A major hospital merger earlier this year has triggered a switch of 17 Iowa hospitals from VHA's purchasing network to American Healthcare Systems, ending a 12-year relationship between the hospitals and VHA.
The switch is a slap in the face to VHA, whose major shareholder in Iowa, St. Luke's Methodist Hospital in Cedar Rapids, is a founding VHA member.
But St. Luke's merged earlier this year with the four-hospital Iowa Health System of Des Moines, a long-time AmHS shareholder. That forced the newly merged system to choose between two of the nation's largest purchasing alliances for not-for-profit hospitals.
St. Luke's and the 16 other hospitals cut their VHA ties last week and will be changing the name of their alliance-Voluntary Hospitals of Iowa-which had been an affiliate of VHA Iowa.
"This is revolutionary because it's the first time an entire statewide network has changed from one alliance to another," said Jack Bernard, AmHS vice president for planning and marketing. "We've had systems and hospitals change (alliances) because of mergers, but not a major alliance. The ramifications will be felt throughout the nation where VHA and AmHS hospitals will be merging."
Iowa Health System, which added 441-bed St. Luke's in February, decided to dump VHA and jump to AmHS after reviewing a consultant's report showing it would save "$2 million to $3 million" a year by using AmHS.
VHA and AmHS submitted data to KPMG Peat Marwick, which conducted a six-month review of the alliances.
"The rest of these hospitals have 2,700 beds, so their cost savings will be much greater and at least as much as Iowa Health System's," Bernard said.
AmHS' new members purchase $40 million to $50 million in supplies each year. The alliance will have more than 40 hospitals in Iowa. A dozen hospitals affiliated with Mercy Health Services of Des Moines already used AmHS, as did Iowa Health System.
"We are excited about the group purchasing, insurance and other benefits to our patients, which will result from the large network of Iowa providers joining this national alliance," said Sam Wallace, who became president of Iowa Health System after St. Luke's joined it.
The news was likely an even more bitter pill for VHA to swallow because Wallace had been chief executive officer at St. Luke's and was a founder of Voluntary Hospitals of Iowa when it was formed in 1983. Wallace also was a past member of VHA's national board.
"We are very disappointed," said VHA CEO Thomas Smith. "This is the first competition we've lost where an organization had a foot in both alliances. We had succeeded in three of our previous four (competitions) against AmHS."
The 925-member AmHS operates a $4 billion purchasing program. By comparison, VHA purchases $6.4 billion in supplies for its 1,100 member hospitals (See related story, this page).
Both AmHS and VHA acknowledged they and other alliances face even more competition as hospitals merge.