A shared instinct for survival and a hunger for professional fellowship gave birth to the Voluntary Hospitals of America alliance 20 years ago this October.
Two decades and more than 1,400 hospitals later, VHA celebrates its founding with a reunion this week in San Diego that is scheduled to include 25 of 28 surviving hospital chief executive officers from the 30 who started the alliance of not-for-profit facilities in 1977.
But after basking in the glow of their past accomplishments, the more than 2,500 executives registered to attend VHA's annual leadership confab will likely engage in a bit of soul-searching. For as they reflect on the turbulent times that gave rise to VHA 20 years ago, the executives will also ponder a highly uncertain future for the industry and how VHA may dramatically reshape itself to serve members' changing needs.
The organization restructured into a taxable cooperative in 1990 to allow members to receive disbursements according to their level of participation. VHA also has undertaken a series of ambitious initiatives to jump-start members' information technology infrastructure and to better align hospital and physician interests.
And, in a move that may show the shape of the alliance to come, it has created a healthcare consulting group whose revenues are projected to grow to $4.5 million in 1997 from $300,000 in 1996. Executives estimate consulting revenues will jump to $10 million in 1998.
Changing times. But as the pace of healthcare change quickens, VHA must work harder to demonstrate its relevance. Formidable integrated delivery systems have become commonplace. And as they flex their economic muscle, such networks pose a challenge to VHA and other alliances' traditional roles as the great providers of economies of scale. Meanwhile, the aggressiveness of for-profit hospital companies that galvanized the voluntary hospital leaders to join together in the first place has flared once again.
"It's the same competitive pressure with different nameplates," said C. Thomas Smith, VHA president and CEO, during a recent interview at the group's headquarters in Irving, Texas. "There's a certain irony that the same pressures have re-emerged*.*.*.*after waning in the '80s."
Group purchasing remains the most easily quantifiable tie that binds VHA members and affiliates. In 1996, the cooperative buying program's volume passed the $7 billion mark and netted members $350 million in negotiated discounts and other benefits, a 22% increase from 1995, VHA said. Since VHA launched its supply company in 1985, group purchases have grown an average of $600 million a year from a base of $860 million.
Yet many healthcare executives are questioning whether group purchasing's best days have passed. Unlike the early days when isolated, independent hospitals had limited purchasing leverage large systems can extract competitive product pricing while retaining more direct purchasing control, industry observers say. And many vendors, though reluctant to say so publicly, would welcome a chance to go directly to customers again, bypassing GPO gatekeepers and their administrative fees.
That's what University of Pittsburgh Medical Center System learned two years ago when it decided to test the purchasing waters on its own.
Formerly part of University HealthSystem Consortium, the system is an example of hospitals that have gone independent from the alliances. It has found its $400 million in annual purchasing volume has been enough to extract pricing as good as or better than the major group purchasing organizations and on custom-tailored terms, said William O'Connor, the system's director of purchasing and materials management.
"We were pretty successful in a hurry," O'Connor said. "Our affiliates that have chosen to walk away from the GPOs are doing so because they have more of a say in the products being used."
Purchasing programs remain the largest source of VHA operating revenues, accounting for three-quarters of the $236.7 million revenue pie projected for this year, and are a key ingredient in the value provided to coop members.
Meeting place. But as important as group purchasing has become, it wasn't the primary reason VHA came into being.
From the start, VHA gave peers who were not local competitors the chance to meet and compare ideas, a goal at least as important as shaving purchasing costs.
"Purchasing has been the cash cow, but that's not why we did it," said Don L. Arnwine, former VHA chairman and CEO. "We did it to find new and different ways to do business together."
Wade Mountz, VHA's first chairman, echoed Arnwine's sentiments.
"We never wanted to be (just) a purchasing organization," Mountz said. "We always spent the last hour of every meeting talking about what we were doing that was cutting edge."
And VHA continues to build those opportunities with networking and education for executives at multiple levels within large organizations or from similar segments in the healthcare market to meet in affinity groups tailored to their needs.
"Sharing knowledge defines the nature of the alliance," Smith said.
Last year, for instance, VHA quietly launched a Physician Leadership program that has so far schooled more than 500 emerging physician leaders about the business side of healthcare while giving them the chance to meet peers struggling with the same challenges.
Transformation. In addition, VHA is looking to recast itself from group purchaser extraordinaire and a not-for-profit marketplace of ideas into a hybrid consulting firm. A look at some key financials offers a glimpse at VHA's ongoing transformation.
"As recently as 1993, 90% of revenues came from supply chain services," said Curt Nonomaque, VHA chief financial officer and an executive vice president. In contrast, last year's supply chain services-primarily purchasing-contributed only three-quarters of VHA revenues, with 11% coming from information technology, 9% from local offices programs (such as regional purchasing or managed-care programs) and 5% in consulting services.
By the year 2000, Nonomaque predicted, supply chain services will stabilize at 50% to 60% of VHA's total revenues.
But Nonomaque noted supply chain services continue to grow in absolute dollar value. Only in comparison to rapid revenue growth in other services has purchasing appeared to wane.
High on the list of VHA's current priorities is improving members' regional market shares. "You've got to be successful marketwise.....in order to make a difference in community health," Smith said.
VHA regional offices have worked with members to develop cooperative call centers, referral networks and HMO support services to help build providers' market share.
And nationally, VHA consults with members and provides software and data tools for clinical benchmarking to encourage best practices.
While still mindful of its troubled Partners National Health Plans joint venture with Aetna Life & Casualty Co. during the 1980s, VHA is exploring another countrywide identity campaign. That would promote national branding of member hospitals to counter similar advertising techniques of for-profit rivals, Smith said.
VHA sold the last part of its 50% stake in the Partners project to Aetna in 1990 after deciding that the attempt at a national managed-care network was too financially draining.
The alliance also has made smaller attempts at branding, promoting the VHA name through advertising and promotional materials.
So far, the majority of market share improvement projects have been managed by VHA's network of regional offices.
"Markets are very different throughout the country," observed Marlowe Senske, a VHA executive vice president with responsibility for market share development. VHA's local offices have worked with members to develop cooperative call centers in New England, referral networks in Oklahoma and statewide PPOs in Indiana and Ohio to build member market share.
By all accounts, the healthcare world was much simpler back in 1977 when a group of 30 voluntary hospitals circled the wagons to meet the newfound competition embodied by aggressive for-profit chains.
Some efforts, notably VHA's for-profit subsidiary, VHA Enterprises, stumbled badly. Partners was the largest revenue generator in VHAE, which sold off the last of its companies in 1993.
But early VHA supporters say there will always be a need for alliances among not-for-profits regardless of the changing face of membership and the uncertain role of proprietary chains.
"People have assumed these kinds of alliances will become passe, but I disagree with that," Arnwine said. "The costs of information systems (for instance) are so gigantic. I don't care how big you are, if you can pool your resources you're going to be significantly benefited. There will always be benefits in collaboration and economies of scale."