The Premier hospital alliance has inked a seven-year, $7 billion purchasing agreement with Baxter International and its recent spinoff, Allegiance Corp., that the companies say is the largest such contract ever.
Under the agreement, which takes effect Feb. 1, Premier's participating members have committed to buy at least 90% of various supplies from Baxter and Allegiance.
Intravenous solutions, drug delivery systems, surgical and respiratory therapy products are the major categories under the deal. Almost all products are subject to sole-source agreements with Baxter and Allegiance while a few are split with other vendors under dual-source contracts, company executives said.
Already 1,561 of 1,830 Premier hospitals have committed to the 90% buying threshold for covered supplies, said John Strong, Premier's chief operating officer for group purchasing.
In return, Premier secured about 10% reductions over current prices, depending on product categories, Strong said.
Negotiations on the deal, which began more than nine months ago, were complicated by Premier's formation through the merger of American Healthcare Systems, SunHealth Alliance and Premier Health Alliance, and Allegiance's concurrent spinoff from Baxter.
Executives with the supply firms said Premier's size and compliance rate were critical to the price breaks negotiated under the deal.
"As the market continues to adjust to the managed-care environment, we want to make sure we're in a position with the major players in the marketplace to succeed long-term," said Richard Miller, a Baxter executive who worked on the agreement.
For Allegiance, the deal carried particular symbolic importance.
"As we venture out with our new company, we consider this to be a vote of confidence," said William Smith, an Allegiance executive who worked on the deal.