The newly created, five-hospital CGF Health System in Buffalo, N.Y., has decided to cast its purchasing lot with the VHA hospital alliance, MODERN HEALTHCARE has learned.
Irving, Texas-based VHA bested San Diego-based Premier and Louisville, Ky.-based MedEcon Services to win the approximately $90 million in annual purchasing volume expected from CGF.
A key factor behind CGF's selection of VHA was the speed with which the deal would allow the system to meet savings targets specified to state regulators as a condition for approving the mergers that created the system on March 31.
CGF, a temporary name that is expected to change in the next few months, was created by the three-way merger of Buffalo General Health System, the Children's Hospital of Buffalo, and Millard Fillmore Health System, Buffalo. DeGraff Memorial Hospital in North Tonawanda, N.Y., also is part of CGF, having merged with Buffalo General late last month.
The combined system has projected net revenues of $730 million for 1998. As a result of the mergers, CGF predicts it will save $214 million over five years.
CGF did not disclose the amount it expects to save through purchasing efficiencies but said it is significant.
"We have a dollar saving projection that was written up in advance of the merger," said Kevin Connor, assistant vice president for materials management at CGF. "In our evaluation, we found that VHA was probably the course of least resistance in conversion."
Another important factor behind the nod to VHA was the versatility of its contracting approach. CGF said its commitment to supporting locally and minority-owned businesses through its purchasing would have been difficult to reconcile with Premier's compliance program.
"The community relationship and flexibility in purchasing was high up on the decision process," said Jan Kaputkin, managing partner at Health Resource Network, a consulting firm based in Florham Park, N.J., that assisted CGF in the group purchasing decision.
Laura Yandell, a Premier spokeswoman, conceded that the alliance's compliance-based buying strategy was a factor in CGF's choice to go elsewhere.
Recently, both Sisters of Providence Health System in Seattle and Beth Israel Health Care System in New York dropped their longtime relationships with Premier. Beth Israel, which is going to do its own purchasing, left because of Premier's compliance efforts. Sisters of Providence, which is joining VHA, said Premier had fallen behind VHA in several key strategic areas.
The Buffalo hospitals' decision against Premier was also influenced by the alliance's ties to CGF competitors, Yandell said. Mercy Hospital, Buffalo; Our Lady of Victory Hospital, Lackawanna, N.Y.; and Kenmore (N.Y.) Mercy Hospital are affiliated with Premier through Catholic Health East, Radnor, Pa.
Still to be resolved is how the CGF decision will affect a regional physician practice management operation in Buffalo established by Premier Practice Management, a venture affiliated with the alliance.
The local PPM was championed in part by Millard Fillmore Hospital, which has been a Premier shareholder. The independent PPM's relationship with local hospitals is still under discussion, Yandell said.
CGF is expected to become a shareholder in VHA. Besides bringing significant purchasing volume, the Buffalo system will add clout to the alliance's HMO contracting efforts in upstate N.Y.
"They will bring significant strength to our Unyhealth managed-care network," said Robert Kayser, vice president and executive officer of VHA Empire State in East Syracuse, N.Y. In the past year, VHA has assembled 11 healthcare systems and 2,000 physicians, not including CGF, into a managed-care contracting coalition in northern and western New York.
