Certainly there’s a precedent for such a bold move. Last year St. Louis-based Ascension Health bolted Consorta for Broadlane, HPG’s now smaller rival in servicing investor-owned facilities. But Broadlane, which was launched in part by Tenet Healthcare Corp., the second-largest investor-owned hospital chain, began providing services to not-for-profit healthcare organizations in 2001 when it secured a supply chain services outsourcing deal with New York’s Continuum Health Partners.

So the real surprise here is not that a religious-oriented group purchasing organization would align itself with an investor- owned entity, but that the deal had to happen at all.

John Strong

During a teleconference with the media on January 8, several hours after the decision went public, Consorta President and CEO John Strong hailed his group’s financial performance. "We just got off a record year where our numbers were up 22 percent," he said. "So we’re doing this from a position of strength."

But Strong acknowledged that they expect competition between GPOs to intensify within the next few years as providers redefine their relationships with them. "[Many providers] view their relationships with group purchasing organizations differently," he said. "They look at us more as a supplier of contracts rather than an organization to invest in and have membership."

In a one-on-one interview with Healthcare Purchasing News, Strong admitted that Consorta’s management and board thoroughly researched their options and opportunities before deciding to hook up with HPG, which was launched by HCA, the largest investor-owned hospital chain in the nation.

"Consorta goes through a rigorous strategic planning process each year," Strong told HPN. "We look at the way the market is changing and the expectations of our members. That process has led to our continued growth over the years, capped by our 22 percent increase in volume and revenue during fiscal year 2006. For the second year in a row, we returned 76 percent of our revenues directly to our members, all in cash. 

"Of all the strategic options considered, both Consorta’s management and Board believe that our potential relationship with HPG provides the greatest immediate and future value for all of our members. In addition, it creates a platform for us to be a far more aggressive competitor in the future, and enhances our track record of providing industry-leading value to our members," he continued.

"Consorta could have continued our ‘go-it-alone’ strategy for years to come, but there is an opportunity cost associated with that. We believe that this option maximizes the value delivered to today’s members, as well as those in the future."

Strong flatly dismissed any notion that the departure of Ascension, which had been its largest shareholder until it announced a year ago it would leave for Broadlane, effective last October, influenced Consorta’s decision.

"Ascension leaving had nothing to do with this," he said. "Ascension represented about 21 percent of our volume at the time they decided to leave. Ascension was an important member of ours, but during the course of the fiscal year when they announced their decision, we made up all of their volume. This is just part of doing business." New members include America’s Blood Centers, American Red Cross, YWCA USA and United Way of America. Consorta added Catholic Health East to the fold as its 13th shareholder at the end of 2004. Back then, with Ascension in the pack, Consorta represented 60 percent of Catholic hospitals.

When the deal is completed by month’s end, Consorta will be the sixth equity owner in HPG, bumping the combined group’s annual purchasing volume to more than $13 billion. The move propels HPG more deeply into the top four GPOs, as determined by annual purchasing volume, and widens the gap between it and No. 5 Broadlane. With the addition of Consorta, HPG joins the 11-figure club, behind Novation, Premier and MedAssets. Broadlane, meanwhile, leads the 10-figure club, which includes five GPOs. Two others in the nine-figure club round out the 11 primary national GPOs remaining in business, of which more than 100 smaller regional groups, hospital systems and integrated delivery networks belong.

Consorta estimates that the transaction will yield current and future cost savings of $535 million for shareholders and members. Strong declined to offer any further financial details.

Once the deal clears, which is expected by February 28, Consorta plans to downsize its northwest suburban Chicago-based headquarters considerably. During an 18-month period, the Schaumburg, IL-based company will drop to 30-40 staff members from its current roster of 110. Strong noted that he plans to remain with the organization, as well as other senior staff members, but did not indicate for how long or whether there’s an eventual spot for him at HPG.

Most of Consorta’s contracting initiatives will shift to HPG’s Nashville, TN, headquarters, leading some observers to question what’s left for Consorta to handle. Plenty, according to Strong.

The group plans to launch a data and analytics project for its 12 shareholders and other members,with a major GPO partner separate from HPG. As HPN went to press, Consorta and its new data and analytics partner MedAssets Analytical Services, went public with their agreement. (See to Newswire for further details.)

Consorta also will work with shareholders and members on clinical contracting and clinical product evaluations, as well as continue a variety of educational programs. Finally, Consorta wants to rally its troops and develop cohesiveness among its shareholders and members. "All of our shareholders need to speak with one voice at the HPG bargaining table," he said. "We’ll be working to align our shareholders to speak with one voice, share data and analytics and use our volume to support HPG. Consorta will remain and needs to remain a national GPO. It’s not going away."

But it’s changing for sure, adopting more of a shared services organization model that hearkens back to the Golden Age of group purchasing (the era prior to the 1970s). But going "retro" isn’t necessarily a bad thing, Strong concurred.

