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Pete Allen joined ANAE members on June 25th to give insight on many topics, including:
An overview of Novation’s mission, membership and differentiation: Novation has been owned by VHA and UHC for the past 12-13 years, with VHA owning 75% and UHC owning 25%. Novation is the contacting engine for VHA, UHC and Provista, all of which then take the contracts to their members and customers. Recently, Child Health Corporation of America and its owner hospitals signed on as customer for Novation’s contracting services as well.
Novation handled $43 billion in contracts through 2012 and is the largest GPO in spend as well as in diversity of the types of organizations buying on contract. Novation manages over 600 suppliers in 1,100 categories.
How Novation is organized for contracting and programs: Novation is organized by product category and each category is responsible for all products in that vertical.
Pete Oversees the following departments: pharmacy, lab, food, facilities, corporate, research and business products, capital, PPI and imaging, custom contracting, medical/surgical and medical/surgical distribution.
Novaplus, a Novation private labeled product line, is delivering incredible value to member facilities. In 2012, $1.8 billion of Novaplus was purchased. In fact, Novaplus is now starting to deliver services in addition to products.
How contracting is changing in an era of reform: Pete emphasizes that hospitals will see incredible change by 2017, and are making drastic changes in their cost structure to prepare for implementation of the Affordable Care Act. He says if by 2017 these reductions are not made, some hospitals will be going under.
The two biggest issues he sees right now are physicians becoming more tightly engaged with hospitals and systems, and how the hospitals’ CEOs are purchasing other hospitals or incredibly concerned their facility (ies) will be purchased. He emphasized that their large systems are measuring the cost needed to take out of operations is being measured in the hundreds of millions of dollars.
As for suppliers, he believes there will be winners and losers. To ensure supplier success, he states that if you have a product that “costs more but is better,” you better be able to prove it. If you cannot prove it is better quality or reduces cost, the cheaper alternative will continue to be chosen.
The solution to survive reform for hospitals will ultimately lie in much better utilization of products and care and better productivity.
How Regional Aggregation is changing the landscape of contracting: Novation is well suited to help members with Regional Aggregation. In fact, Novation has the most experience with it as VHA broke out into Supply Networks a number of years ago. Pete believes this trend of Regionalization of contracting is very much the wave of the future to drive value incontracting.
When asked about big systems and the complexity they are adding to the supplier community because they are members (or owners) of a GPO, yet participate in Regional Aggregation, and may even direct individual contracts or think about starting their own GPO, Pete made a very astute observation that none of Novation’s members have started a GPO.
The 3 “must do’s” for Suppliers looking to be successful with Novation contracts: I asked Pete what he would tell a supplier that would like to see better performance of their Novation contract. Pete said to do these 3 things;
- Make sure you write a relevant contract
- Be part of the solution and not the problem
- Ask Novation for help