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Hospitals Unite for Buying Power

January 14, 2010
Hospitals unite for buying power By Ryan Dionne November 13, 2009 -- BOULDER - In an effort to keep costs from increasing and better survive the recession, hospitals are looking to pinch every penny possible. Part of that is joining group purchasing organizations like Irving, Texas-based VHA Inc., a nonprofit group formed by leaders of nonprofit health-care organizations in 1977 to help save money. "Cost is a major component of things," said Becky Herman, Longmont United Hospital's vice-president of clinical support services. "Any way that we can figure out how to reduce our costs is positive." Longmont United Hospital, as well as Boulder Community Hospital and Exempla Good Samaritan Medical Center along with dozens more throughout the state and country, is a VHA member that takes advantage of buying in bulk and other cost-saving efforts. Bill Munson, Boulder Community Hospital's vice-president and chief financial officer, said Boulder Community used VHA to help identify nonlabor expense reductions as a direct result of the recession. VHA helped the hospital identify more than $2 million worth of savings in the first four months. The hospital is already in the process of implementing $370,000 worth of savings, and another $1.8 million is in the process of being OK'd by the executive team. Munson said the organization examined supply costs, operating room and pharmacy expenses, where the hospital overpaid vendors and where it could take advantage of rebates. VHA is also finding areas where the hospital can use one instrument instead of multiple renditions in order to save money. "For us to fulfill our mission ... we've got to be financially strong," Munson said. Other hospitals, such as Exempla Good Samaritan Medical Center in Lafayette, are on par with Boulder Community's savings - through supply purchases alone. Pete McGuire, senior director of material management and nonlabor resource optimization for all of Exempla's hospitals, said Good Samaritan saves between 5 percent and 10 percent by using VHA. With a supply budget of about $35 million, which equates to between $1.75 million and $3.5 million annually, he said. And while Avista Adventist Hospital isn't a member of VHA, the medical center does belong to a similar organization to help cut costs. Everything from adhesive bandages, pens and tissues to surgical instruments, X-ray machines and pharmaceuticals is purchased through the organization - as is the case with the other hospitals as well. "We're looking for every way we can to cut costs in every level possible," said John Sackett, Avista's chief executive officer. "Every supply you can think of." Whether through bulk orders or other services, group purchasing organizations, like VHA, are said to save hospitals millions each year. Those savings are theoretically passed down to patients. Sackett said Avista typically needs a 5 percent to 10 percent margin in order to stay afloat, so anything that the hospital saves will then be passed to patients by charging less for procedures. Lynn Gentry, a VHA spokesman, said each member hospital in Boulder Valley has saved money through the organization's services. "Last year they purchased more than $23 million in products and services through VHA," Gentry said speaking of Longmont United Hospital. Through purchasing the majority of supplies through VHA, the hospital saved about $1.1 million. Herman said some of the items Longmont United purchases are 70-percent less than what consumers pay. While she and representatives from the other area hospitals said buying medical supplies is often like buying a vehicle where nobody pays the list price, it still equates to substantial savings. She buys about 66 percent of the hospital's supplies through VHA. And because VHA is a cooperative organization, hospitals that order more products through the co-op receive a bigger rebate check at the end of the year. While neither VHA nor any of the area hospitals would disclose how much the organization charges to be a member, each said the hospital's savings easily outweighed the cost of participation. Joan Evans, the organization's senior vice president in charge of its Denver-based regional office, said they guarantee members a three to one return on investment. And VHA typically saves a hospital between 5 and 10 percent. "VHA is needed by our members more than ever," Evans said. And she said more hospitals are using it since the recession started. Among the VHA members in Colorado, $370 million was purchased. Based on that, about $12.5 million was saved because of group purchases, Evans said.