More Than the Sum of Its Parts

What do you do when your integrated delivery network, which was formed to help bargain better with managed-care companies, doesn’t live up to its financial expectations?

When managed-care savings weren’t as much as expected with a new IDN, Tim Cox and the health facilities that make up the 800-combined-bed Northland Healthcare Alliance doubled down and made a bet that managed-care contracting wasn’t the only economy of scale that would help its members operate more efficiently. “We diversified into equipment maintenance, utilities, natural gas, some collections, physician recruitment and account management, group contracting and GPO contracting,” he says.

Northland, not unlike many other rural alliances that get together for better bargaining on a myriad of services, has saved its members tens of thousands of dollars over the past 10 years. The latest innovation has been a service that repairs expensive time-critical equipment such as MRI and CT machines that not only cost a lot to fix under original equipment manufacturer contracts, but create significant revenue losses when they are out of service and patients must be referred elsewhere.

Cox, as president of Northland, is always on the lookout for cost-saving opportunities for his integrated delivery network of 24 mostly small hospitals, physician practices and long-term health facilities in the rural upper Midwest; St. Alexius Medical Center in Bismarck, N.D., is the IDN’s biggest facility at 282 beds, but bed counts for Northland’s other members fall sharply from there. Big, expensive equipment, of course, sometimes breaks down, and Cox reasoned that if he could get better rates on utilities, collections and account management, he should be able to find an entity that would quickly be able to repair big medical equipment at cheaper rates than the $120,000 to $150,000 a year it costs to pay for a maintenance contract on an MRI or CT machine.

“They sell it on the premise that they will be at your beck and call to take care of your equipment—it’s a ‘genuine GM part’ philosophy,” Cox says. “In some cases they do a great job and the price is reasonable, but there is a big markup, so our thought is that you’re better off paying for it on a time-and-materials basis.”

Cox liked a proposal from Thermo Scientific Asset Management Services, a subsidiary of Waltham, Mass.-based Thermo Fisher Scientific Inc., under which it provides parts and arranges repairs for such equipment on a case-by-case basis. As Cox and his team analyzed the OEM contracts on the machines, they found that OEMs charged about a 25 percent premium for their all-inclusive repair contracts. With Thermo’s service, Northland was able to save that 25 percent over what its members were paying on most of their OEM equipment maintenance contracts.

“They bring in a management function. For example, there are times when we will go into a repair and the OEMs—GE or Philips—will say that part is going to be $20,000,” Cox says. “We’ll go to [Thermo’s] hotline, where a second source will get it for half that. That’s where we can save.” If the OEMs won’t meet Thermo’s price, and they often can’t, Cox says, “we can get it anywhere in the U.S. within 24 hours.”

—Philip Betbeze