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Group Buying Saves Big on High-Dollar Items

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Perhaps nothing causes more headaches among health system finance people than making decisions on when, how many, and whether to purchase or lease high-dollar items like mammography machines, lab equipment and imaging devices.

The two main pillars of such decisions: volume buying and standardization.

For instance, Jim McManus, vice president of finance and supply chain strategies at St. Joseph Health System in Orange, CA, has 14 hospitals that, in theory, he can leverage to get volume discounts—that is, if he can get them to make purchasing decisions roughly at the same time and focus on one or two vendors, instead of several.

But one challenge is that decisions on such equipment aren’t made at the corporate level, as they often are at investor-owned hospital chains, McManus says. “We’re not like an HCA or Tenet whereby we make a decision at the health system office and that becomes the decision for all the hospitals,” he says. “That’s why the collaborative groups are so important.”

That’s 14 collaborative groups, to be exact. As a result, systems like St. Joseph’s “work a little bit slower, but when we make our decisions, they’re final.”

Those decisions can translate into significant savings on the financial side, as well. For instance, for each of St. Joseph’s hospital operating labs, there’s a need for chemistry and assay equipment that can run anywhere from $200,000 to $600,000 each. Four or five vendors offer such equipment. Given the size of the potential buy from the system, and depending on the hospital’s size, St. Joseph needs widely varying types of that equipment.

Before the standardization exercise, St. Joseph was using all five vendors. Not sure standardization would even work, the groups agreed to put a moratorium on spending on such equipment. St. Joseph’s GPO, MedAssets, set up site visits for each of the vendors, during which group leaders could look at the equipment and ask about the service. After the visits, the group narrowed it down to two vendors. “But we kept the discussion going,” says McManus, “and went from two to one.” That decision alone saved the system $1.3 million off MedAssets’ negotiated contract price for the lab equipment on a total spend of between $7.2 million and $7.6 million.

—Philip Betbeze