"GPOs have always been shared services organizations," he said. "That’s how they emerged from the hospital associations in the 1950s and 1960s. We’re sort of outsourcing our contracting to focus on providing other services to our members."

Consorta’s decision to join HPG, and Ascension’s decision to sign up with Broadlane before it doesn’t portend a bleak fate for faith-based organizations to work together in larger regional and national groups, according to Strong.

"Catholic collaboration is alive and well," he said, "but I don’t believe Catholic collaboration is the single reason in and of itself to belong to a GPO. Certain business functions need to be addressed, such as the mission, vision and values and economic returns, to name a few. Everybody looks at it today as one of many factors. It’s not exclusive anymore."

HPG President and CEO Jim Fitzgerald seemingly raised some red flags among the media when he referenced the innate similarities between the two organizations.

John Strong

"We were impressed with the cultural match and the philosophies and strategies of Consorta as we considered the deal," he said. "Our philosophies are similar."

Fitzgerald’s further clarifications took a few thinly veiled swipes at the alleged anticompetitive practices of several of its larger competitors, which instigated scrutiny by a prominent Senate Judiciary subcommittee and several other key federal agencies. Fitzgerald and Strong emphasized how committed they are to ethical, clinician-driven, patient-focused, transparent practices, particularly when it involves products and services. They also promoted their active memberships in the Healthcare Group Purchasing Industry Initiative, which was created to encourage and monitor ethical business practices.

"Both organizations historically and going forward are committed to fair, balanced and transparent business processes in decision making," he said. "We take that very seriously. We also will put patients first. We have the infrastructure in place for that in terms of working with the end users. We’re always interested in new innovations in technology. Both [our organizations] have demonstrated [our accomplishments] in evaluating new technologies. We have our memberships committed to our contract portfolios."

Fitzgerald deflected the perception that a group of Catholic not-for-profit hospitals and a group of investor-owned facilities could conceivably work together.

"All healthcare providers have been under tremendous pressures, in terms of higher technology costs and escalating supply and labor costs," he said. "Whether you’re a not-for-profit or a for-profit system, I think all of us can agree that we want to create as many synergies and as much value as possible."

Strong and Fitzgerald each stressed that suppliers recognize contract volume and commitment, and that both organizations provide that – individually and now together. But they couldn’t offer any "clear cut answers" on how they will blend their respective contract portfolios.

"We will honor our contractual obligations," Fitzgerald said. "We’ve always done so. But we have a tremendous amount of due diligence in the works. We ask the supplier community to be patient." Neither Fitzgerald nor Strong indicated whether existing contracts would be allowed to expire even after the consolidation, but Fitzgerald reiterated that they have to embark on a "significant amount of planning" in the coming months that includes portfolio review.

Strong told HPN later that he and Fitzgerald weren’t being evasive with their vague answers about contracts.

"We absolutely conducted a thorough due diligence on this, particularly the contract portfolios. That’s how we came up with $535 million in savings," he said. "But now comes the part of actually combining the two portfolios over time and that’s incredibly complex. It was complex when we had to merge Consorta’s predecessor organizations’ portfolios eight years ago. We need to figure out how to combine the two as we continue the due diligence process. This is going to be a lot of work." Strong added that he thinks an 18-24-month time frame to accomplish this is "very realistic." That means the potential fruits of their labor may not be realized fully until the fall of 2008 at the earliest.

Strong and Fitzgerald also hedged on what will happen to Consorta’s custom contracting program, which involves shareholder Trinity Health, Novi, MI. Ascension had been Consorta’s other shareholder participating in the custom contracting program, which dedicates staff to develop individual agreements for participants even as they access and support the general contract portfolio. HPG maintains a single contracting model with tiers based on volume.

"We are very excited about working with John and his team and understanding their philosophies and strategies," Fitzgerald said. "We will be evaluating each of these nuances and different approaches to contracting going forward. It’s too early to comment on specific areas, but we’ll be able to communicate our plans in time."

Strong agreed that it was too early to speculate or tell what will happen with this. "The custom contracting program has been very valuable for Trinity and for us," he told HPN. "And Jim indicated that HPG is evaluating everything."

During the press conference, however, Strong seemed to question the value of custom contracting, largely because of market conditions and perceptions. "Custom contracting has been a strategic advantage in the past," he admitted, "but I’m not sure the competitive market will support it in the future." And, HPG’s contracting model may be more attractive to suppliers and providers."

Although the details of who approached whom are a bit sketchy, Strong and Fitzgerald acknowledged that they first began a series of "What if" conversations in the summer of 2005, laughing off identifying who precisely began those conversations.

All in all, Fitzgerald noted that the combination of Consorta and HPG should generate improved pricing, higher administrative fees and patronage dividends distributed to contract participants and lower corporate overhead.