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S Administration 63-6G31 ELIA, Souheil E., 1933- GROUP PROCUREMENT IN VOLUNTARY HOS­ PITAL. MANAGEMENT: GENERAL ANALYSIS, CASE STUDY AND AN EVALUATION, The American University, Ph.D., 1963 Economics, commerce-^ousiness University Microfilms, Inc., Ann Arbor, Michigan GROUP PRGGTTRFMENT IN VOLUNTARY H 3SPITAL HAN iGEMENT General Analysis,Case Study and An Evaluation by Souheil E. Elia Submitted to the Faculty of the Graduate School o f The American U n iv e r s ity In Partial Fulfillment of the Requirements for the iJe^rae of Doctor of Philosophy in Business Administration Siynnt-ures ol1 Cornui ctfea naduate llenn: Chairman / W K & 1 f i / - Date S ep tem b er,19 G2 The American N n iv e r a ity AMtHlCAN UNIVbKM IV Washington, P. Ct U lC r ‘ i'Y KAY i 1363 WASHINGTON, D. C ^ rf36, ACKNOWLEDGEMENTS In developing the different phases of this dissertation, I was very fortunate to have been assisted by the many people who graciously gave of their time and effort. I am p a r t ic u la r ly in d eb ted to Dr, N.G. P h o tia s, Chairman of the Ph.D. program, Dr. 0. Johnson, Chairman of the disser­ tation committee and all the committee members. Dr, M. King and Dr, F, Coolsen of the faculty of the School of Business Administration have bean especially helpful in organizing and developing this study. My personal gratitude to Dr. J, F. H ill, Director of Purchasing, Massachusetts General Hospital; Mr. P. D. Perry, Executive Director of the Hospital Purchasing Corporation and Mr. R. L. Davis, Executive Director, Hospital Bureau, Inc. Their invaluable comments and constructive suggestions will always be gratefully remembered. I wish to thank the hospital administrators, the executive directors of the group procurement agencies and the purchasing agents, all too many to mention individually, with whom this study brought me in contact. Their unselfish cooperation has been invaluably helpful to me throughout this proJ e c t . S , E. E. Washington, D.C., 1962 i i / lv TABLE OF CONTENTS* Page PART I: GENERAL ANALYSIS CHAPTER I . INTRODUCTION.................................................. * .......................... 4 Purpose of the Study .............................................. 4 Importance of the S tu d y .................................... 4 Organization of the Dissertation ...................... 6 Definition of T erm s .............................................. 8 Methodology and Sources of Research . 13 I I . BACKGROUND - THE HOSPITAL M ARK ET.................. 15 Characteristics of the Hospital Market . 16 Factors affecting Its Growth and Development 17 Sum m ary ................................................................................. 26 I I I . GROWTH AND DEVELOPMENT OP GROUP PROCUREMENT AGENCIES ........................... ...... 28 Objectives ..... ..................................................... 28 Application of Group Procurement Outside the Hospital Field ..... 30 Differences Among Group Procurement Agencies in the Hospital Field ...................... 40 Strengths and Weaknesses of Present Hospital Group Procurement Agencies ................................ 54 S u m m a r y .............................................................................. 66 IV. FACTORS WHICH HAVE LED TO THE ADOPTION CF GROUP PROCUREMENT.......................................... 72 General Considerations ................................................ 72 Cost Considerations ...................................... 81 Market Considerations .......... 90 Technical Considerations ........................................... 96 Managerial Considerations ...................................... 106 S u m m a r y ................................................................................. 116 w A detailed outline precedes each chapter. v v l Page PART I I : CASE STUDY 120 CHAPTER V, EVOLUTION OP THE PROCUREMENT FUNCTION AT THE MASSACHUSETTS GENERAL HOSPITAL................................ .... 123 H istorical Development ............................................................ 123 Evaluation of the Hospital1s Organization and Management . ................................................... 123 Procurement Trends Since 1938 ........ 136 VI AN ANALYSIS OF GROUP PROCUREMENT BY THE MASSACHUSETTS GENERAL HOSPITAL ON A REGIONAL BASIS................................................................................. 148 The Hospital Purchasing Corporation • • 146 Effect of Regional Group Procurement On Hospital Operation and Service ...................... 162 Obstacles to Developing Regional Group Procurement Contracts ........................................... 179 V I I . AN ANALYSIS OF GROUP PROCUREMENT BY THE MASSACHUSETTS GENERAL HOSPITAL ON A NATIONAL BASIS................................................................. 