In the month since he was elected, VHA President and Chief Executive Officer Curtis Nonomaque has not been willing to say much, preferring to stay in listening mode as he travels across the country visiting regional offices and hospital members.
But he will say one thing about his strategy looking forward: Irving, Texas-based VHA, a for-profit cooperative of not-for-profit hospitals, will not take it lying down as smaller, aggressive group purchasing organizations try to leverage the industry's past year of turmoil into a marketing strategy for their own benefit. If anything, a congressional panel's scrutiny of GPO business practices during the past year, which especially turned up the heat on VHA, its GPO, Novation, and their largest competitor, Premier, has only steeled Nonomaque's resolve.
"We're seeing niche players getting aggressive," he said in an interview with Modern Healthcare at last week's VHA Leadership Conference in Boston. "Novation has the best pricing in the industry right now and it's one of my top priorities to ensure that no one can provide better value on supply chain services than Novation. The best anybody else can hope for is second."
On May 1, Nonomaque, 45, officially takes the reins at VHA, succeeding C. Thomas Smith, who is retiring after nearly 12 years with VHA (March 10, p. 8). Nonomaque said he sees some major shifts in the business of GPOs since the Senate Judiciary Committee's antitrust subcommittee first challenged some longstanding business practices of hospital group purchasers. Competing GPOs such as "MedAssets and Broadlane, who are very aggressive, are marketing very limited (supply contract) portfolios," while trying to convince hospitals that they can outperform VHA and Novation, which VHA shares with University HealthSystem Consortium, Nonomaque said.
If the smaller GPOs try to piggyback on any of the hundreds of supplier contracts that already have been negotiated by Novation, Nonomaque warned VHA and Novation would hold suppliers to the terms of their Novation contracts.
"If by `niche player' he means a company that has changed the paradigm of the healthcare supply chain by assuming accountability for supply cost for the VHA shareholders that we currently serve, then I would agree with Curt," said David Ricker, Broadlane's chief operating officer.
Officials at MedAssets were unavailable for comment. However, last week the Alpharetta, Ga.-based GPO announced an alliance with supplier-backed Global Healthcare Exchange, Westminster, Colo. Under the agreement, MedAsset's 2,200 hospital customers will be able to buy products through GHX's Internet-based exchange. Financial terms were not disclosed.
The annus horribilis for the group purchasing industry did not infect VHA's bottom line for 2002, in spite of some expenses associated with the Senate hearing and several ensuing federal investigations, Nonomaque said.
VHA is distributing $276 million in cash to nearly 500 of its shareholder-members for their participation in the hospital cooperative's service and purchasing activities in 2002. That compares with the $211 million that was distributed in 2001. VHA members purchased more than $16.9 billion worth of products and services through VHA and Novation, a 10% increase from 2001 member purchases.
Meanwhile, Novation managed more than $19.6 billion in purchases in 2002, approximately $15.6 billion of that from VHA members, an 11% increase from 2001 supply purchases. In total, VHA members received $1.53 billion in cash and savings, a 20% increase from 2001. Officials said shareholder and partner organizations would receive their distribution payments within the next several weeks.
Enjoying its usual hefty margins, VHA posted operating income of $119.5 million on $448 million in revenue, a 27% margin, compared with $111 million in operating income on $393 million in revenue in 2001, a 28% margin. VHA does not publicly disclose net income. Nonomaque attributed the one-point dip in 2002 to increased fee support for [email protected], Novation's e-commerce initiative in partnership with San Jose, Calif.-based Neoforma. In 2002, VHA paid $55 million in fees to support the effort compared with $19 million in 2001.
At present, almost 850 of VHA's more than 2,200 members are committed to the marketplace and nearly 600 are already conducting some business through it. The site is transacting more than $23 million in purchases daily. "We believe [email protected] will be a sustainable, competitive advantage in the long term for our members," Nonomaque said.