As Irving, Texas-based VHA prepares to defend its poorly understood purchasing methods in front of a U.S. Senate subcommittee this week, the cooperative is reporting it delivered its best year ever in terms of value.
In the coming weeks, VHA will send more than 1,900 checks totaling $211 million to patrons of the cooperative, some 1,100 of which are hospitals. Part of the cash distribution comes out of VHA's $102 million in operating income on revenue of $386 million in 2001.
VHA officials said members collectively saved an additional $1.06 billion by purchasing through Novation, the joint supply company of VHA and University HealthSystem Consortium, as well as by taking advantage of other VHA initiatives such as consulting services and local office programs.
VHA officials informed shareholders of the dividends at the VHA Leadership Conference in Chicago last week.
The way group purchasing organizations do business will come under congressional scrutiny on April 30 in front of the Senate Judiciary antitrust subcommittee. GPOs are preparing to answer questions on their revenue model, which is highly dependent on vendor fees, and whether lower purchasing costs come at the expense of patient health and medical innovation.
The savings are calculated by comparing pricing to other group purchasing organizations, taking into account that larger health systems can muscle larger-volume discounts. The total $1.27 billion in savings represents a 10% increase over the previous year; the cash distribution climbed 9% over the same period.
By VHA's calculations, the financial performance last year represents a 59-to-1 return on every dollar spent by VHA members to be part of the cooperative. The cooperative drives compliance with its purchasing and business programs by rewarding members with the cash distributions according to their level of participation.
Through Novation and businesses offered by VHA itself, VHA members collectively spent more than $15.3 billion on products and services, up from $13.4 billion the previous year, VHA officials said. Of the $19 billion in purchases that are made yearly through Novation, VHA members accounted for $14.5 billion of the spending.
VHA will continue to press members to purchase online with a new incentive: equity in Neoforma, Novation's e-commerce partner. Beginning this year, VHA members who actively participate in the virtual marketplace Neoforma is developing will earn stock-part of the incentive shares VHA earns each year as Neoforma's biggest investor. Previously, the equity shares were distributed to VHA members based on their participation in all revenue-generating programs offered by VHA.
The amount of the e-commerce pool distribution will depend on what VHA earns as well as the stock price on the date the shares are recognized. Neoforma's stock price has been volatile since it first went public two years ago.
More than 680 VHA members have committed to Neoforma and 375 are connected, purchasing more than $7 million in supplies through the organization, VHA officials said.