At VHA's annual leadership conference in Atlanta last week, the hospital alliance officially unveiled the results of its 18-month makeover: a new strategic direction, business model, logo and slogan.
Considering that VHA officials say the makeover was completely member-driven, it came as little surprise that the 2,800 attendees warmly received it. But those outside the for-profit cooperative's circle are, at best, reserving judgment and, at worst, outright skeptical that it marks anything more than a cosmetic change for an organization that has been bearing much of the antagonsim ravaging the group purchasing industry in recent years.
"The recent actions taken by VHA and other large GPOs appear to be a direct response to Consorta's business model, which has proven to be highly successful and beneficial to our owners for the past seven years," said Sheila Reed, senior director of corporate services for Consorta, a GPO that primarily serves Roman Catholic hospitals.
At the conference's opening general session, VHA President and Chief Executive Officer Curt Nonomaque promised greater transparency, a focus on supply-chain management and more cash back to member hospitals (May 9, p. 17). The new business model, which launches July 1, aims to eliminate VHA's complex flow of funds by only charging members for services they receive.
For the first time, hospitals will have to pay for "core" businesses-hospital networking and supply-chain management-if they want to remain VHA members. That will directly affect hospital systems such as five-hospital Scripps Health in San Diego, which dropped VHA-owned Novation for group purchasing services in favor of MedAssets but remains a VHA member.
"We have not been informed of that change. If it is the case, we certainly would want to have a discussion with VHA about it before we do anything," said Don Stanziano, a Scripps spokesman. Stanziano said he had no comment on the new business model specifically.
Strong Memorial Hospital, Rochester, N.Y., likewise signed on with MedAssets last year but continues to purchase some supplies on a limited basis through Novation, said Teri D'Agostino, a Strong spokeswoman. However, officials declined to comment on the new business model or the 596-bed hospital's future status with VHA, she said.
At deadline, MedAssets officials had not responded to a request for comment.
The new VHA model's architects say it is a more equitable system in which hospitals are only charged for the services they use, and that it will especially benefit larger health systems that need fewer services than smaller hospitals. In addition, the model promises more cash rewards to hospitals that purchase more goods through VHA and Novation.
"It'll be easier-more streamlined," said Lisa Speach, chief operating officer of 576-bed Crouse Hospital in Syracuse, N.Y., after a sparsely attended session to explain the changes. "It's a lot easier to follow and to sell it to employees so that they can get the value of VHA."
The new strategic direction, which kicked off in January 2004, and the new business model for dispersing the cooperative's profits back to shareholders arrive as the GPO industry is struggling to demonstrate to a Senate panel its viability in the hospital supply chain. VHA in particular has captured much of the panel's attention. Separately, Novation last summer disclosed that it received an administrative subpoena from the U.S. attorney's office in Dallas requesting some documents as part of a criminal inquiry (Aug. 23, 2004, p. 4). Novation officials said the subpoena and its new business model are completely unrelated.
Although as part of its newfound transparency VHA has begun publicly releasing more financial information than in the past, it still will not disclose executive compensation, said Robert Chapel, VHA's chief financial officer. Members decided the best way to deal with the issue was to set up a compensation committee on the board of directors to monitor salaries and determine how they fall in line with similar companies, he said. The committee meets quarterly and is available to members who have questions, he said.
For the first time pulse-oximetry manufacturer Masimo participated as an official Novation supplier. The company has spearheaded a national battle against large, dominant manufacturers, arguing they wield inordinate influence with GPOs.
Greater transparency on the part of VHA "is going to benefit the GPO industry and provide credibility for the hospital and supplier community," said Jim Beyer, Masimo's vice president of national accounts.
Robin Lake, CEO of 49-bed Great Plains Regional Medical Center in Elk City, Okla., said he couldn't really judge the old model since his hospital switched to VHA from MedAssets in October, but the new direction "seems comfortable." Lake said VHA lured his hospital with an opportunity to participate in its captive medical-malpractice insurance program and also with some of its supply-chain savings.
Already the change in strategic direction has lifted income and revenue at VHA, officials said. The cooperative is distributing $367 million in cash to 1,954 members this year, a 17% increase from the $315 million that was distributed last year. VHA earned $162.3 million in operating income on $470.8 million in revenue in 2004, a 34% operating margin and up 17% from 2003.