Born on New Year's Day, Novation, the nation's largest group purchasing organization created through the merger of the supply arms of VHA and University HealthSystem Consortium, is starting to take shape.
Earlier this month, in an interview interrupted by the tornadoes that hit Nashville during VHA's annual leadership meeting there, James Hersma, Novation's president and chief executive officer, outlined his plan for shaping the new organization. The buying group had $11.5 billion in pro forma purchasing volume last year.
Hersma, a wiry 49-year-old, emphasized that he is charting a careful course to meld the purchasing operations for the 134 academic medical centers and associate members of UHC and for the 1,600 hospitals of VHA.
"We're going to take our time making the right decisions," says Hersma, adding that this is "not a time for aggressiveness. This is a time for `planfulness.'*"
The first phase in the consolidation was filling Novation's top management ranks. Early this month, Hersma put the finishing touches on his inner management circle by hiring Jay Ryan, 50, as senior vice president of strategic planning, new business development and administration. Ryan was formerly a vice president for sales and marketing at InnoServe, an independent medical equipment servicing company based in Arlington, Texas. Earlier in their careers, Ryan and Hersma worked together at American Hospital Supply and Baxter International.
In reporting directly to Hersma, Ryan joins 12-year VHA veteran Mark McKenna, 49, senior vice president in charge of Novation operations, and Eldon Petersen, 48, president of Healthcare Purchasing Partners, a sister company that extends group purchasing services to nonmember organizations.
Novation also has named six key vice presidents under McKenna to oversee the nuts and bolts of contracting operations and sales. Former UHC executive Bob Benson was named vice president for surgical products. Veteran VHA employees filled the other five slots.
The remaining jobs, numbering about 250, are up for bid by current employees of UHC and VHA. Layoffs aren't planned, says Hersma, but some openings may remain temporarily unfilled because of some resistance by Oak Brook, Ill.-based UHC employees to relocating to Irving, Texas.
In the first test of the new organization's processes and maket clout, Novation later this month will seek bids for a portfolio of pharmaceutical contracts representing an estimated $4.4 billion in annual pur-chases. Novation expects to select winning vendors during the third quarter and implement the contracts in the fourth quarter. Novation, unlike VHA, will follow the open bidding process used by UHC to satisfy the legal requirements of public hospitals. Under the new approach, Hersma says Novation will soon release an exhaustive bid schedule for almost all products.
Novation faces a time-consuming task. Only a third of the existing purchasing contracts from the two alliances are for the same products from the same vendors. And even those shared contracts typically have different terms.
An analysis of existing pharmaceutical supply arrangements showed that UHC and VHA are buying the same drugs from the same suppliers 43% of the time. About 34% of the drugs are under contract by only one of the two, and for the remainder of the drugs, about 23%, the alliances have conflicting product or vendor selections.
Harmonizing medical-surgical contracts will be even more challenging. Only about a fifth, 22%, of medical-surgical contracts match up. For more than half of existing items, 51%, the alliances have conflicting selections. The remaining products, almost 28%, are under contract by only one of the alliances.
Materials managers around the country are watching closely as Novation goes about the slow task of blending the product portfolios.
"The potential is astounding," says Larry Allen, purchasing coordinator at 100-bed Children's Hospital in Omaha, Neb., a VHA member. Allen says he is optimistic the marriage will eventually succeed and that Novation's huge purchasing clout will make the painstaking transition worth the effort.
"But," he concedes, "it will be difficult pulling the two cultures together."