One Premier is enough.
So it seems to medical suppliers facing the possibility of another mammoth buyer: a combination of the U.S. government and thousands of public hospitals and other agencies.
Uncle Sam wants to help state and local governments by allowing them to use federal supply schedules when making purchases. Although officials don't tout it, a result of the proposal could be more federal clout in negotiations with suppliers. According to critics, it could also mean billions of dollars in cost shifting to private hospitals not covered by the price schedule.
Federal officials argue, however, that they aren't forcing anyone to do anything. Prices in the end will be set by market forces, they contend.
Federal supply schedules are lists of goods for which the government has negotiated discounts. Other organizations need legal permission from the federal government to use the same schedules, which officials are proposing to give them. The schedules now account for some $2.6 billion in purchases of drugs and medical supplies, or about 5% of all U.S. hospital supply purchases.
In comparison, the largest hospital alliance, Premier, makes up 15% to 18% of total U.S. hospital supply spending, according to MODERN HEALTHCARE*estimates (Sept. 23, p. 54).
For once, hospital purchasing groups are aligned with suppliers because they see the proposed public-sector buying group as a fearsome competitor.
On the other side are public hospitals. Their association is lobbying hard for an expansion of the program to include federal drug schedules. Federal drug prices beat public hospitals' prices by 16%, it estimates. Drugs were dropped from the proposal last year because of charges that including them would increase federal prices. The additional exclusion of medical supplies is being debated.
There isn't a reliable estimate of the dollar value of purchases possible through such a public-sector buying group.
The Health Industry Group Purchasing Association, which opposes the plan, estimates 12% to 45% of hospitals could be eligible. The HIGPA reasons that manufacturers will raise private-sector prices to offset the expanded customer base receiving low federal prices. It concludes the program will cost private providers up to $53 billion annually, but its analysis assumes drugs and medical supplies will be included.
The debate has delayed the implementation of a public-sector buying group for more than a year. Technically known as cooperative purchasing, the program would allow nonfederal agencies, such as county hospitals, school districts and townships, to use federal supply schedules if they wished (Oct. 2, 1995, p. 38). It was created by the 1994 Federal Acquisition Streamlining Act.
No agency has to participate. In fact, contractors could refuse to make their federal terms available to other public agencies without being penalized. Critics contend that market pressures would force suppliers to participate.
"It was just going to give people the freedom to work together to get a better deal for the taxpayer," said Ida Ustad, associate administrator for acquisition policy at the U.S. General Services Administration. Ustad, who will oversee the program, sounds frustrated by the controversy.
Healthcare isn't the only industry howling. Small businesses won a General Accounting Office study of the program after complaining to Congress that it would harm them. With the GAO report due early next year, grumbling is restarting.
The controversy seems to show that everyone wants the government to act like the private sector until its efficiency threatens his income.
What the government wants to do isn't different from what hospital purchasing organizations, for example, already have done in the name of efficiency. Premier stems from a three-way merger. To build more bulk, it and other hospital groups are extending their contracts to more nonhospital providers.
The federal proposal surely will change the market, but how much is in question.
To the irritation of Ustad and other government officials, the HIGPA not only added drugs to its analysis but also applied a liberal definition of a public entity.
Don Muse, a consultant in Washington who wrote the report, argued the HIGPA analysis is fair. Muse said that regardless of current intent, the law permits a broad definition and the inclusion of drug schedules. "Bureaucrats and political appointees change," he noted.
Assuming that minimum use would mean full participation by every government-operated federal, state and municipal healthcare facility, Muse predicted the cooperative purchasing would cost private providers $11.7 billion over six years. Supply schedule purchases of drugs and other medical products might triple.
To project a maximum impact, Muse defined "public" organizations as all facilities with significant ties to public funding, such as government-guaranteed bonds or housing on public land. The result is a program open to 45% of all hospitals and a potential blow to private-sector prices of $320 billion over six years.
Cooperative-purchasing supporters contend those aren't the only problems in the report.
Muse assumed prices would increase in proportion to changes that followed a 1990 procurement law. That law sets minimum drug-price discounts for Medicaid programs.
Both private- and public-sector prices narrowed significantly after its implementation, but researchers can't decide how much of the decline was due to the law. During the same period, for example, increases in actual drug prices slowed and post-purchase rebates to customers surged. Both could lead to lower price discounts.
The Public Hospital Pharmacy Coalition argues the laws can't be compared.
"What we're talking about is a voluntary program and a fairly limited share of the market," said Stephen Schondelmeyer, a University of Minnesota researcher hired to conduct a counter-study for the coalition.
Parried Muse: "You can argue the assumption, but clearly (discounts are) going to fall."
A spinoff of the National Association of Public Hospitals and Health Systems, the coalition wants drugs reinstated in the cooperative purchasing program.
Its members could come out big winners. For example, 506-bed University Medical Center, Las Vegas, would spend 25% less on drugs, or $5.8 million yearly, with federal prices. The hospital receives a $17 million annual subsidy from Clark County.
Diana Bonds, its pharmacy director, said she doesn't believe University's savings would drive up prices for other hospitals. "I think competition will determine the prices all of us will pay," she said.
She added: "No matter how you look at it, the consumer pays the bill."