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 this in mind and due to the urgency of finding practical solutions to the ever-increasing cost of patients' care thlB study was initiated. It is

hoped It will serve as a departure point for further

undertakings and generate greater Interest in this timely and

important topic. 4

A. PURPOSE OP THE STUDY

The purpose of this study is to analyze group procurement for hospitals as a means towards reducing hospital costs without impairing the quality of medical service* It studies the application of group procurement as a tool of hospital management and the factors which have led to its adoption by certain hospitals. Prom a general analysis, it presents a caBe study of the efforts of the Massachusetts

General Hospital as one of the pioneering hospitals in the field of group procurement* It outlines problem areas, bene­ fits and lim itations encountered by the Massachusetts General

Hospital in developing their group procurement programs. It evaluates the findings of this study and its applicability to sim ilar sized hospitals throughout the United States *1

B . IMPORTANCE OP THE STUDY

In the present decade a question that has been attracting national attention is that of socialized medicine. This question has come to the forefront in the past few years due to the ever-increasing cost of patients' care. Ailing

Americans are quickly finding out that the mounting cost of a

Ipor 1959* Hospitals, Guide Issue of August 1, p, 410, lists by type of control, voluntary hospitals of the same classification as the Massachusetts General Hospital as accounting for 26.8jt of all bed capaoity in the U. S. 5 stay In a hospital makes serious Illness and hospitalization doubly undesirable. For many hospital administrators the problem of m aintaining service, In terms of nurBlng and doctor's care, Is becoming one too hard to cope with due to their financial lim itations. Patients undergoing prolonged treatm ent for Berlous Illness find the financial burden almost

Insurm ountable.

There is a great need to maintain a high degree of service throughout the hospital field, and thus make it possible for the large majority of people to obtain, without financial strain, the best possible hospital care. This dissertation does not attempt to present the pros and cons of socialized medicine. It is outside Its scope. What Is attempted here Is to point the way to means of providing better patients' care and service without necessarily raising hospital cost. This objective can be facilitated through an intelligent exploita­ tion of an Important tool of hospital management—that of group procurement.

Hospital procurement for materials, supplies and equipment throughout the United States exceeded 3 billion dollarB for the year I 96 I . 2 The two largest items of hospital expenditure are salaries and wages; and materials and supplies.

Salaries and wages are often fixed by contract and may not be

2,1 Hospital S tatistics 1 9 6 1 ," Hospitals Guide Issue of August 1, 1962, Part II (Vol. 36), p. 4u3, 6 reduced without serious consequence to the hospital. In terms of m aterials, supplies and equipment, major savings can be attained through the effective application of scientific procurement. Scientific procurement involves "the adoption of uniform standards to permit large scale buying for depart­ ments; sim plification of sizes and types to reduce manufacture's 3 costs and systematic storage and Issuance procedures."

Such steps are essential to the success of any group procurement. Economies arising from the application of group procurement w ill tend to check the rise of operating costs in h o s p i t a l s .

C . ORGANIZATION OP THE DISSERTATION

To better comprehend the role ascribed to group procurement in hospital management, the data in this disserta­ tion Is grouped under three major divisions—a general analysis, a case study and an evaluation.

The general analysis sets the stage and provides the necessary background for the case study. Chapter Two explains

the interrelationship of hospitals and industry within the

context of the hospital market. Chapter Three traces the development of group procurement through the growth of regional

and national groupings. A discussion of the factors whloh have

3 W. Glenn Ebersole, "The Case for Group Purchasing for H ospitals," The Hospital Forum, August, i 9 6 0 , p . 7 , led hospitals to the adoption of group procurement as a tool of hospital management follows in Chapter Pour. In this first part other underlying causes such as managerial and operating considerations are examined. Part Two presents a case study of a hospital which has been a pioneer and a strong Influence

in group procurement efforts—The M assachusetts General

Hospital In Boston. Chapter Five traces the evolution of the procurement

function within the hospital, from an unbridled decentralized policy to one which in the past decade has become highly

centralized. It analyzes the relationship of centralized

procurement and group procurement.

Chapters Six and Seven study the efforts of the

M assachusetts General HoBpltal in pursuing group procurement

on a regional and national basis. The advantages and the lim i­

tations on each level are analyzed. Part Three evaluates the total data both as pertains to

the over-all group procurement field for hospitals and the

specific experiences of the Massachusetts General Hospital.

It draws conclusions from present trend indications In

the group procurement field. Recommendations for sim ilar-sized hospitals are outlined. This is to serve as guide posts for

any future effort on their part, to utilize group procurement

as a management tool, to control operating costs and Improve

the quality of products procured by the hospitals. 8

D. DEFINITION OF TERMS

In order to clarify the different connotations of the terms used in this study, it is necessary to define them and specify how they w ill be used throughout this dissertation.

Procurement

There seems to be little agreement as to what this term denotes. In the hospital field, the term procurement is rarely used. Hospitals have purchasing departments run by purchasing agents or directors of purchasing.

In marketing circles, procurement has sometimes been referred to aB the "securing of governmental provisions and equipment."^ A more comprehensive definition is presented by

Professor H. 0. Hodges :

Buying refers to the simple exchange of a com­ modity or thing for an agreed price. . . . Purchasing refers to primarily negotiation, purchase and payment. Procurement is a more recent and more inclusive concept. As the science of management developed, many Important steps were added to purchasing, both before and after the issuance of an order to the supplier. • , • What has been added can be summed up in the following scheme: Preliminary Steps—requisition, quality, quantity, delivery, vendors, routing; Purchasing— negotiation, purchase and payment; Subsequent S tep s- follow-up, receiving, Inspection, storage, inventory and research.5

^F. F. Mauser, Modern M arketing Management, McGraw H ill Book Company, 1961, p. 15JH

^H. 0. Hodges, Procurement, Harper & Brothers Publishers, New York, 1961, p. 3. 9 Throughout this dissertation, the term procurement w ill be used in the context of Professor H* G* Hodges1 definition.

It denotes displaying concern prior and after the purchase, a much more satisfying objective.

Group Procurement Group procurement refers to the total actions taken by more than one party to acquire one or more products. It denotes, here, the combined efforts of two or more hospitals aimed at satisfying their needs In terras of materials and supplies. Along with the adoption of group procurement by two or more hospitals, a central authority is established and empowered to procure for the group.

In the hospital field, there is a strong tendency to use group procurement as synonymous with centralized procure­ ment. In general marketing terminology, centralized procurement and group procurement d iffer in concept and scope*

Centralized Procurement Centralized procurement does not refer to Joint-buying effort such as cooperatives or wholesalers associations*

Centralized procurement denotes lim iting the purchasing func­ tion to one department of a firm or of an institution* It Is in this context that centralized procurement is used in this dissertation* It refers to a hospital whloh has centralized the purchasing function into one separate department. The 10 distinction between these terms lies In the fact that centralized procurement refers only to one Institution or a firm . Qroup procurement denotes two or more organizations who have combined their purchasing volume and set up a separate body to meet their Joint needs,^

H o s p itf c ls Hospitals may be classified In terms of four ma£or categories! as to control, service, length of stay and teaching affiliation,

Tyj>e_of Control, In terms of control, hospitals may be voluntary as opposed to federal or state controlled.

Voluntary hospitals are those sustained by contributions voluntarily given by persons or charitable organizations. They are not government controlled, although they may receive sizable contributions from both the federal and the state governments.

Voluntary hospitals have become increasingly Important in the hospital field. They account for 47.7 per cent of all 7 hospitals in the United StateB,1 This is not, however, a true measure of their importance. In terms of range of service and usage rates, voluntary hospitals rank first. Of all hospital

large institution or firm with many branches or divisions may achieve the economies of group procurement through centralization of the purchasing function,

^"Hospital Statistics 1961,” Hospitals, Guide Issue, August 1962, Part II (Vol. 3 6 ) , p . 4 U 4 . ------admissions in 1961, 66,6 per cent were made by voluntary Q h o s p i t a l s .

The study of voluntary hospitals forms the central theme of thlB dissertation. It includes all hoSpltalB which are free of government control. These hospitals may be affiliated with a religious group. The American Hospital Association estimates that the present number of voluntary a hospitals In the United States amounts to about 3300. Non-voluntary hospitals such as the veterans1 hospitals are fully supported and controlled by the federal government and in general are not open to the public. State hospitals are state-control led and supported. They are generally oriented to the care of the needy and those of lim ited finan­ cial resources. City hospitals follow a sim ilar pattern to state hospitals In terms of control and support.

Ty£e_of service. With reference to service, hospitals may be classified as general or specialized. A general hospital,, normally, offers a full range of services to Its patients.

These services cover dermatology, general medicine, neurology, psychiatry, surgery, urology and dentistry. Specialized hospitals choose one or more areaB such as pediatrics (children^ hospitals) or obstetrics (lying-in hospitals) and 12 concentrate their efforts In these areas* If a patient needs extensive service In those areas In which the hospital does not specialize, the patient Is generally transferred to another hospital offering the needed services.

Length_of stay^ Pertaining to length of stay, hospitals may be classified as long-term or short-term hospi­ tals. If the length of the average patient's stay exceeds

30 days, the hospital is referred to as a long-term hospital* An average patient's length of stay of under thirty days denotes a short-term hospital*

Teaohing_affiliation. Another Important classification refers to whether the hospital Is a teaching or a non-teaching

Institution. Large hospitals with university affiliations such as the Presbyterian Hospital In New York, Massachusetts

General Hospital In Boston and B illings Hospital In Chicago, affiliated with Columbia, Harvard and the University of Chicago respectively, provide facilities for teaching and research for medical students under hospital supervision.

Unless otherwise specified, reference to a hospital throughout this study denotes a voluntary hospital. Non-volun- tary hospitals which are government controlled have the mechanism of group procurement already established. They come under the control of a federal or state agency and are Bubject to federal or state procurement regulations. 13

E , METHODOLOGY, SCOPE AND SOURCES OF RESEARCH

In order to fully grasp the meaning of group procure­ ment and Its role In hospital management, it Is necessary to cover specific Issues In greater depth than by attempting a descriptive approach. In Fart One, a general analysis of background m aterial pertaining to the field of group procurement Is attempted,

A case study approach 1 b resorted to in Part Two for it permits a more thorough analysis of the experiences of one of the leading hospitals in the group procurement field in the c o u n tr y .

A comparative analysis of the data presented throughout forms the basis for the conclusions and recommendations presented in the final evaluation in Part Three.

Collection of data for this study began in 1959 and continued throughout I960. Wherever possible later statistics were Incorporated in this dissertation.

The bulk of source m aterial is data collected In the field through interviews, personal correspondence and a study

of hospital records. The major sources of research data are the Massachusetts General Hospital, the Hospital Purchasing Corporation of New England, the Hospital Bureau, Inc., the

Hospital Council of Western Pennsylvania, the South-Western

Hiohigan Hospital Council, the Cleveland Hospital Council and

other group procurement agencies listed throughout the study. 14

Other sources of Information for quotation and documentation are listed in the bibliography. 15

CHAPTER I I

BACKGROUND—THE HOSPITAL MARKET

FACTORS AFFECTING ITS GROWTH AND DEVELOPMENT

Page

A. Characteristics of the Hospital Market ...» 16

B. Factors Affecting Its Growth and Development . 17

1. The Population Factor ...... 18

2. Product Development Factors ...... 21

a. At the Industry Level ...... 21 b. At the Hospital Level ...... 23

3. The Human Factor ...... 24

C. Summary ...... 26 CHAPTER I I

BACKGROUND—THE HOSPITAL MARKET

FACTORS AFFECTING ITS GROWTH AND DEVELOPMENT

A. CHARACTERISTICS OF THE HOSPITAL MARKET

Outside of their basic function as health care centers, hospitals throughout the United States are important to many

Individuals and business organizations. To over a million

and two-thirds individuals they offer a source of employment.'1'

To business firms, the hospital market in 1961 was worth over 2 three billion dollars a year and steadily growing.

The hospital market refers here to the materials, supplies and equipment procured by all type hospitals in their

fulfillment of their basic function as health care centers.

Total hospital expenditure in 1961 amounted to

$9,387,000,000. This Includes voluntary and government con­

trolled hospitals.3 Voluntary hospitals account for 48.8 per

cent of total hospital expenditure which amounts to $4,584,166,000,^

Of total hospital expenditure about one-third Is spent on the

procurement of materials, supplies and equipment. In terras of

voluntary hospitals this means a procurement expenditure of

ll'Hospltal Statistics 196 1 ," Hospitals, Guide Issue, August 1962 , P a rt I I (Volume 3 6 ), p . 403. 2 I b i d . 3Ibld. 4Ibid., p. 404

16 17 over a billion and a half dollars. The total hospital market for all listed hospitals with the American Hospital Association exceeds three billion dollars. The majority of hospitals In the United States have leBs than one hundred beds. This applies to voluntary and non­ voluntary hospitals. Hospitals with less than one hundred bed capacity are generally referred to as small hospitals which account for 63.0 per cent of all listed hospitals In the United p States. This is especially significant in termB of group procurement since snail hospitals often lack the ability to procure effectively on their own.

Outside of large hospitals which are located in metro­ politan areas, there is no definite pattern of distribution for hospitals. They follow population centers though there is a tendency at present to build new hospitals outside of city

l i m i t s .

B . FACTORS AFFECTING ITS GROWTH AND DEVELOPMENT

The forces which affect the growth of the hospital

market are operative within and outside the hospital confines.

First, population growth as a general economic factor has

an important effect on the hospital market. Second, new

product developments by Industry and at the hospital level

bear directly on the size and future growth of the hospital

market. Third, hospital personnel such as the purchasing agent

who acts as a point of contact between the hospital and the

5lbld», p. 407 18 business world is in a position to affect the demand for certain hospital Items, It 1 b beat to examine each of these factors Independently,

1, The Population Factor

In the hospital field, population growth is an important determinant of the hospital market. As the popula­

tion expands, there develops a greater demand for health care

service. In terms of hospital operations, this results into a larger number of admissions, and correspondingly, a greater drain on hospital supplies and materials. This is met through proportionally a larger volume of procurement to meet the

rising needs. The explosive population growth In the past ten years

in the United States has led to a rapid expansion In the

hospital field to keep pace with the growing health needs of

expanding communities. Generally a rise In population results

in an increase in hospital admissions. As population continues

to grow new hospitals are built leading to an increased

capacity in terms of hospital beds.

Though the number of listed hospitals increased from

"6 ,7 8 6 In 1938 to 6,8^5 In 1939, and beds from 1,572,036 to 1, 612, 8 2 2 , total admission in 1 9 5 9 decreased approximately

92,000 from a record high of 23,697,157 in 1958 to 2 3 , 6 0 5 , 1 8 6 ; 19 this was the first decline in admission in thirteen years,

The drop in admissions (Table 1} may be explained in part, "due to a decline in the birth rate in 1959—* the first 7 since 1950,' The declining admissions did not seem to affect adversely the number of days of hospital care in all hospitals.

The Increase in days of hospital care, in spite of the drop in admissions, was partially the result of the "increase in length of stay (per patient) from 7.6 to 7*8 days," in the g voluntary or non-government controlled hospitals.

The effect of the declining rate in hospital admission and a drop in birth rate in 1959 would normally have led to an adverse effect on the hospital market In terms of demand for m aterials and supplies.

This, however, was not the case. The decline In

admission and birth rate was counterbalanced by an increase in absolute population and a longer average hospital stay per patient. The hospital market reflected the effect of the population factor by Bhowlng an Increase in the volume of total

hospital business from $2.3 billion in 1958 to $2.6 billion in

1 9 5 9 .9

6"Hospital S tatistics 1959.11 Hospitals, Guide Issue, August I960, Part II (Vol. 31*), P. 35?.

7 I b i d , p . 3 6 2 .

8 I b i d . 9Ibid. 20 TABLE I

BEDS AND ADMISSIONS PER 1 ,0 0 0 POPULATION

BEDS ADMISSION

YEAR POPULATION P e r 10001 Population Per 1000 Population 1(000 o m itte d ) T o ta l Short-* term Total Short-term

1946 140,054 1 0 .3 3 .4 112 98

1948 146,093 9 .7 3 .2 115 103 1950 151,234 9 .6 3 .3 122 110

195S 155,761 1 0 .0 3 .4 126 114

1956 167,259 9 .6 3 .5 132 120

1957 170,233 9 - 2 3 .5 135 123 1958 173,260 9 .1 3 .5 137 125

1959 177,103 9 .1 3 .5 133 122

i 960 , , w z l 3 .6 J 3 ? 128

Sourcei "Hospital Statistics i 9 6 0 ," Hospitals, Guide Issue, August 1961, Part II (Vol. 35)Vp.' 153. 21

2* Product Development Factors The growth which the hospital market has achieved has been mainly due to research and product development, Initiated at the Industry level and at the hospital level,

a. At the Industry level. Often research and product development is carried on as combined projects between Industry and hospitals, the latter serving aB testing grounds for the former. The combination of such efforts has dram atically affected the composition of the hospital market, by launching

New products developed by industry, which have been successfully hospital tested have gained national prominence within a short time. To illustrate this point, specific examples may be cited.

One such Illustration Is that of the Thrombo-Embolic Disease elastic stockings developed by the Bauer & Black Company and

successfully tested at the Massachusetts Memorial Hospital in

B« o s to 4- n , 1 0

For the prevention of pulmonory embolism, external pressure on the large blood vessels In the leg, where clotting may occur, brought out the need for elastic stockings. The prevention is advanced by reducing the caliber of deep veinB in the leg by moderate, even exerted external pressure, which leads to increased rate of blood circulation and thus discourages clot formation. Alternate cases were studied. One group wore Thrombo- Embolic Disease elastic stockings, the other the control group wore norwelastlc stockinettes. A total of 4,74l patients were examined,a T.E.D, Group Control Group patients '573^ --- * ~ " 5 7 3 7 5 ---- D e a th 0 4 Non Fatal Pulmonary 2 12 Em bolism The result of such a study at the hospital level Bhowlng a greatly decreased Incidence of pulmonary embolism with the use of Thrombo- Embolic Disease elastic stockings helped incalculably the Bauer & Black Company in launching their T.E.D, stockings on a national baslE 22 The Impact of the experiment was such that it quickly gained national acceptance and the new product was firmly established in the hospital market.

Another example is that of Minnesota Mining and Manufac­ turing Company disposable face masks which attained national prominence, only a short period after initial tests at the

Rochester Methodist Hospital , 11

The Introduction of a paper face mask, disposable in nature, is reported to be 90 p e r c e n t more e ffe c tiv e in terms

of air filtration than the present masks make of poplin.

(10 cont'd)

aR. W. Wilkins and J. R, Stanton, "Elastic Stockings in the Prevention of Pulmonary Embolism , 11 New England Journal of Medicine, 248:1087, June 25, 1953. 11 The tests and results are described in a letter dated November 10, i 9 6 0 , forwarded by Mr. R. H, Gregor, Director of Purchases, Rochester Methodist Hospital, to Mr, T. E. Philips of M innesota Mining and M anufacturing Company. The le tte r sta te s that a comparative cost study of conventional gauze masks and Minnesota Mining and Manufacturing Company paper masks was con­ ducted at the Rochester Methodist Hospital. The period of the experiment was from March i 960 through September i 960 . The study disclosed the following: Paper Face Masks Cloth Face Masks 'i'otal No. ol 1 paper masks used 34,650 Average cost of laundry/ Total cost of disposable masks $2,772 month $357.04 Total No. of surgical procedure 10,157 Monthly Replace- Average cost per procedure $.273 ment coat 37.56 Average No. of surgical proc./day 56 Average cost/mo $3y4.ou Average No. of surgical dayB/month 25.8 c lo th masks Average C ost per month for disposable masks $396.74 The letter and the results or the tests by the Rochester Metho­ dist Hospital were widely publicised by the Minnesota Mining and Manufacturing Company. 23 lessens the chances of Infection through the transmission of germs* The use of disposable masks by the Rochester Methodist

Hospital seems to indicate no cost Increase although the paper maBks offer a much greater degree of protection from germs.

2* £t_tj2e-h£a£i£ai i e-ei* Hospitals are primarily test centers for industry in terms of product development* In line with their constant search for better techniques for patient care, there arises the need for new products to meet existing or improved techniques. Hospitals on their own may develop certain products to meet specific needs* In the majority of cases products developed by hospitals find very limited use outside of the hospital In which they originate.

In other cases, a hospital may develop a produot, which in cooperation with Industry, may acquire national distribution.

An illustration of this, Is the case of disc radiopaque sponge developed Jointly by the Massachusetts Oeneral Hospital in Boston and the Bauer and Black Company.12

i p Kor ease of detection of spongeB whloh may have been left in after an operation, a radiopaque lining is incorporated in the sponges which shows on X-Ray film* The radiopaque material consisted of a thin line across the sponge whloh was hard to detect and easily mistaken for similar marks made by tissues on the X-Ray film . The Radiology Department of the Massachusetts Oeneral Hospital substituted a reotangular disc of radiopaque material of Buna-synthetic rubber with barium sulphate for the thin line previously in use. After initial tests with prototypes made by the Bauer & Black Company, the hospital was convinced of the advantages of using the new pro­ duct over the one previously in use* The Bauer & Black Company discontinued the production of the line radiopaque sponge and 24

After successful tests at the Massachusetts General

Hospital the Bauer and Black Company made It a staple item in its sponge line and marketed it nationally. Other examples of product development by industry and at the hospital level may be cited in the pharmaceutical and radiotherapy fields.

It Is Important to observe that new product developments which have directly affected the composition and growth of the hospital market have been made possible through the earnest cooperation of both hospitals and industry. Through mutual need and cooperation between hospitals and Industry, the scope of the hospital market is being constantly enlarged.

3. The Human F a c to r

It is not possible to limit the human factor to the role the purchasing agent plays in the hospital market. The human factor is equally Important In the research laboratory

as well as in the operating room* The researcher and the

surgeon affect the supply side of the hospital market in terms

of new product development. The purchasing agent determines products to be purchased thus affecting the demand side of the

hospital market.

(12 cont1d.) concentrated their production and promotion on the new sponge, The inherent advantages In the new radiopaque sponge insured its entry on the hospital scene. 95

By lim itation of the subject of this dissertation an analysis will be made of what actions, if any, the purchasing agent takes which might affect the hospital market. What actions he takes depend to a large extent on his abilities and the position he occupies within the hospital hierarchy. The hospital purchasing agent is the contact point be-* tween the hospital and the business world. Often the image of a hospital purchasing agent is blurred beyond recognition, A general belief seems to be that he is "an individual with limited educational background and negligible business experience

, , . who is entrusted with the expenditure of 20 per cent to 13 25 per cent of the hospital expense dollar."

With the exception of salaries, the hospital purchasing agent 1 b entrusted with the largest dollar expenditure in the hospital budget. In most hospitals, purchasing agents are given additional responsibility for storing and warehousing operations. Purchasing agents differ in stature and responsibility from hospital to hospital. This Is not due to differences between the hospitals involved, but is due to differences among different hospital agents In terms of their specific abilities. The effect of the hospital purchasing agent on the hospital market depends largely on his effectiveness to act as

■^E. A. Behrman, "A Plea For Competence," Hospital Progress, October, i 9 6 0 , No. 10, p , 5 3 , 2 6 a channel for both hospital and Industry, He should be able to translate hospital needs to Industry while keeping the hospital staff Informed about developments of new products which have application within the hospital. In so doing, his actions may affect both the supply and demand sides of the hospital market.

C, SUMMARY

The population factor directly reflects Itself In the number of hospital admissions and thereby affects the volume of

hospital business. The composition of the hospital market and its growth is determined to a large extent by developments in

research and advances in medical technology. Both industry and

hospitals play a significant role in the constant search for

improved products and techniques for patient care. The tools

which are at the disposal of the purchasing agent and the

unique position which he enjoys, as a bridge between the hospi­

tal and the business world, helps to strengthen the existing

ties based on mutual need and benefit.

The effect of each factor cannot be accurately assessed

independently of others. A rise in the standard of living

based on an Increase In national Income, cyclical fluctuations,

a national epidemic or a breakthrough In medical technology,

all have a bearing on the hospital market. What has been

attempted here Is an analysis of those factors pertaining to

the procurement field which may affect the demand and supply for

hospital products. 27 CHAPTER I I I

GROWTH AND DEVELOPMENT OF GROUP

PROCUREMENT AGENCIES Page

A* Objectives of Group Procurement ...... • • • * • 28

B. Application of Group Procurement Principles 0u t 3lde the Hospital Field ...... * * . 30

1, In city and state government...... 31

2, In the federal government ...... 34

3* In Industry ...... 33

4. In retailing ...... 37

5. In agriculture...... 38 C. Differences Among Group Procurement Agencies In the Hospital Field ...... 40

1. Formation and Organization ...... 42

2. Financing Operations...... 44

3. S u p p o r t ...... 47

4. Leadership ...... 32

D. Strengths and Weaknesses of Present Hospital Group Procurement Agencies from the Viewpoints of:. . . 54

1, The purchasing ag en t ...... 55

2. The hospital administrator...... 59

3. The hospital distributor ...... 6l

4, The group procurement agency ...... 62

E . Summary ...... 66 CHAPTER I I I

GROWTH AND DEVELOPMENT OP GROUP

PROCUREMENT AGENCIES

A. OBJECTIVES OP GROUP PROCUREMENT

Group procurement may be defined as the pooling of the resources of separate institutions by voluntary action to

secure the advantages of purchasing In bulk. Essentially, it is a device, whereby the purchase orders of many activities can be combined by a central activity and, thereby acquire, potentially, a larger quantity discount because of the consolidated volume. I am convinced that is the primary reason for the formation of these agencieB although other benefits can accrue their members.1

In the hospital field, group procurement attempts to

promote a twoffild objective: (l) to apply the principles of

scientific procurement to hospital purchasing and (2) to offer

a medium, through which member hospitals may combine individual

requirements in order to buy on a bulk basis. To apply the principles of scientific procurement Is a

complex matter that few hospitals on their own or through an

agency have been successful in achieving. Scientific procure­

ment has involved the use of "the proper quality in the proper

quantities at the proper times from the proper suppliers with

^ohn J. Brennan, Jr., Purchasing for Hospitals, Doctoral D issertation, George P. Baker roundat ion, "Harvard university, 1953, P. 27.

28 2y p proper deliveries at a proper price.1

Proper quality is generally difficult to underatand.

Professor H, G. Hodges defines It as "that quality which is necessary for accomplishing the purpose for which the Item is bought." By the same token proper price Is the fair value for

the quality purchased. In group procurement, proper price Is a function of both quality and quantity.

Very few hospitals in the United States presently have the facilities to analyze the functional usage of a product and determine its quallty-price relationship. Even then, few hospitals are in a position to exert effective pressure to

secure the lowest possible price for the quality received. This

is why group procurement agencies realize, that in order to progress they have to be both quality and price conscious. The advantages which group procurement agencies ascribe

to being able to buy In bulk in order to secure reduction in

cost is disputed in some circles. It has usually been assumed that the size of the order is the one thing in which the manufacturer is interested • . • there are two fallacies in this assumption, both of which are part why (group procure­ ment agencies) . . . are not as successful as those who participate in them generally assume they will be:

First, a continually increasing volume does not mean a continually decreasing cost. Second, the mere placing

2 H, G. Hodges, Procurement. Harper & Brothers Publishers, New York, 19^1, p. 9. 3Ibld. 30

of a large order does not mean that more of the company's product la being used In those Institutions than had small orders been received separately.4

Prom a study of regional and national group procurement agencies. It may be summarized that the objectives of such agencies sire as follows: (l) to achieve lower purchase cost through the use of large volume orders, (2) to promote more competitive pricing by suppliers as an additional source of supply, and (3) to provide Its membership with facilities for research analysis and keep them informed of latest developments in the fields of their interest.

Group procurement agencies may not succeed in achieving all stated objectives. The cause often lies beyond the scope of the agency and relates to the type of support that the membership extends to the agency. The degree of success a group procurement agency attains varies with its ability to achieve the major part of these specified objectives,

B , APPLICATION OF GROUP PROCUREMENT PRINCIPLES OUTSIDE THE HOSPITAL FIELD

Group procurement has been defined as combining needs to achieve the advantages of purchasing in bulk. The applica­ tion of group procurement principles are not lim ited to the

^E. F. MItte, Purchasing Policies and Practices of Chain Drug Companies, University or "nicago”Press, Chicago, ITT., 1933# p. 35” (author1 a b ra c k e ts ) 31 hospital field* In industry, agriculture, government and retailing, these principles find expression through the centralization of the purchasing function* Centralization achieves the economy of group procurement, especially where many units are Involved such as in the Federal Government and large Industrial concerns. Though this study is primarily concerned with the hospital field, it will Illustrate from other fields measures which have been adopted to combine procurement needs* This attempt Is being made to Illustrate the university of appli­ cation of group procurement principles*

1. In City and State Governments

Since the early 1930 ' b, combined city procurement in the

Mid-west has been steadily on the rise* Surveys conducted by

Dr. C, T. Hardwick show that if the momentum continues, the effect on governmental buying by city and states may be sub-

s t a n t i a l * There is a negligible amount of interest in group procurement application by Midwestern states or municipal leagues

(Table II) which is due to legal and political obstacles. In some areas, the monetary lim its for formal bidding vary.

5C. T, Hardwick, "Cooperative Buying On The Rise," Pur­ chasing, January 19, 1959, p. 90. Dr. Hardwick is Professor of dusiness Administration and Director, Institute of Business Services, University of Detroit, 32 Political consideration such as giving local vendors preference add other complications.

In city procurement, three out of five city procurement officers in the Midwest are buying on a group basis (Table III),

The reasons are generally economy and standardization of quality.

For small cities,group procurement permits city governments to use the services of professional staff which they are unable to afford on their own. Group procurement helps small governmental units to plan ahead through the process of commitment of yearly needs in advance. This prevents a continual state of emergency and forced procurement at non-desirable terms due to the urgency o f n e e d .

TABLE II

FREQUENCY OF GROUP PROCUREMENT PRACTICES IN CITIES AND STATES

Class of Respondent Number o f R e p lie s Yes No T o ta l

State Purchasing Agents 2 15 17 State Municipal League Officers 2 26 28

City Purchasing O fficials 20 13 33

T o ta l 2S 3* 7B

Source: Purchasing, January 19, 1959, p. 90. 33 TABLE I I I

FUTURE OF GROUP PROCUREMENT PRACTICES IN CITIES AND STATES

Prediction for Next Number of Replies Five Years S tate C iW m unicipal ToT&l P.A. P.A. Leagues

W ill decrease in volume 0 1 0 1 Will remain about the same 2 10 5 17 W ill increase in volume 9 16 3 28 No opinion 1 0 0 1 Total 12 27 a ii7

Source: Purchasing, January 19, 1959, P. 91 a

As far back aa 1915, the city of New York practiced

centralized procurement. Such a practice permitted them to cut

the coat of supplies, to revise standards and "minimize over­

heads due to a reduction in the cost and labor of preparing

proposals and contracts,"^ The report points out that larger quantities and fewer deliveries have made proposals more

attractive to the trade. The other agencies of the city govern­

ment were able to concentrate more fully on their work once the

responsibility for procurement has been removed. Almost half a century later much of the Batne s till prevails.

Cooperative Centralized Purchasing in the City of New York," A special report by the Mayor ' b Central Purchasing Committee, 1915, p. 14. 3^ 2. In the Federal Government

The experience of the Federal Government with the application of group procurement principles is through the centralization of the purchasing function. An Illustration of the combined procurement approach la that of General Services

Administration which purchases centrally for all its units. The reasons that the application of group procurement principles have found favor stem from the advantages attributed to group procurement. These are more pronounced with reference to the Federal Government in view of the very large volume involved. It is necessary to point out that the Federal Govern­ ment does not practice group procurement per se. There is evidence of some application of group procurement principles such as the consolidation of purchases by large governmental units to achieve the economies of purchasing in bulk.

There are objections to the consolidation and centra­ lization of procurement activities by large units of the Federal

Government, The most Important objection arises from the fact that "a technician will seldom recognize purchasing as an art or a science in itself—a group of technicians will always demur

to having anyone else buylthe materials with which they have 7 to work," Other Important objections are voiced against combining

the procurement needs of the large federal units. There is fear

it will seriously limit competition since the volume Involved

7 R. J. Montleth and A, S. Burack, Methods and Procedures in F ed eral P urchasing, Bruce Humphries, Boston, 1333# p. 2 2 , 35 would be far beyond the capacity of many a small manufacturer.

There is no certainty that the increased size of the new pro­ curement agency created will bring with it a higher degree of efficiency. There is danger that in all probability, there will be insufficient flexibility to withstand emergencies.

The major part of the Federal budget is spent on defense. Defense expenditure subject to time and technical limitations are consolidated for greater effectivenesa. The policies of streamlining and standardization which the present

S ecretary of Defense, R obert S* McNamara, has adopted seem to

indicate further strengthening of the application of group

procurement principles by the Federal Government.

