If blue jeans and hamburgers can sell overseas, can hospitals banding together to purchase medical supplies on the cheap be far behind?
That notion is commanding the attention of America's largest group purchasing organization. So far, though, it's been a matter of study more than action.
In principle, pulling together hospitals in foreign countries to increase their purchasing leverage should deliver the same kinds of pricing benefits over there as it is said to here. And the domestic big three -- St. Louis-based AmeriNet, Irving, Texas-based Novation and San Diego-based Premier -- could increase their purchasing revenues and profits by exporting their expertise.
The sophistication and volume of hospital group purchasing in foreign lands lag behind the U.S. by decades, according to industry insiders.
With most U.S. hospitals already in the fold of one or more purchasing organizations, market-share growth here has become a zero-sum game, where one group's customer gains come at another's expense. In 1996 healthcare institutions funneled $26.3 billion in supply purchases through the top 10 groups, down from $28.2 billion in 1995, according to MODERN HEALTHCARE's ninth annual group purchasing survey (Sept. 22, 1997, p. 45).
Opening new markets is just a matter of time, as supporters tell it.
"I am convinced that we are moving in this direction," says Robert Betz, executive director of the Health Industry Group Purchasing Association, a Washington-based trade group. "One of the best-kept secrets in the purchasing industry today is the amount of time and energy going into international efforts."
But operational difficulties abound. For instance, extending American-style contracting -- even to foreign subsidiaries of U.S.-based multinational companies already working with the group purchasing organizations -- is easier said than done. So despite the eventual economic promise, none of the groups is moving very fast to make a big splash.
"Building U.S.-style group purchasing organizations in foreign countries will not be an easy thing to do," says Robert "Bud" Bowen, president and chief executive officer of AmeriNet, which had $3.5 billion in group purchasing volume in 1997. Besides myriad legal and cultural complexities inherent in international business, Bowen says that moving market share from one supplier to another, which lies at the heart of successful group buying, creates as many foes as it does supporters. That makes opening new markets very tough. "Group purchasing moves business, and when you move business, somebody gets hurt," he explains.
The considerable business challenges haven't discouraged AmeriNet from exploring international options but have kept the matter on the back burner.
In recent years, Bowen says, Ameri-Net has received 30 to 40 "credible" inquiries from overseas hospitals or businesses interested in extending American-style group purchasing to their markets. AmeriNet has pursued several, including a consulting arrangement with a family-owned hospital in Japan, which Bowen declined to identify. The 1,100-bed hospital originally wanted to import supplies directly through AmeriNet. But after appraising the import-export and distribution difficulties, the hospital now is looking to run its own pilot purchasing program with AmeriNet's help.
Even more substantive arrangements are brewing with a large group of cardiac surgeons in Germany. Later this year, Bowen says, AmeriNet expects to provide the German doctors an entree to American high-technology vendors, ultimately coordinating a group buy that will save the physicians money while earning AmeriNet a tidy commission and foot in the door for bigger business to come.
"We're not going to detract from our domestic initiatives," says Bowen, "but I do believe in the international opportunity for group purchasing activities."
Executives at the Premier hospital alliance, which has annual purchasing volume of $8 billion, have until recently talked frequently about expanding overseas. But they declined to be interviewed for this article. People familiar with the situation at Premier say executives have initiated discussions with several private hospitals in England that might lead to a group purchasing pilot project. But details and a timetable for activity weren't available.
Executives with Novation, the joint supply company of the University HealthSystem Consortium, Oak Brook, Ill., and VHA, Irving, Texas, which had combined purchases of $11.5 billion in 1997, appear to be sticking close to home for now.
"Novation and its sister companies have no immediate plans to enter the international group purchasing market other than the expansion of Healthcare Purchasing Partners Inc. in Puerto Rico, which some manufacturers treat as an international market," says Lynn Gentry, a Novation spokesman. HPPI extends VHA and Novation contracts to nonmember healthcare organizations.
Novation also inherited some beachheads in other countries through UHC's international members in Australia, New Zealand and Switzerland. But Gentry emphasizes that the group isn't looking to jump-start the international business.
"We're focused on pulling together Novation," he says, "and that will be a key focus for several years."