We're used to thinking of competition as the key to lower prices. But in certain cases, cooperation leads to more efficient use of resources. That was the case for an Ohio hospital alliance that realized substantial savings just a few months after pooling resources.
Back in 2011, EMH Healthcare in Elyria and Amherst, Parma Community General Hospital, and Southwest General in Middleburg Heights formed the Community Health Collaborative (CHC). But they found that, even together, they did not have sufficient purchasing power to get better pricing in their supply chains. Last month, they joined together with the University Hospitals in Cleveland to form the Purchasing Organization of the Western Reserve (POWR). "In partnership with a larger health system such as University Hospitals, we're able to take advantage of their scale to generate significant savings," CHC president Frank Lordeman said in a press release.
Strength in numbers
By banding together to increase their purchasing power from suppliers, the four hospital operators saved more than $700,000 over four months. Crain's Cleveland Business reported that about $250,000 of that savings was for physician preference items (PPIs), "among the most expensive items hospitals buy, which include artificial knees and hips or cardiovascular stents."
Pharmacy costs were also reduced as result of contracting as a large group. "The supply chain was the logical place to start, and we’ve seen an immediate impact," Terry Deis, president and CEO of Parma Community General, said in the release.
The health systems are part of the Premier Healthcare Alliance. Managing the supply chain efficiently is one of the primary strategies of the nationwide alliance, which offers an array of programs, approaches, and apps designed to help hospitals get the best pricing. According to the alliance's website, its strategies include "sourcing-to-specification," which bases supply choices on "the required traits of the product," rather than a brand name, to promote the most cost-effective purchase. It also gives members access to savings available for a limited time, like those offered on EXPRESSbuy. Specialized pharmacy programs "reveal opportunities to save money and serve our members' communities beyond standard pharmacy contracts."
Alan Wilde, vice president of system services at University Hospitals, said in the press release that tapping into the power aggregation benefits more than the community hospitals that are part of POWR.
University Hospitals benefits as well since aggregation often leads to better pricing for all because the additional volume drives better price points. The cooperation in purchasing also can lead to our hospitals working together more closely in the clinical arena.
That is the defined goal of the Premier Alliance, which encompasses more than 2,800 US hospitals and many more healthcare providers. The alliance says its participants achieve more than $5 billion in annual savings. It explains its mission this way:
Our ability to connect is our trademark. It's how we share best practices. It's how we solve pressing issues. It’s how and why we build new technologies. Only by working together can we overcome today's fragmented system and really drive improvement.
Considering what cooperation among healthcare facilities can do to improve economies of scale in the supply chain, perhaps other industries can look into the possibilities of working together to help one another and their customers.
Realistically, those that rely on gaining any edge they can over the competition would not care to do anything that would work for their rivals, but it is possible for entities that are not defined by profit -- like government organizations, educational services, libraries, museums, and philanthropic institutions -- to consider ways of furthering common goals while cutting costs through a collaborative approach to a supply chain.