Bulk Buyers, Doctors, Committees Behind Billions in Hospital Buying

Getting medical devices and supplies into hospitals comes down to doctors and middlemen.

Each year, hospitals in Orange County and across the country buy billions of dollars worth of devices and other supplies, with most routine purchases being handled by companies that act as bulk buying agents for several hospitals.

For more advanced items—such as heart valves, spinal or joint implants, defibrillators and pacemakers—doctors are king. They might push for an item through a special buying committee at a hospital, which in turn requests it from their buying group.

Administrators at hospitals don’t do much buying themselves. Instead, they manage contracts with buying groups.

“There are some who have taken it in-house and there have been mixed results,” said Jim McManus, vice president of supply chain management for St. Joseph Health System, an Orange-based nonprofit with yearly revenue of some $3.9 billion and 14 hospitals in California and Texas.

St. Joseph Health buys about $550 million of supplies yearly, according to McManus. It uses Georgia-based buying company MedAssets Inc. under a 10-year contract.

Other buying companies include Dallas-based Broadlane Inc., Novation LLC of Irving, Texas, and Premier Inc. of North Carolina.

What They Do

Hospitals turn to buying groups for lower prices, particularly on everyday supplies such as intravenous solutions, syringes, gloves or bandages.

Buying groups settle on products using input from committees made up of people from member hospitals, said Andy Brailo, Premier’s vice president of strategic accounts.

“They are the ones who vote and make all the decisions when it comes to what vendor we actually have on our contract,” he said.

The situation is the same at Broadlane, which handles supplies for several hospital chains with operations here, including Dallas-based Tenet Healthcare Corp. and Oakland’s Kaiser Permanente.

“We’re not making the product decisions,” said Joe Greskoviak, Broadlane’s executive vice president and chief development officer. “The clinicians and our clients are making the product decisions.”

Once a device is agreed on, Broadlane then works with suppliers on contracts, Greskoviak said.

The company will contract with one company or several for a single product, depending upon the item, he said.

If clients determine that there’s no deference between suppliers on a particular product, then clients may decide that “it’s in their best interest to actually go with one vendor, consolidate the market share and use that leverage to drive a very low price for that specific item,” Greskoviak said.

Buying groups came under fire in the last decade for exclusive deals with large medical device makers that squeezed out smaller rivals.

One of the higher-profile fights came a few years ago, when Masimo Corp., an Irvine maker of patient monitors, fought with Novation and Premier over what it charged was a bias toward larger suppliers such as its longtime rival Nellcor Puritan Bennett, part of Massachusetts-based Covidien Ltd.

Masimo’s battles to get its devices in more hospitals resulted in a New York Times story and admonishment of the buying groups by federal lawmakers.

The company eventually won supply contracts from large purchasing groups for its devices, which attach to a finger or a toe and monitor a patient’s oxygen level, among other substances.

Premier, which represents 2,300 nonprofit hospitals, has had to “evolve” beyond single-source device contracts in some cases, Brailo said. Members have pushed for using multiple sources in some instances, he said.

Physician Preference

Hospitals take a different approach to buying what are known as “physician preference items”—pricier, more complex devices that doctors may see as essential.

St. Jude Medical Center in Fullerton, one of four local hospitals run by St. Joseph Health System, relies on its director of surgery and a committee to buy physician-preferred items, said David Saffert, director of materials management for the hospital.

“Physician preference items are best done at our hospital level because that’s as close as you can get to the physicians,” said McManus, head of supply chain management for St. Joseph.

Big-ticket items, including imaging machines or medical laboratory equipment made by companies such as Brea’s Beckman Coulter Inc., are bought through St. Joseph’s buying group, MedAssets.

The hospital operator will work directly with a medical device maker to make sure its device fits St. Joseph’s needs, according to McManus.

St. Joseph will decide in another year or so if it wants to renew its contract with MedAssets or possibly bring buying in house, McManus said.

Relatively few hospitals do their own buying. That requires expertise in the latest equipment and developments in drugs, medical devices and other supplies, McManus said.

And hospitals could face higher prices buying on their own, as well as resistance among some suppliers to negotiate deals with just a handful of hospitals in a single group.

The upside to hospitals doing their own buying is it cuts fees paid to purchasing groups, St. Jude’s Saffert said.