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Company Perspectives:
VHA links, serves and leads select community-owned health care organizations and physicians in building healthy communities and succeeding in their markets through the delivery of superior clinical and operational performance.
VHA Inc. is a leading purchasing cooperative for community-owned, nonprofit healthcare institutions. VHA had 2,200 members in its nationwide alliance at the time of its 25th anniversary in 2002. These included leading institutions such as Cedars-Sinai Health System and the Mayo Foundation, and range in size from small 50-bed hospitals to integrated healthcare systems. The group is active in 48 states (minus Utah and Nevada) and represents a quarter of the country's community-owned hospitals.
VHA was created in the late 1970s to help nonprofit hospital groups attain the same purchasing discounts as corporate hospital systems. In 2003, VHA found itself on Fortune's list of the "100 Best Companies to Work For"--for the fourth year in a row.
Origins
In the 1970s, for-profit hospitals owned by investors were consolidating into large, multihospital healthcare systems with tremendous buying power. Community-owned facilities were unable to command the same huge discounts of suppliers.
An experimental, seven-member alliance of not-for-profit hospitals sprang out of a 1973 meeting of industry executives at the Hospital Research and Development Institute in Port St. Lucie, Florida. Launched in 1974, Hospital Shared Services failed, being unable to secure the necessary time commitments from its members.
As Modern Healthcare recalled, the topic came up as four healthcare industry CEOs had dinner one evening in September 1976 during the American Hospital Association's annual meeting in Dallas. Participants included Pat Groner (Baptist Hospital, Pensacola), M.T. Mustian (Tallahassee Memorial Regional Center), Duncan Moore (Moore-Trinity Regional Hospital, Iowa), and Allen Hicks (Community Hospitals of Indiana). During the impromptu discussion, these four agreed on the need for another purchasing alliance for nonprofit hospitals. Hicks shared the idea with two more CEOs, Stanley Nelson (Henry Ford Hospital, Detroit) and Wade Mountz (Norton Children's Hospitals, Louisville, Kentucky), when they met in Arizona for the Healthcare Executive Study Society the next spring.
An enlarged group of up to 30 executives began meeting at Chicago's O'Hare Airport to revive the concept. These meetings soon resulted in the creation of Voluntary Hospitals of America Inc., which was registered as a Delaware corporation on October 19, 1977. According to company founder Pat Groner, the name choice was influenced by that of Hospital Corporation of America (HCA), a leading for-profit group. "Voluntary hospitals" refers to hospitals operated by religious or other nonprofit groups.
The group continued to meet in Chicago and elected Wade Mountz as chairman and Nelson as president. Robert Kitzman, business manager at Nelson's hospital, Henry Ford, became VHA's first employee. In 1978, the Delaware company was merged into a new VHA cooperative in Illinois. VHA was reincorporated in Delaware after the state's laws changed to allow more members.
VHA signed a major supply agreement with American Hospital Supply Co. (AHS) in 1979, which held price increases to half the (then considerable) rate of inflation in anticipation of increased volume. The next year, four medical supply houses sued VHA for antitrust violations because of this arrangement; VHA ultimately prevailed in a federal appeals court, however, which reversed a lower court's ruling in 1983. In 1980, VHA awarded the country's largest forms contract to date. The group had 37 members at the time.
Relocating to Texas in 1982
Stanley R. Nelson was VHA's first president and chief executive officer. Donald Arnwine, president on a volunteer basis since 1980, became VHA's first full-time, paid CEO in January 1982. Arnwine had been CEO of West Virginia's Charleston Area Medical Center, a charter shareholder. In March 1982, VHA opened new offices in Irving, Texas, a site chosen due to the convenience of nearby Dallas-Fort Worth International Airport.
Five full-time employees were hired in 1982, and the group began to grow rapidly. A number of Regional Health Care Systems were established in the mid-1980s, beginning with VHA Minnesota--later called VHA Upper Midwest--which began with 17 hospitals. By the early 1990s, there would be a total of 29 regional offices, which were set up as separate, locally owned nonprofits. Non-shareholding hospitals could become partners in these regional companies, receiving full membership benefits, save voting rights.
A for-profit subsidiary, VHA Enterprises (VHAE), was established in 1983. The next year, VHA initiated a private-label program under the VHA Plus brand--the first among purchasing alliances.
In 1985, the dedicated purchasing subsidiary VHA Supply Co. was created following the announcement of the merger of AHS, VHA's main supplier, with HCA. HCA, a leading for-profit hospital chain, had acquired VHA charter hospital Wichita's Wesley Medical Center in December 1984. "These events ... make people aware of how big the stakes are and make the case that large systems will dominate the industry," said Arnwine in Modern Healthcare.
