Universal Health Services' decision to join a large buying group demonstrates hospital executives' growing belief in the payoff of committed size.
The King of Prussia, Pa.-based system cut its own deals with supply manufacturers for years. Late last month, it dumped independence, for the most part, to sign up with a buying group run by fellow for-profit Tenet Healthcare Corp.
"It was strictly a size issue," said Joe Bussard, director of materials management at Universal.
Universal, which operates 30 hospitals and 26 surgery and radiation-therapy centers, buys about $120 million worth of medical-surgical products each year. That isn't enough to get the lowest prices today, Bussard said.
BuyPower, the Tenet program, represents about $1.5 billion in annual contract spending. Its size and compliance levels potentially will return some of the lowest prices in the industry, Bussard said.
Compliance is the percent of eligible goods bought through a particular contract. It indicates the actual volume of purchases vendors can expect under contract, instead of just the potential. Low compliance makes group contracts less valuable to vendors.
Recently, several groups devised committed buying programs, offering lower prices to hospitals pledging high compliance (Sept. 18, 1995, p. 16). Many materials managers, convinced better contract compliance will cut costs, are working harder to sell contracts to physicians and other clinical personnel.
Tenet already asks its owned hospitals for 97% compliance with BuyPower contracts. Affiliates must reach 80% compliance, although Bussard said he would push Universal materials managers for 95% compliance.
Universal will spend about $90 million under BuyPower contracts, keeping 10 medical-surgical contracts of its own. Many of its pharmaceutical purchases are made through pharmacy manager Owen Healthcare.
BuyPower was the ninth-largest purchasing group in MODERN HEALTHCARE's 1995 group purchasing survey (Sept. 25, 1995, p. 49). Its actual rank might differ slightly because a few large purchasers didn't respond. The group represents several for-profit healthcare companies, including Brim Healthcare, HealthSouth Corp. and OrNda HealthCorp.
Bussard said he believes the groups eventually will consolidate into about six large companies.