THE RECENT DISCLOSURE that The HealthTrust Purchasing Group and Consorta are pooling their procurement power is prompting speculation about whether this is a sign that consolidation among group purchasing organizations – practically dormant over the past decade – is re-emerging in a new format.
In early January, the GPOs announced they will be structuring an arrangement whereby Schaumburg, Ill.-based Consorta would become a sixth equity owner in Brentwood, Tenn.-based HPG. Under this partnership, Consorta, which represents more than 500 Catholic and other not-for-profit hospitals, turns purchasing responsibilities over to HPG, whose constituents include 850 for-profit acute care facilities. Although the groups are blending this aspect of their operations, they will remain independent.
In a prepared statement, HPG President and CEO Jim Fitzgerald called the collaboration, which took 18 months to develop and is expected to be finalized in late February, “a unique combination.” He said he is “highly confident that respective members’ commitments will yield a substantial, sustainable price advantage moving forward.”
In seeking a loosely knit merger, Consorta “conducted due diligence to align with the right partner,” and “it was clear” HPG would provide the right fit, said John Strong, Consorta’s president and CEO, in the same statement. “The economic benefit is very compelling and we are excited about combining our resources to offer increased cost savings and value to our members, now and well into the future.”
Fitzgerald and Strong say the new purchasing entity will represent approximately $14 billion in volume. Consorta projects the transaction will yield cost savings of $535 million over the next decade.
Consorta sought to outsource its purchasing function as part of its strategic planning process, Strong said.
“We had two primary objectives, with one being securing the best overall value, reflecting a high level of commitment and participation, while the other was a collaboration that would drive a high rate of return for members,” he said. “In short, we wanted the best price and best value, and in discussing this with HPG, their goals were aligned with ours.”
By consigning the purchasing aspect to HPG, Consorta can concentrate on other administrative functions, such as aligning clinical and operational input from members and strengthening educational programs, Strong said.
“We’re redefining our operation and focusing on more efficiencies,” he said. “We’ll know more as we get into it further.”
While the not-for-profit/for-profit marriage provides an interesting match-up, Strong maintains it didn’t play a motivational role in pursuing the relationship. Even so, he said, it’s an aspect worth exploring.
“We’re both concerned about clinical quality and outcomes, so I don’t know if [tax status] matters terribly,” he said. “We can learn a lot from each other, taking what we both do well and turning it into best practices.”
The HPG-Consorta deal isn’t causing the shock waves that group purchasing organization mega-mergers did in the mid-1990s. That particular round of consolidation created superpowers like Premier and Novation.
Still, it is prompting discussion from industry observers. Does it portend a new round of GPO consolidation, and does it represent a new kind of joint operating agreement?
“It will be interesting to see what emerges, whether they will ‘hybridize’ into something different,” said David Kaczmarek, principal of Healthcare Supply Chain Solutions, a Derry, N.H.-based consulting firm.
In examining the relationship’s potential dynamics, Kaczmarek sees how it could fill needs on both sides.
“Consorta is run like a traditional GPO, and I’m guessing that the volume of members may not be able to drive the same kind of contracting prices that others can,” he said. “They may see HPG as having better contracts in general, and by coming in as a major shareholder, they can have some influence. HPG, on the other hand, hasn’t been terribly successful in bringing in not-for-profit members, so this delivers that segment to them.”
If Consorta’s main reason for outsourcing its purchasing to HPG is based on projected savings, the transaction doesn’t make sense to Lynn Everard, a Coconut Creek, Fla.-based healthcare supply chain specialist.
“It’s impossible to predict savings with GPO pricing,” said Everard, a noted critic of group purchasing organizations. “Every contract has tiers and levels, so are they predicting on the highest or lower tier? What assumptions are they making about hospital buying patterns? And how can they be sure about the supplier’s ability to get the price right? There are so many variables to it.”