October 2016, AllSpire Health GPO was launched.
The GPO is a spin-out company from AllSpire Health Partners, and comprises five equity partners: Atlantic Health, Hackensack Meridian, Lehigh Valley Health, Tower Health and WellSpan Health.
“In any collaborative venture involving health systems with a hundred years of entrenched culture, profound change in operations will have myriad issues and challenges,” says President Paul Tirjan. Building an organizational structure to enable large-scale, long-term collaboration was the first step.
Exclusive management agreement
For group purchasing, the health systems decided to pursue a business partnership with an existing GPO, and after issuing multiple bids, signed an exclusive management agreement with HealthTrust Purchasing Group. That in itself required some doing, as four of the five members at the time had to switch from their current GPO to HealthTrust.
“While there were many contributing factors, the primary driver of the decision to contract with HealthTrust collectively was leveraging the aggregated purchasing power of their 1,600 hospital clients enhanced by the committed model and further enhanced by our regional consolidated purchasing,” says Tirjan. “Some of the longer-term benefits of this approach are the integration of supply chain decision-making into both strategic and clinical initiatives at AllSpire, which would be impractical with disparate vendor selection in major spend categories.”
The agreement with HealthTrust calls for AllSpire members to buy 80 percent of products and services (by value) in defined categories from GPO-contracted vendors. “This allows for some discretionary spending, but also implies a significant amount of conversion to new product and service vendors,” says Tirjan. “An in-depth analysis of the projected disruption and savings was conducted to ensure all members were comfortable with the cost-benefit trade-offs.
“Some of the greatest complexities arose from synchronizing processes from legacy GPO vendors into standard formats and managing varied contract termination dates,” he adds.
Value analysis teams from each of the health systems designate a delegate or delegates to serve on one of the AllSpire Health GPO Collaboratives, which are advisory councils of subject-matter experts who coordinate the acquisition of products and services within their specialty, be it cardiology, surgery, nursing, etc. Each collaborative meets regularly, either in person or via conference call, and makes its recommendations to the AllSpire Health GPO Operating Committee, which is comprised of health system heads of supply chain, as well as the national advisory groups at HealthTrust.
In its first year of operation, AllSpire Health GPO achieved $57 million in savings and distributed $13 million back to its members in excess administration fees, says Tirjan. That $70 million in first-year annual value, returned on an aggregate investment of $7.5 million in both AllSpire Health Partners and AllSpire Health GPO, equates to an internal rate of return of 91 percent, he points out. “By the end of our second contract year, the annual benefit will exceed $100 million, and the IRR will exceed 110 percent.”
One of the GPO’s biggest successes thus far has been a pharmacy benefit management agreement. Four out of the five systems contracted with a national vendor, resulting in $27 million in savings for CY 2018.
Many categories of spend – particularly in purchased services – are not covered in the HealthTrust portfolio, Tirjan says. There are also new, emerging fields, for which traditional multi-bidder processes are not possible or where there is no spend history to evaluate. In some cases, the AllSpire staff and the collaborative teams directly evaluate the vendors and products, and in other cases, they retain an outside consulting firm to issue an RFP and conduct a larger scale process (as occurred with the pharmacy benefit management agreement).
Over the next one to two years, Tirjan expects AllSpire Health GPO to build a broad portfolio of AllSpire-generated contracts to complement those of HealthTrust, including new categories of spending. In addition, the GPO intends to expand its purchasing power by adding new equity members within its region, as well as non-equity members (called Joint Participants).
“Our first two years has been about getting our operations running smoothly,” says Tirjan. “We have established a track record, and we think we will be attractive to a lot of folks.”