3. In Industry

Industrial procurement ia governed by profit considera­

tions. The efficiency with which a procurement program is

carried may make the difference between profit earned or loss

sustained. As such it is a field of prime interest to top

management. Generally, the field of industrial procurement

is staffed with specialized personnel of high caliber.

Though the industrial market cannot be accurately

characterized as engaging in group procurement practices, it

is possible to cite examples of centralized procurement by

large industrial corporations which are based on group procure- 0 ment principles similar to those practiced by hospitals.

Q By that is meant that no two or more separate companies within the same Industry engage in a Joint procurement effort. This excludes subsidiaries, holding companies and other forms of chain operations. 36

An Illustration of the application of the group approach is that

of the Ford Motor Company whose main purchasing office "has the

functional responsibility for all purchasing in the company.

It is responsible for those purchases made for all divisions."^

The purchases undertaken by the main purchasing office

located In Dearborn cover facilities; Including machineryj

equipment, tools, construction, and raw m aterials.

More specifically, these include:10

a. Machinery of all major categories, b. Equipment for all major new and replacement

installation. c. Tools, All major tooling purchased for use in

the company plants. d. Construction. All major construction for new

and modernized plants. e. Bulk raw materials. These consist of Iron ore,

coal, limestone, pig Iron and metallic scrap. f. Steel and other metals. Steel in sheets, strips,

rods, plus a variety of ferrous and non-ferrous metals.

The grouping of the procurement of equipment and raw

materials, by the Ford Motor Company, into one authority did not obviate the need for divisional purchasing offices.

^"Partners in Quality." A Supplier1s Guide to Purchas­ ing, Ford Motor Company, Dearborn, lybl, p. 21.

10Ib id * 37

Generally, such office b engage in the procurement of experi­ mental m aterials and non-production supplies.

In Industry, In the hospital field and in the retail

field, the presence of an effective and successful group procurement organization does not eliminate the need to maintain

a procurement organization within each separate unit.

4. In Retailing11

An illustration of group procurement application in the

retail field is the resident buying office. The resident

buying office has been defined as Man organization, Independent o r store owned,which is Bet up to represent a group of non-com - 12 petlng stores for specific advantages." A resident buying office may be Independent or store

owned. There are certain resident offices who themselves own

and control stores. Resident buying offices have long emerged

from the function of juat placing orders. They have expanded

to include many important services such as market research, fashion trends, group buys, a. Store Af£ lllated_Buyln£ Of flee s, Some buying

offices purchase only for one store as is the case with Nelman

Marcus of Dallas, Texae. others purchase for a group of stores.

^ I t should be noted that retailing involves purchase for resale which is a basic difference from institutional or indus­ trial procurement. The use of retailing here Illustrates the application of group procurement principles in allied fields. 12C.a . Gamer, "The Contribution of the Resident Buyer," The Buyer«s Manual. N.R.DjO.A.publicatlon, 1957, P. 301. 38 If the stores are members of a chain, such as The Allied

Purchasing Corporation, the resident buying office is a cen­

tralized procurement office* Resident buying offices of this nature attempt to secure the advantages of group procurement

through the combination of their purchasing needs.

b. Inde£endent bujjring_offices^ Group procurement

application within the retail field takes place when a number

of separate stores purchase Jointly through a buying office.

Buying office b such aB the "Mutual Buying Syndicate"

and "Independent Retailers* Syndicate" act as independent

resident offices. These are the largest type of buying offices

where the resident office operates as a consultant to the

stores affiliated with it. Individual stores and chalnB seek

membership. It is possible to arrange sometimes "for some or

all of the members stores to participate in a group buy. This

Is a purchase In which a number of stores participate, so that

by underwriting a large order, they can have merchandise con­

fined to them in their individual communities. They can also

secure a price reflecting the economies made possible to the IQ manufacturer by large scale production and selling." J

To the extent a resident buying office partakes in

such actions, it is directly involved in group procurement,

5 . In Agriculture

Farmers who have Joined togethe r to sell their products

^ Ibld,, p. 3 0 9 39 have found that the organization which they have established to render a sale service Is capable also of a procurement service. These associations are known as "marketing coopera­ t i v e s . "

The procurement service which "marketing cooperatives1' render their members Include both equipment and supplies.

On the equipment side, It Is often the purchase of one piece of equipment which can be used cooperatively by the group and which no farmer could afford on his own. The supplies procured, generally, are common use Items such as fertilizers, seeds, petroleum products and paints. The Intent here, as In all group buying efforts. Is to purchase In bulk to reduce cost and prices. In the agricultural field, there are associations out­ side "marketing cooperatives" which are Involved In group procurement. "In many cases farmers belong to associations established solely for buying purposes. The Farm Bureau

Cooperative Association, Inc., with headquarters at Columbus,

Ohio, is a purchasing organization for nearly two hundred thousand farm ers."1^

In review it is noted that there Is ample evidence of the application of group procurement principles outside the hospital field. The objectives of group procurement, namely

V. Mather and J. L. Search, Handbook on Major Regional Farm Supply Cooperatives, 1953 and l^sff.^arm credit Administration, Washington, D. C., 1$55, p. 82. 40

savings to the members through bulk purchases, do not differ

from one field to another.

The functions of the organizations which have been set up in the different fields to render a group procurement

service have long since changed. It was initially meant to

combine members' orders only. They are presently becoming

increasingly active in other areas, such as market analysis

and market information. This change reflects itself also in

the hospital field where the more successful procurement group

agencies are those which offer these additional services*

C, DIFFERENCES AMONG GROUP PROCUREMENT AGENCIES

IN THE HOSPITAL FIE ID

Group procurement agencies illustrate only' one side

of the many aspects of cooperative work in the hospital field.

The organizations which coordinate the work of the different

hospitals are the hospital associations and their affiliated

councils, operative in each state.

Group action In the hospital procurement field is already past the half century mark. It dates back to 1910 which

marks the establishment of the Hospital Bureau* Since that

date a number of organizations have attempted to follow along

the same lines Bet by the Hospital Bureau, None has done

as successfully. At present the Hospital Bureau is the

closest, in the voluntary Hospital field, to a national hi 15 organization in the group procurement field. It has about

350 affiliated hospitals spanning twenty-seven states.

Group procurement associations on a more restricted basis have been established over the past half century. These, by and large, have followed the pattern of the hospital bureau on a regional basis. Today there are slx1^ major nonreliglouBly affiliated organizations, which operate with varying degrees of 1 7 success in the hospital procurement.

The regional organizations have been formed around hospital councils, which in the majority of the cases have affili­ ated with the Hospital Bureau, Inc, in New York. Out of the six major group procurement councils, the two notable exceptions to affiliation with the Hospital Bureau, are the Philadelphia

Hospital Council and the Hospital Council of Southwestern

Michigan. As the Hospital Bureau becomes the dominant figure in the field, the possibility of future affiliation cannot be r u le d o u t .

^5At present the Hospital Bureau has affiliated hospitals i n 2 7 states and the D istrict of Columbia. Geographically the pattern of concentration is heavy on the East coast with lighter concentration in the Midwest and Southeast. There are no hospi­ tals on the West coast which are affiliated with the Hospital Bureau, Inc, whose headquarters are in New York. ^-^The s i x m ajo r gro u p p ro cu re m en t a g e n c ie s , r e f e r r e d to above, listed here in terms of the oldest in number of years of operation ares (l) The Cleveland Hosnital Counoil, (3) The Rochester Regional Hospital Council, (3 ) The Philadelphia Hospital Council, (4) The Hospital Council of Southwestern Michigan, (5) The Hospital Purchasing Corp. of New England, (6) The Hospital Council of Western Pennsylvania. 17some group procurement agencies have been established as part of religious groups, such as part of the Federation of k2

The close similarity of the regional organisations and the national oneB, represented by the Hospital Bureau, makes any separate discussion of each organization an unnecessary repetition of similar characteristics.

Important differences s till exist which explain varying degrees of support and success. Such differentiations become more meaningful through a comparative analysis.

There are four main areas where differences among group procurement agencies are significant. These are in the areas

of (l) formation and organization, (■Jfinancing operations,

(3 ) support and (^) leadership.

1. Formation And Organization The success and future of a group procurement agency

can often be traced to the method whereby the agency was

established. It is important to note that unless the full

cooperation of three major segments of the hospital field is

secured in the formation period, there is little hope for suc­

cess. The three segments are the administrators, the trustees

and the purchasing agents. The cooperation of these three

groups is essential. It is necessary that each group be repre­

sented on the board designed to put into effect the group

procurement program. The type of organization to be created

(17 c o n t ’d) Protestant Welfare Agencies, the Catholic Diocese of New York, or the Associated Jewish Philanthropies. **3 should aim at securing the utmost cooperation from the three groups Involved.

The Hospital Bureau was founded In 1909* Its board consisted exclusively of hospital administrators. Thalr advice was constantly sought from the Inception of the original plan to the subsequent organization. Thus the cooperation of the key figure in the hospital picture was secured and maintained. The Hospital Purchasing Corporation Illustrates a different approach. It was organized In 1952 by the ten leading members of boards of trustees of the major hospitals In New England. A feasibility study was undertaken by six hospitals in the area to determine whether there were any savings in group procurement. Throughout these Initial Investigations t the hospital administrators or the purchasing agents as a group were not sought for advice. The anticipated result was antagonism and opposition. With a potential of over a million dollars of purchase volume by the member hospitals, the total volume of purchases through the agency during its first year of operation did not exceed $ 5 0 * 0 0 0 .

The Philadelphia Hospital Council organized in 19^7 faced similar problems to those of Hospital Purchasing Corporation. The founding members who in the majority were trustees gave the group procurement concept lip service. The good relationship which existed between the hospital council and the administrators minimized the opposition and permitted a cooperative attitude to develop. For the other agenoiee the history of their formation further stresses the importance of maintaining the cooperation of all groups within the hospital field. This necessary cooperation may he secured through active participation In the establishment and organization of the group procurement agency,

2. Financing Operations

The method and type of financing is Important In that it affects the decision of a hospital to affiliate itself with a group procurement agency. If the charges are reasonable and

apply in fairness to large and small hospitals, there will be

an increase in membership and a continuous rate of growth.

Since group procurement aims mainly at effecting savings through

bulk purchase, the larger the membership it can enlist, the

better its changes of success. There are, however, limitations

to Increased membership, In terms of increased costs, due to a

wider geographical distribution which might offset possible

s a v in g s . When the Hospital Bureau first started, the membership

fee wa3 $1250 per year. This rate only applied to hospitals In

New York area where the Bureau was located. Hospitals outside

of metropolitan New York were given a reduction in the membership

fee of 50 per cent. At the beginning, the out-of-town hospitals

were not given voting rights. By 1920 the rates for all hospitals

were changed and a new base was developed as follow s:

Hospital Bureau records, Dues per year Hospital expense (excludes ______payroll) $120.00 $100,000 and less

1 8 0 .0 0 100,000 - 200,000

2 4 0 .0 0 200,000 - 300,000

3 0 0 .0 0 3 0 0 ,0 0 0 - 500,000

3 6 0 ,0 0 5 0 0 ,0 0 0 and above

The new dues were further reduced by the amount of patronage refunds to each member. Patronage refunds are based on total purchases by each member from the agency.

Another source of financing operations is from the markup on purchases which ranges from 2 per cent to 10 per cent depending on the items procured. An attempt is being made at present to set the percentage of markup at a specified figure.

The Philadelphia Hospital Council was financed by the member hospitals in the amount of $ 5 0 ,0 0 0 and at 2 per cent interest. As is the caBe with the Hospital Bureau, annual dues are based on hospital expenses, excluding payroll. The maximum

$100 and th e minimum $25. A nother common f e a tu r e w ith th e Hospital Bureau is that of patronage refunds. Markup on pur­ chases by member hospitals average 4 per cent.

A different approach from the above was followed by the

Hospital Purchasing Corporation of New England. It was financed Jointly by the Unltdd Community Services and the member hospitals.

Membership dues vary among participating and associate members.

For participating members annual dues are based on total annual 46 patient days, Dues are set by a decision of the board of directors and have been roughly equivalent to #0 ,02 per annual patient day, For associate members, annual dues range from a minimum of $50 to a maximum of $500 depending on bed size.

Annual dues constitute the only source of revenue for the Hos­ pital Purchasing Corporation since they charge no markup on p u r c h a s e s ,

The Cleveland Elospital Council has very nominal dues.

The major share of the financing burden is borne by its

council, "Of the Cleveland Hospital Council's budget of

$251,713 in 1959, $102,000 was received from the United Appeal

of Greater Cleveland."1® Markup on purchases average 3 per cent.

The Rochester Regional Council and the Hospital Council

of Western Pennsylvania, who are Hospital Bureau members, have

followed the pattern of the Bureau in financiang their group

procurement operations. The exception has been in terms of

patronage refunds. An analysis of the more successful groups

such as the Cleveland Hospital Council and the Hospital Bureau

seems to indicate that there is positive correlation between

low annual dues and large membership. This correlation is

illustrated in the amount of support, through purchases, by the

member hospitals from the agency,

19"Cleveland Hospital Council's Purchasing department Cuts Cost," The Midwest Purchasing Agent, October 1960, p# 54. 47

3* Support The major aim of a group procurement agency is to acquire a large and loyal membership* A large membership la important to the extent to which the greater size reflects itself in increased purchases. The rate of growth of a procurement agency is not primarily determined by the number of member hospitals, but more important by the volume of purchases transacted with the agency. To secure the support and continued loyalty of a hospital by a group agency is a difficult task* Sometimes due to ignorance of the real savings which might accrue, the group agency is given only token support, More often it is a clash of personalities between the hospital staff and the agency personnel which limits the letter's support by the member hospitals. In certain instances, membership In the group agency has been opposed by hospital personnel with strong

ties to local suppliers.

The Hospital Bureau started with fourteen members in

1910. As of January 1951> the Bureau counts "three hundred and

forty hospitals with a bed capacity of 77,660 . " 20 This increase

has not been accidental* Membership in the Bureau is actively

encouraged by field representatives who call on prospective

hospitals, outlining to them Bureau membership advantages.

Field representatives not only seek new membership but cultivate

20 Membership and Council Relations Committee Report "Bureau Market News," Vol. VIII, No. 2, February-March, 1 9 6 1 , p , l . 48 the goodwill of existing members through constant visits. The importance of field representatives is that they afford the agency the opportunity to expand on firm foundations. Problems are dealt with as they arise or are brought to the attention of a group of hospitals at regional meetings.

Other factors which have contributed to the growth and

increasing support of the Hospital Bureau are the research

facilities of the Bureau and their publications. By publish­

ing yearly a series of research reports which are circulated

to members, they have rendered important services to their

affiliated hospitals. The Bureau's three publications contain

timely hints about new applications for existing products.21

This is in addition to comparisons of values and prices of

new products as they appear on the market. The volume of pro­

curement through the Bureau increased many fold, "It stood at

$40,000 in 1910 as compared to about $6,000,000 in 196l."22

Ten years ago total membership amounted "to 264 hospitals which

accounts for a volume of business transacted of slightly over $3,000,000."23

21The Bureau Market News, The Bureau Dietary News, The Bureau Research News.

22From the Financial Report of the treasurer, delivered at the Annual Meeting of Members, March, 2, 1961, Sheraton-East Hotel, New York, N. Y,

23Hospltal Bureau Annual Report, February 27, 195&j p. 1 1 . The Hospital Purchasing Corporation was originated by ten members. In the initial years of its formation, little support was extended to the agency. The Massachusetts General

Hospital, one of the largest members, contributed about $9*000 oh to the agency without placing a single order In the first year.

The pattern of relationship between the member hospitals and the agency has changed considerably since 1952 and with it the volume of purchases through the agency. "In seven yearB the annual dollar volume of group purchases has risen from approxi­ mately $200,000 to $2.3 million in i 960 and the membership has Increased from IQ to 35 hospitals with a total of 6,445 b e d s."2^

The growth and Increased support which the Hospital Purchasing

Corporation enjoys presently has been due, in large measure, to

the greater degree of participation of member hospitals In the

administration of the agency.

The Philadelphia Hospital Council has enjoyed a steady

rate of growth since It was established in 1949. The total

volume in the first year was a little over $ 3 0 0 ,0 0 0 as compared

to about $3*000,000 at present.2^ The agency has enjoyed good relationship with its member hospitals, mainly due to the

efforts of its general manager. The role and importance of an

oil c^The reasons have been expanded upon under the section dealing with formation and organization.

2 ^ P a r k e r p. Perry* "Group Purchasing— An Appraisal of Seven Years," Hospitals, November 6 , i 960 , p . 1,

2^Agency Estimate for 1 96 1 . 50 efficient general manager cannot be too strongly emphasized.

This subject is treated at greater length under the section dealing with personnel.

The Cleveland Hospital Council is one of the oldest

and largest group procurement agencies in the country. The

Council was established in 1916 but did not develop a procure­ ment service until 1938. At that time twenty member hospitals

formed the nucleus of the group procurement agency with an

average bed capacity of 225 and a procurement volume of about

$500,000. By 1955 "the total dollar volume of the Council

purchasing service became approximately $4 m illion. Between

1943 and 1953 statistics show an Increase of slightly over

one per cent during the ten year period. Between 1953 and

1954 there was an increase of 13 per cent in volume. This marked Increase is not due entirely to purchases of capital

equipment, nor to Increased commodity prices. The records

prove it to be an increase in degree of participation by

member hospitals and institutions,"2^

F o r i 9 6 0 , the Cleveland Hospital Council acted In a

group procurement capacity for 67 Cleveland Red Feather hospi­

tals and other Red Feather agencies. The Councilfs "purchasing department bought $5,200,000 worth of supplies In 1959 and expects to have procured approximately $6,000,000 worth by the

27”Group P u rc h asin g As I Have Known I t ' 1 e d ite d by C h r is ­ tian C. Lee, Southern Hospitals, August 1956, p. 46. 5 1 28 end of this year,1'

The cost of participation In the procurement service of the Cleveland Hospital Council has been estimated at three- fourths of one per cent of the member hospital^ supply budget.2^

' Apart from the low cost of participation, the Cleveland

Hospital Council has two main characteristics which differentiate it from other councils. The percentage of procurement from the agency by the member hospitals often ranges between 40 per c e n t to 50 per cent of the total procurement volume of the member hospitals. This is a very high rate compared to other

agencies. There is very little lim itation on the quantities,

the types of items or frequency of procurement by the member

hospitals from the agency. Small orders of non-standardlzed products are not discouraged. No hospital is pressurized into

buying from the agency. This policy is possible due to the fact that the Agency

is subsidized by the community chest. The Cleveland Council also operates the distribution of the community funds to its member

h o s p i t a l s . The Hospital Council of Western Pennsylvania is the latest addition to the group procurement field. It was organized in 1956 and is still undergoing growing pains. It has at p r e s e n t 67 members and a group procurement volume of a little

^"Cleveland Hospital Counoil!s Purchasing Department Cuts Costs," The Midwest Purchasing Agent, October i 9 6 0 , p . 54, 29 C. C. Lee, loc. clt. 52 over $1,000,000. - I t i s a member of the H o sp ita l Bureau, and 1b actively supporting it. Revenue to the Group

Procurement Agency comes through the markup applied to the in­ voices estimated at less than 2 per cen t.

The main items procured by the Agency have been canned foods, X-ray films and supplies. One-third of their total

procurement volume is done through the Hospital Bureau.

4. Leadership One of the most decisive factors, In determining the

success of a group procurement agency, is the quality of

leadership It possesses. This does not lessen the importance

of other factors such as low charges, field representation and

joint participation by hospitals in the formation of the agency.

A capable and well-liked agency director and staff

greatly increase the chances of a group procurement agency for

success. Some hospitals may refuse to Join a group agency even

when confronted with the most logical arguments. The responsi­

bility of the director is not only to enlist their support but

to maintain and Increase it, throughout their years of member­ ship. It is a delicate and difficult assignment. It needs the

combination of administrative skill and a high degree of diplomacy*

One of the main reasons the Hospital Bureau enjoys its

®^The figure refers to the year 1960-1961, 5 3 leadership position In the procurement field has been due to the pioneering effort of William A. Qately. Prom 1931 to 1959 he was Executive Director of the Bureau. H1 b ability is widely recognized in hospital circles.

Some of the difficulties which the Hospital Purchasing

Corporation encountered in its early years were due to the opposition of certain administrators and buyers to the hiring of an executive director for the agency with no hospital experi­

ence. ThlB opposition cost the Agency important support in its early years and seriously limited its growth and development.

The situation cleared considerably in later years as the member hospitals assumed an increasing degree of responsibility

in running the Agency. The success and continued growth of the Cleveland

Hospital Council can be attributed in large measure to the

executive director of the Agency who is considered as one of the

founders of the group procurement movement.

In conclusion it is best to review some of the differ­

ences referred to in all areas, which have important bearing

on the success or failure of group procurement agencies.

1. It is important that the cooperation of the

trustees, the hospital administrators and purchasing

agents be secured prior to the formation of an agency.

2. The annual dues should be related to hospital

expense, exclusive of payroll, which permit both small 5*

and large hospitals to participate on equitable basiB. 3, The use of field representation, greatly in­

creases the group procurement agency ra chances for

success. It Increases membership, maintains good relations,

and answers objections by hospital personnel.

4, The selection of a director who is administra­

tively capable and possesses leadership qualities

which is of prime Importance to the success of any group

procurement agency. Another Important qualification for

any agency director is a long and respected experience

in the hospital field. This minimizes opposition by

hospital personnel and reduces pitfalls in the formative

stage which may have lasting effect in terms of support

and growth of the agency.

D. STRENGTHS AND WEAKNESSES OP PRESENT

HOSPITAL PROCUREMENT AGENCIES

Group procurement has been described as a hospital's best opportunity to cut operating cost while others have called it Ta snare and a delusion,' a restriction on freedom of choice, a threat to hospital standards and a cause of dissatisfaction among doctors, nurses and department h e a d s . 31

Hospital Group Procurement is the primary concern of hospitals. It is also of major interest to suppliers and manufacturers. Distributors of hospital supplies and

3l"What Are the Pacts About Group Purchasing" - The Modem Hospital, April 7, vol. 8, No, 4, p. 63. * 55 equipment regard hospital group procurement agencies as a source of competition. Manufacturers are gradually reversing their traditional position in favor of greater cooperation with group procurement agencies. This is due In large measure, to the savings in the costs of handling and record keeping which are eliminated by the large quantity orders of group procure­ ment agencies. Prompt payment by the group agency has acted as an added incentive for further cooperation.

To assess the value of present group procurement agencies, it is necessary to examine critically their contributions and shortcomings. Such assessment, would necessarily take into consideration all the viewpoints of those directly involved.

They Include those of the manufacturer, the adm inistrator, the purchasing agent and the group agency director. Each point of view Is treated separately, in order to probe more

fully into the areas of strength and weakness of present hospi­

tal group procurement agencies.

1. From the Purchasing Agent' s Point of View

Purchasing agents hold a key position in the success of any group procurement effort. On the subject of group procurement there Is wide divergence of opinion. To certain

purchasing agents, group procurement represents a personal

threat. They feel that a successful group procurement program

obviates the need for purchasing agents; that at best they are

reduced to the mere function of order placers. There is serious 5 6 question, in their mind, whether group procurement achieves any real cost savings.

In too many instances, the lower price may be only an illusionary reduction of expenses for supplies. One of the most important questions which arises is: Are we being supplied with exactly what we are asking for, or must we accept a substi­ tute because it is not available through group s o u r c e s ? ’ ^ The question whether group procurement w ill replace the

hospital purchasing agent may be answered through an analysis

of the functions of a purchasing agent. These may be stated

as followsi 1* To purchase that quality which would accomplish

the purpose for which the item Is bought, at the lowest

price and at the right time. This involves an analysis

of the market to determine best prices from dependable

sources consistent with quality and service. It requires

constant study of changing market conditions. It further

Involves the ability to determine the quality and applica­

bility of a multitude of new hospital products through

testing and research. This may result In the suggestion

of substitute products where applicable.

2, To control the distribution and method of use of

all items procured.

Ludwig Brackebusch, "The Pro and Con of Cooperative Buying," Southern Hospitals. May 1957, p. 50* Mr, Brackebusch is purchasing agent, St. Elizabeth's Hospital, Elizabeth, New J e r s e y . 57 3. To regularly improve, the inventory control

system, in order to prevent running out of strategic

items, and to maximize the use of his warehousing

facilities.

4. To keep abreast of new developments in the

hospital field through interviews with salesmen, keep­

ing up to date with hospital literature and through

meetings with colleagues in the field of hospital

procurement.

5. To be constantly on the lookout for new methods

to increase hospital efficiency and reduce operating

c o s t. A number of questions may be raised with reference to the functions of the hospital purchasing agent. How many of these functions are presently being performed by the hospital purchasing agents? Can any of these functions be better performed for the hospital by the group procurement agency?

In that eventuality, will that lead to a decreased status and eventual replacement of the hospital purchasing agent? Very few purchasing agents at present perform all these

functions. To determine quallty-price relationship especially for new products, it requires the technical skill of a full

time researcher. To buy at the best price possible, even for

established products, needs the ability to Influence the manufacturer considerably. No purchasing agent, regardless of

the size or status of his hospital, has that ability to influence 50 the manufacturer to grant him substantial price reduction.

It Is possible, that large hospitals may fare much better than

small ones. Experience has shown that when these large hospi­

tals Join in a group agency, they find that their costs of

supplies can be further reduced.

The ability to negotiate lowest prices for hospital

supply consistent with quality, technically end economically

lies with a group agency* Does that mean that the Purchasing Agent is being relegated to the role of an order placer? Par

from it, the hospital purchasing agent freed from the routine of everyday business can rise to assume his responsibilities

as an executive in the hospital hierarchy. This involves

analyzing use rates, coordinating Inventory with purchasing,

cooperating with other departments in order to achieve a

greater degree of standardization.

These are the areas in which a purchasing agent can be

most effective and where real savings may be achieved for the

h o s p i t a l . What is being suggested here is not a complete delegation

of all procurement to the group agency. In rare Instances do

you presently find any hospital buying over 70 per cent of their total requirements from a group procurement agency.

11 No hospital will ever make all of its purchases through a

group source; but more time w ill be available to spend on rou­

tine other purchases, thus allowing for a better Job on these 59 ite m s1. "33

To purchasing agents in favor of group procurement, group agencies offer them better prices consistent with quality.

It frees their time to do a better Job in areas such as local purchases, use rates, inventory control and standardization where they can be most effective in reducing hospital cost.

2. From the Hospital Administrator Point of View

A number of hospital administrators, especially of voluntary non-profit hospitals, look to local distributors for generous contributions. They fear that if contact with the local supplier is suspended, because of dealings with the group agency, that contributions will cease to be forthcoming. ThiB argument raises the question whether reciprocity is an accep­ table basis for hoBpital procurement. From the hospital view­ point, do the contributions of the local suppliers offset the savings which accrue from Joining a group procurement agency? If not, the hospital administrator may not be acting In the best interest of his hospital. Hospital administrators of small hospitals, sometimes charge that in dealing with the agency, they are forced to buy larger quantities than they can afford. This is due to limita­ tions, as to minimum acceptable orders, imposed by the group

33S. E. Holland, "Is Group Purchasing Practical," Hospital Management, November 1959 * P* 110. Mr. Akron la Pur­ chasing Agent7 Akron General Hospital, Akron, Ohio. 6 0 ag en cy .

In essence, this is true. It should not be looked upon, however, as a disadvantage to the hospital. Minimum order quantities, rarely tax the warehousing or financial ability of a hospital. It Is found that, even for a 50-bed hospital, the usage rate indicates that these minimum orders are exceeded by far. They are ordered in small lots every two weeks with the possibility of running out of important items. Under the agency minimum order quantity, the hospital is forced to plan in advance and order for longer periods.

The hospital has the freedom not to participate in any contract which imposes on him financial or administrative strain.

Some administrators of large hospitals voice the opinion that group procurement benefits the small and medium hospitals.

This Is based on the belief that after a certain quantity, discounts cease to increase. These maximum quantities are often within the reach of the large hospitals.

This is true for a limited number of Items. In food, drugs and maintenance m aterials, large hospitals receive quotations that are not improved upon by group agencies re­ gardless of volume. This is not the case with dressings, fuel, linen, X-ray films where large hospitals are making substantial savings by ordering them through group procurement agencies.

These latter items are the bulk items and constitute the major part of the hospital supply expenditure. 61

Certain administrators see group procurement as an answer to the lack of qualified purchasing agents.

Heretofore the administrator (of the small hospital) felt he had no one qualified for the purchasing Job and Justly so. But with the advent of group purchasing this need no longer be the caBe. The group buying agency has qualified buyers who can give the smaller hospital the same advantage as the larger o n e . 34

Except for certain lim itations in some fields, group procurement agencies are benefiting small and large hospitals alike. It is true that small and medium hospitals stand to

gain more by their membership than the larger hospitals.

All hospitals seem to profit on the bulk items where greater

quantity means a larger discount,

3. Prom the Distributor Point of View The hospital supply distributor views group procurement

agencies with growing anxiety. They represent an added source

o f c o m p e titio n . Among th e more a c t i v e o p p o n e n ts of group

procurement agencies, is the American Surgical Trade Association

established over fifty years ago and with about 350 dealers in

its membership. "What a buying group has to offer its members are low prices—nothing else. It sellB nothing, It carries no stock

34Benny C arlisle, "Small Hospital Economics Points to Croup Buying, Hospital Management, December 1959* 106. Mr. C arlisle is Administrator, Oklahoma General Hospital, Clinton, O klahom a. 6 2 and renders no service.'

To a supply distributor, a hospital dealing with a group procurement agency, foregoes important advantages.

Let the hospital, who is contemplating Joining a buying group, give due consideration to the sacrifice they are going to be called upon to make and what they will eventually lose. They must know that the local distributor often acts as a second warehouse for the hospital and this can materially lower inventory cost&. » . . The representatives of the local distri­ butors are consultants and counselors, eager to give advice on proper supply balances. They furnish infor­ mation on the latest and best techniques and developments, simplifying returns of merchandise and as sitting in proper product utilization. Last but not least, they will extend credit to the hospitals anc cooperate with them when these hospitals are gravely short of operating c a p i t a l .3 u

The group procurement agency is viewed as a serious source of competition. It offers no service, no stock, no credit, is late on deliveries and deals with questionable sources. In essence, if there are any savings on certain lines, they are more than counterbalanced by the sacrifices a hospital has to undergo through losing contact with his hospital distributor, Whether these charges are accurate can best be examined with reference to what group procurement agencies consider their contributions to be.

4. Prom the Group Procurement Agency Point of View

Directors of group procurement agencies feel that the

^ F r a n k m, Rhatigan, "Hospital Group Purchasing," The American Surgical Trade Association Journal, July 1961, Hr, Rhatigan is Secretary to the A.S.T.A. ^Ibid., p. 1 1 2 . 63 progress which they have achieved to date Is commendable.

Though price savings Is of prime Interest to all hospital members, they have been able to offer other advaultages as

Important. Many group agencies today have followed the lead

of the Hospital Bureau and Include,on their staff, field repre­

sentatives which act as a channel of communication between the

hospitals and the group agency.

The larger and successful agencies offer a technical

service. This often takes the form of technical reports and

research data pertaining to hospital equipment and supplies.

These reports are forwarded to all members free of charge. A

very significant advantage lies in that group agencies afford

purchasing agents and administrators a means to get together

at the annual, regional and other meetings to discuss problems

of mutual interest.

These services by the group procurement agencies are

being offered at a time, when the hospital supply distributor

is acting more and more like the group agencies when first they

were established.

There has been a tendency for hospital suppliers to keep limited stocks of some items that hospitals use and to have them shipped directly by the manufacturer to the hospital. When this situation exists, It 1 b a p p a re n t that the dealer Is not performing an essential part of a dealer1s functlon;that Is,service. Therefore It appears to the hospital that the dealer 1 b not entitled to a commission on handling merchandise ordered by the hospital. In other words, If the hospital knows what it wants. It can order from the manufacturer as easily as the dealer 64 c a n ,37

The group procurement agencies readily admit to some limitations*

This is the case with delays on servicing hospital equipment purchased from a national manufacturer located at some distance from the hospital* Most of the national manu­ facturers find it too costly to maintain local servicing arrangements. This results in the hospital having to service, on itB own, emergency repairs. For major repair, the manu­ facturer will readily service the equipment, at no cost to the h o s p ita l. In certain hospital equipment, such as X-ray machines, the ability to render immediate service is a determining factor

In the choice of source of supply.

