Hospital Purchasing Network Good Step

January 19, 2004
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Spectrum Health's creation of a regional hospital network to leverage buying power and reduce costs is, at its first report, certainly meeting its goals.

It is a good example of what can be achieved in collaboration, even among competitors, and competition is the likely reason it was not pieced together long ago.

The regional West Michigan community receives the greatest benefit, however, as cost containment ultimately reduces the cost of health care — or rather eliminates supply costs as another factor pushing the increases.

It behooves the health care industry to continue to plan collaborative efforts, especially if one considers yet another report issued this month by the Citizens Research Council of Michigan showing that operating profit margins for hospitals in the state declined from 6.3 percent in 1998 to 1.1 percent in 2002.

Chief financial Officer Mike Freed noted Spectrum's margin for its most recent fiscal year was 1 percent.

In the first nine months of network purchasing, Spectrum reported its network of nine participating hospitals saved $1.1 million, easily exceeding expectations. Regional network director Linda Erickson is confident that another $1 million in savings in just the next six months can be achieved.

The network of the nine West Michigan hospitals was built on the premise of strengthening formal and informal cooperation among members of the group. Collaboration on major medical and operational issues is a long-term goal, including streamlined physician credentialing, regulatory compliance, streamlined referral patterns and practices, common clinical protocols and eliminating service duplication.

That said, Freed refers to the "perfect storm" of issues that drove prices up: Rising salaries in response to chronic shortages of health care workers (especially nursing), the high cost of high-tech medical equipment and the added emergencies caused by decreases in state Medicaid reimbursement, and declines in investment income and benefactor contributions due to the economic downturn.

Even as pressure increases to curb costs, however, the delicate balance of collaboration teeter totters with a wariness of antitrust issues, especially as such practices affect St. Mary's Mercy Medical Center and Muskegon's Mercy General Health Partners.

Further, bulk purchasing by itself is given caution, driven by last year's scandal, reported by the Wall Street Journal, when some hospital network purchasing agents were directing such orders to companies in which they held personal investments. Such issues demand local oversight and community review.   

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