In a move that signals a growing reliance on regional purchasing power, six Kansas- and Missouri-based healthcare systems have formed a limited-liability purchasing partnership that will use centralized contracting, ordering, warehousing, distribution, invoice payment and other services in an effort to cut supply-chain costs.
All together now
Six Kansas, Missouri systems team on purchasing partnership
The goal is to reduce supply-chain expenses, and the way we think we can do that is to take a number of facilities that are privately owned and not members of an (integrated delivery network) and combine their spending power, said Dale Montgomery, vice president of support services for 147-bed Hays (Kan.) Medical Center, which is one of the providers involved in the partnership.
Montgomery added that the group plans to eventually grow the partnership to include other regional providers.
The venture, known as Mid-America Service Solutions, was launched early this month with a combined investment of $1.5 million from Hays, two-hospital CoxHealth, Springfield, Mo.; 11-hospital Saint Lukes Health System, Kansas City, Mo.; two-hospital Freeman Health System, Joplin, Mo.; 219-bed Salina (Kan.) Regional Health Center; and 348-bed Stormont-Vail HealthCare, Topeka, Kan.
Collectively, the six providers spend an estimated $520 million annually on supplies, project coordinators said.
Similar to regional group-purchasing organizations, Mid-America plans to negotiate its supply contracts through a larger national supply-chain-management services company. In this case, the collective will work with VHA since all six providers are currently members of the Irving, Texas-based companys GPO, Novation.
But project officials claim Mid-America should be more effective than regional GPOs in cutting costs because the members also have partnered on distribution, order placement, delivery, warehousing and invoice-payment services.
Those efforts include an agreement with distribution company Owens & Minor to set up a consolidated service center at the distributors Kansas City, Mo., location, according to project coordinators. The center serves as a warehouse and central-delivery point for supplies. Under the agreement, vendors will ship their products to the consolidated services center and Owens & Minor will then be responsible for delivering the supplies to the individual hospitals.
VHA also has designed a shared IT platform that is being used to order and route the delivery of supplies. The system automatically aggregates member hospitals supply requests, and then places the orders and pays vendor invoices through bulk transactions.
The orders will go to vendors in one order instead of six, said Montgomery, who noted vendors also will be able to issue a single invoice to Mid-America instead of separate ones to each hospital system.
Gary Duncan, president and chief executive officer for Freeman Health System, called the order platform very transparent and added that everyone can see pricing. Mid-America members believe such transparency should help reduce distribution costs, since providers will be able to see the actual cost of shipping, storing and delivering supplies. Well probably save somewhere in the range of 4% to 5% on distribution costs, Montgomery estimated.
The purchasing venture also calls for the providers to collectively standardize their medical-surgical and nonclinical supplies, and contract as a single unit with vendors, Duncan noted. Ultimately, we want to purchase about 90% of our supplies through the Mid-America agreements, he said. Right now were going to start with the general items, not the physician-preference items, but we eventually would like to get to those so we can really save money.
Most of the Mid-America members who spoke with Modern Healthcare declined to estimate their first-year savings, saying the collective is still in the process of identifying supply categories that can be placed up for bids or renegotiation. But Montgomery said he estimates his hospitalthe smallest provider in the groupshould shave about $2 million off supply costs in 2009 if the project moves the way we think it can.
Mid-America representatives believe the collective will be able to claim $1.1 billion in supply-chain spending power within two years by adding to its membership. Specifically, the original providers are looking to pull in a large number of nearby rural hospitals with which they currently work on a variety of cost-saving and clinical-improvement efforts.
We know the spend potential of those hospitals, and thats how we came up with the projected volume, Montgomery said.
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