Some group procurement agencieB believe their largest source of savings is Indirect, "It is apparently a fact that supply companies quoting direct to a hospital (in the group procurement program) seem to find a way of giving lower prices than to hospitals not participating in our (group procurement) p la n ." 38

37C. T. Loftus, "Group Purchasing Is Most Effective with Smaller Hospitals," The Modem Hospital, Vol. 88, No. 4, April 1957 1 P« 71. Mr. L o IT u b is administrator of the Mercy Hospital, Benton Harbor, Michigan. The hospital is a member of the South­ western Michigan Council which has a group procurement program since 1950. 38e . H, Fetterman, Unpublished Report to the Southwestern Michigan Hospital Council Members, "Purchasing Project, 1961", Mr, Fetterman Is Executive Secretary of the Council, 6 5

Group procurement agencies point to a traditional disadvantage in dealing with hospitals, which was eliminated by the group procurement agency. Instead of waiting literally months for payment on their invoices, manufacturers are promptly paid by the group agency, which in turn bills the hospital. Until the hospital pays the Invoice the agency is, in fact, extending credit to It. The manufacturer also gets an added bonus by having to 3ubmlt only one invoice instead of having to b ill each hospital separately.

One major charge leveled at group procurement agencies is that they reduce salesmen's Income.

In order to give (the group procurement agency) an attractive discount, the salesman of that particular company who calls upon you has not much for himself. If his firm has seen fit to make a special deal with you, that commission is reduced and the salesman gets leBS return.39

ThiB charge only refers to the percentage of salesman's commission but hi 3 income in total may increase with additional volume.

The salesman receives a somewhat higher commission on a relatively low volume before an agreement with a buying group has been effectuated. The volume potential with hundred b of hospitals is greatly augmented and the dollar return from a lower commission frequently Is

F, M, Rhatigan, "The Supplier's Viewpoint of Hospital Purchasing," p, 14. Paper submitted at a Panel Diseusslon of ths "Workshop on Hospital Purchasing" conducted by the Catholic Hospital Association at St, Mary's Hospital, San Francisco, California, April 23, 1955. 6 6

considerably greater*

One final accusation refers to questionable suppliers with whom group procurement agencies deal* It is Inferred that the products contracted for by the group procurement agency are not quality products as is the case with reputable f i r m s .

I believe that the products offered to my hospital (by the group agency) are not of an Inferior quality as some people would lead me to believe. If you oall Eastman, Agfa or DuPont X-ray films inferior quality, I (would)like to know what brand is superior. If you call General E lectric light bulbs, Hall china, Cannon toweling. King and Utica sheets and sheeting, Ray-O-Vac batteries, Angelica uniforms, Sterilon plastic disposables, Vollrath stainless steel ware—If you call these inferior—I (would) like to know what is superior. 1

E . SUMMARY

The group procurement agencies seem to be growing In the area of service through field representatives, research reports, market Information. The manufacturer enjoys prompt payment and reduced paper work. In the area of hospital equipment, where service is Important, local sources are to be preferred. There seems little doubt that group procurement agencies deal with reputable firms. The hospitals are,as a result, able to purchase quality merchandise at reduced cost.

^°Rlchard L. Davis, "Group Buying," The American Surgical Trade Association joipnal, July 1961, p. 10JT" nr. uavis is Executive Director o^ the Hospital Bureau, Inc. ^Ipaul E. Wldman, "Hospital Group Purchasing," The American Surgical Trade Association Journal, July 1961, p. 46. “Hr. wiaman ra flircetor ur FurdllMlllg, CltfVBlAnd Clinic Hospital, Cleveland, Ohio. He is also Chairman, Purchasing Committee of the Hospital Bureau, Inc., and member of its board of directors. 67

The salesman also standB to gain, expecially If more hospitals are drawn into the program, and thereby increasing volume and p r o f i t s . The development of group procurement does not seem to be limited to the hospital field. There is evidence of applica­

tion of group procurement principles in government, industry,

retailing and agriculture.

The development of hospital procurement, on a base similar to that of Industrial procurement, dateB back to about half a century. Since that date a number of group procurement agencies were organized in the hospital field with a varying de­ gree of success. In most cases, they were divisions of a regional hospital council. Their activities and membership rarely extended 42 beyond their regions.

One notable exception1is the Hospital Bureau, Inc., which

is recognized as the sole national group procurement agency In

the hospital field today. Many have since modeled their organi­

zation along the same lines.

In order to assess the causes for the varying success of present procurement agencies, a comparative analysis of four

areas was attempted. Important differences within each area were considered In-as-much they have a direct bearing on success

^Reference 1 b not being made here to religiously a ffili­ ated hospitals such as the Federation of Protestant Welfare Agencies or the Associated Jewish Philanthropies. 6 8 or failure.

The growth and development of group procurement agencies has been viewed with alarm by some, with relief by others. To analyze the points of strength and weakness underlying present group procurement agencies, it was necessary to examine all the views of thoBe directly affected by hospital group procure­ m ent.

There seems no reason to fear that the purchasing agent

Is going to be replaced by the group agency. No hospital has yet bought all Its requirements from a group agency. There Is little doubt that present group procurement agencies are saving the hospital money on many hospital supply items. There are, however, Important lim itations In the hospital equipment field where Bervlce is important. Small and large hospitals are profiting alike from the services of the group procurement agencies. The advantage tilts more in favor of the smaller hospital than for the larger one.

On some Items such as drugs, food, maintenance m aterial, there

Is little Increase In discount as volume Increases.

Group procurement agencies are gaining in the area of

service. A consideration of major Importance Is that group procurement agencies act as a stabilizing force In the market

against undue price Increases by suppliers* As an additional

source of supply, they represent added protection to member and

non-members hospitals alike. Because of their concentrated 6 9 purchasing power hospitals, salesmen and In the last analysis patients stand to gain. 70 CHAPTER XV

FACTORS WHICH LED TO THE ADOPTION OF

GROUP PROCUREMENT

Page

A, General Considerations ...... 72

1. Personnel ...... 73

2, Overhead ...... *••..«.. 73

B. Cost Considerations ...... 81

1, Reduction in the cost of* supplies and equipment. ....«• ...... 81

2. Low cost of membership ...... 89

C, Market Considerations ...... 90 1, Preventing undue price increases through added competition ...... 91

2* Improved service to hospitals ...... 93

3* Provide price and productInformation. . . . 94

D. Technical Considerations ...... 96

1. Textiles ...... 93

2 . F o o d ...... 102

3. Surgical dressings ...... 105

4. Pharmaceuticals ...... 106

3. Maintenance supplies ..... 107

E* Managerial C onsiderations ...... 109

1, Greater availability of time ...... 110

2. Opportunity for discussion ...... 114

F . Summary...... 116 CHAPTER IV

FACTORS WHICH HAVE LED TO THE ADOPTION OF

OHOUP PROCUREMENT

Hospital administrators are faced with a dilemma - when and where to reduce cost?

The major cost components of any hospital are salaries, overhead and supplies. Of the three coat components salaries and overhead account for about two-thirds of the expense dollar.

A reduction in these two areas would mean substantial saving in the hospital budget.

Hospital costs may be classified as variable and fixed.

Variable costs are those which easily lend themselves to adjustments by hospital management. Fixed hospital costs are those which are not affected b y changes in admission or occu­ pancy rates.''' Salaries and overhead fall in this latter category. With the development of modern technology, labor saving devices have been introduced to the hospital field which have tended to reduce the degree of inflexibility of labor costs.

With supplies as the major variable cost, hospital management is eager to develop procurement techniques which will maximize savings in this area. One of these techniques has been the application of group procurement to hospital

"'"Refers to the percentage of hospital beds occupied.

71 7 2 purchasing.

The factors which have led to the adoption of group procurement may be classified in five major categories:

1. General considerations

2. Cost considerations

3. Market considerations Technical considerations

3. Managerial considerations

Each category will be discussed, in detail, separately.

A. GENERAL CONSIDERATIONS

The two major areas of hospital costs are personnel and overhead. The Inability of hospital management to reduce these two major cost elements has given the area of supplies added Importance.

In the hospital field, personnel is more of a fixed cost than a variable onel The number of employees rarely varies with changes in the rate of occupancy. Hospitals experience

in the normal course of a year peaks and valleys with reference to patients* admissions and occupancy, the low period being

from May to September. In very few cases Is hospital person­

nel reduced to balance decreased income from falling admissions.

Hospitals are subject to emergency situations. They are

unable to anticipate a disaster. At such times the hospital 7 3 may be flooded to full capacity for a period of weeks or

months. It Is quite Impractical for the hospital to wait un­

til such time to recruit added personnel,

A more Important factor than emergency situations is

the wider range of hospital service presently offered, which

necessitates additional personnel. Coupled with increasing

wages and salaries In the hospital field, the burden of person­

nel cost is further accentuated,

1, Personnel

Personnel cost, which is the total of salaries and

wages paid to professional and non-professional staff, has

been steadily increasing* "From 1956 to 1959 . ♦ . payroll expense increased almost five hundred million dollars to nearly

5 ,2 billion, accounting for 2 /3 of all hospitals' expenses."^

The reason for the increase In hospital personnel costs

may be traced to two factors--salary raises and an lncraase in

personnel employed. In order to halt cost Increases In the

personnel area, one or both factors have to be controlled.

Since 1955, salaries for hospital employees {excluding

doctors) rose about 150 per cent for non-federal, general and

short-term hospitals. (Chart I) Measured in dollars, the rise

^"Hospital Statistics, 1959>" Hospitals, Guide Issue, August i 9 6 0 , P a rt I I (Volume 3 ^ ), p« Jb 2 , 2 This includes voluntary, non-government hospitals described in the first chapter. 7*

CHART 1 1 a n n u a l PAYROLL EXPENSE PER EMPLOYEE (Excluding Doctors)

Nonfederal, short-term, general, and other special hospitals

- ($3,765) 3600 Pacific 5tates Ave rage

($3,068) -I.. 3000 4-

National 2400 Average

i - 2100

1500

I_____ I 1946 4? 48 49 50 51 52 53 54 55 56 57 58 59 60

( Source; American Hospital Association Hospital Guide August 1, I960, Volume 34, page 372 75 has been from a national average of $1200 in 19^6 to 3 ,0 6 8 fo r

i 9 6 0 . On the West Coast the average is higher, amounting to

$ 3 ,7 6 5 . The other component of hospital personnel cost is the

number of employees used. In the hospital field, the number

of personnel employed Is related to the number of patients, or

to the number of days each patient spends at the hospital.

In 1946, for each 100 patients there were 145 employees.

For i 9 6 0 , i t went up by 50 p er cent to 225 employees fo r

each 100 patients. (Chart 2) In voluntary hospitals the rate

fo r 1961 was 240 full time employees for every 100 patients.-*

When the personnel to patients ratio is considerably

in excess of the national average, it Indicates that there

exists a condition of overstaffing and obviously excessive costs.

The number of patients is indicative only of the people

who were admitted. It is not an accurate yardstick of how long

they remained at the hospital, which significantly affects the

cost and revenue position of a hospital.

With 1946 as a base, payroll expense per patient per day

increased by 277 per cent. (Chart 3) This is due to an increase

in the number of persons employed, coupled with shorter stay per

patient. Average length of stay for all short-term hospitals

3 ’’Hospital Statistics 1 9 6 1 ,” Hospitals, Guide Issue, August 1962, P art I I , (Volume 3 6 ), p . 4 1 7 , 7 6

CHARI Numb** q| r n m m LftUlO M ntfllAl. i L&3QWKLL PE R 100 PA TIE.M Ts P* riHiAil pvi kOQ P|ti«nli NDbldfnl, then-term , | ■ 1)4 ■pcrlal hotpitlki

I 1 . i i m t t u i i H otpiial Aafwftt I. JMC, Volumt )4, ptft Jt! KT

*** * f 4> *9

IfciAH I j 'AYRUL-l* PhU l>A ] LLWI UA¥

iiC

106

lo « r« : Jkm*rL(Ki H iifllil A iioclallM Httpllal QiL4r A « f i4 t I, 1*44, V e lu m * 1-4, j>t[* J t* 7 7 decreased from 9 .1 days per patient in 1946 to 7 - 6 days p e r 4 patient in 1 9 6 1 *

Salaries of hospital employees have been rising and the trend is for further salary and wage increases. This trend will continue as long as there remains a wide divergence between wages and salaries in the hospital field and those in the industrial and trade sectors,J With reference to the number of persons employed by voluntary hospitals , there is indication that the ratio of employees per 100 patients will continue to Increase at the rate of 5 per cent per year. This is due to the greater variety of services offered. There is a much greater dependence in hospitals today on analysis and tests than previously. Chemical tests, blood tests, X-ray tests and urine tests are among the general tests regularly performed. There are a multitude of new tests which

are being added which need the services of skilled technicians.

As new tests are perfected for more accurate diagnosis, there will be an Increasing need for added personnel.

The outlook fo r reducing o r even hold in g the l in e on

personnel cost seems to be very remote. The area of personnel

cost offers little opportunity for an administrator to reduce

costs of hospital operation.

4Ibid., p. 407. 76

2. Overhead

The second major area of Inflexible hospital cost is overhead. Hospitals, like public utilities, are characterised by large Investment in buildings, equipment and facilities.

Prom 1958 to 1959 11 total assets for all listed hospitals

the American Hospital Association^ increased by over a 5 billion dollars to nearly 1 6 ,7 b i l l i o n ."

One of the most Important cost determinant in industry is the rate of capacity at which a firm produces. In the Hospital

field, equally Important, is the occupancy rate. Because of heavy overhead cost in hospitals, a low occupancy rate means

excessive cost per patient day.

By its very nature, overhead is Inflexible. It Is not reduced except through a major reorganization of the hospital

structure and policies. Its effect on operating cost can be

reduced through increased occupancy. This is clearly Indicated

in (Chart 4) which illustrates variation in the rate of occupancy

for all hospitals from month to month during the normal course

of the year. In August, with a hospital occupancy rate of 70

per cent, the lowest of the year, the operating expense per

occupied bed per month averages $960, In February, with an

occupancy rate of 82 per cent, the highest of the year, operating

expense per occupied bed per month averages about $ 7 8 0 , The

^"Hospital Statistics, 1959," Hospitals, Guide Issue, August i 9 6 0 , Part I I (Volume 3*0, p. 362, 79 lower operating coat is due to a spreading overhead over a larger number of occupied beds*

There is no question as to the effect of a high occu­ pancy rate on operating cost. Means and methods of raising

occupancy rate is beyond the scope of this study. One question

remains: What is the outlook for the future? Can one foresee

a reduced overhead load per occupied bed through a higher rate

of occupancy? With increased services, there will be need for added

equipment and expanded facilities. This will Increase the

overhead load. In the past decade, with the exception of

1959 j hospital admissions have been increasing. This has been

largely due to the natural growth of population and the growing

role which hospitals are playing In every community as health

care center*. Though admissions continue to rise, the shorter stay

per patient and expanded hospital facilities will adversely affect the overhead load. The outlook for the future for re­

duced overhead cost per occupied bed is not promising.

Both major cost areas in the hospital field, namely

personnel and overhead, have been found to offer little oppor­ tunity for cost reduction. The tendency is for salaries to

rise and facilities to expand in the future. CHART 4 HOSPITAL. OPERATING AND OCCUPANCY EXPENSES

Operating Expense P e r Cent P er Occupied Bed Occupancy P er Month 100b

Operating expense per occupied bed -J per month t <>ob

_ sop

Monthly occupancy ... ?o|)

„ too

-■

. sop

JAN. MAR. MAY JULY SEPT. NOV. FEB APR JUNE AUG. OCT. DEC.

Source: Hospital Management March, 1959, Volume H7, Number 3, page 8 81

B. COST CONSIDERATIONS

Lower purchase prices are considered by many as the

’'raison d'etre” for group procurement. Though not the only cause, it remains the central factor which has led to the adoption of group procurement by hospitals.

Lower prices are possible through group procurement since manufacturers and suppliers realize substantial savings from bulk orders. Large orders mean to manufacturers longer production runs resulting In lower cost per unit through spreading of overhead cost. To hospital supply dealers, it means a higher rate of inventory turnover. Other cost advan- tages to the supplier resulting from practicing group procure­ ment are possible because of prompt payment and fewer records and accounts. From the standpoint of selling costs, one large order frees salesman's time to pursue other sales leads,

1. Reduction in the Cost of Supplies and Equipment

Savings resulting from group procurement benefit the hospital. The hospital purchasing agent Is able to procure for his hospital needed materials and supplies at lower prices.

Cost reduction through group procurement Is seriously questioned in certain quarters. There is general agreement, however, that for items normally obtained from industrial

sources cost reduction is in evidence. Examples of such items are paper, fuel, light bulbs and linen. 82

For items requiring service, opponents of group pro­ curement suggest that costs are increased rather than reduced.

This is due to poor servicing, if any, costly delays in delivery and often poor quality equipment. The veracity of such charges 6 has already been dealt with in the earlier chapters. There are delays in delivery often due to last minute orders by purchasing agents. Service is an important consideration in the purchase of equipment. Where constant attention is required, local sources should be given preference.

Cost reduction through group procurement does not necessarily apply to all items. In the equipment field It is difficult to achieve cost savings. This gives the individual hospital latitude to choose from the group procurement program

such items as best suit its needs.

After fifty years of hospital group procurement experi­ ence, the question is not whether there Is any cost reduction

in group procurement. The central issue is how significant

is the cost reduction and does it warrant hospital participation,

"It is estimated that equipment and hospital supplies purchased by group buying agencies can be bought for 10 to 15

per cent less than a single hospital can do it. In certain 7 areas, the saving 1 b even more,1

^Chapter III, section D, number 4.

^Benny Carlisle, "Small Hospital Economics Point to Group Buying,11 Hospital Management, December 1959> p,106. 83 The problem of evaluating total savings for any hospital depends on a multitude of factors which vary from one hospital

to another.

The size of the hospital, the frequency and volume of

purchase orders, and the hospital's distance from the point of

purchase all have direct effects on the amount of saving.

Opinions vary as to the rate of Bavlng through group

procurement. When considered with reference to total hospital

expenditure of about three billion dollars per year, a 1 per

cent rate means 30 million dollars per year saved* For voluntary

hospitals, estimated savings at the rate of 1 per cent amount

to ab out 15 million dollars per year, For hospitals in smaller areaB, savings are far from

insignificant. For San Francisco, a conservative guess would be that non-governmental hospitals spend $8,000,000 annually on materials and supplies* If only one per­ cent could be saved by group purchasing, this would amount to $ 80,000 each year which could be passed on to the (community). If we do not investigate this possibility seriously, how can we deny the accusations by economists and businessmen that we operate ineffici­ e n tly Arguments have been presented that the price of hospital

supplies through group procurement is not necessarily the lowest

possible. This may be true under two conditions. First, a

&Mark Berke, 11 An Adm inistrator Looks at Purchasing,11 Hospital Management, December i 960 , p. 97* Mr, Berke is Director, rib. zion Hospital nodical Center, San Francisco, California, 84 certain supplier will quote a lower price than that of the group agency in a deliberate effcrt to reduce the effectiveness of the group procurement program. Second, a purchasing agent is quoted a price on a sim ilar product which is lower than that of the group agency. In essenoe it is not the same quality product. The 1lower1 price which a hospital thinks It is pay­ ing, may in fact be a higher price considering quality differ­ e n c e s .

When we f i n d th e volum e h as dropped o f f from a particular hospital and we question the buyer, his main argument is that he is able to purchase like or similar merchandise (in his opinion) than we at the council can do. Further questioning and investigations of this argument have always revealed that we at the Council and the hospital buyer, have different philosophies. The hospital buyer (thinks) strictly in terms of a lower unit price. We at the Council are trained to think in terms of quality merchandise to meet a recognized specification which is delivered to the right place at the right time at a price that is "right'1 for both vendor and the hospital.9

Very few, if any, hospital buyers can determine what the

"right" price of a product is in terms of its intrinsic value.

This require b detailed quality analysis and price comparisons. A lower price on a lower quality product is not necessarily a

better buy. In the caBe of a genuinely top quality product,

the low price is a competitive measure adopted by the manufacturer

and often for only a short period of time. Group procurement agencies consider that when a manufac­

turer meets the group agency price, it Ab the agency and not

Q C■ C. Lee, "Group Purchasing as I have Known It," Southwestern Hospitals, August, 1956, p. 52. 8 5 the manufacturer who Is setting the price. Some manufacturers consider, however, that a group procurement agency only engages in price cutting, not price making.

The significant contribution of a group procurement agency is its ability to exert the necessary pressure on suppliers to lower the cost of materials and supplies to its member hospitals. Who sets the price is a secondary question.

In order to exert the needed pressure and effect cost reduc­ tion, the group agency needs volume. This is its most effective weapon.

The concentration of volume In the group purchasing organization is the backbone of hospitals1 bargaining power. Any dispersion of the potential volume will weaken that power and make the negotiation on behalf of the hospital that much less effective in the securing of the best possible price,10

Volume to the group procurement agency is the source of its strength. Its use, however, has to be tempered with caution.

"The group should be Just as concerned with what not to buy collectively, as it is with what to purchase together."11 For items such as maintenance material and equipment, volume is not an Important determinant of price. For these items local

10R1chard L. Davis, "Group Purchasing— An Object Analysis," A speech given at the American Hospital Association Institutes on Hospital Purchasing in Chicago, San Francisco and Minneapolis in i 960 ,

11Parker D. Perry, "Hospital Group Purchasing Should Be Selective," Hospital Management, May 1961 , p . 8 2 . 66 suppliers can offer satisfactory prices and service.

Selectivity by a group procurement agency means selec­ ting those items which can be profitably purchased in bulk and which meet the needs and requirements of member hospitals. For hospitals which are members of group procurement agencies, selectivity involves obtaining through the agency only such items which can be profitably purchased. Agency membership in no instance means procuring all hospital needs from the group agency. This arrangement permits the hospital to choose such items as best fits its needs.

In general, hospitals are able to realize substantial savings on most items procured through a group procurement agency* The degree of saving varies depending on the size of the hospital and the efficiency of the group procurement agency. Based on a study of ten major hospitalB, prices paid to individual suppliers were on the average 10 per cent to 25 per cent higher than those paid to the group agency.12 (Table IV)

The hospitals surveyed are located in Massachusetts and vary in terms of bed capacity from 250 beds to 1500 beds. From data collected, savings are especially significant in the areas of surgical and clinical supplies averaging about 15 per cent. The study confirms statements toade by group procurement agencies that savings of about 15 per cent will accrue to member hospitaii

12J. J. Brennan, Jr., "Hospitals Need Business Know-How," Harvard Business Review, September-October 195^, P. 96. 87 TABLE IV

PRICE COMPARISON OF SELECTED HOSPITAL PRODUCTS

AS TO SOURCE OF SUPPLY

Agency Individual Item P r ic e S u p p l i e r *b Pr i c e *

Antibiotics

Teramycin and Aureomycin 250 mg. (100) $ 2 8 .0 0 $30.60 100 mg. ( 16) 3 .3 0 3.61 50 mg. (100) 6 .5 4 7 .1 4

A lco h o l

190 proof {55 S&1* drum) 3 2 .4 5 3 5 .7 5 Surgical dressings

Gauze, 20" x 12" (100 yd.) 5.11 5.48-5.79 Sponges, 4" x 4", cotton-filled (c a se ) 21.6422.73-25-91 Adhesive tape, cut any width (10-yd. roll) 2.54 2.70-3.08

Hypodermic syringes - Brand A

Metal tip, 2 cc. (dozen) 1 0 .4 3 1 1 .4 0 Metal tip, 5 cc. (dozen) 1 3 .8 4 1 5 .1 2 Metal tip, 10 cc.(dozen) 1 7 .2 0 18 .8 0

Thermometers - Brand B

Plain one-color scale (gross) 6 2 .3 0 70.00 Plain red-above-normal(gross) 6 5 .3 0 7 3 .0 0 Paper goods

Toilet tissue, #5 soft spun (c a se ) 9 .3 9 10,50 Souffle cups, #550, 5i oz. (1 ,0 0 0 ) 2 .9 2 3 .3 4 Towels, 9?" x 103/4", Kraft (ca se o f 3 , 750) 3 .1 8 3 .7 5 86

TABLE IV (CONT'D.) In d iv id u al Item Agency Suppliers P ric e *

Machine dishwashing compound (cwt.) 10.25 17.00-22.00

Typewriter ribbons (dozen) 6.82 7.36

S h e e ts

Type 140. 72" x 108" (dozen) 21.40 22.52 T ow els

Bath, 22" x 44" (dozen) 5.39 5.52 Huck, 17" x 32" (dozen) 2.46 2.58

Uniforms

Operating gowns (dozen) 20.42 22.50 Patients1 gowns (dozen) 14.40 16.50

S o u rc e : Jo hn P . B ren n an , " H o s p ita ls Need Business Know-How, "Harvard Business Review, September - October iy54, P . 96.

♦Depending on sl 2e of order. 89 of a group agency.^3

Though not the only reason, cost reduction Is perhaps one of the most important factors in the adoption of group procurement by hospitals.

2, Low Cost of Membership

A factor which has led to the spread of group procurement

Is the low cost of membership to hospitals. Low membership charges characterise the more successful group agencies. Other agencies have followed suit in an effort to increase hospital membership. At present, there are few group agencies who have a fixed markup on all items higher than five per cent to member hospitals. This does not take into consideration refunds, a common feature among many group agencies. There are also other

advantages accruing to membership which tend to substantially

reduce the actual cost of membership.

Most membership dues are based on hospital expenditure

(exclusive of hospital payroll). Small hospitals stand to

gain most from membership in such a group procurement program.

Low markups and membership dues based on

^The Cleveland Hospital Council estimates savings from 15 per cent to 20 per cent especially to small hospitals. The Hospital Purchasing Corporation and the Hospital Bureau esti­ mates range from 10 per cent to 20 per cent depending on Bize of hospital. 90 the Individual hospital's expenditure, have permitted a large number of small hospitals with a bed capacity of 100 or less to

Join the program.

Small hospitals constitute the most important single group In hospital group procurement. Low membership dues, among other factors, has been Instrumental in attracting small hospitals as members in group procurement agencies.

C. MARKET CONSIDERATIONS

The trend in the last decade in the hospital supply field has been characterized by mergers and phenomenal growth by the leading supply companies.

The local supplier Is finding It Increasingly difficult to compete with the national distributors. Equipped with a we11-trained sales force and backed by national advertising, they have been able to expand their markets, often at the ex­ pense of the local distributor.

The national distributors are at present the dominant figures In the hospital supply field . ^ No hospital on Its own possesses enough purchasing power to obtain large discounts from national distributors. The Individual hospital needs the association of other hospitals to build purchasing power.

Prom a market point of view the building of purchasing

^Suoh as the A. S. Aloe Co. and the American Hospital Supply Company. 91 power by a number of hospitals has three distinctive alms;

1} To prevent undue price Increases through added

competition.

2) To improve service to hospitals from suppliers*

3) To provide price and product Information.

In order to achieve these goals, hospitals found It necessary to adopt a group procurement approach to hospital purchasing.

1. Preventing Undue Price Increases Through Added Competition

Group procurement agencies are generally considered by hospital supply distributors as additional sources of compe­ tition. As such, they have been able to exert enough pressure on the hospital supply market to prevent undue price Increases.

This is especially true on products where a situation of quasi monopoly exists. In 1930 there were three major sources of dressing supplies. Two of the suppliers merged leaving only two major 15 sources of dressing supplies. Within six months of the merger the price of gauze rose twenty-five cents per bolt.

When gauze was made available through group procurement sources,

the price of gauze dropped from $2.00 to $1.40 per bolt,

A further example of more recent origin is that of X-ray

•'■^The two major sources are the Bauer and Black Company and Johnson and Johnson Company. 92 films. Prior to 19^9* most hospitals bought X-ray films at list price. Wien a major group procurement agency wrote an

X-ray film agreement in 19^9, discounts of five to ten per cent 16 became a common feature with most suppliers to all hospitals.

As competition is reduced, prices will tend to rise.

The price Increase may not reflect a cost Increase to the supplier but an increased margin of profit.

As an additional source of supply, group procurement agencieB have little effect on price changes, which reflect real cost Increase. This is especially true when the industry as a whole undergoes price changes. The major role of group pro­ curement, from a market point of view, Is to hold the line on unwarranted price Increases. Their ability to do so depends on the degree of support, in terms of pledged volume, from their member hospitals.

As volume expands, the suppliers will become increasingly hesitant to alienate the group agency, through price Increases.

Due to group procurement efforts, hospitals can successfully avoid payment for unwarranted price increases.

The importance of halting unwarranted price increases has led many hospitals to Join efforts in a group procurement program .

l6The agency referred to is The Hospital Bureau, Inc. 93 2. Improved Service to Hospitals

Group procurement agencies offer added competition to the national and the local hospital supply dealers. In order to maintain their relationship with the hospltalsf suppliers counteract the threat of affiliation with a group agency by price reductions and improved service.

The aim i3 to destroy the concentration of volume by the

group procurement agency. Without volume, a group procurement

agency is not In a position to offer a price below that which

is quoted by the supplier.

When this aim is attained, prices w ill revert to their former level and services are curtailed.

As long as the group procurement agency remains an

effective means of competition, both member and non-member hos­

pitals stand to profit. Competition among suppliers often

produces the same results. With a group procurement there Is

litcle possibility of a "gentlemen's agreement" to minimise

competition.

Member hospitals are given considerable concessions in an effort to attract them away from the group procurement pro­

gram. Non-member hospitals are offered special inducements In

areas where procurement groupa operate. ^The hospitals which

are not members of the purchasing council are being offered

lower prices In the council area than are offered by the same

companies for the same merchandise in other parts of the Midwest.

In other words, the mere presence of uhe purchasing project in 9*+ the area has the effect of making some of the suppliers sharpen their pencils Just a little f i n e r . "17

Suppliers with whom a group agency signs a contract are

Interested in maintaining their profitable relationship for

as long a period as they can.

During the life of the contract price and quality of

products supplied are fixed. The major Inducement for contract

renewal is prompt service and liberal return policy.

The presence of a group procurement program is a bonus

to member hospitals and non-members alike. Improved service,

in addition to other major benefits, has led a number of hospi­

tals to Join and maintain membership in group procurement programs.

3* Provide Price and Product Information

The market for hospital supply products is undergoing

rapid change b . This is due to technological breakthroughs in

the area of medical care. New products are constantly developed

which promise faster cure and are more potent in their combat

against disease. As centers of product analysis and price comparisons,

group procurement agencies acquire a wealth of information.

This information is secured from industrial sources and from individual hospitals who report their experiences with new

17C. T. Loftue, "Group Purchasing Is More Effective With Small Hospitals," The Modern Hospital, April 1957, P* 71* 95 p r o d u c ts . Collected information Is checked, tabulated and forwarded to the members In the form of periodic bulletins, reports or telephone calls. Though Information is readily available hospitals have made limited use of it. The burden of securing and making use of this information should not fall on the agency. Hospitals often resign themselves to a passive role. Unless the informs* tion is fed to them, they rarely seek it.

Monthly bulletins and periodic report b may not a r r i v e

In time to make an important purchasing deciBlon, They can nevertheless be important guides for the future. It is neces­ sary that hospitals assume a more active part In seeking and communicating information.

The moat important type of information is price information. Price lists, regularly published by the group agencies hold a prominent position on the purchasing agents reference shelf. There is an increasing awareness in the hospital field

of the need for detailed product information. This is a

service which the more successful group agencies have made

available to their members. In view of the accelerating rate

of product development, the need for product information will

be heightened in the future,

A very important means of disseminating information is

through the process of committee meetings of the group agency. 96

I t 1b important to note that group agency committee meetings bring In contact hospital staff from all levels of the hospital hierarchy, ThiB is conducive to a cross-fertilization of Ideas*

The availability of ready information from group sources has acted,as added incentive, for the adoption of group procurement.

As additional sources of supply, group procurement agencies have been successful in halting unwarranted price in­ creases. They have given suppliers the needed incentive to seek and maintain the volume of business available through group procurement sources. They have made it possible for many hospitals to keep up to dateon product and price information.

In order to attain these market objectives, it was necessary for hospitals to Join together in a cooperative effort and adopt the group procurement approach.

D. TECHNICAL CONSIDERATIONS

Purchasing for hospitals Is a complex and technical process. New products with different applications are constantly invading the hospital market. The purchasing agent is finding it extremely hard to cope adequately with the growing complexity of hospital procurement. To persons outside the hospital field, the operation of procurement seems one of simple magnitude. In essence, all that is needed is to ascertain one*B requirements, have the necessary funds and make a decision. 97 Assuming the need can be readily determined, two problems

are left—availability of funds and making the decision. The

availability of funds is an important consideration expecially when large purchases during favorable market conditions are

being contemplated. Deciding among a multitude of alternative

choices is the most complex and by far the most Important action

of the whole procurement process.

In order to make intelligent decisions a purchasing

agent should analyze intrinsic value, test the product under

operating conditions, compare prices, and evaluate applications.

Few hospital purchasing agents are capable or equipped to make

procurement decisions on such a thorough basis.

