This is an old argument spurred on at the time by emerging competitors. We have proven our value to our members and now more than ever they need the array of services GPOs provide.

What we see hospitals doing is joining regional supply networks and using the national GPOs to help support these networks. They are joining together to reduce supply chain costs and increase operational efficiencies beyond what they could achieve individually. This enables them to lower prices, improve inventory management and reduce transportation costs over the entire supply chain process. Many will see 7 percent to 10 percent in sustainable cost savings and operational efficiencies – results far beyond what they could achieve on their own.

These new business models are being driven by an unprecedented need for cost savings and efficiencies, recognition that value and commitment drive additional value, increase willingness to work with others, the need for cost reduction while improving clinical quality, and supplier’s increased demand for commitment.

This dynamic is changing. We believe other GPOs have taken the easy way out in this category by positioning it as a local strategy. Novation has had tremendous success in striking the right balance between national terms and conditions and local negotiation. It’s really the product life cycle that dictates what makes sense to a GPO, and most other GPOs have positioned physician preference as an area where GPOs can’t make a difference, but we’ve demonstrated otherwise.

Additionally, the whole notion about physician preference is a self-created roadblock. If you continue to reference that these products are ‘preferenced,’ then they’ll be preferenced.

We have to think about the life cycle of products and describe products categorically. As an example, think back to when contrast media emerged. It wasn’t on contract with GPOs, but now the life cycle has changed, and it’s now manufactured by a multiplicity of supplies and the price has come down. The same will be true for implantable devices.

The products that fall into this category have been dealt a disservice by the nomenclature used to describe the category. At one time, one brand of electrodes was used in every hospital – now that’s not the case. We have to start thinking of the marketplace and the life cycle of the product. Novation has been staunch about the model – and we have 161 contracts of these types of items.

We work at a national level to provide terms and conditions; we provide base pricing; we participate and support members’ local negotiations; and we support the members’ efforts to standardize to a particular product.

I would have a hard time arguing against standardized terms and conditions for physician preference items being different than standardized terms and conditions for any other contracted item. Why would I want to have that negotiated time and time again?

I think it will shift – if you talk to any hospital, one of their top three issues is engagement with physicians. In many ways, physicians are now running to the hospitals for cover. They’re saying, ‘hire me; buy my practice!’ You will begin to see the triangulation of the physician being called on by the manufacturer and the hospital having little participation in the process change in the marketplace.

Look at healthcare reform – hospitals have to come up with $155 billion dollars in reimbursement and align themselves in the provision of care. With the federal government now involved in the process as the largest payer, reform is going to have a lasting impact.

The broader issue is really transparency. As you look at our industry and compare it to any other – historically, it’s been dramatically different, less efficient and less transparent. For example, if I went out today to buy a new refrigerator, I could get on the Internet, and I could typically find a range of price points for that refrigerator or one that’s similar. Because of the transparency fostered by those retailers, over time, the cost of that refrigerator has come down. Unfortunately, transparency within healthcare has worked in the opposite direction from other industries.

The confidentiality clauses are a reflection of a marketplace that’s in transition. If you talk to any supplier today in a closed room, most would agree that transparency is coming.

Some of the issues created by a lack of transparency are just onerous and silly. For example, hospitals are not even allowed to share the price of the product with their surgeons using the product – even when the hospital is trying to standardize to that product – it flies in the face of rational thinking.

We’re working collaboratively with suppliers who have committed to transparency to move them toward acknowledging that this market has to advance like others have. At the end of the day, I think transparency will allow them to compete even more effectively than they could have otherwise.

For now, confidentiality clauses remain an ongoing practice that mask the true cost of medical devices and hinder a hospital’s ability to compare market prices and device performance. As a result, hospitals routinely pay artificially inflated prices for medical devices that drive up the cost of healthcare by billions of dollars each year.

The supplier community is at a crossroads about what they want to do. With government now involved in healthcare as the largest payer, we’ll see the market move as the government begins to exert more pressure.

Again, this refers to the broader issue of transparency. We’re supporting transparency on multiple fronts. As I said, we’re working collaboratively with suppliers who have committed to transparency to move them toward acknowledging that this market has to advance as others have done.

Advancing product standards is what will ultimately give hospitals the ability to cross-reference one product with another similar product. Our efforts in support of the GS1 e-standards are advancing the industry toward a common, secure and reliable product tracking system and giving providers a better chance to make critical improvements in patient safety and costs.

Today, providers that leverage Novation’s contracting services and the thousands of suppliers we work with are at different stages in implementing data standards, and we continue to work to align their efforts.

