Group purchasing is dealing a blow to common wisdom.
Dressed like an industry asking for consolidation, the purchasing business nonetheless saw its power diffuse a bit in 1993, according to new figures from SMG Marketing Group. The Chicago-based research firm tracked the membership of 468 groups, including healthcare systems, that create buying contracts for hospitals.
Excluding specialty hospitals, SMG found only 27 U.S. hospitals that don't belong to such purchasing groups or buy through government contracts. That fact underlies most predictions of industry consolidation, said Gary Appel, the SMG analyst who produced the study. A popular belief is that strong groups will add new hospital members at the expense of weaker groups.
Instead, hospitals continued their polygamous ways in 1993, the study showed. More hospitals joined new groups without abandoning old partners. At the close of 1993, each hospital belonged to an average of 2.87 purchasing groups, the study said. That's an increase of less than 1% from the average hospital's membership in 2.85 groups at the end of 1992.
However tiny, the increase in multiple memberships shocks purchasing professionals who long have argued that hospitals will belong to fewer groups in the future. Manufacturers provide the best deals only after group members promise to buy a greater percentage of supplies through their contracts, some purchasing group executives said.
"I think this is just a blip, I really do," said William Donato, executive director at Diversified Health Services, a Milwaukee-based group with 135 hospital members. "From everything we hear from suppliers, we're getting much closer to the day when there will be limits on a hospital's ability to `cherry pick.'|" That occurs when hospitals chose the lowest-priced contracts from the offerings of several groups.
SMG's data indicate that opportunities for such steps are on the rise. In 1993, hospitals joined more purchasing groups at every level of the industry.
Take, for example, the 56 groups that actually do the bulk of the contracting for U.S. hospitals. SMG labels such groups as "parents." A parent group, such as Los Angeles-based Purchase Connection, contracts exclusively with manufacturers, while "children" give members access to another group's contracts. The development of parent groups in the past several years demonstrates that the group purchasing industry already has undergone some consolidation.
Statistics for 1993, however, show no further consolidation among the top 56 groups. At the end that year, the average hospital belonged to 1.8 parent groups, up 2.3% from 1.76 in 1992.
In pharmaceutical purchasing programs, which historically have commanded more loyalty than medical-surgical programs, hospitals shopped around with greater frequency. Hospital affiliations with pharmacy programs rose 4.9% to 1.28 in 1993 from 1.22 in 1992.
Viewed another way, SMG's data document a leveling of power among the 56 groups. Hospital membership for the 10 largest purchasing groups rose 0.1% in 1993, while hospital membership in the next 10 largest groups grew 2.6%. In the smallest groups, hospital membership climbed 9.6%.
Some caveats apply. First, purchasing groups might have reported membership figures incorrectly. Second, membership isn't the only measure of buying power. In the end, it's the money members spend that counts, purchasing executives said.
"Hospitals can belong to multiple groups, but they don't actually support that many," said Tom Jamieson, president of Health Services Corp. of America, a Cape Girardeau, Mo.-based group with more than 1,000 hospital members.
Several explanations for the trend exist. The past year, marked as it was by healthcare reform and cries for cost containment, might have led more hospitals to shop for quick savings.
"The loyalty of the hospitals to groups is waning," said Patrick Carroll, a materials management consultant in Cypers, Calif.
Also in the past year, groups have tried harder to sell their services to top executives instead of to materials managers, said Neil Marek, vice president of group purchasing at the New Jersey Hospital Association. The new tactic might have helped increase membership throughout the industry, Mr. Marek said.