The technical complexities of hospital procurement cover

the total spectrum of hospital operations in terms of supplies

and materials. This encompasses textiles, food, clinical

equipment, pharmaceuticals, surgical dressings, and maintenance

s u p p lie s. It is necessary to examine each area separately In order

to realize the technical complexities of present day hospital

procurement. Depending on the size of a hospital, a purchasing

agent may be involved in only a few or in all areas of hospital

procurement. In certain hospitals, pharmaceuticals are bought

by a pharmacist, food by a dietician. Even then, the purchasing

agent Is still directly Involved with the other areas such as 98 textiles, surgical dressings and maintenance supplies where he has the responsibility to make the purchase decisions.

Through the use of selected examples from each area, it is possible to Illustrate the growing complexity of hospi­ tal procurement. The technical difficulties apply to pH ar^as such as textiles, food, pharmaceuticals, surgical dressings and maintenance supplies.

In order to purchase intelligently in any area, today's hospital purchasing agent needs technical and professional

advice which is not generally available to him at the hospital

level. Through cooperative effort, hospitals are able to sur­ mount technical difficulties In the different areas of hospital

procurement.

1. Textiles

Textiles are a large dollar volume area and may be one

of substantial saving or loss to a hospital. In the area of

textiles, a standard hospital item is bed sheets. Most house­

wives buy bed sheets repeatedly without much of a problem,

A hospital purchasing agent contemplating the purchase

of seemingly uncomplicated bed sheets has to evaluate the 18 following factors:

1, Shrinkage: A standard slae bed sheet is 72" x 108"

All technical specifications are based on information published by the Research Department of the Hospital Bureau, New York, in a s p e c ia l report, Sheet E v alu atio n , March I960, 99 of both type 140 muslin, or type 180 percale. If shrinkage is excessive, the length of the sheet after hemming may not 19 exceed 95". In a hospital where beds are made twice to three times a day, the amount of tugging on a 95" sheet will inevitably accelerate wear. 20 2. Tensile Strength: A minimum of 7 0 lbs. of tensile strength Is required in both the warp (length) and the fill (width) . If the bed sheets are found to be lacking in tensile strength, it would mean that their service life Is substantially reduced. This offsets any price advantage made in their purchase,

3. Weight per Square Yard: In hospitals where laundry

operations are consigned to an outside firm, the weight per

square yeard is of prime importance. Laundry charge 3 are based

on weight rather than number of pieces laundered. A purchasing

agent may decide to buy the lighter, yet more expensive type

183 bed sheets. His savings on laundry operations may more

than counterbalance the higher purchase price.

4. Sizing: 21 If sizing is excessive, the bed sheet

will develop a wrinkled look after a few washings. 22 The

■^Beyond 7 per cent in the warp (lengthwise). 20 Breaking strength which determines the endurance of the sheet.

^A special kind of starch added to the weaving loom to protect the yarn. 22 Beyond 2 per c e n t. 100 tendency is to Bend It to the laundry more often than would be required under normal conditions. Such a situation would accelerate wear and tear and Increase laundry charges. pv 5, Thread Count: J Tensile strength is determined by type of weave. Thread count, therefore, has a direct bearing on the tearing strength.

The above are some of technical considerations in the procurement of bed sheets. Specifications may be provided by the manufacturer. They may not be necessarily accurate.

Testing is necessary to measure variations from specifications.

Very few hospitals possess the technical capacity to perform these tests on their own. The cost involved makes It prohibitive for small and even for large hospitals, to test products at independent laboratories regularly.

Procurement by brand name may, to some extent, avoid the necessity of testing. Such a concept creates In the purchasing agent a false sense of security. A reliable test of nine major national brands of sheets shows that only one out of nine brands passed the Federal Specifications on shrinkage (Table V), Only seventy per cent passed the tensile strength test. These are national brands such as "King," "Pepperell," ’’Pacific,1' "White Knight," with a wide range of distribution.

^ Is the number of threads to the Inch in the wrap and the f i l l . 101

TABLE V

EVALUATION OP NINE NATIONAL BRANDS

Bed Sheets Type 140,- Muslin

P e rc e n t Tensile Strength P e rc e n t T hread Brand S h rin k ag e in Pounds S iz in g Count L engthw ise Warp F i l l Warp F i l l

Dwight Anchor 8 .5 (P) 7 4 .9 88.2 0 .3 76 68

Erwin 6 .5 7 4 .6 7 9 .6 1.1 75 69 King 8 .3 (P) 7 4 .7 81.8 1.1 78 69

P a c ific 8.5 (P) 69.3(F) 7 4 .9 1.1 75 68 Pepperell 9.0 (P) 7 3 .6 0 3 .4 0 .9 76 70

Pequot 8.1 (F) 6 8 . 9 (F) 80.9 0 .9 76 68

Rhodeosa 8.1 (F) 7 3 .0 78.0 2 . 1 (F) 76 69 U tica 8 .1 (F) 7 2 .8 88.0 1.6 78 66

White Knight 8 .1 (P) 69.9(F) 79.9 2 .1 (F ) 76 67

Federal Specifications: "TorT^e' TO 1 W TslIrT

1% 701bs. 70 lb s 2* 74 66 Maximum Minimum Minimum Max. Min, Min.

Source: The Research Department of the Hospital Bureau, Inc., "Sheet Evaluation: A Report on nine Major Brands," March i 960 , p . 8 .

P - Palled to meet specifications. 102

In the area of textiles, procurement of a simple item such as bed sheets Is greatly facilitated through the use of the technical service of a group procurement agency,

2 , Food Food procurement is for most hospitals the largest

single Bupply item. Apart from the fresh variety, a large part

of the food budget Is being spent on canned fruits and vegetables. Most canned products carry the necessary specifications

as to weight, brand and grade. These specifications, however, are not adequate to make an Intelligent procurement decision.

For illustration purposes, let us consider canned half

peaches. A purchasing agent may empty the cans of several

bidders in unmarked containers. He will proceed to examine

each as to color, flavor, taste, uniformity, weight, and score

each accordingly. If all factors are found to be identical as to all bidders, the purchasing agent will have a simple decision to make—choose the one with the highest half peach

count and the lowest price. On this basis, more often than not, he will be making

the wrong decision.

The weight of the contents of each can 1 b made of the

weight of the peaches and that of the syrup. A supplier may

decrease the weight of the peaches and increase the weight of

the syrup through a heavier sugar concentration, A Brlx oil measurement would indicate an unusually heavy syrup content,

£i+It is a measurement of specific gravity and sugar content. 103

The price per can Is decided on the basis of the drained w e ig h t.

The importance of the Brlx measurement la illustrated clearly in (Table VI). On the basis of price. Radio Foods,

Libby is ,02 cents higher per caBe than the lowest bidder.

On peach count Libby's has 35 half peaches per can as opposed to 30 for Monarch, the loweBt bidder. Color, flavor and uni­ formity are identical in both cases. It may be assumed that

Libby waB clearly indicated except that the price per case of drained weight for Libby la the highest of all bidders*

The Brix reading for Libby of 22 degrees 1 b the highest of all bidders. In terms of drained weight per can it Is the lowest with 63 3/4 oz, which la below the U. S. Department of

Agriculture specification of 66 oz. per can.

The price per case for Libby on a drained weight basis is $5*82 as compared to $5*16 for Monarch* By purchasing Libby instead of Monarch a hospital may be paying 12 per cent more per case and getting 10 per cent less peaches*

The proper technical evaluation may mean lower cost to a hospital and better quality products. In the food area, technical considerations may not be as apparent as in other areas. They have been found, however, to be equally important factors in the adoption of group procurement by hospitals. 104 TABLE VI

BID ANALYSIS OF CHOICE HALVES, YELLOW PEACHES

IN HEAVY SYRUP

VENDOR (LABEL)

Monarch S u ffo lk S ex to n R adio H,A. Johnson (Monarch) (S u ffo lk ) (B lue Food (Best-O-Val) L ab el) (L ibby)

C olor Good Green P a le Good Good F la v o r Good Poor Good Good T h ic k s k in U niform ity A ccept­ A ccept­ Accept* •A ccept­ A c ce p tab le a b le a b le a b le a b le Count(half- peaches 34 30 25 33

Price/Case($) $,60 5 .6 5 5*73 5 ,6 2

B rlx 21 19 20.5 22 1 9 .5 D rained Weight (oz.) 7 0 i 67 £2= 2/* 70*

Price/CaBe D rained W eight ($) 5 .2 9 5 .6 3 £•82 5 .5 2

S ou rce: HoBpital Purchasing Corporation Score Sheet, 10/13/60. A specific gravity measurement of sugar content in syrups, U, S. Department of Agriculture recommends a Brix of 19 degrees or more but less than 24,

U. S, Department of Agriculture specification 1b 66 02, or better,

______Highest rated.

Lowest rated. 1 0 5 3 . S u r g ic a l D r essin g s

In the surgical dressings area, technical considerations are of prime Importance, Surgical dressings come in direct contact with wound areas and have a direct bearing on the patient's health and well being.

A common item which has shown wide discrepancy from brand to brand is elastic bandage. This is one Item where the most Important consideration may lie completely outside the scope of the quality and price of the item itself. When this is further compounded by ten leading brands all proclaiming best possible quality, with negligible price differentials, the complexities of the purchasing decision are multiplied.

In bandages, as in textile articles, shrinkage is impor­ tant. For Items applied to patient's body to exert pressure, the percentage of elongation after in itial use determines their future usability. The type of yarn used, the kind of filling and the amount of tensile strength are factors which merit serious evaluation.

In i960 a major supplier conducted a survey of the seven leading national brands of bandages. The findings of the

" c o n fid e n tia l,T study (Table V II) was made a v a ila b le to many purchasing agents. It was intended to prove that their bandage had a shrinkage percentage of a maximum of 10 per cent after f i v e w a s h l n g B as compared to 23 per cent for the major competi­

t o r . A purchasing agent acting on the figures as shown in

(Table VII) may overcharge his hospital without realizing it. 1 0 6

A close observation of the consumption rate of elastic bandages w ill disclose that In most cases they are treated as disposable Items. The Importance of a bandage with low shrink­ age at a premium price loses its significance if the bandage

Is disposed of after in itial use. The purchasing agent, acting on the figures in (Table VII), may be technically correct to assume he is buying a quality product. It is a quality, however, of which he is making little or no use.

This is the kind of Information which is often secured through the medium of a group agency. By bringing different hospital personnel together, they provide the means for cross-

fertilization of ideas. This results in benefits to hospitals

and patients. The benefits are not limited to the surgical dressings area but extend to all areas of hospital operations.

4. Pharmaceuticals2^

Pharmaceutical procurement Is a specialized field and

In a number of hospitals It Is the responsibility of a pharmacist.

Pharmaceuticals and laboratory supplies are generally

the second largest dollar item in hospital procurement. They

are often dispensed to patients as separate items and billed

accordingly. Procurement plays an important role in the quality

of pharmaceuticals made available and the price charged to

^xncludes drugs, chemicals and solutions. ANALYSIS OP NINE RUBBER BANDAGES (D -P c o f G 00 -■Kij VO CO ■sr - t ■S t— - h CM eg CVJ OV » ca O' N * • • • • » -3- ^1“ s V I VO -st (G p P rH o O H o in o o\ m 1 o — - iI *— t* c\) i—I n * -H 4 i—1 o H H tn rH vo o v m vo rH o n o — G m 4) 3 c CO 1 co oo co oo on m m o XJ W ■a CM on ■H G a a V G g o O I VO co OV H B c rH rH m in i rH CM CM XI rg w Q — c GO 4) G & 3 r 1 co 00 oo s CO oo o ; x CM ■H o CM t— CM CM ■H CM o 09 . P a> G c o 1 I on p XI & ) x •H 4) G a a ID G C a) 3 -=f -=t f T X n o n o on in CM on o o x XI K m in C 4) )H -H H 4) G P 09 Or 4> G H C rH . ^ - P H P p : x ; x n *H 4> G G a> • W) G 1 8 VO on Ch i rH on in O A o H X t-

Source; Summary of the study conducted during 19&0#t>y the suppliers of ABCO Bandages 108 p a tie n ts .

Many drugs have similar Ingredients, In such instances, there is need to perform a number of technical tests* These may involve simple gravimetric producers or chromatographic separation and quantitative Infra-red spectro-photometry*

Pew pharmacists, let alone purchasing agents, have the equipment or the ability to perform such tests. They need the services of specialized chemical analysts which few hospitals, on their own, are able to afford regularly.

As a group pharmaceuticals, especially drugs, do not lend themselves easily to group procurement. The quantities needed are often limited and the applications vary from one pfctlent to another.

For chemicals and certain standardized drugs such as antibiotics It is possible to consolidate orders profitably.

In the area of pharmaceuticals, technical considerations which may have promoted the adoption of group procurement have

been mainly due to the need for testing facilities. Such

facilities are generally lacking at the hospital level,

5 , Maintenance Supplies Maintenance supplies affect indirectly the patient's

health and well-being. They range from disinfectants and

cleaning compounds to l ig h t bulbs and e l e c t r i c a l f i x tu r e s .

The procurement of light bulbs, for Instance, i s a

highly technical process. I t i s neceBBary to assess the type 1 0 9 of filament used and the life expeotancy of the bulb.

Brightness has to be accurately checked since it may vary

considerably between two 40-watt lamps.

Frequency of replacement which reflects itself in

labor cost is an Important consideration in the purchace de­

cision for light bulbs, A maintenance item which is normally bought in con­

siderable quantities is floor wax. Technical tests to evaluate

drying time, slip resistance, removability and water resistance

have to be performed before an intelligent purchasing decision

can be made. The few examples given illustrate the growing

need for testing. Testing facilities can be made available at

reasonable cost through a group procurement agency*

Technical advantages, in the form of Information and

testing facilities, are not to date a major factor in the

adoption of group procurement by hospitals. With the growing

complexity of the hospital market a greater Importance will be

accorded to technical considerations.

The experience of the more successful group agencies

indicates that their increased support has been largely due

to the additional services they offer. These services have generally taken the form of product analysis and price infor­

mation. 110 The trend is for greater dependence on market research and product testing. Group procurement agencies are Ideally suited for such purposes*

The availability of research facilities is becoming an Increasingly important factor, especially to the small h o s p i t a l s .

As the need for testing increases, there will be a greater inducement to join in a group procurement program.

This w ill reflect itself in the coming years In expanded services by the group procurement agencies,

E . MANAGERIAL CONSIDERATIONS

One of the most prevalent shortcomings of hospital purchasing agents is that they allow themselves to be burled under an avalanche of dally routine.

An analysis of a buyer1s work-day during the summer of 1953 showed that each buyer spent an average of 2$ hourB daily taking 'emergency* orders over the telephone. Further analysis showed that an average of one and one half hours were spent each day relaying the same •emergency' orders to a vendor.

How can buying . . . be done with any degree of efficiency or accuracy under such practices? It's order placing pure and sim ple.2*3 When a purchasing agent spends half of his work day on

the phone, there is little time left for creative work.

2^C. C. Lee, "Group Purchasing As I Have Known It," Southern H ospitals, August 1956, p. 52, I l l

A purchasing agent needs to free an Important portion of his time for the conduct of his department. There Is need to coordinate the procurement activity with the activities of other departments. From a management point of view, a purchasing agent may achieve a twofold purpose through affiliation with a group procurement agency. First, a considerable amount of his time is released to organize and conduct his department as an executive. Second, through the media of committee meetings he is afforded a means to discusB problems of common interest and adopt applicable solutions. Though both are closely related, each w ill be treated separately,

1. Greater Availability of Time Ordering of supplies and m aterials, in the amounts which

even a small hospital requires, 1 b a time consuming process.

It involves locating sources of supply, checking prices, negoti­

ating terms of delivery and preparing the purchase order.

"Additional burdens to the purchasing functions sure

expediting, fighting claims and obtaining credits rightfully

d u e ." 27 This latter part is often more time consuming than when

2^Wllliam S. Price, "Group Buying," An Address at the Annual meeting of the Hospital Bureau, Inc., March 5, 1959, New Y o rk . 1 1 2 the initial orders were placed.

Some hospital purchasing agents refer to their work as that divided between regular emergencies and rush emergen­ cies. This indicates poor planning. A purchasing agent can hardly conduct his department as an executive If he recovers from an emergency only to meet another.

As a department head a purchasing agent has the responsibility to train his subordinates. Once they become sufficiently proficient, he should delegate to them all matters which do not necessitate his personal attention. Freed from routine matters, he will be able to devote the necessary time to cheoklng rate of use of the many items procured and determining economic order quantities. Through performance analysis, he is able to coordinate his activity with that of other departments in the hospital.

There are a multitude of different Items used within

a hospital, which fulfill the same function. Such Items

could be profitably standardized. This is one area where the

hospital purchasing agent can be most effective. In Industry, standardization is aimed at lowering the

cost of material and producing better products. In hospitals

the goal is the same. A purchasing agent In cooperation with

other departments will be able to develop such items which

will conform to the best usage by the largest number.

There is a greater awareness today by hospital administra­ tors that the purchasing agent Is an Important member of the 113 management team. In order to be recognized as an executive, he Bhould be able to plan, coordinate and control.

The purchasing agent w ill be in no position to perform

either function if he is constantly besieged by purchase

requisitions.

Through the media of group procurement, the purchasing

agent is relieved of the responsibility to locate sources of

supply, check quality, and negotiate terms. Quality price,

and terms are already agreed upon. Claims are made to the

group agency*

They have a far more potent club than the purchas­ ing agent. They represent the buying power of all the members, not a single Institution, In addition to knowing exactly the right person to contact. . . . They know personally supplier personnel in the higher„eoheIon to whom they can, if need be, appeal your case,20 This is an important time saving element in group

procurement. With his work load substantially reduced, the

purchasing agent is able to devote more attention to matters

in which he can be of great benefit to the hospital.

Such matters Include developing economic order quanti­

ties, checking use rates and standardizing on hospital supplies.

These important functions could not be performed through group

procurement, From a management point of view, group procurement

releases an important portion of the purchasing agent's time.

a8Ibid. Ill* This offers him the opportunity to devote more time to such matters as stock control, usage rateB and new sources of s u p p ly .

2. Opportunity For Discussion of Common Problems

Hospitals, regardless of size, have a great degree of sim ilarity. In the procurement area a purchasing agent faces numerous problems every day. He may take countless hours handling a problem which was successfully dealt with in another h o s p i t a l . Oroup procurement, in bringing purchasing agents and other hospital personnel together, affords them a unique chance. They are given the means to discuss problems which might have application in other hospitals. Common solutions may be adopted by different hospitals with considerable saving

in time and money. An important selling point with many suppliers is service.

This involves product information and technical advice. Re­

gardless how thorough this service is, at best it relays

outside information to the purchasing agent. A majority of

problems a purchasing agent faces are due to factors within

the hospital. Only those In Bimilar situations experience

analogous problems. An Important aBpect of this Interchange of ideas is that

it might prevent a problem from arising. Based on the experi­

ences of other hospitals, a purchasing agent may decide not to 115 procure a certain product or equipment. The result Is con­ siderable saving In terms of effort, time and headaches.

From a management point of view, group disouaslons offer the purchasing agent the opportunity to think in broader terms. It introduces him to different points of view such as those of the adm inistrators or trustees represented on the group procurement committees. This is especially true of regional group procurement agencies. They permit the purchas­ ing agent a greater degree of participation.

Through the media of group procurement, a purchasing agent is able to exchange very useful Information. In the opinion of one hospital officlal i "I would like to emphasize and reiterate . . . that all buyers, whether they be in the hospitals or institutions can benefit from the discussion of th eir common problems.

Group procurement offers the purchasing agent the opportunity to think in terms of the total hospital picture.

This is an Important characteristic of members of the hospital management team.

As the demands on the procurement division of a hospital increase, there w ill be a greater need for coordination and control. By releasing the purchasing agent from a considerable

a®Guy J. Clark, "Cooperative Purchasing," An Address to the Cleveland Hospital Council, Ootober 1956, Cleveland, Ohio. 116 amount of routine which may consume as much as 50 per cent of his time, group procurement offers him the opportunity to direct his efforts to more productive areas. The result is

greater coordination between the procurement function and

other hospital activities. An Important by-product is a broaden­

ing of outlook for the purchasing agent. He becomes more

competent in his position as a department head and member of

the management team.

F , SUMMARY

Of all the considerations which led to the adoption of

group procurement, cost remains the central factor.

The reduction of the cost of supplies is a primary

concern to hospitals as other cost areas continue to mount. Due to the diversification and complexity which charac­

terizes the hospital market today, other faotors are becoming

Increasingly lngiortant. The availability of testing facilities

at reasonable cost, along with product and price information,

have acted as added incentives for the adoption of group

procurement.

3°This Is based on an unofficial survey by the author of hospital purchasing agents in the Boston area. It is the author's belief that the estimate la a conservative one. In certain cases, routine may acoount for as high as 70 per cent t o 80 per cent of the purchasing agent's time. 1 1 7 Purchasing agents have the opportunity through group procurement to devote more time to areas where they can he more effective. With free exchange of Ideas, their outlook is broadened. This has resulted In a more efficient discharge of their responsibility as procurement managers.

The non-cost factors which are becoming important in the adoption of group procurement are in the nature of services.

As these services expand, hospitals w ill find a much greater incentive to adopt a group procurement program.

In reviewing the general analysis of group procurement

in Part I, It is important to note the following:

1, The hospital market is in a constant state of flux.

With advances in medical technology, it is becoming Increas­

ingly more complex,

2, The increasing complexity of the hospital market

along with other benefits has prompted the growth of group

procurement agencies. 3, Most group procurement agencies are still in the

Infancy stage of development. Group procurement experience

in the hospital field is less than half a century old, 4, There are important differences among group pro­

curement agencies which bear on sucoess or failure. These

differences are especially significant in the areas of

organization, financing, support and leadership. 118

5. To date, the major effort of group procurement agencies has been directed at cost reduction of hospital supplies. A serious weakness has been the lack of selec­ tivity in terms of Items cooperatively procured. 6. The availability of research and other facilities are becoming strong incentives to adopt a group procurement program, especially In small hospitals* 7. Cost considerations continue to be the central factor in the adoption of group procurement. They are supple­ mented by Bervlce facilities for testing and product infor­ m a tio n . 8 . The future of group procurement w ill depend on its ability to expand Its present scope of activity. There

Is great need to inform hospital management of the benefits of group procurement* This should result In increased support*

There Is also need for greater participation in the management of group procurement by hoBpltal purchasing agents.

9* The application of the principles of group procure­

ment to the hospital field w ill result in greater benefits

to hospitals and patients. Better quality products and improved

services w ill be available to all member hospitals at reduced

cost. This means that both the patient and the community

stand to gain from the adoption of a group procurement program. 119 With the completion of the general analysis of group procurement, It Is now possible to undertake a more detailed presentation.

A case study of the efforts of the Massachusetts Qeneral

Hospital in the field of group procurement is presented In Part

II. The Massachusetts Oeneral Hospital has played a pioneer­ ing role In the field of group procurement. Its application of group procurement is of interest to both large and small hospitals. The hospital^ efforts in terms of procurement on

a regional and national basis reflect situations common to many hospitals. The leading position which the Massachusetts General

Hospital enjoys in the hospital field gives such experiences

added Importance,

It Is to those experiences that we turn our attention. PART I I : A CASE STUDY

THE MASSACHUSETTS GENERAL HOSPITAL 121

CHAPTER V

EVOLUTION OP THE PROCUREMENT FUNCTION AT THE MASSACHUSETTS GENERAL HOSPITAL

P ag e

A. Historical Development ...... * ...... 123

B. Evolution of the H ospital1a Organization and Manage­ m ent 1 24

1. Hospital Organization in 19th Century ...... 126

2. The Shift to Centralization In the Early 20th Century, .127

3. Hospital Organization and Management After World War II ...... 131

C. Procurement TrendB since 1938 ...... 13 6

1. Centralized Procurement ...... 1 3 9

2. Group Procurement ...... 142 CHAPTER V

EVOLUTION OP THE PROCUREMENT FUNCTION

AT THE MASSACHUSETTS GENERAL HOSPITAL

A. HISTORICAL DEVELOPMENT

The M assachusetts General Hospital has had a long and arduous climb for over a century and a half to become one of the leading hospitals In the United States. It was the first voluntary non-profit hospital In New England; the third

In the nation.

The day an ailing seaman walked Into the Bullfinch Building on Prlnoe's Pasture in Boston's West End, the practice of medicine In New England began its soaring asoent to greatness. The seaman was the first patient at the M assachusetts General Hospital when he entered on September 3, l8 ll.

From such humble origins grew one of the finest Insti­ tutions for medical care in the World today. For the patt 150 years of Its existence, the Massa­ chusetts General Hospital has been a Joint venture with the

Harvard Medical School. Today over a hundred of Harvard's medical students in their third and fourth years are taught there. The large m ajority of the five hundred members of the hospital staff is also on the faculty of the Harvard Medical

1Harold Banks, "School and Hospital Uhlte to Educate the Doctor," A Special Report by the Boston Sunday Advertiser, for the 150th Anniversary of the MassacnusettA General Hospital, December 3, 1 9 6 1 , p . 2 . 122 S c h o o l.

"At the end of Its first year (l8ll), the Hospital's assets were reckoned at $202,4o6."2 In 1959, the H ospital's assets stood at $58,377,936.-^

The growth has not been in size only. From the date of its establishment, the Massachusetts General Hospital has been famous for its contribution to the field of medicine.

Many of its prominent doctors have long since become world f i g u r e s . ,

The present generation of prominent doctors at the

Massachusetts General Hospital are responsible for such accomplishments as surgery with slow neutrons to destroy minute brain tumors. For this purpose, they have established an operating room, the only one of its kind in the world, under the Nuclear Reactor at the Massachusetts Institute of

Technology.

With expanding facilities, service was improved and greatly extended. "Last year 225,000 visits were made by patients to the Hospital's forty-five clinics. The General

Hospital, the Philips House and the Baker Memorial admitted

25,610 men, women and children. The emergency ward tended to the desperate needs of 3 8 ,2 5 8 persons, an average of one every

2Ibid., p. 3.

^"Massachusetts General H ospital—146th Annual Report," Report of the Treasurer, 1959, P. 135. 124

14 minutes around the clock. Prom the rudimentary research which led to the adoption of ether in surgery in 1846, today's research represents to the Hospital an annual expenditure of about 5 m illion dollars.

Expenditure on research and other facilities has been a costly proposition to the Massachusetts General Hospital.

"Income never quite matches expenditure at the Massa­ chusetts General Hospital. Last year when the Hospital spent

$17* 100,000 for patient care, its total Income from patient's payments, insurance for patient care, and public assistance for needy cases came to $15*300,000."^ Increaaed expenditure on research has reflected Itself in a rapidly growing volume of procurement. The present procurement budget of the Massachusetts General Hospital am o u n t b to about five and a half million dollars annually. At the time, when the Hospital's budget portrays close to two m illion dollars deficit, the subject of group procurement should be especially significant to management.

B . EVOLUTION OP THE HOSPITAL'S MANAGEMENT

AND ORGANIZATION

The evolution of the procurement function at the

4 Ibid., p. 2. 5 "M assachusetts General: An Archipelago of Excellence," Fortune, August 1961, p. 105, 125 Massachusetts General Hospital reflects changes In the 6 H ospital's philosophy of management*

The procurement function, though a separate entity,

forms an integral part of the Hospital's total policy. Pro­

curement is a service function. The service requested from

the Procurement Division at the Massachusetts General Hospital,

has been to provide the needed m aterials and supplies* T ill

recently, little use was made of it as a tool of management

for control purposes.

The overriding aim of the Hospital remains today, as

In the past, professional excellence in all the field of

medicine. "At the time of its organization in ld ll, Massachu­

setts General set Itself what was then a simple objective! to

be a respectable place for patients from all over the common­

w e a lth , In the past 150 years of its existence there has been

a great deal of change at the Massachusetts General Hospital.

"Five hundred and fifty staff doctors and one hundred and

thirty residents care for an average of 950 hospitalized patients

and 700 of the walking sick every day, at an annual cost of

$17,500,000* The Hospital has a staff of seventy five general Q surgeons and seventy surgeons In the various specialties*11

^Hospital (capitalized) la used throughout Part II to refer to the Massachusetts General Hospital* 7Ibid., p. 1 03. 8 Ibid*, p. 102* 126

In order to comprehend procurement trends and poli­ cies, It is necessary to examine the Hospital's philosophy of management since It determines executive action both within and outside the procurement area. The philosophy of manage­ ment at the Massachusetts General Hospital is deep rooted in one hundred and fifty years of history. It Is, therefore.

Important to study the H ospital's organization and the staff relationship as It evolved over a period of a century and a h a l f ,

1, Hospital's Organization In the 19th Century

The rudimentary type or organization which was prevalent

in the early years of the 19 th century was based on a rota­

tional system. Visiting physicians and surgeons divided the year among themselves. Each assumed responsibility for his

service for a period of four to six months. The rotational

system, was in Itself a development from the one man policy

p r i o r t o 1 8 3 5 , where only one physician and one surgeon served

the Hospital. Hospital needs then were not too extensive. It was

necessary, however, as service expanded to increase the number

of rotating surgeons and physicians. By the mid-century mark, the number of services were increased and with It the number

of visiting surgeons. Instead of one medical service, there

was now two—the East and West Medical Service, The same 127 applied to the Surgical Service. From a management point of view as new staff were added, on a rotational basis, responsi­ bility was further subdivided, and became Increasingly diluted,

"By 1900, It was generally felt that the fears expressed 9 by Dr. John Collins Warren back In 182 8 had now been realized,"

The loose type of organization effective in the early formative years had outlived its usefulness. With the 20th Century, the

Hospital had expanded considerably to meet the growing needs of an expanding population. There was need to change the present organizational system into a new more effective form.

"A divided responsibility is a doubtful one, and In

this case would be Inevitably attended, with a diminution of

interest and effort ." 10 It waB not until a decade later that

a new form of organization finally took shape. It constituted

a major departure from the concept of divided responsibility.

2, The Shift to Centralization In the Early 20th Century

The major aim of the M assachusetts General Hospital's

management In the early 20th Century was to achieve a greater

degree of continuity. The continuous service concept had been

tried at other hospitals, such as John Hopkins, and was found

^Dean A. Clark and Mary E, Hurst, "Staff Organization and Adm inistration at the M assachusetts General Hospital," A Speolal Report, March 1 9 6 1 * P* 3* 10Fredrlch A, WiBhburn, M.D., The Massachusetts General Hospital, Its Development 1900-1935, Houghton Mirriln Company, Boston,- 19397 p. TV. 128 successful.

The first such appointment was that of Dr, Fredrick

C. Shattuck, who was appointed as continuous visiting physician in 1903, Soon the surgical services followed suit and went a step beyond. The senior surgeon, Dr, Maurice H,

Richardson was appointed In 1911 as surgeon-ln-chlef. This was a clear departure from the philosophy of divided responsi­ bility, It created continuity as well as unity of command.

The adoption of this new management policy was to be especially significant to the advisory board which coordinated the work

of the whole Hospital. Prior to the adoption of the continuous service policy,

the advisory board was comprised of all the visiting surgeons

and physicians, numbering In 1911 about 20. "It was so large that it was difficult to achieve consecutive thought and plan­

ning* Not Infrequently the men who were present at one meeting

were to a considerable extent a different group from those who

attended the previous session."1*

The function of the board was to advise the trustees

on matters pertaining to the hospital. Its major responsi­

bility was to operate and coordinate all hospital activities. Due to Its form of organization, such an aim was rarely achieved. "Whatever the reasons, attendance was Irrggular, Interest

vacllated and communication with the resident physician was

n ibid., p. 8 5 . 129 1 2 often neglected, resulting in friction and ill-w ill."

With the introduction of the concept of continuous service, there w$s need to consolidate rather than to parcel out responsibilities. This is clearly shown in the pattern of organization prevalent In 1912, {Chart 5) The General Executive Committee, which replaced the advisory board, centralized authority in its hands by assuming direct control of all surgical and medical departments. The resident physician, who was the Director of the Hospital, was also a member of the General Executive Committee. The position of Director took importance only through membership in the General Executive Committee, The D irector had no direct control over any medical or surgical department.

The General Executive Committee did not report to him but to the Board of Trustees. The Director reported to the Board of

Trustees and acted in an advisory capacity to the General

Executive Committee, The organizational plan of 1912 made the General Execu­ tive Committee the top operating authority at the Massachusetts aeneral Hospital. It centralized authority in the hands of

a committee rather than one person. Much of the same is in

evidence half a century later.