Transparency is a good thing, and a goal we all share. We believe that strong ethical values and transparency of business practices is the best way to maintain the confidence of our members, suppliers and the general public. As a member of [Healthcare Group Purchasing Industry Initiative] we are a highly-responsible GPO, dedicated to values-based ethical business practices and conduct, and to sharing best practices to strengthen that commitment and keep it vital.

Living up to the requirements of any privately held organization related to transparency is to provide the relevant audiences – primarily our owners – with complete visibility into what we do and how we do it. The difference between a publicly and a privately held organization is that public companies have a much larger base of shareholders and potential shareholders.

At the end of the day, the amount of disclosure is the same and we are ultimately accountable to those who are our shareholders and owners.

You have to take a position on transparency first. We live in an environment where transparency is pervasive, and in healthcare, transparency is going to continue to grow in importance just as it has in other industries.

Hospitals are increasingly faced with the choice of cutting supply costs or cutting staff. There are no guarantees that changing the basic GPO funding model would reduce supply costs for America’s hospitals – in fact, the reverse could happen. Drastic changes to the funding model could stifle the creation of innovative programs created to help hospitals control their supply costs. Shared returns would also be much lower, taking away dollars that are reinvested to improve the health of local communities at a time of dramatic financial pressures.

Hospitals rely on GPOs, and GPOs rely on Safe Harbor protection. It reflects the intent of Congress to permit GPOs to charge administrative fees to suppliers while providing services to hospitals. The provision should remain in force as is, thereby helping hospitals keep costs low while allowing GPOs to provide competitive services to hospitals. GPOs are one of the critical parts of the healthcare equation that work. There is no reason to fix part of the healthcare supply chain that is working and creating real value. 

Changing the Safe Harbor provision would reduce or eliminate shared savings to hospitals, taking away dollars that are reinvested to improve the health of local communities at a time of dramatic financial pressures. Administrative fees are the key to GPOs’ ability to deliver value-added services. At a time when Congress and the administration are searching for ways to reduce costs, increase efficiency and improve quality, severely limiting GPOs ability to help achieve those goals is taking a major step backwards

I’ll give you my perspective, which is what I tell our teams all the time. The structure we have isn’t the problem of the members. Today, we have a very unique structure compared to some of our competitors. When Novation was created in 1998, our owners elected to bring together a majority of the contracting business, but not the consulting business. The needs around purchased services contacting are much different than those of product-related contracts.

More recently I would tell you that VHA and UHC have been working with me and my team on rationalizing structural decisions that make sense. For example, in the last couple of years you’ve seen the emergence of pricing analytics. In the last year, we’ve brought that business back into Novation to help realize efficiencies across the family of companies.

At the end of the day, the structure shouldn’t matter to members. As I spend time with members, they don’t see us as different. The combined services from VHA and Novation or UHC and Novation are seamless to member organizations.

The lawsuit you’ve mentioned was originally brought against Novation, VHA and others by a former employee who worked at Novation for approximately seven months in the late 1990s. The lawsuit’s allegations largely echoed claims made by long-time GPO industry critics that had previously been investigated by government agencies and were widely reported in the media. 

In April 2010 Novation and VHA settled the lawsuit with no admission of liability and paid the U.S. government $1.5 million, which was less than our projected cost to defend the case. VHA and Novation also made a $25,000 charitable donation to a nonprofit primary care clinic in Dallas, Texas, as part of the settlement.

 We steadfastly defend our ethical and transparent contracting services, and this settlement allows us to close this chapter and continue to focus on the vital work we do for America’s healthcare providers.

It would seem to me that a GPO cannot/should not be held responsible for how the hospital files, including what is included and what isn’t. We make all information available to the hospital that it needs that is within control. But ultimately, it up to each individual hospital to determine how and what it is going to report. Only the hospital has all the facts. 

I’ll give you my perspective. Obviously we were disappointed in their decision. I fundamentally believe we produce the best outcomes for customers.

While I wish them well, I don’t think they’re going to achieve the results they’re looking for. For one thing, they’re dealing with the group that has the least amount of experience working with a group with non-owned members.

In fact, within the course of the last several weeks, we’ve seen many within the group migrate to Provista because the portfolio they’re accessing through their current GPO doesn’t have the depth of coverage they were accustomed to accessing through Novation. Because Provista offers the same portfolio – and offers it though a secondary position – many of these organizations have taken on Provista as a secondary GPO to gain the coverage they’re missing from their current GPO.

What’s been misrepresented is who’s actually involved within the group. As you read the entities that have been a part of TPC, there have been references to Houston-based Memorial Hermann Healthcare System – they are not part of TPC and they continue to work through VHA and benefit from the supply programs offered through VHA and Novation supply programs.

Again, I wish these guys well, but personally, I don’t think they’ve created the alignment necessary to act as a system and drive the results they’re seeking. They still have multiple cultures, multiple leaders with multiple functions in the same system.