Room to Grow

Study shows regional purchasing coalitions could be poised for growth.

Viewing a snapshot of today’s group purchasing landscape, an observer might conclude that regional purchasing coalitions, or RPCs, are a small fraction of the picture. And they would be right. But experts with whom the Journal of Healthcare Contracting spoke don’t expect that to remain the case for long.

The results of a study conducted by JHC in late 2009 show that of the 226 supply chain executives, department heads and contracting specialists who responded to the survey, 40 percent are part of a regional purchasing coalition. What’s more, 89 percent of that group believe they will continue to be part of a regional coalition in the next five years.

Ninety percent of the respondents were from non-profit hospitals or integrated delivery networks, and all the national group purchasing organizations were represented. In fact, the percentage of survey respondents whose coalitions are GPO-associated (48 percent) was twice as large as the percentage whose coalition was member-organized (24 percent), and more than three times as large as the percentage of those whose RPC is a state or regional association (14 percent).

GPO connection is strong
Indeed, all indications are that regional purchasing coalitions – like IDNs before them – have made peace with group purchasing organizations, and vice versa.

Speaking with JHC, Premier Director of Regional Aggregation Krista Marshall points out that Premier accommodates RPCs’ desires to conduct local negotiations when necessary, and it ensures that coalition members have a voice with the Premier contracting team.

“One reason my role was created was to help bring structure to these groups,” says Marshall. In return for providing assistance to the regional coalitions, Premier insists that the coalitions have a structure in place, with certain operating guidelines. “They need a decision-making process, a peer chairperson and a [product] category selection process,” she says. RPC members must also agree to share purchasing data with Premier, who then “blinds” it and gives it back to them for analysis and action.

Coalition members are free to pursue vendors that are not on Premier contract, but they must do so without the assistance of Premier staff, she adds.
Successful regional purchasing coalitions – like successful hospitals and IDNs – bring clinicians into the decision-making process, adds Marshall. Doing so helps with standardization, and it gives clinicians a front-row seat into the challenges facing materials managers, and vice versa. “When they see how suppliers interact with materials managers, clinicians start to get a better understanding of what materials has to go through to get a contract signed,” she says.

It’s not all about price?
“We absolutely love regional purchasing coalitions,” says Rand Ballard, MedAssets’ senior vice president, chief operating officer and chief customer officer. That’s because they give the GPO an opportunity to show its strength in marrying “best demonstrated cost” with clinical outcomes and revenue implications, he says. Although “best-tier pricing is not what it’s really about,” regional purchasing coalitions that have the ability to drive compliance can “absolutely achieve best demonstrated value,” he adds

According to Marshall, “The majority of times, Premier regional aggregation groups are looking to maximize their potential within the Premier nationally negotiated tier structure.” In other words, by banding together into a regional purchasing coalition, participating hospitals and IDNs can take advantage of lower pricing due to their volume. “Over time, Premier Sourcing has done a pretty good job negotiating tiers into the national contract that fit the majority of the needs of all the Premier regional aggregation groups,” she says.

Med/surg supplies, for now
Currently, the percentage of purchases going through RPC contracts is small, according to the survey. More than half of the respondents in regional coalitions reported that less than 25 percent of their organization’s total purchasing goes through an RPC contract. And the emphasis of these coalitions, at least at the present moment, appears to be on med/surg supplies, as opposed to capital equipment or pharmacy. But those numbers could change, according to those with whom JHC spoke.

“Over the past six to eight months, we’re seeing that our groups are looking at different ways to gain benefits [from forming regional coalitions],” says Marshall. Some have experimented with bulk buys in cardiac rhythm management, while others are exploring contracts in food and facilities management.

“This is a new concept,” she says, referring to aggregation groups. “They started with what they were most familiar,” that is, med/surg supplies. “But the concept is growing, and I foresee some creative things going on in the next year.”

Making regional purchasing coalitions work is not without its challenges and disappointments, according to survey respondents. Some written responses:

  • “It takes a lot of work for little to be accomplished; hard to get people to agree; sometimes even then, you get to implementation and people back out,” said one respondent.
  • “Member hospitals rarely all participate in high value aggregate agreements,” said another.
  • “Expenses and technology challenges,” wrote a third.

Indeed, regional coalitions must incur some expense – in time and money – in order for its members to physically meet on a regular basis. But collecting and aggregating data may be an even tougher nut to crack. GPO sponsors are doing what they can to facilitate the process.

MedAssets’ members, for example, want to examine their costs by DRG, by physician and by payer, and they want feedback on quality measures, such as time in the operating room, acuity levels, outcomes, etc., says Ballard. MedAssets’ technology “allows us to synthesize data, manage it…for supply chain analytics, clinical analytics and revenue analytics,” he adds.

Says Marshall, “IT in healthcare has not been set up to provide data the way we need it.” Premier’s analytic tools can help, though, she says. Still, challenges remain.

Although Intermountain Healthcare in Salt Lake City, Utah, is a classic (and big) IDN as well as an owner of St. Louis-based Amerinet, it has been approached by other systems to explore opportunities as a larger purchasing coalition, says Brent Johnson, vice president, supply chain and imaging services. “I’ll entertain any idea from anybody that helps us reduce costs and makes us more efficient.”

But Johnson anticipates facing some of the same issues as those identified by survey respondents. “How do we get our data in a compatible form” in order to identify opportunities? he asks.

Data-sharing presents other, non-technical challenges, Johnson points out. “How do you build a firewall, so there’s no conflict of interest in sharing pricing? You have to protect yourself a little bit, so suppliers don’t call you on the carpet for engaging in unethical behavior.”

While Intermountain may investigate coalition opportunities in the future, Johnson will proceed cautiously. “There’s a part of me – maybe it’s the supply-chain-disciple part – that says that regional alliances are still about price. There’s a lot more value in standardization, utilization and taking cost out of the supply chain.” In fact, Intermountain is expanding its self-distribution program.

Johnson also believes that providers can wring even more savings out of the supply chain by forming alliances with suppliers. “It involves sharing resources, trying to drive down the cost of doing business with each other. The problem, though, is that we have too little trust in healthcare with our supplier partners. But that will change.”