12 Clark and Hurst, oj>, c lt., p. 6. 130 r--

'I~ ~ II il - .. ~ I .~ B 8 B --- II I .. ~~ i ~~If] i~ 6 __ ....,. ____ .,.. ______o L~ .....·~~ ~-.-.------~· ..---- ~~ ~fj Iii

5 •II I miH ~~ ~------u!li .. gt! " a(~ I II ia 13d 3. Hospital Organization and Management After World War II

After the organizational plan of 1912, the H ospital's management represented by the Oeneral Executive Committee faced a new problem. Their gajor concern was how to provide for the widest representation of the different Hospital viewpoints on the General Executive Committee without impairing its effectiveness*

The problem had two major parts: (l) to give due recognition to the growing laboratory departments such as radiology and pathology, and (2) to provide fair representa­

tion for the special departments which were not included under

surgical or medical services. In the first instance the chiefs

of pathology and radiology were admitted to membership on the

General Executive Committee, The second problem was more

i n t r i c a t e . By 1937, there were eight special departments repre­

sented by a special department member. It was extremely hard

for one member to represent accurately the divergence of

opinions of the eight departments.

Expanded representation on the General Executive Commit­

tee was not felt to be an adequate solution. There was the possibility that with future expansion and further additions,

the General Executive Committee w ill lose its essential

flexibility through large membership.

The plan of reorganization conceived by the General Executive Committee involved essentially a revitalization 132 of the roles of medical and surgical executive oom- mlttees, to function aa active channels from the special departments to the General Executive Committee, J This meant that representation for the speolal departments was to be Indirectly through their respective services. As the medical and surgical services expanded, there was need for further consolidation. The surgical services were merged under one chief of surgical services. The same applied to medical services. Through the process of consolidation of the surgical and medloal services, membership from each was limited to the chief of service. There was serious question as to whether the other member should be appointed or elected, A major departure from established procedure occurred when the true* tees approved In 19^8 the election of two "members at large" to be elected by both services oomblned. With the admission of the ohlef of service of psychiatry and a representative of the McLean Hospital, -14 the General Executive Committee was comprised of nine members—the ohlefs of medicine, surgery, radiology, psychiatry, pathology, two members at large from the medloal and surgloal ssrvloes, the General Director and the McLean Hospital representative. This was Initiated In 1948 and Is s t i l l true today aa evidenced by the 1961 organization chart. (Chart 6)

^ Ibid., p. 20, 1J1A hospital for mental disorders affiliated with the Massachusetts General Hospital, ~ - ~~...__...--.....~---~~~~-·-~--· ~-·- ·~·------·- .... ·.--~-

,. -... 133 ~ . -

I ~ ( I I I I- I t • • I I ' _i~

R ~ ~ i ( J I I I I I - I I ~ I ~~~ il I J I R ~ 11

g I • ~ ..• I •n ...~ I 0\ (_'1 I :i Slnoe th* end of the World War II, the Hospital has undergone a very rapid expansion and modernization of faci­ lities* As the work load increased, there was greater need for delegation* An administrative committee comprised of a ll assistant directors was formed in 1952* It was intended to provide eaoh member of the administration with a means to participate in all operating decisions• As committees began to mushroom by appointment from the General Executive Committee, a new problem aroBe»to coordinate, supervise and control the varied activities of the committees. There was need for liaison between the different bodies of the Hospital to create a oohaslva entity. With size came some Inherent disadvantages which characterize large organi­ zations, The solution was to be Interlooking membership between the three major segments of the Hospital, These are the trustees, the staff represented by the General Executive Committee and Administration represented by the Administrative Committee, Six members of the trustees, the chairman of the General Executive Committee and the General Director formed a commit­ tee under the name "Trustees* Committee on the Qeneral Hospital, The new committee provided an effective basis for communica­ tion between the trustees and the sta ff. 136

The chairman of the Adm inistrative Committee was

admitted to the General Executive Committee, which provided

for liaison between Administration and Staff. As a result of all these moves, the General Executive Committee remains

today the central authority for the whole Hospital.

Prom a loose pattern of relationships, the Maesaohu-

setts General Hospital has undergone a aeries of organisa­

tional changes, which have resulted in a wider representation

for all services and more effective coordination.

At present, In view of the large size of the Hospital,

there is a greater emphasis on coordination and communication.

The Initial efforts of the H ospital's management were direoted

at consolidation. Later, a number of organizational changes were made to achieve widespread representation.

Management of the M assachusetts General H ospital is

prim arily by the committee system. All committees of the

Hospital are subordinate to the General Executive Committee,

which is overwhelmingly dominated by the professional staff.

In fact, every member of it, inoluding the representative of

the adm inistrative committee is a medical doctor. This has

meant greater influence for the professional staff in formu­

lation and application of operating policies.

The present organizational structure and system of

management at the Massachusetts General Hospital has had

serious repercussions on the procurement policies of the Hos­

pital. Such effepts w ill be presented at greater length in 136 subsequent sections. It Is necessary to point out at this stage that the professional dominance of the administrative machinery at the Hospital has limited the scope of Indepen­ dent action by the administrative officers. The procurement area and other service areas were obscured until the past decade. Generally, this has been due to the lack of qualified personnel to operate these service functions and the limited knowledge the professional staff possessed in those areas.

The Hospital1 b organization and management reflects its e lf In the procurement trends which have evolved in the past decade. The status of the procurement division and Its relationship to other departments underwent a series of changes. These changes illustrate the degree of awareness by hospital administration of the Importance of the procurement function,

C. PROCUREMENT TRENDS SINCE 1938

The procurement function at the Massachusetts General Hospital has been in a state of flux since the establishment of the Hospital, The modem history of procurement at the Massachusetts Oeneral Hospital dates back to 1938* This co­ incides with the second major reorganization of the Hospital structure in 1 9 3 7 * From 1938 to 1955* two persons dominated the procurement 137 area at the Hospital—Mr* Allan Mathewson and Miss Mathilda

W a g n e r , 1 5 During this period, the procurement volume expanded six-fold, from about $400,000 in 1938 to close to two and a half m illion dollars in 1955.16

In 1953, Hr. Mathewson left the Hogpltal service at a 0x^10181 period. In New England at that time there was being organized the first hospital group procurement agency— the Hospital Purchasing Corporation, which was established in

1952, In the following two years, two persons tried to fill the vacant post unsuccessfully,1^ Miss M athilda Wagner con­

tinued until 1 9 5 6 , to end a thirty year servioe with the

H o s p i t a l , On the management front, there were also some important

changes taking place. Dr, Dean A, Clark assumed his position

as General Director In 1946, In 1953, a graduate in hospital

adm inistration Joined the Massachusetts General Hospital to

complete his residence requirements. This was Mr. Fredarlok

Foster, later to be promoted to Assistant Director, Until his

resignation in I960, the years which followed, especially in

the procurement area, came to be known as the "Foster Era,"

1^Mr. Mathewson was Purchasing Agent; Miss Wagner his a s s i s t a n t . ^From the records of the Purchasing Department.

1^Mr, A. Rlppley and Mr, F. Fir num. 1 3 8

In 1955, Mr, Joseph F. H ill, Jr., was chosen to fill the post of purchasing agent at the Massachusetts General

Hospital, He was formerly purchasing agent at the New England

H o s p it a l . With Mr, Foster as member of the Administrative com­ mittee, and vitally interested in the purchasing department,

the procurement area found a spokesman in administration

circles. This Insured a responsive ear in higher circles and

changes in the procurement area quickly began to occur.

Prior to 1955, the procurement area was oharaoterlzed by a large degree of decentralization and lack of control.

Most departments were doing a large part of their own purchas­

ing, They later informed the accounts payable division of

the purchase. More often than not, the accounts payable

division had no Information that a purchase had been made until

the supplier's invoice was reoeived. The invoice was sometimes

forwarded a few weeks to a few months after the order. There

was no efficient system for finding how much was received,

who received it or whether the supplies were ever received.

In addition to decentralization in the procurement area

within the Hospital, there was little agreement as to who

ordered supplies within eaoh department* Usually a member of the secretarial staff took charge. This did not prevent any

member of the professional staff from ordering supplies when­

ever it was felt necessary. 139 The procurement situation prevalent In the early part

of the last decade was one which bordered on anarchy. By 1955 » the procurement volume amounted to two and a half million dollars. There was urgent need for greater control, which meant Instituting a system of centralized procurement.

18 1. Centralized Procurement

Efforts at centralizing the procurement function at

the Massachusetts General Hospital met with Immediate opposi­

tion. The question was not whether there were any advantages

to such a move. It was a question of status and individual prerogative which confronts the purchasing agent at every cross­

ro a d . "Where, except In the field of grand opera, are more

prlma donna or rugged individuals to be found not only among

the medical staff, but in all departments of the hospital."1^

In the opinion of certain members of the Hospital staff, centralized procurement meant an unnecessary duplication of

work. There was also a question of the ability of the pur­

chasing department to buy technical supplies.

^For an explanation of centralized procurement check Chapter. I, "Definition of Terms." 19 Sister Mary C.S.C., "Standardization! A Key to Scientific Management," Hospital Progress, October i 960 , p. 54, Sister Mary la administrator, St. Jonh rfloky Memorial Hospital, Anderson, Indiana. 140 The need for centralization at the Massachusetts General Hospital was becoming more critical with every pass­ ing day. The cost of hospital supplies had risen sharply. The laok of an effective control led. In many instances, to poor quality materials at unreasonable prices. The friendship and other personal attachments of some members of the Hospital Btaff to certain local suppliers resulted in doubtful procurement practices. The major effort at consolidation of the procurement function was directed at the medical and surgical supplies. Up to November of 1959, medical and surgloal supplies were bought dlreotly by the pharmacy* After November, 1959, the pharmacy forwarded ltB requests to the purchasing department who placed the orders. Along with the consolidation move came a switch in personnel. Miss Eileen MacLaughlin, who was responsible for procurement of medical and surgical supplies for the pharmacy, became a member of the purchasing department. The next move at consolidation of the procurement function came through a series of administrative steps. No purchase request from any department was accepted unless i t was properly authorized by the head of the department. All purchase requests, in excess of fifty dollars drawn on general funds had to be oleared with the assistant director in charge of the area. The move was Intended to Improve the degree of oontrol on expenditures for supplies within the Hospital. Orders l 4 l plaoed with outside suppliers which by-passed the purchasing department were not honored by the aooounts payable division. This became a very significant method of oontrol when the accounts payable division was placed under supervision of the purchasing department. All purchases of maintenance supplies, printshop supplies and medical and surgical items were centralized through the purchasing department. This is in addition to a ll Items regularly carried in the Hospital store such as surgical dressings, linen and paper products. All items used by the Hospital were purohased through one department. The only exceptions were food and specialized surgical equipment. Pood, especially the fresh variety, was purohased by members of the dietary department. They generally secured order numbers in advance, which they quoted to the suppliers. The purchasing department would be Informed what purchase order numbers were given out and confirmation orders would then be issued. Orders for the canned variety of fruits and vegetables were negotiated by the purchasing department in close oooperatlon with the dietary department. It must be noted that the centralization of the procure­ ment function within the purchasing department did not mean the Isolation of a ll other departments from the procurement activity. The opinions of other departments were aotlvely sought as to sources, quality and usefulness of items procured. 142 They generally responded positively with helpful advice which served as guide posts for future procurement decisions,

2. Group Procurement 20 Ohtll a deoade ago, the Massachusetts General Hospital had only taken participation In group procurement programs and no centralised procurement. Both are closely related and the period of their application at the Massachusetts General Hospital overlapped. While the consolidation of the procure* ment function was being undertaken within the hospital, other efforts were being exerted to participate effectively in group procurement programs. With the consolidation of most of the procurement activity within the purchasing department, the volume of pro* curement had more than doubled In five years. (Table VIII) The large volume of procurement gave the Massachusetts General Hospital added weight in any group program. When the Hospital Purchasing Corporation was organized in 1952, the Massachusetts General Hospital showed little interest. This Is evldenoed by the total absenoe of any pur* ohases made through the agency in that year. For the same period, purchases by the Hospital from other group procurement agencies, such as the Hospital Bureau, Inc., were negligible.

20For a detailed description, please oheok Chapter I, "Definition of Texew." 143

tabu : vizi VOLUME OF PURCHASES MASSACHUSETTS QENERAL HOSPITAL SELECTED YEARS

Year Hospital Size Purchasing Volume No* of Purchasing (Beds) (Dollars) Personnel

1938 526 400,000 2 1955 916 2 , 500,000 3 1961 949 5,500,000 7

Sourcet Massachusetts Qeneral Hospital, Purchasing Departments Reoords.

After 1953* major changes In the procurement policy of the Hospital occurred* The Massachusetts Qeneral Hospital beoame the central figure In the group procurement movement In New England. Mr* Frederick Poster, Assistant Director at the Hospital, became Vice-President of the Hospital Purchasing Corporation and a member of it s exeoutlve committee* He actively sought increased support for the agenoy among the New England hospitals. Of the four subcommittees of the Hospital Purchasing Corporation, representatives of the Massachusetts Qeneral Hospital generally held the majority of chairmanships* In­ creased representation by the Massachusetts Qeneral Hospital meant increased participation* (Table IX) 144

TABLE IX

MASSACHUSETTS QENERAL HOSPITAL VOLUME OP PURCHASES THROUGH THE HOSPITAL PURCHASING COMPANY

Y e a r Total Purchases M.Q.H. Purchases Percentage of (H.P.C.) from H.P.C, T o ta l fit $ *

1956 1 , 0 2 5 ,7 8 8 1 6 2 ,5 0 8 15.S 1956* 509,900 135,700 2 3 .0

I9 6 0 2 , 1 0 7 ,0 0 0 5 3 3 ,0 0 0 2 6.2

Source: Analysis of Purchase Sheets, Hospital Purchasing Corporation,

♦The period covered only includes October 17, 1956 to February 28, 1959*

From 1956 to i 9 6 0 , the Massachusetts1 Bhare of total purchases made by the Hospital Purchasing Coloration rose

fro m 1 5 *6 per cent to 2 6 .£ per cent. Massachusetts Qeneral H ospital's role in group prooure-

ment was not lim ited to regional programs. Efforts by Mr,

Frederick Foster, Assistant Director at the Massachusetts

Qeneral Hospital led to Hospital Bureau, Inc., membership by the Hospital Purchasing Corporation In February of 1957*

The Hospital Bureau, Ino., acoepted membership by

Individual hospitals and by hospital councils such as the

Hospital Purchasing Corporation. The outcome was greater 145 participation Indirectly by the Hospital In group procurement on a national basis. With the resignation of Mr. Frederick Foster from the service of the Massachusetts Qeneral Hospital in I960, group procurement lost one of Its most enthusiastic exponents. There was a marked change In the Hospital's procurement policy. First, there was a tendency towards decentralization. Opera­ tions and control of the Stores were placed under the Comp­ troller's Office. Frintshop control was also removed from the Purchasing Department supervision and added to the responsibilities of the Cooptroller's Offloe. Seoond, in the area of group procurement on a regional basis, Massachusetts General Hospital lost Its leading position. lfter 1955 Massachusetts Qeneral Hospital's participa­ tion was the cornerstone of every group procurement effort on a regional basis. After i 960 , the Hospital's participation remained Important but not v ita l. The Importance of leadership in a group procurement progran cannot be too strongly empha­ sized. It has already been dealt with in previous sections pertaining to success or failure of group procurement agencies. The void which was created by the departure of Mr. Prederlok Foster from the Hospital scene remains today unfilled. The procurement policy of the Massachusetts Qeneral Hospital seems to have gone almost a complete olrole. In the thirties and forties, the procurement activity at the Hospital 146 could be more accurately deaarlbed as order placing* With changes In personnel, In management and within the Purchasing Department, a marked ohange In the prucurement function ocourred. Two trends overlapping In their application were changing the procurement pattern* The fir st led to a greater degree of centralization of the purchasing function. The seoond trend meant a greater orientation toward group procurement in an effort to maximise the value of each purchas­ ing dollar* Both trends are now well established at the Massachu­ setts Qeneral Hospital* With the loss of strong support among top administrators of the Hospital, the trends towards centralization and group procurement have suffered a serious setbaok. Changes In procurement polloy at the Massachusetts Qeneral Hospital reflect changes In the Hospital's philosophy of management. The present management philosophy is for greater participation of all departments In operating deelslons* This should permit the Purchasing Department to make meaningful contributions In the area of procurement polloy. The experiences of the Massachusetts Qeneral Hospital In regional and national group procurement form an Important basis for future action. Through a detailed analysis of these experiences, It should be possible to make Intelligent decisions as to the future course of the procurement function at the Massachusetts Qeneral Hospital. 147

CHAPTER VI

AH ANALYSIS OP CtROUF PROCUREMENT BY THE MASSACHUSETTS QENERAL HOSPITAL ON A REOIONAL BASIS

Page A* The Hospital Purchasing Corporation ...... • • • 148 1, History and Development ...... 149 2, Organization and Membership ...... • • • • • 151 a. Present Type of Organization ...... 152 b, Membership Requirements...... * • 156 3, Methods of Financing ...... • ...... 153 B, Effeot of Regional Procurement On Hospital Operation and Service * ...... •••••...... • . . 162 1, Price Advantages...... 164 a. X-Ray F ilm ...... 165 b, Linens...... * 1 6 7 c* Paper Products ...... 170 d, Food Supplies ...... 173 2* Other Advantages ...... 176 a. Direct...... 177 b. Indirect...... • 1?3 C, Obstacles to Developing Regional Qroup Procurement Contracts ...... 179 1. Qeneral Factors which Affect the Massachusetts Qeneral Hospital's Participation ...... 180 a. Inability to Adjust Hospital's Operations • 180 b. Lack of Proper Inform ation ...... 182 c. Strong Ties with Local Suppliers ...... 183 2. Special Limitation to Oreater Participation By the Massachusetts General Hospital...... 184 a. Status of the Procurement Function. .... 184 b. Problems of Professional Prerogative. . . . 185 c. Large volume of Purchases ...... 187 CHAPTER V I

AN ANALYSIS OP GROUP PROCUREMENT BY THE MASSACHUSETTS GENERAL HOSPITAL ON A REGIONAL BASIS

A, THE HOSPITAL PURCHASING CORPORATION

Ten members of the boards of true tee a of the largest hospitals In Boston met In 1951 to determine the fe a sib ility of establishing a group procurement program*1 Having found that such a program would have application In the Boston area* the originating group established In March of 1959# a non-profit organization under the state law a of Massachusetts which was known as the Hospital Purchasing Agency. In 1953* the new organization was incorporated and renamed the Hospital Purchas­ ing Corporation. It remains today as the only regional group procurement organization In Massachusetts In the hospital field. The role which the Massachusetts Qeneral Hospital played In regional group procurement during the early f if t ie s was minimal. This was largely due to factors within the Hospital. There were two ohangeovers In purchasing personnel between 1953 and 1955* The result waa minimum commitment by the Massachusetts General Hospital to any group effort until the situation within the procurement area was stabilized.

1Further details are presented In the following Section ’'History and Development. 11 1*8

* t 149

By 1955, with the appointment of Mr. Joseph P. H ill,

Jr., purchasing agent, the procurement division at the

Hospital gained a greater degree of stability. The Massachusetts

General Hospital also assumed a much more active role in the

operation and growth of the Hospital Purchasing Corporation.

The development of the Hospital Purchasing Corporation

has not been without difficulties. In the early years there

were serious questions as to its continued existence. At

present It is well established as a group procurement agency.

The growth of the Hospital Purchasing Corporation in the past

eight years has averaged a twenty per cent increase per year

(Chart 7) with the exception of 1960. In that year purchases

amounted to $2,107,534 which was a forty per cent increase in

the total volume of business over the 1959 figures of $1,503,404.

The rise in the volume of business in 1960 was due to increased

participation by member hospitals.

1. History and Development

The Hospital Purchasing Corporation was established

on the basis of an analysis undertaken by the organising group

of the six leading hospitals in the Boston area. Items of

large volume such as drugs, X-Ray films and paper products

were studied and prices paid by these six hospitals were com­

pared with prices quoted by suppliers on the basis of the combined volume. 150

* *»«■.< ■ - \ r- , Vh. 3 I . ■>...... :f 1 § f l x.--; ■ r a

3 s > * -i

h ! JVV■* ‘A i. l. 7 H d A h ,- M ■ ' i{

VV. v.. \ ...... i. Mi.. . *!«>*»a***.**; *ii .. i i M * » « N -4 f t M O * * f t * i Cl

WW.V ..... '■ ? f 3 3 v w .

3 *T' •■♦•...* .i. 3 a

I * A(* ■ I I i ‘ I ; ;a ; . * 8 j - m : I \ ■ ■■'■./■ 3 i i Hs O ■ Tl;1' X>^ I I \ j f r v / I I I » i

§ 3 § 3 8 § 3 a 151

Although the volume Involved was a little over 700,000 2 dollars, the potential volume was many times thla amount.

It was considered that a minimum volume of half a m illion dollars waa necessary to launch the group program. First year’s operations produced a volume of purchases of a little less than two hundred thousand dollars.

In the early stages of its organization, the Hospital administrators and purchasing agents were not consulted.

This was to prove a serious handicap for the future growth of the agency. Two major problems faced the organizing group. First, the type of organization which would characterize the agency and, seoond, the method of its financing. Each of these problems w ill be evaluated separately.

2. Organization and Membership

Three alternative forms of organization were first considered by the forming group. One was to have a represen­

tative from each hospital forming an ipso-facto executive

ooramittee. There was a serious question as to the effective­ ness of this type of organization.

o The combined dollar volume for all five items was about 710,000. Drugs were the largest item with $350,000; paper products $50,000; X-ray films $40,000; gauze $150,000 and sutures $20,000. The two largest hospitals did not report any Interest in purchasing sutures on a group basis* 152

Another alternative was to organize the new agency as a subsidiary of the local hospital council. The hospital council ia operated by the United Community Services. The strong ties between the local suppliers and the United Com­ munity Service meant that Independent procurement decisions would be imperiled. In order to maintain the support of the major contributors* there might be undue Influence on the group agency to favor the major contributors with hospital orders. Such a situation would prevent the achievement of the major aim of the group agency, that being securing the best possible quality at the lowest possible price.

Another alternative was to organize the agency as a business corporation. The appeal of a profit motivated organization to non-profit hospital institutions is limited.

Having rejected all three alternatives, the organizers decided on a non-profit corporate form of organization with a board of directors elected by member hospitals. The board would elect from its membership an executive committee for the

Hospital Purchasing Corporation.

a. Freaant Ty£e_of Organisation*. The present organi­ zational structure of the Hospital Purchasing Corporation Is a simple one. It follows a line relationship from the Board of Directors, which is elected by the members, to the Executive

Director, who is the administrative head of the Hospital Pur­

chasing Corporation.

% An association of hospitals in the metropolitan Boston area. 153

The Executive Director la Mr. Parker D. Perry who has been with the Corporation since 1956. He is aided by two

Executive Assistants and a secretarial staff.

The major part of the work of the Hospital Purchasing

Corporation is conducted by four permanent committees. These

are the Standardization and Purchasing Committee and three

subcommittees of it which are the food, maintenance and drug

committees (Chart 8). The most important committee of the

Hospital Purchasing Corporation is the Standardization and A Purchasing Committee. It sets procurement policies and pro­

cedures, selects items for standardization and votes on all

contract awards.

The Standardization and Purchasing Committee has three

subcommittees to help it. The oldest subcommittee is the Food

Committee. In the latter part of 1957, two other committees

were formed. These were the committee on Drugs and Pharma­

ceuticals and the committee on Maintenance Supplies.

A description of the operation of the Food Committee

is presented here to Illustrate the method by which contracts

are awarded by the Hospital Purchasing Corporation.

Whenever a contraot in the food area is contemplated, a

questionnaire is circulated to all member hospitals of the

^By-Laws of the Standardization and Purchasing Com­ mittee of the Hospital Purchasing Corporation appear in Appendix B, section 11, p. 295. •f lanlfelt) 155

Corporation.® The hospitals indicate their Interest In becoming party to the contract and Inform the Corporation of the volume they w ill be able to commit.

In the food area, samples are requested with eaoh bid, whloh are tested and analysed by the food subcommittee. After the bids have been tabulated by the food subcommittee, a recom­ mendation for award or rejection is made to the Standardisation and Purchasing Committee. In almost every case the recommenda­ tion of the subcommittee is followed, though they do not necessarily bind the Standardisation and Purchasing Committee.

Qnos the contract is awarded member hospitals place their orders directly with the supplier. The Hospital Pur­ chasing Corporation, unlike the Hospital Bureau, does not receive purchase orders from member hospitals for placement with a supplier. It does not pay suppliers unless the Hospital

defaults. Hospitals pay suppliers directly on the basis of published prices by the Hospital Purchasing Corporation. Such prices do not include a markup since no markups are charged by the Corporation. On the basis of the previous yearfs operations, a budget is drawn up eaoh year whioh is divided

among member hospitals on the basis of hospital beds.

Some hospital items lie outside the Jurisdiction of the

food, maintenance or drug subcommittees. In such lnstanoes

5Corporation {capitalised) is used throughout this chapter to refer to the Hospital Purohaalng Corporation. 156 the Standardization and Purohaalng Committee may choose to appoint an ad hoc committee to Investigate a prospective con­ tract and make it s recommendations directly to the Standardi­ zation and Purohaalng Committee.

b . Member ship_Requirements

At present there are two types of membership—participa­ ting and associate membership. Participating members have fu ll voting rights in the affairs of the Corporation. All hospitals which are members of the greater Boston Hospital Council are elig ib le. Also elig ib le are non-profit hospitals or health institutions, located within the Greater Boston Hospital Council area which has a radius of thirty miles from the Boston Harbor, (Chart 9)* This excludes from active membership a ll non-profit 6 hospitals outside of the thirty miles radius. Profit institu­ tions and government hospitals are excluded within this area. The other type of membership in the Hospital Purchasing 7 Corporation is associate membership. Associate members are not eligible for election to the board of directors. They do have, however, representation on the Standardization and Purchasing Committee. In this way, they are In a position to participate actively in contract negotiations.

^Wlfeh the exception of Topsfleld, Hamilton and Manchester, all other areas are within the thirty miles radius from the Boston Harbor. 7Latest membership regulations appear In the Appendix B, section 9# P. 284. Chart 9 GREATER BOSTON HOSPITAL OOUHOIL Sarvlo# Area

IM

7 A - ^ 'v w i

mi

Source: Eighth Annual Report, The Hospital Purchasing Corporation, September 30, 1960.

157 1 5 8

Associate membership of the Hospital Purchasing

Corporation was opened to non-profit hospitals and health in sti­ tutions outside the thirty miles radius previously described.

Associate membership privileges were also accorded to educational and other charitable Institutions throughout the New England

States with no restriction as to geographic area. The specific

Intent was first, to encourage the large educational institu­ tions in the Boston area to join in the Hospital Purchasing

Corporation group procurement program, and second, to extend the scope of activities of the Hospital Purchasing Corporation beyond the Boston area. Present membership of the Hospital Purchasing Corporation

stands at thirty-five of which about ninety per cent are parti­

cipating members.

3. Methods Of Financing The organization of the Hospital Purchasing Corporation

in 1952 was faced with two main financial problems. First,

they had to provide for the necessary funds to meet the first g year's annual expense budget. Second, the organizers had to

raise an estimated amount of $ 3 0 ,0 0 0 for a Bpeoial fund to be used for prompt payment of suppliers1 invoices which is a major

o The expense budget was apportioned at f o l lo w s : Salaries $16,000 Supplies & Utilities 7*000 B ent 2,000 T o ta l 156 advantage In dealing with group procurement agencies. This special fund was called a revolving fund and was needed because in its early years of operation, the Hospital Pur­ chasing Corporation received orders from its member hospitals, relayed these orders to the suppliers, paid for them, then billed the hospitals. This was changed to the present system of direct order placement and payment described earlier in the

illustration of the operation of the food oommlttee.

In order to raise the needed amount for the annual

expense budget, the organisers decided that both hospitals

and the United Community Services share the first year's ex­

penditure. The contribution by the member hospitals was based

on the number of beds in each hospital; the balance was paid

by the United Community Service. It was felt that for future

years, member hospitals would be able to apportion among them­

selves, in the form of annual dues, all expenditures incurred by the Corporation.

The revolving fund was to be raised through deposits

by each member hospital. The amount of eaoh member's deposit

Is equivalent to $0.02 per annual patient day. For eaoh

deposit by a member hospital a note is issued by the Corporation

payable on demand and without interest. The revolving fund is

presently used to pay suppliers for defaulted Invoices by member

hospitals. Although the contribution to the revolving fund takes

Total annual patient days for each hospital are based on the total number of hospital admissions per year multiplied by the average length of stay (in days) per patient. 160 place only once upon becoming a member, there are yearly dues to meet operating expenses which are paid by both participating and associate members* For participating members annual dues, as is the case with contributions to the revolving fund, are based on the total number of annual patient days as published in the Guide

Issue of the American Hospital Association. Dues for associate members are apportioned on the basis of hospital bed siz e .^

After acquiring membership, hospitals are only called upon to pay their annual dues. There is no markup oharged on purchases by member hospitals from the Corporation. Annual

dues vary from year to year depending on the amount of the anticipated budget for the coming year.

Before closing this section It is necessary to evaluate

the organization and development of the Hospital Purchasing

Corporation since its establishment.

Total membership of the Hospital Purchasing Corporation

increased by nine members sino6 1956 when it stood at twenty-

six institutions. Membership regulations lim it participating

members to non-profit voluntary hospitals in the Boston Metro­

politan area. This has seriously limited the growth of the

1O0nder 50 beds ...... $50 50-99 ...... 100 100-199 ...... 150 2 0 0 - 2 9 9 ...... 200 300-499 ...... 300 500 beds and over ...... 500 l 6 l Hospital Purchasing Corporation. In terms of the organisational structure of the Hospital Purchasing Corporation discussed previously, there Is need to effect a greater degree of coordination. Iftider the present organization, any one of the three subcommittees on food, maintenance supplies or drugs transmits Its recommendation through the Executive Director's office to the Standardization and Purchasing Committee. None of the chairmen of the commltteea on Food, Maintenance Supplies or Drugs are members of the Standardization and Purchasing Committee. Some purchasing agents share membership of more theui one committee which, in its e lf, does not Insure coordination among the committees they serve. The chairman of each subcommittee should become ex-officlo member of the Standardization and Purchasing Committee, Another possibility Is that appointed representatives from the Standardi­ zation and Purchasing Committee, along with the executive director, attend a ll meetings of the subcommittees. As the Corporation continues to grow both In tenns of items carried and In membership, there will be greater necessity to delegate a major portion of its workload to Its subcommittees* The Standardization and Purchasing Committee should relegate itself to the role of coordinator of the procurement function for the Corporation. The present precedent of having two purchasing agents on the board of directors Is a weloome 1 6 2 trend.11 It la hoped It will lead to greater cooperation among the many v ita l organa of the Hospital Purohaalng Corporation.

B. EFFECT OF REGIONAL PROCURE ICC NT ON TMC HOSPITAL'S OPERATIONS & SERVICE

Group procurement by the Massachusetts General Hospital on a limited basis Is H alted to the Hospital Purchasing Corporation* At the beginning of the past decade, the purchas­ ing function at the Massachusetts General Hospital was shared by three departments* These were the Purchasing Department, the Dietary Department and the Pharmacy* At that time, the Purohaalng Agent at the Massachusetts General Hospital expressed a number of arguments against belonging to an agency such as the Hospital Purchasing Corporation. "He claimed that the Hospital gives prompt payment to vendors, whereas the Agency has a longer delay In paying Invoices . . * Further, he was sure that the prloes paid by the Hospital, because of its size, were equal to, or better than those received by the Agency. The purchasing agent”believed , , . that the Agency would cause the individual hospital to lose contact with the suppliers* He felt that delivery could

11The two members are Miss Bessie White, Purchasing Agent, New England Baptist Hospital and Nr* J* F. Hill, Jr., Director of Purchasing, Massaohusetts Qeneral Hospital* 163 be poor when buying from the Agenoy, and therefore, i t would be better to buy directly from the suppliers* The purchasing agent also stated that there is a point beyond which quantity discounts no longer progresses proportionately and therefore the value of the Agenoy Is limited. Most of the arguments against group procurement here presented have been dealt up with In Chapter Three,*3 There Is need here, however, to consent on these arguments with special reference to the Massachusetts Qeneral Hospital. The Massachusetts Qeneral Hospital attempts to pay its suppliers promptly; however. It rarely suoceeds. As the volume of purchase increased, accounting and control procedures became more complex. In rake cases are involoes paid within the same week they are received, Uhder normal oondltfcAms the aocounts payable division pays from three to four weeks after receipt of Invoice and yet the Hospital deducts the customary cash dlsoount* There is usually no serious objeotion from the suppliers to smoh a procedure In view of the status and pres­ tige of the Massashusetts Qeneral Hospital. With reference to the argument by the Purchasing Agent of the Massachusetts Qeneral Hospital in 1952 that membership in a group procurement agenoy results in the loss of suppliers1

12John F* Brennan, "Purohaalng For Hospitals", A Doctoral Dissertation, Harvard Uhlveralty, Boston, 1952* Appendix, p. 517. 13s«e pages 5^ to 66. 1 6 4 oontaot, an examination of the record of the Massachusetts

Qeneral Hospital disproves this olalm, The number of suppliers oailing on the Hospital have more than doubled since 1952*

They include every major flna In the hospital field both locally and nationally*

For a general point of view, there does not seam to be major disadvantages to belonging to a group procurement agenoy by the Massachusetts Qeneral Hospital* More specifi­ cally, this section analyses two types of advantages whioh the

Massachusetts Qeneral Hospital enjoys through membership in the

Hospital Purchasing Corporation* There are prloe advantages and other advantages suoh as prloe and produot Information.

