SOURCE: VHA

May 11, 2005 16:00 ET

VHA Changes Strategic Direction and Business Model to Provide Members With More Value

New Business Model May Be Turning Point for GPO Industry

IRVING, TX -- (MARKET WIRE) -- May 11, 2005 -- VHA Inc., a national health care provider alliance, has refocused its strategic direction and made significant changes to its business model in order to make the company more efficient and give members increased financial value and strategic benefits beyond what they purchase through VHA and its supply company Novation.

"During the last year, we've worked to refocus VHA on delivering market-leading supply chain management services and creating and supporting networks of members to focus on high-priority issues," said Curt Nonomaque, president and chief executive officer at VHA. "VHA has displayed industry leadership in a number of areas over the years, but these two stand out. Our decision to focus on these core services serves as a strategic filter for everything we do and makes it easier for us to serve member health care organizations nationwide."

"These changes were driven directly from members' feedback and their ongoing participation. Members have validated that they derive the most tangible value from VHA's supply chain offerings and member networks -- both of these areas deliver measurable results," said Nonomaque.

To generate more value for members as they access VHA's core services, the company has changed its business model. The new model, which goes into effect on July 1, will significantly increase member returns and give nearly half the members the opportunity to almost double their cash returns from VHA.

Under the new model, VHA members will pay core charges to access VHA supply and network services. Additionally, members may elect to purchase custom services, which are priced separately. VHA will distribute 100% of the administrative fee revenue it collects from suppliers net any core or custom charges.

The new business model offers greater transparency by providing members with a clear understanding of the total charges they pay for VHA services. VHA believes once health care organizations nationwide see how this model works, it may lead to changes in how other alliances and GPOs fund their operations and track and report value to their members.

"Since January we've been conducting one-on-one meetings with hospital CEOs to illustrate how their organizations would benefit from the new business model, and their reactions are overwhelmingly positive," said Nonomaque.

Richard Hastings, president and chief executive officer of Saint Luke's Health System, Kansas City, Mo., and VHA board member, said, "VHA has done a tremendous job over the last two years of listening to member requests to provide more value and sharpen its focus. Curt's leadership has energized the company and prepared it to make some bold changes. VHA is focused now on providing services that create the greatest benefit for the greatest number of members."

The decision to refocus its strategic direction has had immediate benefits to members. It enabled VHA to increase its operating income by $40 million in 2004, from $121 million in 2003 to $162.3 million in 2004. As a result, VHA made higher cash returns to members for 2004.

The change in VHA's strategic direction underscores VHA's proven success in providing value and savings to members. VHA members receive the greatest financial benefit from VHA through supply chain management services, which includes access to Novation's contracts and supply services. In addition to day-to-day savings on medical supplies and devices, and substantial cost avoidance from contracting efficiencies, VHA generates a cash return for members based on their purchases.

To increase members' understanding of the benefits they receive through VHA, the company is revamping its value reporting. Historically, each VHA member received a customized annual value report, typically in May or June of the following year. The new value reporting process provides greater simplicity and transparency to members, enabling them to easily connect the charges they pay to the total value they receive. The improved value reporting will reflect how VHA helps members lower total supply costs and improve clinical performance.

To accelerate members' cash flow, VHA will pay members every quarter electronically rather than annually with a paper check. VHA will also provide members electronic quarterly value statements in addition to a newly designed annual value report. Members will receive their first new quarterly value statement and their first quarterly payment in December 2005 for the quarter ending Sept. 30. All of these changes increase VHA's accountability to members and set a new business discipline for VHA.

To emphasize that VHA has a new direction and strategy, the company is introducing a new brand identity that better reflects what the alliance is today and the ways VHA delivers value to members.

"We wanted a new brand that reflects our key strengths," said Nonomaque. "The new brand emphasizes VHA's heritage in connecting members and delivering proven results, results that help our members improve patient care and financial strength. Our new brand represents our promise to members."

VHA is launching new brand positioning and a new logo at the upcoming VHA Leadership Conference in Atlanta, May 15-18.

About VHA - VHA Inc. is a national alliance of leading not-for-profit health care organizations that work together to improve the health of the communities they serve. VHA delivers industry leading supply chain management services and enables regional and national member networks to improve clinical and operational performance and drive sustainable results. Based in Irving, Texas, VHA has 18 local offices serving more than 2,400 health care organizations across the United States.

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