Mount Sinai Medical Center, New York, is reconditioning its relationship with the group-purchasing arm of Premier after spending four months considering whether to sever its strong ties to the hospital alliance it joined as a founding shareholder in 1996.
Call it an evolution or a revolution-the changes under way in how supplies are purchased at Mount Sinai reflect the shifting landscape of hospital group purchasing in what some say will be a seminal year. Eschewing what they describe as the "one size fits all" contracting strategies of the two national GPOs, smaller competitors such as Broadlane, San Francisco, and MedAssets, Alpharetta, Ga., are aggressively marketing a more customized approach to supply chain management. In recent weeks, several longtime Novation and Premier members have jumped ship to MedAssets or Broadlane, although the two larger GPOs insist the moves are nothing unusual.
"It's been no more competitive than usual. It's just that people are paying more attention to it," said Jody Hatcher, a spokesman for Irving, Texas-based Novation, the joint purchasing group for VHA and University HealthSystem Consortium.
Premier counters that it can be just as nimble as the smaller GPOs, although just 18 months ago Premier lost a key shareholder, Novi, Mich.-based Trinity Health, to Consorta Catholic Resource Partners, Rolling Meadows, Ill., because it could not provide customized contracting. At the time Premier said that, unlike what Consorta offered Trinity, its strategy was to give all members equal access to group contracts (Aug. 20, 2001, p. 15).
The reconfigured relationship in some ways will make the financially beleaguered hospital even tighter with the powerful Greater New York Hospital Association, which exclusively markets the Premier contract portfolio to approximately 150 hospitals and nursing homes in the metropolitan area under a seven-year contract that expires in June 2004. Through the GNYHA, New York hospitals purchased $1.8 billion under Premier contracts in 2002-about 10% of Premier's overall purchasing volume for the year.
Losing 964-bed Mount Sinai, which spent $85 million under Premier contracts in 2002, would have rattled San Diego-based Premier at a highly sensitive time for the GPO industry. Federal scrutiny of GPO business practices last year-particularly practices at the two largest groups, Novation and Premier-effectively threw gasoline onto the eternal flames of competition between GPOs.
Mount Sinai is sticking with Premier based on a promise that the local hospital association would take "a somewhat more active role in working with our people on the supply chain," said Gary Rosenberg, senior vice president of Mount Sinai. In other words, the association will help to fine-tune Premier's national contracts so the hospital spends less.
"They will be spending less money on supplies, but they will be utilizing more (Premier) group purchasing contracts," said Lee Perlman, president of GNYHA Ventures, a for-profit subsidiary. He said Premier's national contracts will be just a starting point for the GNYHA in negotiating local pricing with vendors.
In the past, member hospitals cutting better deals for themselves than those offered by Premier's national contracts would be grounds for excommunication. But Perlman said Premier has had policies in place for more than a year to give hospitals "under certain circumstances" the ability to leverage national contracts to do further negotiating at a local level. He said a new Premier policy instituted last year as part of the code of conduct, adopted under the tutelage of the Senate Judiciary Committee's antitrust subcommittee, has "catalyzed" the GNYHA's new emphasis on localizing contracts. The code calls for Premier to offer hospitals multiple choices of vendors of products for which physicians might have a preference.
"The evolution toward multisource contracts gives greater local empowerment to make group purchasing work," Perlman said. "My view is that it opens the door for organizations like (the) GNYHA to work in the context of national contracts so vendors can fight for business on a local basis."
Working in the association's favor is that it is the incumbent at so many hospitals, although that advantage may be weakening. In the group purchasing world, loyalty still counts for something, said Joseph Greskoviak, managing director of Broadlane. Recently, a couple of large hospital systems-including one near bankruptcy-were shown how they could save "tens of millions of dollars in supply chain management and passed (on Broadlane) because of politics and their relationship with their GPO," Greskoviak said.
One of several forces behind recent industry changes is monumental turnover in senior leadership at hospitals across the country, said Gary Johnson, vice president of marketing at MedAssets. For example, he noted that VHA President and Chief Executive Officer C. Thomas Smith plans to retire in April. More turnover is expected. A survey conducted last fall by Chicago-based recruiter DHR International showed that a majority of hospital and health system CEOs plan to retire within 10 years (Jan. 27, p. 16).
"New people are rising to senior levels at new hospital systems that may not have been there (when the GPO relationships were first forged), and they don't have the same allegiances, so it's fair game," Johnson said.
But Perlman downplayed the impact of an executive shift at Mount Sinai last summer, saying it would only help the association's effort to standardize purchasing at the hospital. The shake-up removed Barry Freedman as president. Freedman had served as the lead director on Premier's board, and his term expired in January.
Freedman's successor, Larry Hollier, the hospital's former chief of medical affairs, is prepared to deal with some potentially controversial supply issues, such as standardizing the purchase of physician preference items, Perlman said. "We believe now with a physician champion as CEO, some of the more difficult clinical issues can be tackled, and Dr. Hollier certainly has shown he is willing to take on that stewardship."