AmHS: 'hospitals should join one national group.' - American Healthcare Systems Capital Corp

Health Industry Today, Oct, 1991

American Healthcare Systems, San Diego, is pressuring some of its members to stop purchasing through other alliances or group purchasing organizations.

AmHS is the only national alliance to prohibit members from belonging to other groups. But some 24 affiliate members of AmHS' 600 affiliates joined before this policy was implemented about four years ago. They were grandfathered in under the old policy. Now, AmHS would like these hospitals to belong exclusively to AmHS.

The alliance also is continuing to track the compliance of members who joined AmHS after the policy was in place.

"Our shareholders are supportive of this policy and believe hospitals should not cherry-pick from contracts among various GPOs," said Jack Bernard, vice president of corporate planning and marketing for AmHS. "We think this policy not only helps hospitals and AmHS, but also other alliances. People need to determine the national alliance they want to join."

AmHS members are required to submit a written statement that they will not join any competing national alliances or GPOs and this policy is being enforced, Bernard said. But AmHS members are allowed to purchase through regional alliances.

The majority of AmHS members are content with its policy and have complied, according to Bernard.

"Some affiliates are somewhat disturbed, but few are in this category and those that are slowly leaving AmHS," he said. "The policy of strong compliance is driving them out."

The alliance prefers that non-compliant members leave AmHS. In fact, AmHS can terminate a hospital's membership for violating its policy, although it has not yet done this with any member. Members have left the alliance voluntarily.

"We represent about 15% of all hospital beds in the country, so if we lose a couple small affiliates, it's perfectly fine with us," Bernard said. "We're adding larger, more committed hospitals."

While other major national alliances and GPOs would like to be exclusive as well, they are not and do not intend to follow in AmHS' footsteps. They believe that having such a policy would scare members off and the enforcing the policy would be difficult, at best.

"It's easier for groups that own their hospitals, such as Humana and HCA [to crack down]," said Derwood Dunbar, president of supergroup MAGNET Inc., King of Prussia, Pa. "If you forbid hospitals from belonging to other groups, they'll go somewhere else."

In the view of AmHS, other groups' members may indeed go elsewhere if there is a crackdown, because the hospitals do not see an advantage in committing to one group. "We're owned by our shareholders and financial benefits are returned to them, so they want us to succeed. This is not true of every alliance, so the incentive [to belong only to that other alliance] is not there," Bernard said.

The consensus among other alliances and groups, such as AmeriNet, MedEcon and Voluntary Hospitals of America, is that additional incentives should be provided to members that belong exclusively to one group or access one group's purchasing programs frequently. Reduced membership fees is one such incentive.

"We will continue to take a positive approach rather than a punitive one," said Bud Bowen, executive vice president of St. Louis-based AmeriNet, which reduces membership fees for shareholders that belong exclusively to AmeriNet. "We'll reward rather than threaten."

He added that AmeriNet has not seen a trend toward members using multiple GPOs, which contradicts the conclusions of various studies. The average hospital belonged to two to three purchasing groups in 1990, up from 1.85 groups in 1987, according to SMG Marketing Group Inc., Chicago.

MedEcon Services Inc., Louisville, Ky., which also reduces membership fees for any members who belong exclusively to MedEcon, agrees and that groups and alliances should not be overly concerned about members belonging to other groups.

"Our members tell us that in the long run, using one program that is competitive is more cost-efficient, even though they may not always get the best price, because they don't have to compare line items and pricing, which takes additional time," said Bob Freeze, director of communications.