February 20, 2006 17:14 ET

VHA Inc. Helps Pennsylvania Hospitals Save $1.6 Million on Drug Costs

Regional Initiative Takes Wholesale Approach to Save Money

PITTSBURGH, PA -- (MARKET WIRE) -- February 20, 2006 --In an effort to combat rising pharmaceutical costs, 25 community hospitals in Pennsylvania came together to aggregate their purchasing volume and negotiate better prices from their pharmaceutical wholesalers. VHA Inc., a national health care alliance, helped coordinate this effort, providing guidance and helping to negotiate a new drug distribution contract, which saved the hospitals a total of $1.6 million.

"The initiative's goal was not to drive business to one wholesaler, but to reduce pharmaceutical costs for participating hospitals," said David Silverman, senior director of supply chain management in VHA's regional office in Pittsburgh. "This regional effort was driven by our membership and really showed how hospitals can work together to affect change."

All of the hospitals, even those that decided not to change wholesalers, renegotiated their contracts to receive a higher discount rate. Prior to this initiative, each hospital's discount rate was based on their individual volumes, some large, some small. With the new contracts, participating hospitals were priced the same, as if they were part of a very large system, regardless of their individual size. In the end, 12 hospitals changed wholesalers, and 13 remained with their initial pharmaceutical distributor.

One of the keys to this program's success was its quick turnaround. In July 2004, VHA presented the program to the chief executive officers of the member hospitals in the region, and they approved the initiative. The hospitals issued a request for proposals to three drug wholesalers in September 2004, selected a wholesaler at the end of November 2004, and in January 2005, the new contract went into effect.

The Challenge

The program was initiated by the Board of Directors for VHA Pennsylvania, one of VHA's 18 regional offices. The Board endorsed a variety of standardization initiatives designed to maximize hospitals' ability to provide the best clinical care in a cost-effective manner.

Janice Dunsavage, the director of pharmacy at PinnacleHealth, spearheaded the program. "It is difficult for hospitals to change pharmaceutical wholesalers, especially since most hospital pharmacies have 3,000 or more items in their shelves. Changing wholesalers requires a change in computer purchasing software, new shelf labels at each location in the pharmacy and in many organizations, changes to interfaces to other technologies within the pharmacy," Dunsavage said. "Making all of these changes can be a costly and time-consuming task."

To make this change easier for participating hospitals, the new wholesaler promised to train pharmacy staff on how to use the new IT system and provide new inventory labels. To help manage the transition process, all 12 hospitals did not switch to the new system on January 2, 2005. Instead, the changes were staged in two-week intervals so that the new wholesaler could help each hospital iron out any problems they might be having before starting another hospital on the process.

In addition to lowering hospital pharmaceutical acquisition costs, the hospitals also negotiated to have more deliveries included in their contract. For example, participating hospitals are guaranteed to have 10 deliveries a week, twice per day and once on Saturday, if needed. Because many of the hospitals follow just-in-time inventory, they keep small inventories of drugs so they have less money tied up in inventory on their shelves.

For example, PinnacleHealth, a 761-bed health care system in Harrisburg, Pa., needed to receive their delivery in the early morning. They negotiated an early morning delivery, which helped them better meet their patient needs. Another hospital, Elk Regional Medical Center, an 82-bed hospital in St. Marys, Pa., needed deliveries twice a week. However, if an additional delivery is needed, the hospital does not have to pay extra under the new agreement.

To learn more about how VHA helps hospitals nationwide save money through its clinical improvement and operational improvement programs, visit

About VHA

VHA Inc., based in Irving, Texas, is a national alliance that provides industry-leading supply chain management services and supports the formation of regional and national member networks that help members improve their clinical and economic performance. Through VHA, members access local and national resources, including unparalleled supply chain data analytics, to help them lower costs and improve clinical quality. With 18 offices across the U.S., VHA has a track record of proven results in serving more than 2,400 health care organizations nationwide.

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