Columbia/HCA Healthcare Corp. will hack away at supply costs once again after it merges with another giant hospital chain, Healthtrust.
Combining the two will cut their annual spending on supplies by $75 million, or about 3%, Columbia/HCA executives told analysts in a conference call earlier this month.
After major acquisitions, Columbia/HCA has renegotiated purchasing contracts with suppliers and projected significant savings-about $80 million after this year's merger with Hospital Corporation of America, for example.
The Louisville, Ky.-based chain now will return to vendors for another round of negotiations, its chief operating officer told analysts. Executives told MODERN HEALTHCARE that it's too soon to discuss their plans further.
Columbia/HCA will gain 116 hospitals to bring its total to 311 if the merger with Healthtrust is completed (Oct. 10, p. 2). Its annual spending on supplies, however, will rise by only about $500 million to $2.2 billion because many of Healthtrust's hospitals are small, said Ken Abramowitz, an analyst with the New York brokerage firm of Sanford C. Bernstein & Co.
That might not be enough to win Columbia/HCA lower prices, observers said. The company claims to already have negotiated the lowest prices in the industry. Columbia/HCA might, however, spend less on supplies by converting purchases to the best contracts of each hospital company.
In the past, Columbia/HCA sometimes has signed a contract with one vendor, then switched to a competitor in later negotiations (March 14, p. 22). Consequently, some industry analysts have feared it will create price wars.
The chain's tactics, however, might be changing, Mr. Abramowitz said. Last month, it signed a contract to buy $800 million in intravenous systems and diagnostic products over eight years from Deerfield, Ill.-based Baxter International (Oct. 3, p. 8).
Baxter didn't offer Columbia/HCA significant price discounts, but it promised to save the chain about $100 million by helping it use fewer products, Mr. Abramowitz said. Both companies win: Baxter keeps its business and profit margins, and Columbia/HCA spends less money.
Regardless, the apparent success of Columbia/HCA is triggering changes in the purchasing industry. Some group purchasing organizations are trying to lower prices by persuading their members to buy more products through contracts (Sept. 26, p. 52).
"Columbia/HCA is going to continue to send shivers down the spines of GPOs," said Jamie Kowalski, a Milwaukee-based materials management consultant.
One group likely to suffer from Columbia/HCA's latest move is Louisville-based MedEcon Services. Healthtrust has bought products through the purchasing group, but its contract is due to expire this year.
"We did significant business with them," a MedEcon spokesman said. "And we hope to do more business with them, but in this marketplace, change isn't unexpected." He declined to reveal the dollar value of Healthtrust's purchases.