By R. Dana Barlow
When William V.S. Thorne created the Hospital Bureau of Standards & Supplies Inc. in New York in 1910 to serve a small group of local hospitals, he likely didn’t envision that his concept of “cooperative buying,” would blossom into the multibillion-dollar group purchasing industry it is today.
It’s much like President George Washington in the late 1790s could not have predicted how the grand experiment of launching and running a representative democracy or democratic republic form of government in the New World that emerged from the rejection of a monarchy and aristocracy in the Old World would last and arguably progress 250 years later. [Granted, that Old World government is a constitutional monarchy and parliamentary democracy today.]
But group purchasing (116!) as well as the United States of America (250!) are here and here to stay. God bless them both.
Thorne was a small railroad executive at a time when the railroad barons who dominated transportation during the Industrial Revolution in the late 19th century were already starting to fade and see their fiscal and societal influence diminish in the early 20th by President Theodore Roosevelt’s progressive policies and trustbusting antics, coupled with newly emerging forms of transportation turning heads, including cars, trucks and airplanes.
Thorne owned several small railroad companies with regional, state and local routes, but he cut his teeth serving as director of purchases at Union Pacific Railroad Co.
Recognizing the dimming and mature future of the railroad industry, Thorne diversified his occupational reach and joined New York’s Presbyterian Hospital as Treasurer and Board Member. With his accounting and purchasing skills and experience in both the railroad and coal industries, Thorne wisely surmised that those concepts could be applied to hospital operations to manage expenses and impact revenues.
Thorne chronicled his ideas in a booklet he titled, “A Central Purchasing Agency for the Hospitals of New York,” which he presented as a lecture at the Hospital Conference of the City of New York at the Academy of Medicine in 1909. He described how the purchasing practices and pricing agreements he established and managed for the railway and steamship systems could make sense for New York City hospitals. That booklet and presentation served as the blueprint for launching Hospital Bureau the following year.
Hospital Bureau generated such interest and reputation that others replicated and adapted its model and principles in other cities and states either as independent companies or divisions within local and state hospital associations.
Hospital Bureau initially attracted 14 of the largest hospitals in New York to use its contracts and implement its purchasing standards. Five years later, Thorne’s cooperative buying organization (CBO?) recruited 33 hospital and charitable institution members to use its 68 agreements for commodity purchasing.
Back then, the concept of cooperative buying was much simpler and covered a limited, but growing number of necessary commodities before expanding into clinical, medical and surgical supplies. Hospitals paid a fee to belong to Hospital Bureau and to use its carefully negotiated volume-driven contracts that enabled them to buy products at lower prices. The manufacturers benefited from the captive audience of buyers and were able to promote their brands, corporate images and quality reputation – akin to, say, Price Club, FedMart, Costco and other retail buying/warehouse club models over the decades.
In those early years, cooperative buying, the forefather of group purchasing, became quite the rage among hospitals that relished saving money, a philosophy that resonated soundly during the 1930s, for example.
From cooperative buying to modern GPOs
Just as clever and enterprising minds made scores of changes and modifications (legislatively and judicially) to the original USA government model, so did similar minds to the original cooperative buying model that is group purchasing today.
While some view the developments within both examples as progress, critics argue otherwise. However, both remain, albeit different, if not better, contemporized and modern from foundational and consistently a polarized powder keg of debate and discourse.
Whereas much of the national rancor is riled by politics, the rancor around today’s GPOs is riled by economics, namely, who’s making vs. saving the most money, how and why.
Cooperative buying and its group purchasing descendant formula remain solid, fundamental functions. Logically, it’s hard to argue against it because it works. But when you change the business formulas, management and operating models and revenue-producing service offerings and then modularly affix them to the original concept you ignite emotional fuses to the point that many don’t want to explore how to assess and improve the model for everyone. They’d rather put their covered heads down, grasp the top of their fedoras and scurry away, going about their business rather than rocking the boat by exploring meaningful change in a reasonable manner.
If Thorne or even Washington were somehow brought forward in time to see the fruits of their respective creations in a similar way as the character Julian West in Edward Bellamy’s 1888 blockbuster utopian novel “Looking Backward: 2000-1887,” how would they react? What would they see? And would we care enough about their reactions and how we affected them or just write them off as old fogies who don’t understand business and capitalistic free-market economics here in the 21st century?
Let’s be honest. Group purchasing does great things. GPOs, on the other hand, can do great things, but things for curious reasons and in questionable ways. Roughly a quarter century ago, Congressional leaders tried to poke the GPO engine on alleged antitrust practices after the legislative branch ceded control of the healthcare industry to insurance companies and payers via managed care back in the early 1980s. Has payer-controlled managed care decreased costs (or the rate of increase) since then? Better shake your Magic 8 Ball for a reply.
Exploring the history, current operations and future success of GPOs doesn’t necessarily have to match the “dark past” of Bellamy’s fictional society that progressed into a “hopeful and utopian future.”
In a postscript to a review of his book in the local newspaper, Bellamy wrote the following as part of his concluding paragraph that can and should be applied to GPOs today: “Looking Backward was written in the belief that the Golden Age lies before us and not behind us, and is not far away. Our children will surely see it, and we, too, who are already men and women, if we deserve it by our faith and by our works.”
Let’s get to work, shall we?
R. Dana Barlow serves as a senior writer and columnist for The Journal of Healthcare Contracting. Barlow has nearly four decades of journalistic experience and has covered healthcare supply chain issues for more than 30 years. He can be reached at rickdanabarlow@wingfootmedia.biz.