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Aggregated purchasing helps Rice save money

WILLMAR -- Group purchasing through a regional initiative helped Rice Memorial Hospital save almost $40,000 last year on supplies ranging from paper towels to surgical equipment.

This year the city-owned hospital will likely save as much as $150,000 as a result of belonging to VHA Upper Midwest's Consolidated Service Center, says Chuck Roelofs, director of materials management at Rice Hospital.

"I believe there's some real value there and will continue to be a value," he said.

Roelofs outlined the hospital's group purchasing initiatives to the hospital board's finance committee on Friday.

Next to salaries and benefits, supplies make up the largest expense category in the budget. During the month of July, for instance, of $8.4 million in operating expenses, Rice spent $1.1 million on supplies.

While spending on supplies is somewhat tied to hospital volume -- when there are more patients in the hospital, more supplies are purchased and used -- it's also an area of the budget that lends itself to cost control and efficiencies.

Enter VHA's Consolidated Service Center, a cooperative of more than 20 health care organizations in the Upper Midwest with a combined purchasing clout of $4 billion annually.

The group contains several regional health care giants, including Mayo Clinic and Sanford Health. Similar aggregated purchasing models exist elsewhere in the United States but the Consolidated Service Center, which was formed in 2008, "is the most successful one," Roelofs said.

Its leverage enables the members to negotiate as a group for better prices from vendors and develop efficiencies in how supplies are contracted for and distributed.

Rice Hospital's membership in the cooperative applies to the hospital as well as to the Rice Care Center skilled nursing facility, Rice Home Medical, and Willmar Medical Services, the joint venture with Affiliated Community Medical Centers through which medical imaging services, the Willmar Surgery Center and the Willmar Regional Cancer Center are operated.

The Swift County-Benson Hospital and Redwood Area Hospital are folded into the membership as well through management agreements with Rice Hospital, Roelofs said. "They get our pricing and we get their volume."

In the 18 months or so during which Rice has belonged to the Consolidated Service Center, significant savings have been realized on supplies used in medical imaging, Roelofs said.

One of the next areas to be tackled is surgical services and how the supply and distribution of items such as gloves might be streamlined.

Wendy Ulferts, chief nursing officer at Rice Hospital, said a group has been formed consisting of equal representation from the hospital and the Willmar Surgery Center.

"We're looking at supplies. We're looking at equipment. We'll be looking at processes," she said. "We already have some good projects on the horizon."

Roelofs said some of the efficiencies come not only in the form of cost savings but also in standardizing the purchase and distribution of supplies, which can help consolidate the number of vendors with whom a hospital deals and streamline the receiving and payment process.

"The cost of a product is one piece of it, and often it's a small piece," he said.

The aggregated purchasing group also is taking aim at items that are considered "physician preference" -- a certain type of artificial joint, for instance, that might be favored by one or two surgeons while the rest of the surgery department uses a different brand.

"That's where we have to work the hardest because we have to have our physicians on board," Roelofs said. "Our physicians are very supportive. That's not always the case in a lot of organizations."

So far, the group purchasing through the Consolidated Service Center has resulted mainly in lower prices for products Rice was already buying, he said. "We've had very few conversions that we've had to make."

Rice also has met or exceeded the purchasing targets required by members of the group.

So does this aggregated purchasing mean local vendors are aced out?

If the price from a local business is within 10 percent of the price offered through the purchasing group, Rice will consider it, said Bill Fenske, the hospital's chief financial officer.

In many cases, though, it's cheaper to buy through the Consolidated Service Center, he said.

"It's a real balancing act. Do we buy locally for some of these items, knowing it's going to increase our cost?" he said. "If we can buy locally, we try."

Anne Polta

Anne Polta covers health care, business/economic development and general assignment. Her HealthBeat blog can be found at Follow her on Twitter at @AnnePolta.

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