192 The Hospital Bureau, Inc ................................................. 192 Effect of National Group Procurement On Hospital Operation and Service ................................ 207 Obstacles to Participation in National Con­ t r a c t s ................................................................................................ 218 PART III:A N EVALUATION ............................................ 241 VIII:CONCLUSIONS AND RECOMMENDATIONS 241 Future Trend Of Group Procurement Agencies. 245 Abstracts of Group Procurement at the Massa­ chusetts General Hospital ........................................... 250 Implications to Other Hospitals ........................... 254 APPENDIX A - The Massachusetts General Hospital. 262 APPENDIX B - The Hospital Purchasing Corporation 274 APPENDIX C - The Hospital Bureau, Inc. , 302 BIBLIOGRAPHY . 327 LIST OF TABLES T a b le Page I. Beds and Admissions per 1,000 population ........................... 20 II. Frequency of Group Procurement Practices in Cities and States ..............................................................................32 III. Future Of Group Procurement Practices In Cities and States ................................................................... 33 IV. Price Comparisons of Selected Hospital Products as to Source of Supply 87 V. Evaluation of Nine National Brands Bed Sheets Type l4o - Muslin . ......... • 101 VI. Bid Analysis of Choice Halves, Yellow Peaches in Heavy S y r u p . ........................................................................................104 VII, Analysis of Nine Rubber Bandages .............................................107 VIII, M.G.H, - Volume of Purchases - Selected Years. 143 IX. M.G.H, - Volume of Purchases From H.P.C .............................. 144 X. X-Ray Film Purchases ..................... .......... 166 XI. White Linen Purchases ............................................................................ 168 XII. Patient Gown Purchases .......................................................................169 XIII. Paper Hand Towels Purchases .............................................................172 XIV. Food Products Purchases .......................................................................175 XV. Comparative Analysis - Linens. ..............................209 XVI. Comparative Analysis Selected Clinical Hospital. 212 XVII, Comparative Price Analysis - Standard Hospital Item s, ......................................... 219 XVIII. Suggested List of Hospital Items For National and Regional Group Procurement .................................................... 229 v i i LIST OF FIGURES Figure Page 1. Annual Payroll Expense Per Employee ............................. 74 2. Trend of Hospital Personnel Per 100 Patients * 76 3. Payroll Expense Per Patient D a y ..............................................76 4. Hospital Operating And Occupancy Expenses . 30 5. M.G.H. 1912 - The Pattern Of Staff Relationship 130 6 . M.G.H. 1961 - The Pattern Of Staff Relationship 133 7 . H.P.C. - Purchasing And Operating Expense . 150 0. H.P.C. - Organization Chart ..................................................... 154 9. Greater Boston Hospital Council ........................................ 157 10. Functional Organization - Hospital Bureau, Inc. 201 v i i i To My ParentB PART I : GENERAL ANALYSIS CHAPTER I INTRODUCTION Page A. Purpose of the Study ............................................................................ 4 B. Importance of the Study ....................................................................... 4 C. Organization of the D issertation ............................................. 6 D. Definition of T erm s ........................................................................... 8 E. Methodology, Scope and Sources of Research » * . • • 13 2 CHAPTER I INTRODUCTION As the advances in the fields of medicine and surgery continue to provide the patients with better cures and more accurate diagnosisj cost considerations are becoming Increasingly Important. There is a great need to develop methods which w ill counterbalance cost Increases in the field of medicine. This w ill permit hospitals to incorporate faster cures and better diagnosis without seriously straining the financial resources of their patients, unfortunately, areas such as group procurement which offer real potential in termB of cost reduction for hospitals have not been given the attention they deserve. The literature on purchasing for hospitals and hospital group procurement is painfully lacking in terms of scholarly works. With the exception of a number of articles which have barely scratched the surface, there is no systema­ tized body of knowledge or organized set of principles pertaining to this subject. With
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