The Department of Veterans Affairs healthcare system is shopping for bargains.
Although details have yet to be worked out, the 172-hospital VA system wants to use such initiatives as increased volume-committed purchasing or nationwide contracts with medical suppliers to save money on such nonpharmaceutical medical supplies as diapers, support hose and catheters. Such techniques already have been pioneered by the private sector.
The initiative comes as the VA is trying to make its healthcare system more efficient by consolidating its facilities into 22 networks that will serve the populations of veterans within the networks' boundaries, an action that also mirrors the private sector.
Kenneth Kizer, M.D., the VA's undersecretary for health, said individual hospitals largely handled most of their own purchasing in the past (See chart). But now, he said, networks may take on some of that responsibility.
In addition to making volume-committed purchasing deals, Kizer said the VA may want to sign contracts that will cover purchasing of some supplies for the entire 702-facility healthcare system. However, he acknowledged that the legal requirements of soliciting bids for such contracts are more clumsy and time-consuming.
In seeking such purchasing deals, Kizer said he hopes to get discounts for the listed prices for many medical supplies included in the federal supply schedule, a catalog of already-discounted items available to government agencies.
"We're too big of a consumer not to be looking under every rock for savings," Kizer said.
The VA already has embarked on an effort to consolidate 3,100 contracts for community nursing-home care into regional deals with larger providers. Proposals for that contract were due at the end of January.
While applauding the VA's adoption of private-sector purchasing strategies, groups representing medical manufacturers and group purchasing organizations expressed fear that if the VA seeks discounts more aggressively, suppliers will be forced to reduce their discounts to all big purchasers, including the VA and other government agencies.
Those critics point to reduction in best-price discounts for drugs that occurred after the federal government in 1990 mandated that state Medicaid programs receive the same best-price discounts as group purchasing organizations and HMOs.
"(Suppliers) will try to recoup that somewhere," said Robert Betz, executive director of the Health Industry Group Purchasing Association.
Catherine Cahill, director of healthcare systems for the Health Industry Manufacturers Association, added that despite Kizer's desire to get discounts from federal supply schedule prices, the schedule "is often as good as you're going to get."
Kizer dismissed such claims.
"They're just scare tactics...to get the best deal," he said. Even if such fears prove to be true, he added, the VA still should try to do a better job to save on medical-supply expenditures.
Betz also noted that the VA could hire private group purchasing organizations to obtain such discounts and probably do as good a job or better.
Although private-sector groups generally supported the VA's purchasing plans, they said the department's aggressive initiatives could be a harbinger of future buying tactics of other public hospitals and institutions, including some not necessarily government-owned.
A law passed in 1994 expanded to state and local government entities the authority to purchase items, including healthcare goods, at the federal supply schedule's discounted prices.
The Clinton administration's interpretation only allows government-owned hospitals-which represented nearly 25% of the $326.6 billion spent on hospital care in 1993-and other healthcare facilities to buy from the federal supply schedule.
But Betz expressed fear that future administrations could change the definition of public hospitals and healthcare facilities to include private-sector institutions whose bonds are guaranteed by state or local governments or even to those who simply receive federal Medicare or Medicaid money. Such an expansion likely would reduce the deep discounts suppliers have been giving to private-sector purchasers, critics contend.