In order to assess whether price advantages accrue to the Massachusetts Qeneral Hospital from membership In t'^e

Hospital Purchasing Corporation, an analysis is made of hospital items which account for the major share of the procurement budget. Suoh items are X-ray films, linens, paper produots, and food supplies*

1* P r lo e A dvantages In a number of instances procurement through the Hospital

Purchasing Corporation does not result in any price reduction.

The quality procured may be superior which means that the Hospi­ tal is getting better quality at the same price* In other oases, prices are reduced though quality has Improved* In suoh

Instanoss, there is little doubt that the Hospital is ng

"better buys." 165 The products which w ill be analyzed hare are large dollar Items. The analysis alma to dlsolose whether a hospital as large as the Massachusetts Qeneral Hospital oan effect real savings in terms of lower prices on better quality products on hospital supplies through group procurement.

a. X-ra£ films. X-ray films are the largest dollar Item procured by the Hospital Purchasing Coxporatlon. Purobases of x-ray films by member hospitals from the Corporation amounted to over half a million dollars In i 960 which was 26.3 per cent of total purchases. (Table X). The first attempts to incor­ porate this item among the Hospital Purchasing Corporation contracts were strongly opposed by the hospital suppliers In New England. The suppliers would not bid on any x-ray film oontraot offered by the Hospital Purchasing Corporation. In order to break the boycott, the Corporation sought suppliers outside of New England and was able to write a contract with a supplier in New Jersey for list less 17 per cent.14 The former price was list less 5 per cent. The contract expired on December 31, I960 and was renewed for a period of five years. The Massachusetts Qeneral Hospital, prior to the award of the oontmaot by the Hospital Purchasing Corporation, was buying X-ray films at list lea* 5 per cent.

14 The National X-ray Produot Inc., which Is supplying the Hospital Purchasing Corporation with Ansoo, Dupont and Kodak films. 166

TABLE X X-RAY HIM PURCHASES TW MASSACHUSETTS Q1NXRAL HOflPXTAL AND THE HOSPITAL purchasing corporation (Selected yvara)

Toff:* ------• h.p:u .* f 1* ■ W.TOftsfgy— Year Yearly Yearly - Purchases Total Film Purchases to Purchases Volume to H.P.C. Yearly Total from H.P.C. (B) (C) A/B Volume (*) b/ d (All Items) V $ (D)

1956 90,666 348,901 2 6 .1 1,025,788 34.0 1958® ‘ 60,700 178,500 35.7 509,900 30.3 i 960 184,946 553,9*2 33.2 2,107,537 25.1

Sources Hospital Purohaalng Corporation Records. ^Massachusetts Qeneral Hospital 'Hospital Purchasing Corporation 1950 covers October 1, 1938 to February 28, 1959*

In I960, the Massachusetts Qeneral Hospital purchased x-ray films through the Corporation amounting to a total of $184,000. On its own the Hospital Is not In a position to secure 15 better terms than li s t less 5 per cent. The Hospital would have had to spend an estimated expenditure of $ 205,000 on x-ray films for what the Hospital Is presently getting for $184,000. Based on the I960 use rate, the yearly net savings in x-ray films

15*hls excludes buying through another group procurement agency such as the Hospital Bureau, Ino. 16 7 to the Massachusetts General Hospital through group procurement amount to about $21,000.

b. Linen. The linen area In the hospital field in­ cludes a wide range of items. Among the more common items are Bheets, pillow cases, bath blankets, bed spreads, wash oloths, huok towels and bath towels.1** Also Included within the broad category of linen are patient gowns. Purchases of white linen items by the Massachusetts General Hospital average about $20,000 per year. Savings to the Hospital through purchases from the Corporation amounted to a little over $2,000 which Is about ten per cent, (Table XI) in 1961. The most significant saving Is In the line of sheets in view of the large quantities Involved. With reference to patient gowns, they have become in the past five years a large dollar item in the linen area for the Hospital Purchasing Corporation. Prior to that, purchases of p atien t gowns by the H ospital Purchasing Corporation amounted to less than one per cent of their total yearly volume,1^ Purchases of patient gowns through the Corporation Increased from $8,071 in 1956 to $104,371 in 1961. The 1961 figure accounted for 5 per cent of the total volume of purchases by the Qorporafcion

^■uok towels are lint free and generally used in the operating, rooms. 17 See Appendix B, section 7, p. 280 166

TABU XI

wEirt Lmor purchase) THl MASSACHUSETTS QB0CRA1 HOSPITAL, lff^l

a «* Item Description. 31 ze MQH, Price HPC Prioe Yearly Sawings per Doian per Do s s il Tolume or (Loss) * ♦ per Dos. ♦

Sheets Muslin 72,fxl08" 22.20 20.93 500 655 Pillow Oases Muslin k2"x$6" k.95 k.J*7 koo 192 Bath Blankets Cotton 72”x9Q" 2k .12 19*92 100 k20 Bed Spreads King 8 0 " i 9 0 " 2.k2/ea 2 .u / e a 200ds. 7kk Wash Cloth Terry l l " x l l ” .675 .69 250 (3.75) Huck Towels Cannon 18"x 36’' 2.75 2.69 500 30 Bath Towels Terry 201'xko" 5.60 5.13 500 235

TOTAL BATHOS: $2272.25

*: MuHotauutti General Hospital **: Hospital Purchasing Operation Sourest MassachuMtts General Hospital, Purchasing Department Records. 1 6 9 and represented over six fold Increase over the 1 9 5 6 percentage (Table XII)

TABLE XII PATIENT 0OWN PURCHASES THE MASSACHUSETTS GENERAL HOSPITAL AND THE HOSPITAL PURCHASING CORPORATION (Selected years)

Year M.G.H,# H.P.C.** M.G.H. Savings £of M.G.H. % of H.P.C. Price Price Yearly or Loss Purchases Patient gown per doz. per doz. Volume (*) Prom H.P.C . Purchases to ($) (*) (Doz) to yearly Total yearly Volume H.F .t.Volume H.P.i (all Items)

1956 15.84 16.20 300 108 38.4 .0 8

1958 16 .3 0 15.45 300 255 6 7 .2 9 .2

1961 1 6 .0 0 15.39 425 259.25 3 2 .8 5.1

Source: Hospital Purchasing Corporation Records and Massachusetts General H ospital, Purchasing Department reoords. #Massachusetts General Hospital *#Hospital Purchasing Corporation

Purchases by the Massachusetts General Hospital aocounted for about one-third of the total purchases of patient gowns from the Corporation. The Hospital had been able to secure on its own very competitive prices which explains limited savings of two per cent to five per cent on purchases by the Hospital from the Corporation. 170 In the linen area, in order to achieve substantial price advantages, it Is necessary to command a very large volume. Such volume may well be beyond the capacity of region al group agencies such as the Hospital Purchasing Corporation*

c, Pft£er Products, Paper products Include a wide variety of Items. The main two subdivisions within the hospital field are stationery paper items and utility paper items, Stationery paper items refer primarily to "fine paper." 1 8 U n til 1 9 6 1 no fine paper contract was offered by the Corporation, At p resen t, the Corporation provides members a paper con tract covering a wide variety such as rag paper, sulphite bond, mimeograph and d u p licatin g paper. Due to the fact that the Massachusetts General Hospital has a print shop in operation on the premises, its need for fine paper is greater than normal. The prlntshop operations have grown considerably In the past seven years as the need for forms and other printed matter has increased with the expansion of hospital facilities. Based on the i 9 6 0 use rate, expendi­ tures on fine paper by the Hospital may be estimated at about 15,000 dollars.19 Through participation in the Hospital Purchasing Corpora^ tlon fine paper contract the Massachusetts General Hospital has

10 Includes bond and rag type paper used for writing and printing purposes. 19Estimate based on figures presented to the Hospital Purchasing Corporation by the Hospital on June 31, i 9 6 0 evaluating annual requirements of fine papers. 171 been ab le to e f f e c t savings of eigh t to ten per cent* 20 Based on the 1961 volume of about $15,000, this means a dollar savings on fine paper purchases in excess of $1,000 per year. In addition to fine papers the Corporation offers Its members a wide v a riety of u t i l i t y paper item s. These include mouth wipes, paper napkins, paper cups and hand towels. The latter is a large dollar item for the Massachusetts General H o sp ita l. Prom 1952 to 1958 expenditures on paper hand towels by the Hospital ranged from 11,000 to 15,000 dollars. (Table X1XI) For 1959, total purohases of paper hand towels by all members of the H ospital Purchasing Corporation amounted to $46,506. The share of the Massachusetts General Hospital for the same year was 24.7 per cen t. 21

OQ Author's estimate based on unpublished prices of fine paper by the Hospital Purchasing Corporation. ^Massachusetts General Hospital, Purchasing Depart­ ment record s. 172

TABIR X III PAPER HAND TOWELS PURCHASES MASSACHUSETTS GENERAL HOSPITAL (selected years)

Year Volume Cost (In Packages) <♦)

Oct. 1952-Sept* *53 28,823 11,442.75 Oct* 1953-Sept. *54 32,500 15,106.91 Oct* 1954-Sept e *55 35,431 14,080*95 Oct. 1955-Sept. *56 38,490 13,102*60 Oct. 1956-Sept* *57 40,543 11,433.36 Oct* 1957-Sept. •58. 58,706 11,501.58 Oct* 1959- Aug. * 59 58,207 11,431*22

Sources Massachusetts General Hospital/ Purchasing Dap arts*nt raoords• * A fter 1957/ cartons Included 15 rather than 10 packages*

On Its own, the Massachusetts General Hospital was purchasing paper hand towels for about thirty cents more per case as coopered to prices available through the Corporation. On the basis of the present annual consumption rate of 4000 cases/ net savings to the Hospital would amount to about $1,200* In the areas of fine paper and utility paper, the Massachusetts General Hospital has been able to effect substantial savings through participation In the Hospital Purchasing Corporation* 173

d, Pood_jproduct£« Pood products procured by the

Hospital through the Corporation Include primarily juices, vegetables and fruits in cans. In 1961, the Hospital Purchasing Corporation had forty- two contracts covering varying food items. Of this total, the

Massachusetts General Hospital participated in twenty-four

of these contracts. In most hospitals, the food budget involves the largest

dollar expenditure. At the Massachusetts General Hospital,

expenditure for food items along with expenditure for drugs

and pharmaceuticals account for about two-thirds of the procure­

ment budget.

To illustrate the advantages of food procurement through

the Hospital Purchasing Corporation, the experiences of the

Hospital with half peaches may be cited. The Hospital Purchas­

ing Corporation procures about a thousand cases of this item

per year, of which 25 per cent are consumed by the Massachusetts

General Hospital.®2 Prior to purchasing it through the Corpora­

tion, the Hospital was paying $6 per case for six-tenths yellow

cling half peaches. The Hospital Purchasing Corporation

negotiated a contract for equal quality peaches for $5,60 per

oase. The Hospital annual requirements is 250 cases on which

it is saving $0,40 per case.

22Hospital Purchasing Corporation records. 174

Canned food products are becoming Increasingly Impor­ tant to the Hospital Furoh&slng Corporation. Over the past five years, the percentage of food purchases to total purchases by the Hospital Purchasing Corporation almost doubled (Table

XIV). The Massachusetts General Hospital increased its share of food purchases from the Hospital Purchasing Corporation from 23.7 per cent In 1956 to about 30.1 per cent In 1960.

The Hospital Purchasing Corporation does not contract at present any food product of the fresh variety. It has not been possible to standardise on these items to permit a group contract. In the canned variety, the Massachusetts General

Hospital has been steadily increasing its purchases from the

Corporation. There is every indication that this trend will continue in the future.

To summarize price advantages to the Massachusetts

General Hospital through group procurement, it should be noted that purchases of X-ray films, linens, paper products and food supplies from the Hospital Purchasing Corporation have resulted in substantial savings to the Hospital. The price savings which accrued to the Hospital varied from eight to twelve per cent. They are especially significant in the areas of X-ray films and food supplies.

Although the percentage of savings to the Hospital varies widely among the different items procured on a group basis, a savings rate of ten per cent would constitute a conservative estimate with reference to all purchases made through the IT 5 TABX£ XIV

FOOD PRODUCTS PURCHASES* THE MASSACHUSETTS GENERAL HOSPITAL & THE HOSPITAL PURCHASING CORPORATION (Seleoted years)

** Year M.G.H., % of Food H.P.C * H.P.C. % o f H.P.C. Yearly Purohases Yearly Total Food Pur­ Food M.G.H. to Pood Yearly chases to (A) $ (B) H.P.C. Volume Volume Total H.P.C, Purohases \D) B/C (»1X . Volume from (all hospi* Items} (F) C/& H.P.C. t s ls ♦ <*)

1956 19>360 77,192 23.7 305,889 7-3 1958* 1 1 ,9 0 0 4 4 ,5 0 0 2 6 .8 509,900 7.4

I 960 8 5 ,6 8 7 2 8 3 ,4 4 1 3 0 .I 2,107,53^ 1 3 .4

Source; Hospital Purchasing Corporation and Massachusetts General Hospital, Purchasing Department records. *lncludes egg purchases. * Massachusetts General Hospital. **Hospital Purchasing Corporation. bFrom October 1 , 1958 to February 2 6 , 1959* 176 C orporation* Tha r e s u ltin g amount of to ta l annual savings based on the I960 volume of purohases by the Hospital from the Corporation exceeds $50,000, There seeas little doubt that the Massachusetts General Hospital Is enjoying significant price advantages through its association with the Hospital Purchasing Corporation.

2* Other Advantages In the past deoade of Its development, the Hospital Purchasing Corporation has concentrated largely on price advan­ tages. The Hospital Purchasing Corporation possesses limited resources to offer a wide range of services. There Is a growing realisation today by group procurement agencies that to expand there is need to go beyohd the realm of price advantages. In addition to price advantages two other types of advan­ tages, which have been referred to in this section as 'other advantages,' may accrue to members of the Hospital Purchasing Corporation. These may be classified as direct and indirect advantages. Price and product information forwarded by the C orporation to i t s members may be termed a d ir e c t advantage. Indirect advantages have arisen from the fact that the Hospital Purchasing Corporation has acted as an additional source of hospital supplies. This has resulted in a greater price stability and improved service.

■ t 23aee appendix A, section 6 , p. 878 177

*» Dlrtot_Mv«ntag• •. Direct advantages consist of both price and produot information* Price information Is published regularly on all ltama under contraot by the Hospi* ta l Purchasing Corporation* The Corporation also publishes a series of internal statlstlos indicating each member*s parti* olpatlon In eaoh item under oontraet. The most significant direct advantage in terms of price and product Information accrues to members of the Standardisa* tlon and Purchasing Committee* Sash hospital a ffilia ted with the Hospital Purchasing Corporation has a representative on the Standardisation and Purchasing Committee* This central committee frequently reviews special studies prepared by Its three subcommittees or any other ad hoc committees* How products are investigated, prioes are compared and the Inform*# tlon Is made available to a ll members of the Purchasing and Standardisation Committee, Among the most active of a ll subcommittees of the Hespi* ta l Purchasing Corporation has been the Pood Committee* It runs detailed tests on hospital food products and prepares comparative analysis of quality and price* This information Is circulated to members of the Standardisation and Purchasing Committee and a ll members of the Hospital Purchasing Corporation* The Naasaohuoetts General Hospital is represented on a ll committees of the Hospital Purchasing Corporation, This permits the Hospital to keep up to date on price and product 1 7 8 information. Important Information la passed along through personal contact with various hospital personnel through the media of committee meetings*

b* Indlreot__Advantag#e • As an additional souree of supply the Hospital Purchasing Corporation has been responsible for (a) a greater degree of prloe stability through discourage* ment of unwarranted prloe Increases and (b) improved hospital service* As the Hospital Purchasing Corporation improves Its procurement operations, the effect of these Indirect advantages become more pronounced* (a) In terms of price stability the volume of purchases which the Massachusetts General Hospital commands often dlsoourages suppliers from raising the price to the Hospi* tal* On certain Items, the Massachusetts General Hospital on its own, has not been able to halt unwarranted prloe increases as was the oase with x*ray films on which the Hospital presently spends about $200,000 a year* Only through the combined volume available through the Hospital Purchasing Corporation could a reasonable prloe be secured and maintained* (b) VIth reference to service, from date the MespAthAsetts General Hospital assumed an active role in the affairs of the Corporation, i t has experienced Increased at ten* tlon from all suppliers* The number of suppliers who regularly call on the Hospital has more than doubled since 1952* On an average day twenty to twenty*five sales representatives call bb 179 see the various members of the purchasing department* Improved service to the Hospital has also taken the form o f more punctual d e liv e r ie s and a more lib e r a l p o lic y , toward returned merchandise from the Massachusetts General Hospi­ t a l . Prom an analysis of the above, it Is possible to conclude that both direct and indirect advantages have acorued to the Massachusetts General Hospital through membership in the Hospi­ tal Purchasing Corporation. Though the Indirect advantages have not been as obvious as the direct ones, they have been, nonetheless, important.

C. OBSTACUSS TO DEVELOPING REGIONAL GROUP PROCUREMENT CONTRACTS

It is not always possible to assess the reason why hospitals participate or refuse to participate in a group pro­ curement program. Often the reasons may not have a logical explanation* The Hospital Purchasing Corporation has grown consider­ ably In the past ten years, both In membership and volume. The participation of the Massachusetts General Hospital In regional group procurement has followed an upward trend* At present, the Massachusetts Qeneral Hospital purchases about tan per cent of its total purchasing budget from the Hospital Purchasin 100 Corporation* o i l . There are a number of limitation* imposed on tha Kaasa­ cs hueetta Qenaral Hospital's participation in regional group procurement which are peculiar to it* Other limitations are more of a general nature and are experienced by many hospitals affiliated with regional group procurement agencies throughout the country«

1. Qenaral Factors Which A ffect The Massachusetts General H ^ rggTT"TKmgg«fl3g------There are three general factors which affect any hospi­ tal le participation In regional group procurement* These aret (a) inability to adjust the hospital's operations to the needs of regional group procurement, (b) lack of proper Information about the advantages of regional group procurement, and (c) strong hospital ties to local suppliers. Though general in nature, each factor applies to the Massachusetts General Hospital in varying degrees which are dis- oussed in subsequent section#* It is necessary to examine these general factors and the degree to which they apply to the Massachusetts Qenaral Hospital*

a* Inability to_adJust Ho *pi talJs_oj> orations. Group procurement whether regional or national cannot suoeeed where

24Total volume of purchases by the Massachusetts General Hospital for 1962 is expeoted to be over five and a half million dollars of which over half a million dollars Is purchased through the Hospital Purchasing Corporation* 181 the purchasing function In the hospital is highly decentralized. The purchasing agent Is not then In a position to commit the necessary volume in advance,, in order to effect a group contract* Prior to 1955* centralisation of the procurement func­ tion at the Massachusetts General Hospital was of a limited nature* There was a strong tendenoy for each department to order i t s own supplies. The purchasing agent was able to assess what the yearly volume of purchases would be. He was in no position, however, to commit any volume in advance* Without centralization of the purchasing function, the purchasing agent is powerless to place-the needed volume of procurement through the group agency* In order to purchase hospital supply items on a group procuremont basis it is neoessary that these items be standard­ ized in order to permit bulk purchases. This is a serious problem to overcome especially where a strong feeling of pro­ fessional perogatlve exists* Nuswrous conflicts of opinion have arisen at the Massachusetts General Hospital between the professional and the purchasing staff* They relate, more often, to the brand of hospital supplies chosen rather than to questions of standard­ iz a tio n * Where the professional staff is opposed to the brand procured by the agency, the purchasing agent Is unable to par­ ticipate in that contract* If the opposition of the professional 182 staff Is extended to a wide variety of items, only token parti­ cipation in group procurement by the hospital w ill result*

b. Lack—of £rop«r_iriformationi Possibly the simplest of all factors which adversely effect a hospital's participation in regional group procurement is the lack of proper information about the advantages of such an affiliation* Some trustees and hospital administrators may give lip service to the concept of group procurement* In reality they are not convinoed of the value or the potential advantages which result from a group procurement effort* A hospital purchasing agent may feel that there are certain Items which he may profitably procure on a group baslB* He may not visualize, however, the actual potential of savings which w ill accrue to his particular hospital through a wider application 0f group procurement* The responsibility for the proper diffusion of factual information lies primarily with the group agency* The Hospital Purchasing Corporation has through olroulars, memos and monthly reports of activities attempted to remedy this shortcoming* Top management at the Massachusetts General Hospital

remains today, after ten years of regional group procurement experience, only mildly disposed towards the Hospital Purchasing Corporation* Few of the top management personnel realize the importance o f group procurement as a management to o l fo r c o st reduo tlon* 1 8 3

c. Strong ties with local suppliers* Generally non­ profit hospitals depend heavily on generoue contributions from looal business concerns. A major number of these firms may be hospital supply houses* In order to continue the support extended by these firms, hospitals may be reluctant to change their traditional souroes of supply* Strong ties with looal suppliers may also develop on the basis of personal relationships between hospital personnel connected with the purchasing decision and the suppliers* It la not always easy for these hospital personnel to evaluate the facts objectively pertaining to participation In a group procure­ ment effort* In a number of cases* prominent businessmen from the hospital supply field are elected or appointed as trustees of a hospital* Hospital management Is reluctant* under such condi­ tions* to undertake an active role in group procurement for fear of antagonizing the firms for whom these members work* Prior to the centralization of the purchasing function at the Massachusetts General Hospital* the element of personal relationship played a significant role In procurement decisions* A fter 1955* outside suppliers' contact was limited to the Purchasing personnel* The Hospital also Initiated a much more active policy with regards to the Hospital Purchasing Corpora­ t io n . The change In policy was made on the advice of the 184 purchasing staff. Due to its Increased participation in the Hospital Purchasing Corporation, the Massachusetts General Hospital has been able to realize important savings without sacrifice of quality.

2, Special Limitations to Greater Participation By The Hassa^ c1roiircBM,qifiiTirTgagitsr------c *■ ------The special limitations to greater participation by the Massachusetts General Hospital In regional group procurement originate within the Hospital. First, the procurement funotlon is not yet aocorded the status It deserves by Hospital manage­ ment. Second, the professional staff Is opposed to accepting the authority of the group agency in the selection of brands to be purchased by the Hospital. Third, the large volume of purchases by the Hospital and the efficiency of the present Purchasing Department makes It difficult for the Hospital Purchasing Corporation to improve on prices secured by the Massa­ chusetts General Hospital.

a. Status_of the grocurement function. The aim of the Massachusetts Oeneral Hospital is professional excellence In the field of medicine.In order to achieve this aim, the Massachusetts Oeneral Hospital had often to disregard cost Son- alderatlon. When a certain type of equipment is needed for a

25 The alms and philosophy of management of the Massachu­ setts General Hospital are presented in detail in Chapter V. 185 research project, It is purchased Immediately as specified by the project direotor, That similar equipment could have been purchased at a lower price la not of primary Importance* The same situation applies to hospital supplies* A specific brand Is requested by the professional staff. They are opposed to any alteration or substitution* If the differ­ ence of opinion between the professional staff and the Purchasing Department Is serious enough, the question is referred to higher authorities* The professional staff through their services are represented on the Oeneral Executive Committee* They have a powerful voice within the committee* The Purchasing Department and other servlet departments have no similar representations* Quite frequently, the professional sta ffs opinion will prevail*

b. ProblemB_of grofes^ional^prerogative^. The question of professional prerogative and the statuB of the procurement function are closely related* Doctors and other professional staff members feel that the choice of what brands to be used by the Hospital falls within their professional jurisdiction* They believe that non-professional personnel are not oompetent

26 a classical Illustration was the purchase of x-ray equipment In 1959* The Radiology Department requested Oeneral Electric equipment at a cost off78,000* The Purchasing Depart­ ment was able to secure Floker x-ray equipment with the same specifications as Oeneral Electric for $67,000* The case was brought to the attention of the Oeneral Director who overruled the Purchasing Department suggestion* 186 enough to make the decision* If the selection of brands to be used at the Hospital Is left to non-professional staff, it lndloates an abdication of responsibility by the professional staff and a reduction of their status* Professional perogative Is an imperceptible factor which may have considerable effect on the application o f group procurement. The procurement of hospital supplies is a cooperative effort between the purchasing department and other departments of the hospital* The professional staff may wish to oontlnue usage of a brand they have tried In the past and found satis­ factory* The Purchasing Department may feel that a different brand offers the same advantages without Incurring the same cost* A system of pre-purchase testing is being used at the Massachusetts Qenaral Hospital which tends to lessen any fric­ tion which may arise as a result of questions of professional perogative. Unmarked samples of supplies or equipment considered for purchase are tried In sp eo la l wards* The t r ia l period Is supervised by doctors and members of the nursing staff* The items are usually marked to distinguish them from similar products used by the Hospital* At the end of the determined test period, results are examined by all oonoemed including the purchasing staff* A decision as to quality and usage under operating conditions Is taken* This procedure serves as a guldepost for future procure­ ment decisions* The experience of the Massachusetts Qenaral 1 8 7 Hospital lndloates that opposition Is reduced when the profes­ sional staff share In the deolslon as to quality and usage* They are apt to accept Items thus procured much more readily* The wider application of group procurement at the Hospital will depend on the ability of the purchasing staff to secure the prior approval of the professional staff* Any Items considered for group procurement should be hospital tested under operating conditions* If the results are favorable the group agency can be assured of stvong support from its hospital members* The Massachusetts Oeneral Hospital has been assuming a more active role In the affairs of the Hospital Purchasing Corporation* If this trend Is to continue* there Is need for cooperation between the professional staff and the purchasing personnel* The use of methods suoh as pre-purchase testing w ill facilitate such cooperation through the elimination of frlotlon which arises from questions of professional perogative* c* Large volume^of hospltal^purchases*^ For 1961* the total volume pfl purchases by the Massachusetts Oeneral Hospital exoeeded by more than twice the volume of the Hospital Purchasing Corporation* '2 7 Though the Hospital *s volume Is larger* It is not as concentrated over a few items as Is the case with the Hospital Purchasing Corporation* In some lines suoh as x—ray films* fuel

27 The figures are five and a half million dollars and two and a half million dollars respectively* 1 0 8 o il, linens and paper products the price to the Hospital has been considerably improved through group procurement* There are a number of instances where the price which Is quoted to the Hospital is lower than that which can be seoured by the group agency* The reason is not necessarily volume. It Is association with a prestige institution such as the Massachusetts General Hospital, In addition to the large volume, the Massachusetts Qenaral Hospital has been fortunate to possess a highly quail* fled purchasing staff,The efficiency of the Purchasing Department at the Massachusetts General Hospital is a recognized fa c t by suppliers who deal with the Hospital and by many other purchasing agents in the area. The Purchasing Department at the Massachusetts Oeneral Hospital offers an excellent oppor­ tunity for persons seeking purchasing oareers, A number of "alumni" of the Purchasing Department hold responsible positions as purchasing agents In other hospitals. To summarize, it may be noted that the combined effici­ ency of the purchasing staff and the large volume of purchases by the Hospital has made It difficult for the Hospital Purchasing Corporation to improve on prices secured by the Hospital,

a8*ro» 1959 to 1961, four of the six full-time members of the Purchasing Department were university graduates with Bachelor's and Master's degrees. All purchasing personnel had considerable business experience. 1 8 9 As the Hospital Purchasing Corporation grows In member­ ship and volume, benefits to the Hospital will increase. The large volume of purchases by the Massachusetts General Hospital and its efficient purchasing staff may be used to strengthen the procurement operation of the Corporation. The end result is Increased benefits to a ll members hospitals. Before concluding this chapter It is necessary to make certain relevant suggestions pertaining to the Hospital Pur­ chasing Corporation on the basis of the analysis made throughout the chapter. The participation of the Massachusetts Oeneral Hospital in regional group procurement over the past deoade has not been without success. In order to increase Its benefits to Its member hospitals, the Hospital Purchasing Corporation has to undertake action on two fronts. These are the external and internal fronts. On the external front, there Is need to Increase member­ ship and the degree of participation of present affiliated hospitals. The new membership regulation attempts to Increase the number of present members through a reduction of restric­ tions. It la necessary through proper presentation of facts and figures to perform a better selling Job than has been done to date. This responsibility should not be limited to the Executive Dlreotor of the Hospital Purchasing Ceiperatlon. The Executive Committee should be revitalized in order to perform this essential task. 190 On the Internal front there le need for Increased product Information and the availability of testing facilities. Requirements of the hospital market today make suoh services essential for the continued growth of the Corporation. Product Information about new or established products may be published in a monthly bulletin. More frequent visits by staff members of the Corporation to member hospitals w ill further Increase the cooperation between the Corporation and the Hospitals. The availability of testing facilities at reasonable oost will greatly increase the advantages of membership, especially to smaller hospitals. Financing of this Increased expenditure nay be covered by ad d ition al dues from new members. The increased p articip a­ tion of present members w ill mean considerable additional income on the basis of the present markup purchase of three per cent. The Massachusetts Oeneral Hospital has realized substan­ tial savings on large dollar Items such as linens, fuel oil, paper produots and x-ray films through Its membership In the Hospital Purchasing Corporation. As the Hospital Purchasing Corporation Increases Its volume. It w ill be able to secure lower prices and better quality produots for the member hospitals. 191

CHAPTER VII AN ANALYSIS OP GROUP PROCUREMENT BY THE MASSACHUSETTS OENERAL HOSPITAL ON A NATIONAL BASIS

Page A. The Hospital Bureau, Inc ...... 192 1* Historical Development ...... * 194 2. Organization And Membership ...... 197 a. Organization ...... 193 b. Membership,...... 203 3* Method of F in a n c in g ...... 204

B. E ffect of N ational Group Procurement On The Massa- chusetts General H ospitals Operation And Servlce207 1. Price Advantages ...... 208 a. Linens...... 208 b. Clinical Supplies ...... 210 2. Other Advantages ...... 213 a . Research and T estin g ...... 213 b. Price and Product Information ..... 215 c. Special Services ...... 217 0. Obstacles To Participation In National Con* tracts By The Massachusetts Oeneral Hospital .. 218 1. General Factors Which A ffect M assachusetts Oeneral Hospital's Participation...... 222 a. Geographic Conditions • ••••••*• 222 b. Limited Sense of Belonging. ..•••• 224 c. Lack of Proper Information ...... 225 d. Overlapping National and Regional Contracts ...... 227 2. Special Limitations To Greater Participation By The Massachusetts General Hospital . . . 231 a. Divided Loyalty ...... 231 b. Limited Price Advantages ...... 233 D. Summary--Part I I ...... 237 CHAPTER VII

AN ANALYSIS OP GROUP PROCUREMENT BY THE

MASSACHUSETTS GENERAL HOSPITAL ON A NATIONAL BASIS

A. THE HOSPITAL BUREAU

The Massachusetts Oeneral Hospital participates in national group procurement through affiliation with the Hospital

Bureau, Inc,1

The relationship of the Massachusetts General Hospital with the Hospital Bureau is particularly significant. The

Bureau is the only national group procurement agency for voluntary non-religiously operated hospitals in the field of hospital supplies. The Massachusetts General Hospital*s involvement In national and regional group procurement programs are less than a decade old. Prior to 1952, purchases from the Hospital Bureau were negligible. Though the Hospital Bureau dates back to half a century ago, It had limited dealings with hospitals in the Boston area until the second half of the past decade, t In the procurement area, the Hospital*s main efforts, during the first half of the past decade, were directed at

1 Prior to 1953* the Hospital Bureau, Inc. was registered as the Hospital Bureau of Standards and Supplies, Inc, The Hospital Bureau, Inc. is located in New York City. 1 9 2 193 o centralization. In terms of group procurement the Hospital played a leading role in the establishment and growth of the

Hospital Purchasing Corporation. This has limited Its efforts on behalf of the Hospital Bureau, The large volume of purchases by the Massachusetts

General Hospital and sim ilar-si zed hospitals permits them lim ited benefits from regional group procurement efforts. It is through national agencies such as the Hospital Bureau that r e a l s a v in g s may be o b t a i n e d . The Importance of the experiences of the Massachusetts

General Hospital In national group procurement lie in their indication of potential savings to the Hospital rather than in benefits so far realized. The advantages of Hospital Bureau membership extend beyond price reduction. Price and product information secured through the Bureau are of vital importance to all member hospitals. What w ill be attempted here is to evaluate the present

relationship between the MassachueettsrGeneral Hospital and the Hospital Bureau, On the basis of this analysis It will be

possible to Indicate methods by which the Hospital may be able

to expand its benefits through ltB affiliation with the Bureau.3

Hospital (capitalized) is uaed throughout this Chapter to refer to the Massachusetts General Hospital.

