Article preview reprinted from Medtech Insight - July/August 2009
The economic recession has forged tighter bonds between hospitals and their group purchasing organizations. Medtech interviews Novation LLC's president and CEO Jody Hatcher, who has set an aggressive tone in dealing with device manufacturers. Read more...
Health Care Trends: GPOs Embrace New Cost-Cutting Initiatives
Article preview reprinted from Medtech Insight - July/August 2009
The economic recession has spurred hospitals to enact a number of cost-cutting initiatives, including in the area of product procurement, and manufacturers are learning how serious some hospitals can be about the changes. A tough, new stance has been adopted by many hospital materials management departments, which have been empowered by facility executives to make money-saving decisions that weren't easily approved in the past.
Among the changes is the tightening relationship hospitals have with their group purchasing organization (GPO). These groups have made their living by promising hospitals lower pricing for products through discounted contract agreements with manufacturers, and now that the economy has made hospital profitability a more desperate problem, the bond between hospitals and GPOs seems to be strengthening. In turn, the groups are taking a tougher stance with suppliers.
This change has been especially evident at Novation LLC, one of the industry's largest GPOs, representing hospitals that account for 40% of all staffed beds, 47% of total surgeries, and $35.6 billion in annual purchases in the US. In December, Jody Hatcher became Novation's permanent president and CEO, and he has set an aggressive tone in dealing with manufacturers. Under Hatcher's leadership, Novation has worked with hospitals to take advantage of tighter alliances with physicians and make manufacturers toe the line on pricing. (See "Physicians Shift Loyalty to Hospitals in Purchase Negotiations," Medtech Insight, April 2009.)
In the following interview with Medtech Insight, Hatcher explains that hospitals are currently taking note of which suppliers are stepping up to offer help at this time, and which ones are not. Hatcher also warns that even when the economy turns around, it's not likely things will shift back to the old standard business practices, because the quest for health care reform will continue to place financial pressure on hospitals in the years ahead.
Q: What kind of changes have you tried to bring to the relationship that Novation has with manufacturers?
Hatcher: One of the first things I did when I stepped into this role was to spend a lot of time with the member organizations and try to understand their perspective and what they needed from Novation. So, I met with CEOs, CFOs, materials leaders, etc., and I spent a lot of time with our supply partners as well. I used that as a basis, a bit of a grounding to re-center the organization around what we need to focus on and what our priorities need to be.
The biggest issue right now is the "perfect storm" brewing on the provider side. Economic conditions are having a dramatic effect on a lot of the providers, so, in addition to the historical challenges associated with low reimbursement, and the rising cost of supplies, you now have the issues related to more uninsured patients walking into your facilities, and huge issues related to the endowments that hospitals have historically used to fund things like capital, which are down as much as 60% in some cases. Additionally, there's been a dramatic shift in access to capital. So, there is a tremendous amount of pressure on hospitals today.
- Robert Neil
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Companies mentioned in this article:
Novation LLC
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