The Illinois Hospital Association has created its own group purchasing organization to buy millions -- and perhaps eventually billions -- of dollars in medical supplies, pharmaceuticals and services for its hospital members.
The IHA, which represents 208 hospitals in the state, is expected to announce its new GPO, called the Illinois Purchasing Collaborative, this week. In doing so, the IHA will become only the second state or local hospital association to operate its own GPO. The other is a joint venture between the Greater New York Hospital Association, the Hospital Association of New York State and Premier. The GNYHA has been buying medical supplies from Premier Purchasing Partners, the purchasing arm of national hospital alliance Premier, since 1997, and under its association business model since 2004 through its for-profit, GPO subsidiary, GNYHA Ventures. The GNYHA GPO buys supplies for 238 hospitals, health systems and others.
Nationally, the IHA's move may prompt other state, regional and metropolitan hospital associations to consider forming their own GPOs to help its members save money on goods and supplies through volume discounts with suppliers and distributors. Locally, however, the move could cause some angst among the IHA's members. Many of them already contract with national GPOs that will compete with the Illinois Purchasing Cooperative. Members may have to decide whether to be loyal to their own GPOs or to the GPO operated by their association, which also lobbies on their behalf with state and federal lawmakers.
The goal of the new Illinois Purchasing Collaborative is to be statewide, said IHA President and Chief Executive Officer Kenneth Robbins, indicating where he hopes his members' loyalties will fall. In fact, the IHA expects its GPO to attract hospital participants from neighboring southeast Wisconsin and Northwest Indiana.
But Robbins acknowledged that that goal won't be achieved overnight.
"While we want this to be statewide, first we will focus on the Chicagoland area, where we have geographic concentration," Robbins said.
The IPC would start with a concentration of hospital and health systems that already buys its medical supplies from Premier Purchasing Partners, which is forming a joint venture with the IHA.
Robbins said he had believed that there wasn't a role for a regional or a statewide purchasing program because national plans dominated the purchasing industry. "But I came to the conclusion that what New York developed could succeed in Illinois: the value-added component of regional contracting married to the existence of national purchasing contracts. It was the kind of revelation that set off a light in my mind."
Premier currently contracts with eight Illinois hospital or health system owners, the largest of which is Chicago-based Resurrection Health Care Corp. (See box). Resurrection operates nine hospitals in Illinois, all of which will join the IPC. In a news release, Resurrection President and CEO Joseph Toomey, a former IHA board member, said his system has committed to the GPO.
"Now more than ever, it is extremely important for the hospitals of Illinois to band together and achieve the greatest benefits from this collaboration," Toomey said.
But many of Toomey's largest competitors contract with other national GPOs. For example, Oak Brook, Ill.-based Advocate Health Care purchases from Broadlane, while Chicago-based Rush University Medical Center buys through MedAssets HSCA and Evanston (Ill.) Northwestern Healthcare uses VHA and Amerinet.
Even if the IHA isn't able to lure others into the IPC fold, they still will benefit from the competition that IPC will create in the marketplace, Robbins predicted. He said IHA member hospitals that don't join IPC may decide to employ the new GPO as a negotiating tactic to extract better prices from their GPOs.
"We have every reason to think that will happen," he said. "Other GPO owners may be unhappy. But in that sense, it's a competition win-win."
The IHA's for-profit subsidiary, Association Management Resources, will operate the Illinois Purchasing Collaborative. AMR President Brian Foster said the IPC's goal is to achieve aggregate annual purchases of $300 million annually within three years. Foster said Illinois hospitals collectively spent $2.6 billion on group purchases in 2004.
Meanwhile, the IHA's purchasing venture is a boon for Premier, which sees purchasing power trending more toward regional than national, according to Lee Perlman, president of the GNYHA Ventures and a Premier board member.
"The trend here is that group purchasing is regionalizing again. I believe that the trend of regional affinity groups with relations to national GPOs will continue through state and regional associations and independently," Perlman said.
Perlman said neither IHA nor AMR officials will sit on Premier's boards, a point reiterated by the IHA's Robbins. "It's a contractual arrangement with no overlaying governance," Robbins said.
Premier Purchasing Partners President Susan DeVore said that while the GPO is not currently negotiating any ownership joint ventures with other state or regional hospital associations, it does contract with regional hospital groups, such as the Western New York Purchasing Alliance and the Ohio Purchasing Alliance.