VHA Enterprises soon teamed with Aetna Life Insurance Co. to create a managed care organization: PARTNERS National Health Plan. The venture lost $51.8 million, however, in its first four years. VHA also began developing assurance and risk and claims management programs. VHA Insurance Services Inc. and VHA Insurance Co. Ltd. started operations in 1987.
The group's corporate structure was streamlined in 1988. That September, Arnwine resigned as CEO; Mountz and Boise Cascade Corp. founder Robert Hansberger were interim replacements. VHA founder Gordon Sprenger (Allina Hospitals and Clinics, Minneapolis) became chairman of the board. Money-losing VHA Enterprises began selling off assets.
VHA closed the 1980s with about 834 members, 650 of them hospital clients--roughly a third of the amount served by the leading for-profit group, American Healthcare Systems (AHS). VHA purchased $2.3 billion worth of supplies in 1989.
Streamlining in the 1990s
In 1990, VHA returned to its original structure, a cooperative, allowing it to distribute a share of profits to partners as well as shareholders. VHA began calculating how much value it returned to members in the form of cash distributions and supply-cost savings. In 1991, the figure was $278 million.
Also in 1990, VHA Enterprises sold its 50 percent share in the PARTNERS managed care initiative to Aetna for $26 million in cash and the assumption of $34 million in debt. (VHA also got an $8 million bonus for its members' continued participation.) Two years later, VHAE was dissolved, after developing 18 business ventures in nine years.
Robert O'Leary, CEO at St. Joseph Health System in California, had taken over as VHA's chief executive in 1990. He left in June 1991 to lead American Medical International. C. Thomas Smith, formerly president of Yale-New Haven Health Services Corp., became VHA's next president and CEO.
The group's name was formally changed from Voluntary Hospitals of America to VHA Inc. in April 1994. "It enables us to move beyond the misunderstood concept of 'voluntary' and the limiting word 'hospitals,'" CEO C. Thomas Smith told shareholders. "United to Improve America's Health" was the company's new slogan.
At the same time, a restructuring program was launched to streamline the group's structure. The number of regional offices was reduced from 29 to 18; many of these were converted to wholly owned subsidiaries of VHA.
VHA enjoyed much growth and success in the late 1990s. A total of 22 shareholders were added in 1997, bringing the number of shareholder and partner organizations to 464. Membership grew 14.6 percent to 1,650.
A joint venture with University HealthSystem Consortium (UHC) created the industry's largest supply company. Called Novation, it began operations in January 1998, and soon racked up sales of $11 billion a year. One combined pharmacy contract alone was worth $3.9 billion.
Vha.com, launched in August 1997 as VHAseCURE.net, grew to accommodate a user base of more than 35,000. This innovative extranet connected 97 percent of VHA shareholders and partners. The online health information source www.Laurus Health.com was launched in 1998 with three pilot members. Within a year, it had grown to include 50 healthcare systems and 105 hospitals.
VHA joined another significant online venture in mid-1999. HEALTHvision, Inc. was created to combine the web-based products and resources of VHA with those of Eclipsys Corporation, which provided IT solutions to more than 1,400 healthcare provider organizations.
VHA announced that its members realized $5 billion in value from their participation in the cooperative during the 1990s. At the same time, it was being named one of the "100 Best Companies to Work For" by Fortune magazine.
VHA estimated that it returned $1.15 billion in value to members in 2000. Novation attained $15.6 billion in purchasing volume. Within a year it had grown to include more than 80 manufacturers and distributors and more than 400 VHA and UHC hospitals.
25 in 2002
VHA had 2,200 members in its alliance at the time of its 25th anniversary in 2002. Of these members, 700 were participating in the Marketplace@Novation e-commerce venture with UHC. Modern Healthcare magazine named VHA CEO Tom Smith as one of the 25 most influential healthcare leaders of the preceding 25 years.
Principal Operating Units: VHA Central, LLC; VHA Central Atlantic, LLC; VHA Consulting Services; VHA East Coast, LLC; VHA Empire State, LLC; VHA Georgia Inc.; VHA Gulf States Inc.; VHA Metro, LLC; VHA Michigan Inc.; VHA Mid-America, LLC; VHA Mountain States, LLC; VHA New England Inc.; VHA Northeast, LLC; VHA Oklahoma/Arkansas, LLC; VHA Pennsylvania Inc.; VHA Southeast Inc.; VHA Southwest Inc.; VHA Upper Midwest, LLC; VHA West Coast, LLC.
Principal Competitors: AmeriNet; MedAssets HSCA, Inc.; Premier, Inc.
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