How purchasing alliances strengthen hospitals and outcomes

Although hospitals and health systems largely form alliances and coalitions out of necessity, the arrangements positively impact care outcomes and individual providers, argues a Harvard Business Review blog post.

Providers began forming geographical purchasing coalitions about a decade ago as a way of combining purchases of the most commonly used supplies, including syringes, gowns and exam gloves, writes Chris Holt, senior vice president and executive officer of VHA Upper Midwest. In the ensuing years, the alliances expanded their scope and now aggregate supply purchases of more diverse assets such as drugs, CAT scan equipment, medical devices and electricity.

Holt cites an example from his own network, VHA's Upper Midwest Consolidated Services Center. This 42-member purchasing coalition was established in 2008 and includes big healthcare names such as Swedish Covenant Hospital, Sanford Health and the Mayo Clinic, and has consolidated about $2 billion a year in supply purchases, for savings over the years of 15 to 20 percent on contracted items.

These arrangements are uniquely important in healthcare, Holt writes, because while in the retail industry it is more common for a smaller supplier to sell to a larger retailer, within non-profit healthcare, a $16 billion supplier selling to a $1 billion hospital system is more likely. This power dynamic means hospitals benefit far more from this kind of collaboration, he writes. Furthermore, shared knowledge between participants can improve patient outcomes by helping them identify the most cost-effective treatments and curb overutilization.

"It's encouraging to see the creative collaboration hospitals are undertaking to reduce costs and improve outcomes," Holt writes. "While collaboration is always challenging, the healthcare benefits are by now clear. Hospitals that continue to operate in isolation, sharing neither buying power nor best practices and expertise, will find it increasingly difficult to compete with those that do."

To learn more:
- here's the blog post