^Bureau (capitalized) is used throughout this Chapter to refer to the Hospital Bureau, Ino. 194

1* Historical Development

The Hospital Bureau was established on January 12, 1910.

It was founded by W.V.S. Thome, Vice-President and General

Purchasing Agent of The Northern Pacific Railroad,^

Mr. Thome had been responsible for putting Into effect a centralized purchasing system for the railroad he served.

The procurement philosophy he had instituted at the railroad was baBed on product analysis, specifications, standardization and bulk buying.

In his capacity as member of the board of trustees of two hospitals, Mr. Thorne presented on November 13, 1909 the

Hospital Superintendents 1 Club of New York with a plan for the establishment of a group purchasing agency. Three objectives were stated.

a. To secure to hospitals and other Institutions the advantages of cooperation in establishing Bniform standards as to the quality and kind of supplies ordinarily used therein; and of purchasing the same in accordance with definite specifications under continuing or other general agreements. b. To promote the economical and efficient adminis­ tration of hospitals and other institutions. r c. To establish a central^ purchasing agency.

4 Mr. Thorne was also treasurer and member of the board of trustees of both the Presbyterian Hospital In New York and the Morristown Memorial Hospital in Morristown, New Jersey.

5 Central purchasing was then used to mean group procure­ ment. In hospital circles today, central purchasing Is often used In lieu of group procurement.

Warren W, Irwin, "The Forward Look of the Bureau"; An address to the annual meeting of the Bureau, February 27, 1958, New York City. Mr. Irwin was President of the Hospital Bureau f o r 1957. 195 These same objectives remain in effect today. The second aim, that of "promoting economical and efficient administration of hospitals" is a broad objective yet to be achieved.

The original membership was fourteen, all from the New

York area. Due to the small number of member hospitals, the

Superintendent of each hospital became a Director of the Bureau.

The initial dues were set at $1,250 a year with an initiation fee of $100. The reason for the high membership dues was to build up the necessary operating capital for prompt payment of member^ bills. This was, and still is an important advantage in dealing with the Bureau,

In 1911 two out-of-town hospitals Joined the Hospital

Bureau, By 1914, seventeen out-of-town hospitals were listed as members of the Hospital Bureau, The Massachusetts General

Hospital Joined In 1914, and has continued its membership since t h a t tim e .

From 1910 until 1917, date of retirement of the founder, buying by the Bureau waB either on an agreement basis or on a

Jobbing basis. Contracts referred to as "regular agreements" were drawn, generally, for large dollar volume items specifying price and minimum order quantities. Items with limited volume potential were listed as "Jobbing agreements." There was no

lim itation on jobbing agreements as to minimum order quantities.

Member hospitals of the Bureau were free to order any of the

items listed under jobbing agreements or regular agreements. U ntil 1917 most of the buying by the Bureau was on an agreement b a s i s .

Mr. Philip Cross succeeded Mr. Thorpe in 1917 and remained in the service of the Bureau until 1934. He emphasized buying on a Jobbing basis which resulted in increased costs due

to additional handling and record keeping for small quantity

items ordered. The Bureau encountered its first operating deficit in 1 9 2 0 .7

There was little change in the procurement policy of

the Bureau until 1934 which marked the beginning of the modern

phase In the Bureau's history. In that year Mr. William A.

Gately was appointed Executive D irector. He was later to be

known aB "Mr. Hospital Bureau." During his period of service

which lasted until his retirement in i 9 6 0 , a number of important

measures took place which were to re-orient the Bureau on a

new path* These measures are presented here chronologically.

In 1937, the Bureau issued its first formal reports. In 1939, the Re Be arch Department was created. In 1941, through the efforts of the Bureau, a division of voluntary hospitals was set up In the War Production Board to give priority to the needs of voluntary h o s p i t a l s . In 1943, "Bureau Market News" was published. In 1945* a patronage refund policy was established for the first time.“

7 Hospital Bureau Annual Report, New York, February 27, 1958 p , 6 . 8 I b i d . 197 These steps were necessary in order to provide the needed services and information in a constantly changing hoBpital m a rk e t,

When Mr. Gately became Executive D irector of the Bureau

In 1934 there were thirty-five members doing a volume of busi­ ness of about one m illion dollars. By i 960 the Bureau had grown to about three hundred and forty members with a volume of business equivalent to five and a half million dollars.

With the appointment of Richard L. Davis as Executive

Director in i 9 6 0 , began a new stage In the Bureau's development.

The present stage may be characterized as aiming to expand the

Bureau's operations both In membership and volume in order to permit the Bureau to become a full-fledged national group procurement agency,

2. Organization and Membership

The form of organization and membership regulations were

altered, from time to time, to meet changing needs. The

Hospital Bureau was established in 1910 and later incorporated under the laws of the State of New York in 1934.

The Bureau operates under the supervision of a Board

of Directors which at present numbers fifteen members. When

the Bureau was established in 1910, the superintendents of the

fourteen founding hospitals became ipao-facto the Board of

D irectors, Since that date the Bureau membership increased 196 tw enty-five times the original number while the board member­ ship increased by one member.

a* Organisation^ The Hospital Bureau operates at two levels, the adm inistrative and the oommittee levels.

The adm inistrative level is headed by the Executive

D irector and includes the buying service, the research service, and the record-keeping service.

The buying service is in reality a oontract negotiating service. Whenever an item la being considered for lie ting, the buying service studies the item, oompares prioes with si­ m ilar items on the market and recommends to the Executive

D irector adoption or rejection. If the Item is adopted, an agreement is published which lists the item, its price in dif­ ferent freight sones, and minimum quantities which can be ordered. A oopy of each agreement is forwarded to all Bureau members for reference. AH prices quoted in all agreements are delivered prices.

Any agreement between the Bureau and any supplier does not bind Bureau members to participate in that agreement. Bureau members are free to participate in any agreement they wish and in the quantities they desire. Generally, before an agreement

Is signed, the Bureau polls its membership as to what quanti­ ties they may be able to commit over a period of a year.

These are not binding consol tments but are used as unofficial 199 estim ates of what the supplier may expect the volume of orders to be. The anticipated volume is an important consideration in the price quoted by suppliers to the Bureau.

In order to better comprehend the role of the Buying

Service of the Bureau, a descriptive account w ill be given here of an imaginary order placed by a Bureau hospital member for an item which the Bureau lists as a regular agreement. Hospital X, for example, wishes to buy a hundred dozens of face masks. Being a

Bureau member, Hospital X forwards Its order to the Bureau speci­ fying the size and type requested and making reference to the

Bureau Agreement number under which this item appears. Upon receipt of the order from Hospital X, the Bureau places the order with the supplier. The supplier receives the Bureau Order

specifying drop shipment to Hospital X. The supplier forwardB

the hundred dozens face masks to Hospital X and sends an invoice

to the Bureau, The Bureau pays the Invoice and b ills Hospital X

for one hundred dozens face masks. Once Hospital X pays the

Bureau the transaction is completed. In case of a shortage

the hospital sends its claim to the Bureau, which in turn relays

it to the supplier, collects from the supplier and remits to the member Hospital. Merchandise shortages are directly forwarded to

th e ho Bp i t a l .

The Research Service undertakes special studies for

individual Bureau members at the expense of the hospital relating

to any phase of a hospital's procurement operations. The Research

Service also supervises the publication of the "Bureau Research

N ew s."

The Record-Keeping Service has the responsibility of 200 recording all transactions. It prepares the necessary reports, both accounting and statistical at the request of the Executive

D i r e c t o r .

On the committee level, there is a great deal of

activity. A major part of it is yet to be coordinated.

Active committees within the Hospital Bureau may be divided into two main categories. Those of a general nature

and those which pertain to the Buying Service of the Bureau.

Oeneral type committees are Intended to improve the over-all

effect of the Bureau through such measures as increased

membership, improved efficiency of the Research Service, and

better relations between the Bureau and its members. General

type committees Include public relations, education, membership,

nomination and research and standardization. The committees

which affect the Buying Service of the Bureau may be termed aB

operations committees. The operations committees comprise

the Council Managers Committee, the Purchasing Agents Committee,

the D ietician Pood Advisory Committee and the Patronage Refund

Committee. (Figure 10) The operations committees have the

major responsibility for guiding the Bureau along sound procure­

ment policy. The two most Important committees in this category

are the Council Managers Committee and the Purchasing Agents

C o m m ittee The aim of the Council Managers Committee is to coordi­

nate the work of the regional Councils such as the Hospital

9 In 1958 the Council Relations Committee was created to Improve Bureau-Councll relations. In August of i 9 6 0 , t h i s Committee was replaced with the Council Managers Committee. 201

I [ n ■ F™ * m r* s n m k*A • w ** t J t i

ivrarao r i - ii SNOIJVIEUO "T" H i rh m -o F? sc at a n B.3 » # I!A »*• 1 w A t 9 P FIGOTS 10

* * i i *i 2 n j hi <* cv ft Aa A u 2 I TF1A 1 S s r* A2 S- S m» 0 , » I i » i* m

i 4 202

Purchasing Corporation with that of the Hospital Bureau* There are presently four hospital regional councils which enjoy 10 Bureau membership* Other regional councils are considering the possibility of acquiring Bureau membership In the near future*

The Purchasing Agents Committee has been In operation since 1958* A reorganization was necessary in 1961 t o p e r m it 11 a greater degree of council participation. Each regional c o u n c i l 1 b represented by two members on this Committee—one a purchasing agent* the other a staff member in charge of regional contract negotiations at the regional council^ office* Other members may be appointed by the Executive Director*

The main task of the Purchasing Agents1 Committee is to draw up national contracts In which the regional councils may find It profitable to participate* The Purchasing Agents* Com- mltee makes recommendations as to purchasing policy and procedures and reviews existing and potential group procurement agreements*

It Is the responsibility of the Purchasing Agents Com­ mittee to raise purchasing volume through the Bureau* It alms to eliminate conflicting contracts and Increase participation from regional council members.

*°These are the Cleveland Hospital Council* The Roches­ ter Hospital Counoil, the Hospital Purchasing Corporation and the Hospital Council of Western Pennsylvania* A regional hos­ pital council is a voluntary association of hospitals on a regional basis which alms at coordinating the work of Its member hospitals* Today only a few councils Include group procurement as part of the services which they offer their members* 11The new by-laws of the Purchasing Agents Committee appear in the Appendix Q, section ^ * p.307. 203 In the reorganization program of 1961, the Purchasing

Agents' Committee emerged as one of the moBt important committees of the Bureau. The success or failure of this Committee w ill determine to a large extent the future role of the Hospital

Bureau. The other two operations committees are the D ietician and Pood Committee* which advises on methods to improve food purchasing and preparation* and the Patronage Refund Committee,

The Patronage Refund Committee recommends the amounts of refunds to be applied each year. The Dietician Pood Committee is quite active and supervises the publication of "Dietary News."

b. Membership^ There are two types of membership In the Hospital Bureau that a voluntary non-profit hospital may acquire. One form is direct membership. Hospitals may Join the Bureau Independently without affiliation through a regional council. The second type is indirect* that Is* through a regional council which is affiliated with the Hospital Bureau.

As the Bureau developed* it sought and acquired member­ ship among the independent hospitals. Most hospitals in the early twenties and thirties were not affiliated with a group procurement program. After the end of World War II a number of councils began offering a group procurement service to their members. Four of the five non-religiously affiliated councils which developed a group procurement program later Joined the

Hospital Bureau.^ At present about two-thirds of the Bureau

12 See footnote 10 in this chapter. 2 04 membership consists of non-affllllated hospitals. As more hospital councils acquire Bursau membership, tha balanoa w ill shift In favor of ths affiliated hospital. Thors is greater emphasis, presently being placed by the

Bureau, on council membership. The reorganization of the Council

Managers' Committee was to aohleve greater cooperation with the

oounolls and promote increased membership a

* 3* Methods of Financing When the Bureau started operation In 1910, It had four­

teen members and rendered only one service, that of buying.

The annual dues were set at *1 ,250 per hospital and an initiation fee of one hundred dollars* Revenue from annual

dues was used to pay for operating expenses. Another source of

revenue was an average five per cent markup plaoed on a ll pur­

chases from the Bureau. Member hospitals paid the Bureau at the listed prices which included the markup. The Bureau's payment to

suppliers was made on a net basis after deducting the applicable

markup. Revenue from markup on purchases was used to operate a 13 revolving fund and to defray a major part of operating expenses

which exceeded considerably annual dues.

1 3 The Revolving Fund was established to facilitate prompt payment of members' invoices. Suppliers forwarded their invoices for orders of member hospitals to the Bureau, who paid the invoioes out of the revolving fund and, in turn, billed the hospitals Involved. As soon as the hospitals paid the Bureau, the revolving fund was replenished. 205

A year later, when out-of-town hospitals Joined the

Bureau, membership fees for out-of-town hospitals were set at six hundred and twenty-five dollars for annual dues and fifty dollars for in itiatio n fees. New York members continued to pay the original amounts. By 1917, dues were reduced considerably for all members.

Annual dues were baaed on hospital bed sise. The range for New

York City members was a hundred and twenty dollars to six hun­ dred dollars. H ospital members outside New York paid from one hundred dollars to two hundred dollars depending on the else of the hospital. There were no lnlatlon fees. No logical ex­ planation was given for the move. The new rates remained in effect until 1932. During that period the Bureau experienced

a number of operating deficits. The general services which the Bureau offered its member­

ship were to be covered from membership dues. With Increased membership it was possible to extend the range of these services.

3uoh services included product and price Information, research

and publications. Hevenue from markup on purchases ranged bet­

ween two per oent and ten per cent and was used to cover the

major share of the expenditure for the operation of the buying

service and to build up the revolving fund which was used for

prompt payment of suppliers' involoes.

In 1967 dues had to be doubled over what they were 206 14 previously. The fear of large scale resignation as a result of the Increase In membership dues did not materialize. Less than 6 per cent of the buying members withdrew from the Bureau. With the growth of membership through it s regional councils amounting to about one* third of a ll Bureaus In 1961 , the Bureau adopted new regional council dues. The regional council dues were not set on the basis of total expenditure or bed capacity. They varied with the number of hospital members for each regional council. The dues were three hundred dollars per hospital for the first ten regional council members and one hundred dollars per hospital for each additional regional ooun- s ll member. In most cases dues are paid directly by the regional council of floe to the Bureau. The regional oounoil fees paid by the hospitals include regional oouncil membership and Bureau dues . An analysis of the Bureau's financial situation in i 960 indicates that the major financial problem remains the lack of adequate operating revenue. 1*5 **' The Increased volume of purchases

^The new membership dues are based on total hospital expenditure exclusive of payroll. Dues per year Hospital Expenses (Excludes Payroll) 240.00 100.000 and less 360.00 100.000 - 200,000 480*00 200,000 - 300,000 600.00 300,000 - 500,000 720.00 500,000 and over ^^Bureau Balance Sheets & Operating Statements appear In the Appendix C, aeotionl-2pp. 302-304. 207 and a rise in expenditures have contributed to the shortage of operating capital. Without the necessary capital, the Bureau 1b hindered from achieving truly national proportion.

B. EFFECT OF NATIONAL GROUP PROCUREMENT ON THE HOSPITAL'S OPERATION AND SERVICE

In order to affect slgnlfloantly the operations and service of the Massachusetts Oeneral Hospital, the Hospital Bureau has to overcome two barriers. First, the Bureau has to lnqprove on whatever advantages the hospital enjoys on it s own, due to Its volume or prestige. Second, as a member of the Hospital Purchasing Corporation, the Hospital enjoys certain advantages. Unless the Bureau Is able to offer additional ad­ vantages, there is little chance of attracting the Hospital's business. The Hospital has been a member of the Hospital Bureau since 1914. The volume of purchases from the Bureau rarely exceeded one per cent of the Hospital's total purchases. Often, It was considerably less. This meant that price advantages aooruing to the Hospital from Bureau membership have been negli­ gible. There are Important reasons which explain this lack of participation. They will be detailed in subsequent sections.1^

^Please refer to section (C), number 2 in this Chapter "Special Limitations to Greater Participation by the Massachusetts Oeneral Hospital." 208

In addition to price advantages there are other advantages which the Bureau offers Its membership. These have been, prim arily, s e r v i c e s .

1. Price advantag£si This section will examine price advantages which the Hospital has enjoyed through Bureau member­ ship. Of, perhaps, greater Importance Is the potential price advantage which the Hospital would enjoy upon fuller participa­ t i o n . For illustrative purposes two areas have been chosen.

The products within each area represent the large dollar volume items In the Hospital's procurement budget. These are linens

and clinical supplies.

a . L in e n s . The newly reorganized Purchasing Agents Committee

of the Bureau negotiated a linen contract in June of 1961. The

volume of the contract was about $600,000. The share of the

Massachusetts General Hospital amounted to about $15,000.

The contract was the first effort of the revitalized

Purchasing Agent's Committee. It represented a major break­

through in the linen area for the Bureau. The contract was designed to be of a national character,

in order to cover all Bureau members. The area which comprised

the geographic distribution of Bureau members was divided Into

three zones. Hospitals located further away from the m ill area,

were charted correspondingly higher prices. 209 The Mill was situated In the South East section of the United States which meant that New England hospitals were included under the highest tone area. Th*. result was that price advantages secured through group procurement were con­ siderably reduced due to the transportation differentlal. (Table XV)

TABUS XV

OOMFARATIVE ANALYSIS - LINENS As of July 1961

Description M.Q.H.* H .P .C * H o s p i t a l f / D o z A P r i c e * Bureau Prlcea ($/Doz.) $ /D o z . Low H ig h Z one Z one

Bed Sheets T-140, 72" x 1 0 8 " 2 0 .9 3 2 0 .6 8 2 0 .9 5 2 2 .2 0

Bed Sheets T-180, 7 2 " x 1 0 8 " — 2 1 ,1 1 2 0 .9 5 2 1 .1 7

Pillow Cases T-140, 42" X 36" 4 .9 5 4 .4 7 4 .4 5 4 .4 6 Pillow Cases T-160, 42" x 3 6 " — 5 .1 3 5 .1 0 5 .1 5

Source* Hospital Bureau, Inc., Price List, Textile contract Exhibit A, P. 1; and Massachusetts General Hospital, Purchasing Department's records. &A11 prices quoted hare are delivered prices. *The Massachusetts Oeneral Hospital **The Hospital Purchasing Corporation 210

According to the contract geographic distribution, the

M assachusetts General Hospital was located In the higher trans­ portation zone area. An examination of Table XV Indicates that prices in the high zone area are higher, in every instance,

than comparable items offered by the Hospital Purchasing Corporation,

In general, as a national group procurement contract is expanded to cover a wider area, price advantages to those away

from the source of supply are reduced through additional

transportation charges. In the example of the Bureau linen

contract here given, the Massachusetts General Hospital saves

through regional rather than national group procurement. The

reason is because by buying regionally the Hospital incurs lower

transportation costs due to the fact that the source of supply Is

not too far removed from the Hospital. National contracts have

to Improve on advantages enjoyed by a hospital on its own and througt

regional groups. In addition, they have to offset transportation

costs which Increase as the area covered by the contract expands.

b. Clinic al_supj>lies. Two major items in clinical

supplies are thermometers and syringes.

In the thermometers field, the Bureau has a highly

advantageous agreement with the Masaa Corporation. The basic

price of $47*00 per gross is believed to be the lowest price

in the United States on quality tested thermometers manufactured

In this country.

The M assachusetts General Hospital uses about 100 gross

of clinical thermometers a year, which it buys locally in the 211

Boston area. The Hospital Is able to purchase clinical thermo­ meters at more favorable terms than the Hospital Purchasing

Corporation. (Table XVI) It should be able to Improve on Its present prices through the Hospital Bureau.

Needles and syringes are a large dollar Item even for small hospitals. Estimated usage rate at the Massachusetts

General Hospital for metal tip syringes Is about seven hundred dozens per year. Based on Table XVI, savings to the Hospital

through procurement from the Bureau wsuldexceed $1000.00 on th is item alone. The M assachusetts Oeneral Hospital procures syringes and other clinical Items locally. There is no assurance that the

Hospital is getting better quality products for the higher

price It Is paying. One advantage has been faster service to

meet emergency needs. Emergency needs arise In every hospital.

It Is not their presence but their frequency which reflects on

the efficiency and status of the procurement division.

At the M assachusetts General Hospital, emergency requests

have been considerably reduced In the past few years through

forward scheduling. Each department is requested to order for

a minimum of a month's needs. Purchase requests are lim ited

to specific days In a week. under such a system, the advantage of faster service to

meet emergency needs Is minimized. The Massachusetts General

Hospital may, through proper scheduling, order clinical supplies

through the Hospital Bureau. Based on current prices, It would 212 TABLE XVI COMPARATIVE ANALYSIS Selected Clinical Hospital Items As o f 1961

Description M.O.H.Price H.P.C.Price Hospital Bure* $ $ Prloe $ Blades 8.30/m* - 8 .0 0 /m Canes 35n 10.00/dz - Q.50/dz Crutches 1 9 ,7 5 /dz - 1 7 .oo/dz Crutohes-adjustable 2 4 .4 8 /dz - 2 2 .50/dz C atheters-Foley bag 2 1 ,55/dz 2 9 . 00/dz -Gilbert Type 24.57/dz - 2 3 .50/dz -Retention 23.81/dz - 22.00/d z -Self-Sealing 22.30/dz - 2 2 .00/dz -Inflation Channel 24,57/dz - 2 4 .00/dz Thermometers*1 clinical 50.00/gross 53.00 gross 47.00/gross -r e c ta l 50.00/grosa 53.00 gross 47.00/gross Syringes, metaltype 2 CC 15.36/dz - 1 3 .07/dz 20 CC 30.84/d z - 2 6 .9 5 /dz

* M stands for one thousand. Source; Massachusetts Oeneral Hospital, Purchasing Department records, Hospital Purchasing Corporation reference sheets and Hospital Bureau, Xno,, agreements. a; In Massachusetts, thermometers have to have an approved sta te lio e n se . The Massa Thermometer Corporation which supplies the Hospital Bureau does not have a Massachusetts lio e n s e • 2 1 3 mean considerable savings to the Hospital each year.

It la apparent that present amount of savings enjoyed by the Hospital through affiliation with the Bureau has not been significant. This has been due to the token participa­

tion by the Massachusetts General Hospital in national group procurement* The reasons for the H ospital's lim ited p artici­

pation are detailed in subsequent sections.

2. Other Advantages Non-price advantages have been important enough to the

Massachusetts General Hospital to sustain membership In the

Hospital Bureau for the past half oentury.

Hon-price advantages are prim arily In the area of

servioes* They may be classified under thrs* categoriest (a) research and testing facilities, (b) prioe and product infor­

mation, and (c) special services.

It 1s not possible to distinctly separate one from the

other. They are olosely related. Research and test results

may appear in any of the three Bureau publications along with

prioe information. Special servioes may Involve a study rela­

ting prioe to quality of a less oomnonly used item.

a. Reaearoh and Testlng ffac 1 lit 1 as. Researoh and

testing facilities are important to small and large hospitals.

In terms of researoh, a hospital may find itself unable to

looate a needed item . By oheaklng with the Bureau, up-to-date

information is made available to the Hospital as to source and 214 p r i c e .

When a new product appears on the market it Is necessary for the hospital to check its quality and determine Its value.

Pew hospitals In the United States today are equipped to under­ take this task. An analysis of quality might Involve physical and chemi­ cal tests. Determining value Is even more complex. There is need to relate quality to price. For such a comparison to be meaningful it is necessary to have a thorough knowledge of market prices and conditions. This is a full-tim e job for one especially trained to follow market trends and determine price quality relationships.

The Hospital Bureau has testing facilities on Its premises. Extensive tests are done at outside laboratories.

Testing facilities, by themselves, are not of primary Importance.

What Is especially significant Is to know what to test for, and how to evaluate test results. Due to Its experience and connections within the hospital market, the Bureau is well fitted for this Job.

The Massachusetts General Hospital has made very

limited use of the Bureau’s research and testing facilities.

Suoh use has been Infrequent. In the area of new products, cooperation between the Hospital and the Bureau has been

helpful to both. 215 The Massachusetts General Hospital, as one of the leading hospitals In the United States, receives regularly a multitude of new products for testing and evaluation. These are tests conducted at the hospital-level to determine hospital applicability. Combined with quality analysis the cough chemi­ cal and other tests by the Bureau, the re suits are much more significant to the Hospital and other Bureau members upon publication. In the service area, greater reliance by the Hosr tal has been placed on price and product Information. Such Infor­ mation Is communicated to the Hospital through the Bureau’s regular publications.

b. Prioe and product information. Price and product information appear regularly in the Research and Market News, The third Bureau publication. Dietary News* limits Itself to the food area. Of special importance are summaries of test results which are a regular feature of the Bureau's publications. These tests evaluate brands as to quality and price and publish their findings. The list of Items covered is very extensive. 1 7 They

^Summaries of Important tests published in the past three years include i mattress pad flamablllty, wax strippers, plastic serving pitchers, post operative sponges, autoclave tapes, dis­ posable surgeons gloves, toilet tissue, lamps, carafe, cotton blankets, sterile paper wraps, "notwiron" sheets, hypodermic needles, ultrasonlo instrument a, thermometers, plaster of parls bandages, rubber elastic bandages, stainless ware and paper towels. 216 range from fiber glass traya to abaorbent toweling, A number of these teat summaries were especially impor­ tant to the Haaaaahusetts General Hospital. Procurement deci­ sions in the areas of rubber elastic bandages and plaster of Paris bandages were based on test results published by the Bureau, The Hospital also realized considerable savings through application of Bureau findings on cotton blankets and disposable surgeons * gloves• Prioe Information on hospital supplies available through the Bureau appear regularly in the form of agreements, which are the contracts negotiated between the Bureau and the sup­ p lie r s.1^ The Bureau Issues an alphabetically numbered agreement for each Item contracted. These agreements are up-dated as they are renewed. Another source of Information available to Bureau members are the Bureau's field representatives. They v is it hospitals regularly to answer questions and help with problem solutions. Due to the limited number of the Bureau's field representatives and the wide area they are assigned to cover they have found very few opportunities during the last three years to visit the Massachusetts General Hospital, As detailed in a previous section, the Massachusetts

lf l Agreements are In fact the Bureau's price lis t s cover­ ing each Item separately. Prices quoted in a ll Bureau agreements are delivered prtoes and Include the Bureau's markup, A de­ tailed description of the typea of agreementa published by the Bureau was presented in the first part of this chapter In Seotion A, number 2 "Organization and Membership." 217 General Hospital has not participated extensively through pur­ chases In the Bureau agreements* Price Information, however, as disclosed by the published Bureau agreements, has been an

Important determinant of the prices paid by the Hospital to

Its suppliers.

c. Special services^. Special services offered by the

Bureau comprise studies undertaken by the research department to solve a hospital's specific problems* They also include

special reports which contain complete data pertaining to a hospital's operations* The Massachusetts General Hospital has not made extensive use of the special services of the Bureau*

A hospital contemplating the purchase for Instance, of

an ultra-sonic cleaner may save Itself considerable headaches

and money by seeking the Bureau's advloe* The Bureau's Researoh Department has conducted exhaustive studies on this product and

has a great deal of information available*

The reports pertaining to general aspects of a hospital's

operation have reoelved considerable attention at the Hospital*

Of great Interest at the Massachusetts Oeneral Hospital have

been reports pertaining to sheet evaluation, hospital blankets.

Interchangeable syringes and oonduotlve m aterial for operating

rooms* The latter report was especially Important in view of

the Hospital's efforts during the past year to develop adequate oAhduetlve shoes* c 218

In its totality, the direct effect of the Bureau on the H ospital's procurement operations, has not been significant.

Price advantages have been limited (Table XVII) because for most items the Hospital does not realize significant savings

through Bureau procurement. In the surgical dressings area such as for certain type sponge b (Tp.ble XVII) the Bureau prices are

lower than those secured by the Hospital. Lower prices are also

offered by the Bureau on uncut gauze and certain paper products

such as tray covers. In general, the Massachusetts General

Hospital, on its own, and by association with the Hospital Pur­

chasing Corporation, has been able to secure lower prices than

the Bureau for similar or better quality products. This is es­

pecially true in linen items, stationery items, such as ribbons and

stencils, and in utility items such as paper cups and paper

t o w e l s . Service advantages have been neglected, often to the

detriment of the Hospital. In order to understand the lim ited

participation of the Hospital in Bureau contracts and services,

it is necessary to analyze the factors which have prevented the

Hospital from taking a more active part in national contracting.

C. OBSTACLES TO PARTICIPATION IN NATIONAL CONTRACTS BY THE MASSACHUSETTS GENERAL HOSPITAL

In thlB section two sets of factors w ill be discussed

which have lim ited the participation of the Massachusetts

General Hospital in national group procurement through the

Hospital Bureau. First, the general factors which apply to the 23$ 2 6 1 • m s B* 3 S 1 H* VO ro M to to M M M toVJI to to u 8 8 S W & b» W & • \J t H FVJ I S X i V i I- optl ueu Inc., c n I Bureau, Hoaplt&l * r r i f E ? | | 3 Q f to 3 8 f tnad optl u e t I Hospital Standard of ComparatiTe Price Analysis Analysis Price ComparatiTe

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1 ^ ^ ^ ^ ^ S 3 Pi ONiiJ**-tO> 3 Cv H Ov VO t-aE On Os t~- 3 2M 38 S.a8Rs* E=*8 R u\ iT\ R8R R 8 8 8 S M ♦ • ♦ ifQ f * ■ • » • * ► • • • » w 3> fu r) lT\ 1ft |T\ 4 a m 3 H H 3 (*> OS B m o E i l l $ i IIS H (0I > 9I t N g u £ o i < l | j 1 * * 1 1 1 $ j l j l l try VO ] ha h i s i s ’* - • t 3 ft E s f £ 8 ** a £58* E £• II -=i- ir\ if M i l - n(« *#. I‘ ? l ! s III!

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Os S s its Source: Oenplled by the author, f t ft 8 * ■*S iT \ ■H H CVI a 8 e * * * » «D £ I 3 1 to 3 I 133 222

Massachusetts General Hospital and to other members of the Hospital Bureau. Second, special factors which pertain to con­ ditions unique to the Massachusetts General Hospital*

1* General .Factors which Affect The Massachusetts General Hoibical ’ a Participation —— ~

An analysis In 1953 of membership participation In

Bureau agreements disclosed some Important faets. Fifty per

cent of the membership accounted for fifteen per cent of the

total volume of purchases* The lim ited participation of the

M assachusetts General Hospital Is not a unique Instance among

Bureau members* The general considerations which affect the degree of participation apply to the Massachusetts General and to other Institutions as well* These may be classified under four main categories* Geographic considerations, limited sense of belong­ ing, lack of proper information, and conflict of national and 1 regional contracts* Though there Is a great deal of interrela­ tionship among these factors, each will be treated separately*

a* Jeogr«£hlc^con£lderat 1 on£, Bureau members are located throughout the Uhlted States In metropolitan and in rural areas* As the distance Increases between the source of supply and the Bureau member, savings are reduced by the addi­ tional transportation costs* A large number of Bureau members are small hospitals located outside metropolitan areas* To service these hospitals 223 i t 1 b necessary for the supplier to make individual shipments in Btaall lota. The diatanoe between one hospital and the other may be considerable, which prevents unloading at a com­ mon p o in t* Less than carload shipments mean higher transportation rates. Often there is no rail connection between the supplier and certain remote hospitals. This entails rerouting by truck which result in increased transportation coBts. These added oosts may wipe out price savings through bulk purchases.

The Massachusetts General Hospital has recently fe lt the effect of the geographic factor. Being located in Boston, the Hospital was placed in the high transportation zone in a textile contract recently awarded by the Bureau. Due to the transportation cost, price savings to the Hospital became negligible. As a result, the Massachusetts General Hospital

Is able to procure its linen requirements, regionally, at a lower cost.

The present volume of the Bureau would need to be in­ creased substantially to offset transportation expenses to all areas. There will still remain certain hospitals to which a substantial price reduction would not cover the additional transportation costs. Under such circumstances it would better serve the Interests of the hospital to abstain from participa­

tion In Bureau contracts. 224

b, Limited jsense of_belonglng^ Among the Bureau member­ ship, few hospitals uae the Bureau as their majorsource ofBupply.

In the New England area among fifty-tw o Bureau members, there is only one hospital which places with the Bureau over ten per cent of its procurement requirements. The same situation exists in other regions as well. Generally, smaller hospitals are better supporters of the Bureau due to the fact that they enjoy a

higher percentage of savings on Bureau purchases than the larger

h o s p i t a l s .

Since Bureau membership extends over a wide area,

members feel little in common. They rarely meet,except at

regional or annual meetings. At such occasions members are

given the role of an audience rather than participants.

