New Group Purchasing Strategies for Integrated Health Systems

For decades, most hospitals and health systems have strategically managed their supply chains through their use of group purchasing organizations, or GPOs. These shared-service purchasing entities obtain volume discounts by combining the negotiating power of several hundred hospitals. Developing strategies to reduce expenses, three major integrated healthcare networks have ventured outside their organizations to achieve more purchasing power.

MedStar Health, Novant Health and Sentara Healthcare have agreed to work together to reduce their supply expenses and improve operational performance. The newly formed MNS Supply Chain Network, LLC, as it has been named, represents more than $3 billion in annual purchases of supplies and services. The network will work as a single entity on identified contracting initiatives in order to generate savings and supply chain efficiency. The Network has contracted with VHA Inc., a national hospital alliance, to provide network support.

The new network will be operational immediately and will be governed by senior executives from the participating members. Company executives believe buying together can generate 2 percent savings, or $60 million, once the group is fully operational,

Some activities of the new limited liability company will begin immediately, with pursuing group purchasing for basic business supplies and clinical commodities, such as needles, gauze, and sponges. The new company expects a slower ramp-up for buying expensive equipment used by physicians, such as surgical implants and high-end medical devices.

MedStar Health is a $4 billion not-for-profit, regional healthcare system with a network of nine hospitals, 20 health-related organizations and more than 100 care sites across Maryland and the Washington, D.C. region.

Novant Health is a $3.5 billion not-for-profit integrated system comprised of 13 hospitals in North Carolina, South Carolina and Virginia, 150 outpatient centers and a medical group consisting of 1,123 physicians in 360 clinic locations.

Sentara Healthcare is a $5 billion not-for-profit integrated health system, that operates more than 100 sites of care serving communities across Virginia and Northeastern North Carolina and is comprised of 10 acute care hospitals, a 3,680 provider medical staff and three medical groups with 618 providers, as well as a health plan, serving more than 433,000 members in Virginia.

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