The new hospital alliance Premier is approaching a crucial hurdle in its race to establish itself as the most compliant buying group ever.
July 1 is the deadline for hospitals and health systems to pledge obedience to the tenets of the Premier commitment program.
The program is intended to help Premier make the most of its 1,700 members and estimated $10 billion in annual purchases.
Commitment refers to an upfront pledge to make a certain volume of purchases under contract, and compliance refers to how well hospitals meet their promises.
Without high commitment and compliance, Premier says, its hospital members will pay more for medical supplies than for-profit competitor Columbia/HCA Healthcare Corp., which can require its hospitals to buy through specific contracts.
Because of its size and commitment, Premier expects to reduce its members' supply expenses by $600 million to $750 million annually, said Alan Weinstein, Premier president and chief operating officer. That's 50% higher than the group's first estimates last fall, which it said were conservative.
Premier will require its members to use its contracts as fully as possible and forgo membership in other national groups.
Members must use every contract in its commitment program, generally making 80% to 90% of eligible purchases through the contract. The pharmacy program requires a 95% commitment.
Although many groups are offering committed buying programs to reward hospitals willing to use their contracts more fully, the Premier program is unique because it applies to all members.
Chief executive officers and other hospital executives are expected to sign a letter of intent to meet Premier's terms by July 1. In addition, separate letters of commitment are due for the pharmacy program and two recently negotiated contracts for medical-imaging film and contrast media. The deadlines might be extended, Premier said.
Premier said it received 1,200 letters of commitment to the pharmacy program as of mid-June. The alliance said it hasn't started tabulating the other areas yet.
Members are expected to fully use the commitment program contracts within six months to one year of the contract start date. Exceptions may be granted if the contracted vendor doesn't serve the member hospital; the hospital doesn't offer a service requiring the product; or the member has a pre-existing contract in place but has signed a letter of intent to convert to the Premier contract.
Premier will monitor the pharmacy program through electronic purchases. In the medical-surgical program, it will match hospitals' pledged purchases with quarterly reports from manufacturers.
"We look at (compliance) as our business," said Lynn Detlor, president of Premier's buying program, Purchasing Partners.
Hospitals that do not comply with contracts will be warned and given two 60-day periods to remedy their performance. Failure could lead to financial penalties or removal from the group.