Consorta to become an equity owner of HPG
by Mark Thill
Jan. 4, 2007--Consorta, the Schaumburg, Ill.-based Catholic purchasing group, will become an equity owner of HealthTrust Purchasing Group, Brentwood, Tenn., and will cease to negotiate contracts on its own. The two organizations announced yesterday that they had signed a letter of intent to establish Consorta as HealthTrust’s sixth equity owner. With the addition of Consorta, whose annual purchasing volume exceeded $5.2 billion in fiscal year 2006, HealthTrust will represent $13 billion in annual volume. The combination is expected to be finalized by Feb. 28, and it signals the end of an era for Catholic group purchasing.
Founded in 1998 as a cooperative, Consorta will continue to exist as a shared services organization, though greatly downsized, according to President and CEO John Strong. By shedding its contracting activities over the next 12 to 18 months, the organization expects to trim its suburban Chicago staff from its current level of 110 people to between 30 and 40. Strong said he expects to remain with the organization, though he did not say for how long.
HealthTrust President and CEO Jim Fitzgerald said the combination of Consorta and HealthTrust should yield better pricing, better administrative fees to members and reduced overhead.
Consorta suffered a blow in February 2006 when its largest shareholder - Ascension Health - announced its intention to leave the organization and join Dallas-based Broadlane, effective October 2006. Based in St. Louis, Ascension has 64 general acute-care hospitals in 19 states and the District of Columbia, and has operating revenues of close to $11 billion. But Strong denied that Consorta’s decision to join forces with another GPO had anything to do with poor performance on Consorta’s part.
"We just got off a record year," he said during a telephone press conference held hours after the announcement was made. "We’ve been growing nicely. Our numbers were up 22 percent this year. We are doing this from a position of strength." Even so, Strong and the Consorta board stated that the group purchasing market is growing more challenging, and that competition will only get hotter in the years to come. Joining forces with HealthTrust increases potential volume and, presumably, elicits better pricing from vendors.
While Broadlane boasts of the influx of "faith-based organizations" into its fold, Strong during the press conference seemed to question the logic of Catholic or religious-based purchasing groups. "Catholic collaboration is not a single reason to join a group purchasing organization," he said. "Many current and potential group purchasing customers view their relationships with group purchasing organizations differently. They see us as a supplier of contracts vs. [an organization] in which they want to have membership."
After speaking with HealthTrust for the past 15 to 18 months, Strong said he and the Consorta board are convinced that its values and those of HealthTrust are aligned. "We believe all 12 of our 12 shareholders will participate in the transaction."
For the time being, Consorta and HealthTrust contract vendors will be left scratching their heads about the fate of their contracts. "We don’t have a lot of clear-cut answers at this point, other than that we both have contracts in place," said Fitzgerald. While stating that HealthTrust "will honor its contractual obligations," Fitzgerald would not say whether HealthTrust would allow its contracts and those of Consorta to run their course prior to consolidation. "We have a tremendous amount of due diligence and planning to go through," Fitzgerald said.
Another question was the fate of Consorta’s custom contracting program. Consorta Custom provides staff dedicated to developing agreements for individual shareholders, while the shareholder maintains access to and support of Consorta’s agreement portfolio. One participant, Trinity Health, Novi, Mich., is said to have achieved $13.3 million in validated cost savings on $643 million in spending, with 82 percent of the savings through Consorta Custom agreements.
"We’ll be evaluating each of these different nuances and approaches to contracting," said Fitzgerald. "As we do this, we’ll be able to communicate what our specific plans will be."
Strong, meanwhile, said the market is questioning the value of custom contracting. "Custom contracting has been a strategic advantage in the past," he said. "But I think the market is changing rapidly. It may not be [a strategic advantage] in the future." HealthTrust’s one-size-fits-all approach may be better suited to today’s market, he added.
When asked what Consorta will focus on in the years ahead, Strong said the organization will work with its shareholders to improve clinical evaluations and feed that information to the HealthTrust contracting team. He also said the organization will hone its data-gathering and data-analysis techniques, again, to improve HealthTrust’s contracting strategies.
Consorta’s current membership encompasses more than 530 acute-care and 250 extended-care facilities throughout the country. Meanwhile, HealthTrust supports more than 850 for-profit and non-profit hospitals and 1,200 non-hospital sites. Its largest member is Hospital Corporation of America, Nashville, Tenn., with 190 hospitals and 82 outpatient surgery centers. Another member, Community Health Systems, Brentwood, Tenn., operates 77 general acute-care hospitals in primarily non-urban areas in 22 states.
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