Forming a group purchasing organization may reduce supply costs for Ascension Health and the GPO's membership, but the decision is not likely to lead to a new crop of hospital-owned GPOs.
Earlier this month, Ascension Health said it would form a GPO that will function as a wholly owned subsidiary of the Ascension Health Alliance, the newly formed parent company of the St. Louis-based health system. The GPO will be a service offered by the Resource and Supply Management Group, the supply-chain operation for the system.
Ascension Health is the largest Catholic healthcare system in the U.S., meaning that the $4.2 billion in spending that RSMG is managing in fiscal 2012 provides a unique level of purchasing power with suppliers. In addition, the financially healthy system has the resources to invest in data collection technology and staffing that are necessary to operate the GPO.
The recent acquisitions of Alexian Brothers Health System in Arlington Heights, Ill., will put the system's total managed spending, which includes supplies, medical capital and some purchased services, closer to $4.4 billion.
The formation of the GPO also provides Ascension Health with a number of added benefits: It can retain administrative fees that suppliers previously awarded to other GPOs, and it can be used as a benchmark to seek out lower prices from suppliers that also contract with the system's GPO, Alpharetta, Ga.-based MedAssets.
Of the $3.8 billion in supply spending and capital that RSMG is managing this year, MedAssets manages about $800 million and will continue to do so, said Scott Caldwell, chief supply chain officer for Ascension Health.
“I don't expect that to change,” Caldwell said. “They've been a good partner, and they've been humble enough to know that they can't deliver to our total needs, and we're humble enough to know that we can't either. Partnering together makes us very strong.”
However, a decision to move to a centralized contracting model in 2009 produced significant supply savings for Ascension Health. Adhering to a committed model of purchasing that now hovers around 95% and is led by clinical decision teams, RSMG reduced the total percentage of supply spending to net patient service revenue from 18% in 2007 to 15.5% in February with a run rate of $380 million in annual savings on supplies.
“We are significantly on our way to solving our own issues, which is our cost,” Caldwell said. “It was time to bring in additional spend and further aggregate.”
Details about the still unnamed GPO, which received a favorable opinion from HHS' inspector general's office to operate as a wholly owned subsidiary, are limited. When asked about whether the GPO would share administrative fees with members outside of the Ascension network, Caldwell said the GPO's business model had not been fully defined. He also said it was not likely that the GPO would limit membership to Catholic health systems.
“Our feeling is that every caregiver (and) every patient deserves for the cost of healthcare to go down,” Caldwell said.