Cleveland Clinic/VHA Joint Venture Will Be Transformative

The Cleveland Clinic, a long time member of Premier, has left the roost. It has entered into a joint venture with VHA that the parties are saying, “will transform the traditional group purchasing approach into a strategic sourcing model.” The joint venture has been structured as a LLC. It is being organized to knock the lid off PPI costs –with a particular emphasis on implantables.

The idea isn’t new. For example, SharedClarity is the result of a partnership that brought together UnitedHealthcare, Dignity Health, and 11 additional health systems. More than just aggregating demand to more competitively source PPI, they agreed to work together to drive the necessary change by involving clinicians in their own comparative effectiveness studies. As my New Jersey uncle would say, “beautiful, just beautiful…”

It’s all very familiar to me, because I led a UPMC/CombineNet joint venture back in 2005, called CombineMed. CombineMed was formed with a goal to take about 20% off the top of UPMC’s spend –and then to go and do the same thing for others. In addition to competitively sourcing generic supplies, the big idea was to apply CombineNet’s optimization technology to the sourcing of PPI. The venture failed for a number of reasons, but one slight change in “attitude” might have saved it: the recognition that competitive bidding, regardless of how sophisticated the approach, is not strategic sourcing –it  is not a standalone process. At a minimum, change management systems and contract management must be fully integrated. Without them, it’s the difference between identifying a savings (the easy part) versus actually implementing and realizing a savings (organizational politics). Ordering your docs around, forcing them to make significant, cost-driven changes and expecting them to be compliant is a pipe dream. You just can’t do it. Well actually you can, but it definitely doesn’t work.

“The Cleveland Clinic and VHA share a similar view of the future: A clinically integrated health care supply chain that ensures quality and savings at each step in the process,” said Curt Nonomaque, VHA president and CEO. “This requires new thinking and innovative approaches.” Said Steve Glass, Cleveland Clinic chief financial officer, “our shared commitment and proven experience will allow us to re-engineer how supply chain impacts organizations and positions us to work with other partners to accelerate opportunities for clinically acceptable cost relief and long-term savings.”

The Cleveland Clinic will own 60% of the new joint venture.  It will be its #1 client, however, there are plans to eventually bring in other VHA members, Cleveland Clinic affiliates and other organizations. No doubt, the other GPOs will respond by re-positioning existing services or launching similar joint ventures with other large health systems. The common thread? Many large health systems believe they can more effectively source PPI and drive lower pricing than their GPOs. Based on their scale, they believe it’s a process they should own. And for now, there’s ample evidence to support that belief. However, and at the same time, many of those same systems have also conceded that driving the requisite internal change, getting to contract and managing those contracts are tasks their GPOs can probably do better. In other words, instead of the traditional war of words between the nation’s largest systems and their GPOs, these particular players have put their differences aside and agreed to collaborate in a way that may actually be transformative.

In fact, there are terrific new solutions in the hands of established SCM solution providers that are waiting to facilitate opportunities just like these. Look for healthcare-experienced companies like BravoSolution and the Advisory Board to play a role in the formation of these new ventures.

—Tom Finn

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