In a bid to bring clinical supply costs to heel, VHA has negotiated an ambitious array of purchasing contracts for items typically wedded to physician preferences.
The Irving, Texas-based hospital alliance said the contracts for cardiology, orthopedic and anesthesiology supplies are expected to yield about $760 million in annual purchases and save members and affiliates $167 million over previous costs.
The contracts were completed and made available to VHA hospitals Jan. 1. Since then, VHA has signed on 16 hospitals for cardiology, six for anesthesia and one for orthopedics.
Central to VHA's approach is a trade-off between high customer compliance -- typically 85% to 95% -- and price breaks.
But enforcing compliance with these contracts won't be easy. In stepping into orthopedics, cardiology and anesthesiology, VHA will tackle some of the thorniest and most expensive purchasing areas in hospitals. Using contracts that require customer compliance in exchange for savings is a break from VHA's usual voluntary approach.
To be sure, VHA already has annual committed purchasing volume of $2.5 billion. But in contrast to the current contracts, the previous portfolio has included mostly commodity products. More than two-thirds of VHA's 1,261 hospitals and 60-plus manufacturers have participated in the committed purchasing program to date.
"We have not attempted high clinical (preference) products before," said Mike Love, vice president of clinical markets at VHA. However, the difficulty of standardizing such products as angioplasty catheters and anesthesia systems would be compensated by the likely savings if standardization succeeds.
VHA is mindful of, but apparently undaunted by, the challenge. Bowing to clinical needs and preferences, however, many of the contracts are dual-source, unlike the sole-source agreements the alliance said it prefers.
In addition, the supply portfolios were assembled to yield the best chance at success by picking products that are already leaders, Love explained. Market research, including user surveys, helped determine which vendors' products were well established. Rather than trying to maximize pricing gains by lifting small-share players from obscurity, VHA has elected to elevate leaders to even greater heights.
"This is not trying to paddle upstream against a current we can't fight," Love said. "We're not asking doctors to switch. We're asking them to standardize even more."
Forrest General Hospital in Hattiesburg, Miss., was one of the first hospitals to sign on, committing to the interventional cardiology portfolio.
As a result, the 537-bed hospital expects to cut at least $175,000 from its cath lab's $1.5 million annual supply budget.
Compliance with the cardiology contracts at Forrest General has been straightforward. "When we looked at what we were buying from the vendors, we were already in compliance with nine of 12 categories," said Joe Goellner, purchasing manager.
Since Jan. 1, Forrest General has successfully converted the remaining three categories: over-the-wire balloon angioplasty catheters, angiography catheters and angioplasty guide wire catheters.
"We didn't have any problems. . . ." Goellner said. "We've been through this before with pacemakers."
Next up, VHA is expected to announce a committed purchasing program for clinical laboratory supplies that should bring $120 million in new annual sales to VHA hospitals.