Prior to the reorganization of the Managers Council

Committee and the Purchasing Agents Committee, councils had little

to say in Bureau affairs. The Board of Directors has fifteen

members to represent three hundred and forty hospitals.

Individual members have negligible Influence on Bureau

decisions. The only exceptions are large institutions or

known "boosters'1 of the Bureau. At annual conventions, nomina­

tions and elections are determined by a handful of Bureau

members. This has disillusioned many, and made of their rela­

tionship with the Bureau impersonal.

The Bureau publications and Bureau representatives are

keeping the Bureau in contact with the membership. In both

caseB it haB been far from adequate. Bureau field representa­

tives can hardly be expected to establish close relationship

with member hospitals through one v isit every four months. 225

There is real need to Increase field representation and make the Board of Directors more representative especially in terms of the geographic distribution of member hoqpltals. Councils and Independent members should be encouraged to p a r tic ip a te on the Bureau committee b . Combined meeting fo r more than one region should be held frequently during the year* Annual meetings should be held in a different area each year to intensify the support from all regions* Until very recently the Massachusetts General Hospital was not represented on any of the Bureau's committees* The Hospital has maintained continuous membership In the Bureau for the past half century. With the present representation of the Hospital on the Purchasing Agents Committee, there should result Increased cooperation between the Hospital and the Bureau* 19

c* Lack_of Prope^Information^ After fifty years of development, the Hospital Bureau should have become nationally recognized by every voluntary hospital throughout the United S ta tes* Outside of limited hospital procurement circles, there Is little knowledge of the Bureau's operations* This lack of Information Is magnified at the administrator's level* Within

1^Mr. j. F* Hill, Jr., Director of Purchasing at the Massachusetts General Hospitalwaif vice-chairman of the Bureau's Purchasing Agents Committee for l96l~62* 226 the member*hip itself few are aware of the benefit* whioh may be aohieved from Bureau membership * Lack of proper in fo m a tlo n has lim ite d Bureau member­ ship. It has, further, affected considerably the extent of member hospital*1 participation. The Hospital Bureau needs to arouse the Interest of other hospital personnel outside the procurement office. A release published in 1961 In newspapers and business magazines resulted in widespread publicity for the Bureau. Mr. 8. White of the American Hospital Association stated . . . that on the day following the publication of the release, his desk was covered with telegrams and letters inquiring about the Bureau. This pointed to an interesting conclusion. Publicity articles published in hospital magaslnes do not seem to activate hospital administrators to make inquiries concerning the Bureau's services. However, when publiolty is placed In the business and finanoial pages of a paper, hospital trus­ tees read the article and inquire of the Bureau and Its services as a matter of satisfying their ourioslty*®® Top management and the Board o f Trustees a t the Massa­ chusetts General Hospital are far from being well Informed about the services of the Hospital Bureau. There is need for more infomatlon at this level. This may be achieved through releases in business publications and through personal letters. The interest of the procurement officer In each hospi­ tal should be sustained and increased and Information provided

^Thurston Long for Howard 8. Pfirman, Chairman, Report of the Public Relations Committee to the Annual Meeting of the Hospital Bureau, March 2, IB61, Hew Tork. 227 to the Board o f Trustees and top management. The Bureau needs to oultlvate the Interest of all three groups In order to attain national acoeptanoe.

d. Overlapping National^And_Reglonal Contracts. The Hospital Bureau finds Itself frequently In competition with regional agencies* Items oarrled by the Hospital Bureau are also offered by regional agencies, though not necessarily at the same price savings* The M assachusetts General H ospital Is a ffilia te d with the Hospital Purchasing Corporation and the Hospital Bureau* Half of the Bureau members enjoy affiliation with a regional group procurement agency* Regional groups are closely bound and are capable of exerting greater pressure on their member hospitals than national agencies* The Individual hospital finds itself in a d if f ic u lt position* Procurement through the Bureau might re** 4 suit In alienating strong local groups* Purchasing at the regional level may mean bypassing significant price savings* There are a number of Items In the hospital supply category which lend them selves to national group procurement* Others may be more advantageously procured regionally* There is real need for dose coordination between the Hospital Bureau and Its affiliated regional councils* The Council Managers Committee i s a good step in that direction* A major achievement by th is Committee would be to 2 2 8 thoroughly analyze all hospital supply Items and categorise them as to national or regional group procurement. It is suggested that large volume Items of recurrent nature be procured on a national basis. (Table XVIII) Items which do not lend themselves to standardization, or those required in limited quantities should be covered by regional contracts. An example of such items Is waiting room furniture. This differs from one class to another in a hospital and total needs of this item are more suited for regional group procure­ ment. Patient room furniture is generally standardized and is needed In large quantities. Such an item along with their furniture items such as laboratory furniture and examining room furniture can be profitably purchased through a national group procurement agency. With reference to equipment, national contracts should cover equipment which does not necessitate constant servicing such as that needed for expansion purposes. Where service or maintenance on equipment is a primary factor regional procure­ ment is recommended. This is especially true for highly sensi­ tiv e machines Buch as electrocard iograp h s and s t e r iliz a t io n equipment. This still leaves a number of items which fit in neither category. These may be new Items with limited acceptance and no established channel of distribution. These Items are better procured at the regional level, since the volume is usually limited. Items such as draperies and decoration 229

o% VJI VO OJ - J Ov VJt uj ro I o o p *a f f a S f f f l M I i i S ? ■g | E I I I i f , I* at1 I && f * 3 3 ■5a &a a 4 f

£ 9sr

H ij3 o o p o a VM sdM ""* P * »SI ! P R ■ - ! \\W 3 & t & I f ?

tt &

? a* 8 w & I & • s la I Iffp- £ I f 2 f 4 11.H o O M S s n o n 3 kM. f c JT p n p h iig g p M *1 ►* It 8 * & £ a ■8a ? a *4 * ea 9 & & •8 w* m w o p 3 I ft M- ff I 3 E S s S g a H- m o 8 salM- 1 I* a s a

t g t r s s < * ■ ! I pf*5» | |&*Ir I I !'P fi' i l l * * ■ 230

Compiled "by author hased on pereonal aneJyeiB and u n o fficial survey anting group procurement aganclea. 231 fabrics where taste and color are Important determinants, it

Is difficult to standardize. Hence it would be preferable to

procure them locally.

In national group procurement, for both supplies and

equipment, savings at in itial purchase must be substantial.

In order to be substantial, a large volume Is necessary which

necessitates a high degree of standardization. Where servicing

Is necessary and Is of recurrent nature, national contracts are

not recommended.

National and regional contracts should be subjected to

continuous reappraisals to determine their applicability to

changing hospital needs. The aim Is to maximize the benefit

from each dollar the hospital spends on procurement.

2. Special Limitations to Greater Participation by the Massachusetts General Hospital

The experience of the Massachusetts General Hospital in

national group procurement spanB half a c e n t u r y . U n t i l v e r y

recently, the Hospital's participation in national contracts

has been negligible. The factors which have affected the degree of the

Hospital's participation may be classified under two main headings.

These are: (a) divided loyalty, and (b) limited price advantages,

a. Divided l°2!<£. Prior to the centralization of the procurement function at the Hospital there was little hope for

y» 23 2 regional or national group procurement . After 1955# Important changes In personnel occurred, In the purohaalng department and w ithin top management. Changes at both levels strengthened the trend towards group procurement.

In 1952, the Hospital Purchasing Corporation was estab­ lished. By 1955# the Hospital had assumed a leading role In

Its development. In the second half of the past decade, the support of the M assachusetts Oeneral Hospital was a determining factor In the success of the Hospital Purchasing Corporation. At present the Hospital aooounts for between twenty»flve per cent and thirty per oent of the total volume of purchases through the Hospital Purchasing Corporation. As the leading

H ospital In New England, the M assachusetts General Hospital

Is under a moral obligation to support the agency. As the

H ospital Purchasing Corporation addB new members, the total volume of purchases w ill Increase. It la possible that with a considerable Increase In membership the share of the Massa­

chusetts General Hospital of total purchases will deorease.

There have been other reasons which have oriented the

Hospital away from national group procurement. The H ospital's

location means high transportation costs on many nationally procured item s. Where sim ilar Items are offered by the Hospital

Purchasing Corporation, regional procurement may be less costly.

Until the past year, the Massachusetts General Hospital

was not represented on any committee of the Hospital Bureau.

In the Hospital Purchasing Corporation, however, the Hospital 233 holds key positions on most committees*

There Is little doubt that to date the loyalty of the

M assachusetts General Hospital has been with the Hospital Pur­ chasing Corporation* As the Corporation develops, however,

Its dependence on the Hospital w ill proportionally decrease*

There is urgent need for the Hospital Bureau to develop,

in cooperation with regional counoils, national contracts which are not in conflict with regional offerings* Until such time,

the Massachusetts General hospital, affiliated with both

agencies, w ill have to face the problem of divided leyalty.

The same problem might arise with other hospitals, within and outside of Hew England* It is presented here since

the M assachusetts General Hospital enjoys a leading position

In New England and has played a prominent role In the develop­ ment of the H ospital Purchasing Corporation* This has made

the question of divided loyalty far more acute*

b* Limited £rice advantage. The large volume of

purchases of the Massachusetts General Hospital and the ability

of its purchasing staff has permitted the Hospital to enjoy

very competitive prices* The Purchasing Department's first

concern is the best Interest of the Hospital* To date, the

Bureau has not been able to offer the Hospital substantial price

savings as disclosed by Table XVII, A comparison of over fifty

standard items In hospital supply presented In Table XVII

indicates that the Hospital In the majority of the cases is not 234 at an advantage buying through the Bureau.

In the area of surgical dressings, such aa gauae sponges,

and for items suoh s b blanket pins and tray covers, the Bureau

has a decided advantage* In those items the Hbspltal has know­

ingly bypassed possible savings in favor of more established 21 brands. This has been due to the preference of the profes­

sional and nursing staff* The reasons the Massachusetts Hospital has been able to

buy more competitively have been due to factors within and

outside the Hospital.

As a leading hospital in the united States, it is

actively sought by many suppliers. Its volume of annual pur­

chases of about five and a half million dollars is equal to

that of the Hospital Bureau. It has a highly efflolent staff

which has been able to maximize the value of each procurement

d o l l a r . One method the Hospital has used successfully Is the

guaranteed-contract approach prim arily with the large wholesale

distributors. The Hospital negotiates with them a given volume

of business covering a multitude of items. The distributors

w ill quote the Hospital a fixed dlsoount, off-llst for a period

of a year or longer, regardless of price changes. The Hospital

guarantees the supplier a given volume of purchases throughout

21 Suoh as Johnson and Johnson and Bauer and Black. 835 the life of the contraot.

It is for this reason, that on certain Items, the

Hospital may not be quoted the best possible price. Taken as a whole, however, contracts on a guaranteed volume basis have resulted In considerable benefit to the H ospital,

In order to attract the * business' of the M assachusetts

General H ospital, the Bureau needs to expand Its present volume considerably. The expansion should be coupled with a rise In efficiency through a more selective choice of Items for national procurement. After half a century of affiliation with the Hospital

Bureau, the Hospital may not be characterized as oriented towards national group procurement. The participation of the Hospital in national contracts over the last fifty years adequately proves this point.

Before concluding this Chapter, it is necessary to make

some relevant suggestions pertaining to the Hospital Bureau which may be used as a basis for future action to Improve the

Bureau's operations and expand its scope of activ ities. The Bureau presently needs action on two fronts, Intexv

nally and externally. Internally, the Bureau's major problem

is a financial one. It is the lack of adequate operating

capital. One of the methods to build adequate opurating capital

is to withhold patronage refund- for a year or two* Another method

is to increase the markup on supplies to member hospitals* 236

There Is el so need Internally* for a greater degree of coordination among the varloua committees* The executive com­ mittee should play a more aotlve role In assisting the executive director to correlate the various activities of the Bureau*

A possible solution may be to establish a "coordinating committee11 whose membership w ill consist of a ll the chairmen of the Bureau1 s committees, in addition to the Executive Direc­ tor, the President of the Bureau and three members of the

Board of Trustees. Under the present system the “coordinating committee” would amount to about fifteen members* It should be able to oreate the needed link between the Board, the Committees and the Adm inistrative Branch of the Bureau*

The Board of D irectors needs to be expanded and be made more representative. It is suggested that no more than twenty

hospitals from one region be served by one representative*

The appointment of directors from the manufacturing field to

the Board should prove of real value to the Hospital Bureau.

Externally* there Is need for action. The service of

the Bureau, especially field representation and research should

be Improved and expanded. Closer relations between the Bureau

and its member hospitals should be realized* One possible way

of achieving this end Is to train a group of selected purchasing

agents or adm inistrators In every region to represent the

Bureau in their locality. These people could be responsible 237 for regional meetings* They should also attempt to organize combined meetings among more than one region*

Of prime importance on the external front is the cor­

relation of the Bureau procurement operations with those of

the regional councils. The suggested listing in Table XVIII

may provide those Interested with some Ideas. It is neoessary

that these listings be continuously reviewed in order to keep

abreast of changes within the market and at the Hospital level.

The present trend of the procurement policy at the

M assachusetts General Hospital favors national contracting.

This is due to the greater participation of the Hospital in Bureau affairs. As the Bureau becomes more effective inter­

nally and externally, it w ill be able to realize greater

benefits for its membership. There is little doubt, that in

that eventuality, participation from the Massachusetts General

Hospital w ill increase considerably.

D . SUMMARY PART I I

In review, it is necessary to summarize the Important

points which were raised in Part II.

1. The procurement policy at the Massachusetts General

Hospital has tended to refleot the philosophy of the Hospital's

management. Since the establishment of the Hospital In 1811.

the philosophy of management has gone almost a complete circle.

Prom a highly decentralized system to one whloh is strongly

centralized. 238

2* Prior to the last decade, the procurement area at the Haaaachuaetta General Hospital was characterized by a large degree of decentralization and lack of oontrol.

3* It waa not until there was centralized purchasing

I n 1 9 5 5 that group procurement found extensive application St the Haaaachuaetta General Hospital*

4. On a regional basis, the Hospital participates In group procurement through the Hospital Purchasing Corporation.

5. The affiliation of the Hospital with the Hospital

Purchasing Corporation has resulted In price savings of about

ten per cent.

6. The Massachusetts General Hospital has also realized

some indirect advantages In the form of improved service due

to the Increased competition provided by the Hospital Purchasing

Corporation.

7. The efforts of the Massachusetts General Hospital

in terms of regional procurement have not been without difficulty.

There is strong professional opposition to centralization and

standardization in purchasing. Hospital management has not,

as yet, recognized procurement as a major hospital function. This has prevented the application of a number of group pro­

curement policies.

8. The role of the Massachusetts General Hospital In

the development of the Hospital Purchasing Corporation con­

tinues to be Important, it Is not as oruolal today as it was 239 in the early years of Its establishment*

9* The Massachusetts General H ospital's experience In national group procurement spans half a century* The H ospital's participation In national contracts has been through the

Hospital Bureau, Inc*

10* The Massachusetts Oeneral Hospital has realized few benefits from price savings offered by the Bureau, due to taken participation of the Hospital*

11* The lim ited participation of the Hospital In national contracts has been due to ability of the Massachusetts General

Hospital to secure highly competitive prices* Its volume, prestige and the ability of Its purchasing staff have limited the price advantages from Bureau membership*

12* There Is presently an urgent nedd for the Bureau to come to an agreement with regional councils In order to eliminate conflicting contracts* Once that is achieved, there

Bhould develop more cooperation between the M assachusetts

General Hospital and the Hospital Bureau*

13* For the Hospital to realize significant benefits from Bureau membership, the Bureau needs to expand Its volume of purchases considerably* This may be achieved through

strengthening of Its financial position and the Improvement

of Its services both in research and field representation*

Having anUyzed the general concepts of group procure­ ment and the experience of the M assachusetts General Hospital 240

In that fie ld . It 1b now p o o Bible to draw we r tain oonolualons and suggest relevant recommendations, which la prwaentwd In Part III, the Evaluation* The genwral aa wall aa the specific applications of group procurement to hospital management w ill be summarized. PART 111 - AN EVALUATION 24i

CHAPTER V III

CONCLUSIONS AND RECOMMENDATIONS

Page

A* Future Trend Of Oroup Procurement A gendas ...... 245

1, Membership ...... * ...... 246

2, Items Procured ...... 248

B* Prospects Of Group Procurement At The Massachusetts General H ospital ...... 250

1. Effect of Past Experiences On Future Procure­ ment Operations ...... 250

2, Means to Maximize Benefits From Group Procure­ m ent ...... •••••••«•» 251

C. Im plications To Other Hospitals ...... 254

1, Slmilar-Slzed Hospitals ...... 255

2* Small-Sized Hospitals ...... 256 CHAPTER V I I I

CONCLUSIONS AND RECOMMENDATIONS

Outside of their vital Importance as centers of health care, hospitals today have become one of America's largest "businesses,” In terms of Investments and assets, the hospital industry Is greater than General Motors, Ford and Chrysler combined, or the six largest railroads a ll taken together. Hospitals employ 1 out of every forty-four in the working population and spend six and a half billion dollars a year • • • forty-four Americans beoome hospital patients eaoh minute and a baby Is bom in this country, mostly in hospitals, every eight seconds,1 The task of managing this huge ''business1' Is the respon­ sib ility of the Hospital Administrators, Their aim remains today that of providing the patient with an acourate diagnosis and a speedy recovery. The means of achieving this end have become more complex with new developments In the medical sciences. Better qualified personnel, expanding facilities, and research expenditures have meant a rapid cost increase. Revenue has followed an upward trend but not enough to cover expendi­ tures, The result has been mounting d eficits to be covered by voluntary contributions.

F, R* Smith, Principal Address at the Qolden Anniversary Annual meeting, Hospital Bureau, March 3, i 960 . Mew York, Kr, Smith Is Xqeuranoe Commissioner, Commonwealth of Pennsylvania,

242 043

In the past decade

conaumera have increased their outlays for health care muoh faster than their incomes. Ffom $7,1 billion or 4*6 per cent of disposable Income In 1947 to $17,8 billion or 5,6 per cent of disposable income in 1968 . . . the chances are that by 1970 consumers w ill be paying twice as much on health as they are now— that la approximately $33 billion* This would Increase the share of after tax Income from 5*6 per aant to about 6*5 per cent,®

Spending on health care has risen faster than income.

The index of medical cost nhas risen twice as fast as consumer p r i c e s , The effectiveness of health care as a result of new techniques and new drugs has- also risen sharply* Hospital adm inistrators have to contend with more than rising cost of supplies. Personnel and overhead costa have risen considerably since World War II, The trend is for fur­ ther increases In the future.

The consumer's discretionary dollar is being pulled in many different directions. There is little room for increased expenditure on health care until substantial rises in income are realised. At present there exists little possibility for

Improved revenue through higher rates. The inflexibility of overhead and personnel costa and the trend towards further increases leaves little room for optimism.

In the area of supplies and equipment, the hospital

2 Chari as fi* Sllberman, "The Fight For the Health Care D ollar," H ospitals, February 1, 1961, p, 37, Mr, Silberman la a member of the hoard of Editors of Fortttne Mag as ins. administrator has at his disposal an Important tool of cost control and reduction* Group procurement Is an Important tool of management. If properly applied It might result In savings to the hospital of about fifteen per cent In Items jointly p r o c u r e d .

In B ritish Columbia# "studies conducted attempted to show the savings that were theoretically possible under a system of group buying. . . . The average** Is about 18*7 per cent savings from group buying."^ These savings are higher by about twenty per cent than for comparable small and medium-sized hospitals In the United States. They remain substantial# however# when considering they apply to about one-third of the total hospital budget.

The application of group procurement to the hospital field has been possible through the development of group pro* curement agencies on the regional and national levels.

4 The findings for small and medium-sized hospitals were as followsi

Bed Capacity % of Savings on Procurement ______expenditure u n d e r 25 b e d s 2 2 .7 26 — 50 beds 19.0 51 -*200 beds 15.0

5John A. Syma# "Group Purchasing Comes to B ritish Columbia# Hospital Management. January 1# 1961# p. 80. 245

A . FUTURE TREND OF OROU? PROCUREMENT AGENCIES

To many hospital adm inistrators and purchasing agents, group procurement agenoles have passed the stage of being Just another novelty. The savings they are able to realize and the services they can render to their membership are Important con­ siderations for present-day cost-conscious hospital management.

There Is little doubt that group procurement agenoles can be of real service In the hospital field. The degree of such service depends on the hospital, prim arily, and on the efficiency of the agency.

A group procurement agency Is not a separate entity from the hospitals it represents. This Is especially true for regional procurement agencies. The success of a national group procurement agency depends on the degree its membership Identi­

fies Itself with It.

The development of group procurement agencleB In the hospital field has not been without difficulty. Their ability

to survive and flourish w ill depend on the type of support the

hospitals w ill extend to them In the future. There Is real

need for regional and national group procurement agenoles to

re-examine their membership as to support and potential* It

is also necessary to evaluate products procured In the light

of market changes and hospital needs. The Intent In both cases

Is to gain greater hospital acceptance. 24$

The future trend as to membership and Items procured varies between regional and national group agencies. From an analysis of these two factors, It is possible to suggest rele­ vant recommendations for present and future agencies*

1. Membership The success and development of group procurement agencies is dependent on the type of support extended by the membership* Regional groups have. In most cases, been able to enlist greater support than national agencies. The closer relationship and personal contact among the membership and the agency, has meant greater support. The Hospital Bureau Is the only group agency of national proportion. The average purchases by each member from the Bureau is about two and two-tenths per cent of the hospital's procurement expenditure*^ This Is an exceedingly low percentage* The Bureau needs to Increase members participation rather than add new membership. If present members bought only five per

Total bed capacity of the three hundred and forty members Is 7 7 , 6 60 , This amounts to an average of two hundred and twenty- eight beds per hospital. The Amerloan Hospital Association estimates that, on the average, $3 ,0 0 0 are spent per year on eaoh hospital bed for a supplies and equipment* This should reault In a total procurement expenditure for the average Bureau hospi­ ta l of about (286 x 3*000; • $690,000 per year* Total annual volume by the Bureau amounts to five and a half m illion dollars. This means an average participation for eaoh hospital of 5*500,000/ 340 • $16,200* The percentage of purchases through the Bureau for the Average Hospital to the Hospital's total purchases amount to ( 16, 200/ 690 , 300} • 2 , 2 0 . 24 <7 cent of their total purchasee through the Bureau, the Bureau 7 would more than double its present volume.

Regional councils enjoy a much h&gher participation. It ranges on the average between eight and ten per cent. The

Cleveland Hospital Council has sixty-seven members with a bed capacity of 5430 and total volume of about $6,000,000.

The percentage of a member's participation to the H ospital's total procurement budget is about thirteen per cent. This is one of the highest percentages for any group, both regional and national. Regional groups should attempt to increase their member­

ship. The Hospital Purchasing Corporation can double its present membership to about seventy hospitals without extending

further than the Boston M etropolitan area. Most regional

group procurement agencies are in fact city agencies. They

have unlimited potential for expansion within their own region.

One of the Chief concerns of group procurement agencies,

at both levels, is to increase their volume. At the national

level this may be accomplished through intensifying the p arti­

cipation of eaoh member. At the regional level, greater emphasis

should be directed at increasing the number of affiliated in sti­

t u t i o n s .

^Bureau members amount to 340. Average Procurement Ex­ penditure per member is $690,000 (see #6), five per cent of that amount is 134,500 per hospital or a total of $11,730,000 for a ll Bureau members. This is more than double the present volume of $5,500,000. 249

2* Items Procured

In most cases, sim ilar items are covered by regional and national contracts* This has led to divided loyalty among hospitals and conflicting Interests between the national and regional agencies* Group agencies should determine what Items to cover In texmis of the location, size and type of hospitals they service*

For most hospital Item s, Increased volume means greater savings* For certain products! a very large volume is needed

In order to effect significant savings. Such Items lend thenu- selves to national procurement*

The basis for differentiating between regionally and nationally procured Items Is the degree of standardization; the frequency and volume of orders* Items of a highly standardized nature tend to find wide acceptance among a large number of hospitals* Such Items as paper products, linens, surgical supplies, and gowns have acquired through usage a high degree of standardization. They are Ideally suited for national con­ t r a c t s * It la recommended that since volume is the determining factor with suoh Items, that a purposeful concentration be attempted through combining regional needs. This necessitates close coordination among agencies at all levels*

Procurement of equipment follows sim ilar lines* Group aotlon on equipment should not exclude the possibility of joint 2 4 f leasing* It is recommended that joint leasing be seriously explored at the regional level* The reasons arei first, to assess its potential, and second, to retain the equipment within the area of service*

Equipment needed for construction, expansion or replace­ ment Involve large dollar Items which necessitate a minimum of servicing* For Buch Items, regional procurement would not be indicated* In terms of equipment, service Is the determining factor* The lack of available facilities for repair and maintenance which Is readily accessible to the hospital, w ill outwelght any cost advantage. This Is especially true on sensitive equipment which Is used for diagnostic purposes*

As a first step towards coordinating the efforts between national and regional agencies, It Is recommended that the proper machinery be created* The Hospital Bureau's Council

Managers Committee, In Its present organizational form, seems to adequately provide the means for effective coordination*

National agencies need to expand their volume beyond that of regional agencies In order to realize significant bene­ fits to their membership* The reason Is that they are operating at a disadvantage, especially In the area of transportation*

It is recommended that unless substantial savings may be realized at purchase, regional contracting be pursued* This principle should equally apply to hospital supplies and equip­ ment* The future of group procurement agenoles Is going to depend on their ability to be seleotive in terms of membership and items procured.

6, PROSPECTS OP GROUP PROCUREMENT AT THE MASSACHUSETTS GENERAL HOSPITAL

The experiences of the Massachusetts General Hospital with group proourement have not been without suooess, Though the Hospital has been a member of the Hospital Bureau for the past half oentury, Its active participation in any group procurement program dates back only to 1955* The lack of active participation by the Hospital has "been due to the decentralization rf the proourement function which was in effect prior to that date* After 1955* the Massa­ chusetts General Hospital's participation in group procurement ranged between seven and ten per cent of Its total volume of purohases.

1* Effect of Past Bxperlenoes On Future Procurement Operations The Massachusetts General Hospital's experience Indicates that for bulk items, such as x-ray films, fuel oil and linens, group procurement offers considerable price savings. On the basis of its past experience, the Massachusetts General Hospital Is now committed to cooperative effort in the area of proourement. The strength of the commitment varies between regional and national contracting. Regionally, the Massachusetts General Hospital has played a major role in the establishment and develop­ ment of the Hospital Purchasing Corporation, 2% Other hospitals In New England look to the Massachusetts Oeneral Hospital for leadership in the area of proourement as well as other areas of hospital service. It is expected that the Hospital w ill continue to provide the Hospital Purchasing Corporation with the leadership and support which i t needs. On the nations soene, the experiences of the Massachu­ setts General Hospital suggest that to flourish, the Bureau needs a greater degree of participation by the member hospitals . In directing its activities. For a group agency to succeed, the majority of it s members should actively support any decision of a contractual nature. It Is for this reason that the Massa­ chusetts General Hospital and the Hospital Purchasing Corporation took the initiative In suggesting the new organizational struc­ ture for the Bureau's Purchasing Agents Committee. The Massachusetts General Hospital's experiences over the past decade affirm the advantages of a dual orientation. The Hbspltal maximizes I ts benefits, through participation In group procurement at both the regional and national lev els. The strength of the commitment at each level will Vary In accordance with the advantages to be derived from each agency,

2. Means to y«TMmize Benefits From Group Proourement In order to maximize the benefits from group proourement, the Massachusetts General Hospital would need to participate In all offerings where an advantage exists. The Hospital has not been able to do so, due to the transitional stage in which the procurement funotlon presently finds Itself. It has not to date received the proper reoognlfclon from management as a major hospital service. Management can accord it the proper status It deserves by making the procurement area the sole responsibility of a qualified Assistant Administrator,

The Hospital Is now participating In about two-thirds of all oontraots awarded by the Hospital Purchasing Corporation.

Certain items offered by the Hospital Purchasing Corporation are not in use at the Massachusetts General Hospital. Others, the

HCspltal procures more advantageously on Its own.

Maximizing the benefits through the Hospital Purchasing

Corporation, with few exceptions, does not necessitate In­ creased participation by the Hospital. It Involves the selec­ tion of items not presently covered by contract which could be profitably procured regionally. To maximize its benefits

regionally, the Massachusetts General Hospital needs to re-exa­

mine the items it procures on its own. Of these, a significant

number may be procured regionally with increased benefits to

the Hospital and the other members.

On a national basis, the Massachusetts General Hospital

has lim ited price advantages. There are a number of ollnioal items such as thermometers and catheters and certain surgical

dressings which the Hospital oould profitably procure from

the Bureau.

It is In the area of servloes, however, where the

Hospital can Increase its benefits significantly. A more 2 5 3 frequent use of the Bureau's research fa c ilitie s, in terms of new products or methods, is indicated* Bureau field representa­ tives should be encouraged to v isit the Hospital to discuss local problems, freely* A dollar value can not b* attributed to such efforts* They are, none the less, of real benefit to the Hospital, Both agencies would have to develop beyond their present scope of operations in order to cope with the expansion of the procurement a ctiv ities at the Massachusetts Oeneral Hospital* This is especially important to the Hospital Bureau where lim itations, such as extended distribution channels and high transportation costs, significantly reduce benefits to meaber hospitals. The Bureau has unlimited potential for expansion* Even if part of that potential is realized, it will mean increasing the Bureau volume many fold* "There are 3200 voluntary hospi­ ta ls in the Utaited States. . * • Related only to supplies which excludes food and utilities, about $ 136, 000, 000*00 worth of business could be purchased each year with resultant savings Q of some $20,400,000*00." Possibly not a ll voluntary hospitals in the united State b could be economically served at present* If not more than

g Riohard L. Davis, "Gtroup Purchasing—An Objective Analysis" Speech delivered to American Hospital Association Institutes in Chicago, San Pranclsco and Minneapolis during I960* 254 one-third of the voluntary hospitals Joined the program, it would result in a volume of about $ 50, 000, 000* 00* The Hospital Bureau does not need to lnorease it s member­ ship to expand it s volume. If present members were to procure through the Bureau only ten per cent of their total requirements, 9 the volume of the Bureau would exceed $20,000,000.00 Increas­ ing the degree of member hospitals'participation offers more promise to the Bureau, for the present, than increased member­ ship.

C* IMPLICATIONS TO OTHER HOSPITALS

The experiences of the Massachusetts General Hospital In the area of group procurement are of interest to simllar- Blzed and smaller hospitals. The application of group prooure­ ment, regionally or nationally, will vary among hospitals depending on need and Ideality* The experiences of the Massachusetts General Hospital in the procurement area cannot be duplicated at other hospitals. Similar needs and requirements do exist among hospitals* By acquainting themselves with the experiences of the Massachusetts General Hospital, management of these hospitals should be in a better position to make moire intelligent decisions*

Q 340 hospitals at an estimated $70,000 per hospital would amount,to 23,800,000* For further explanation s e e footnote 6 . 255

1. Similar-Sized Hospitals The Massachusetts General Hospital has a bed capacity of about 1000 beds. Its operating budget amounts to $17*500,000 per year. Expenditure on procurement for supplies and equip­ ment exceeds $5,000,000 yearly. The large procurement budget Is necessitated by the various research units which the Hospi­ tal operates. There are few voluntary hospitals. In the Uhlted States today which account for a larger procurement or operating budget. Large hospitals are often of the belief that their volume permits them maximum price advantages. This Is true on a limited number of Items only. For hospital Items which are fairly standardized, the Massachusetts General Hospital was able to secure, through group procurement, considerable savings. These savings ranged from ten to fifteen per cent. Large hospitals may be considering participation In group procurement programs. The experiences of the Massachu­ setts General Hospital Indicate that the success of such participation will depend on the degree of centralization of the procurement function within the hospital* Managements attitude and understanding of group procurement should be fully explored before attempting participation. Of primary importance for group procurement success Is keeping top management informed of benefits realized through group programs. This Is especially significant to large hospitals, due to the diversity of Interest and the many levels 256 of authority which may obstruct proper communication. In the area of group procurement, the experiences of the Massachusetts General Hospital are also of Interest to similar -sized hospitals. The large volume of procurement by the Massachusetts General Hospital has permitted It to use the guaranteed contract approach, ' The effectiveness of this method Is demonstrated by the considerable savings which the hospital realized through Its application. Large hospitals possess a most potent weapon which Is volume. It does not have to be concentrated In one or two products. A supplier Is more Interested in the total volume rather than the amount of purchases In certain lin e s. Large hospitals are In a position to guarantee a substantial dollar volume to suppliers. This permits the suppliers to quote the hospitals prices on the basis of total business to be transacted rather than on the value of eaoh Individual order. It Is obvious that the larger the volume of business guaranteed the better the terms derived. The experiences of the Massachusetts General Hospital Indicate that a large hospital can profit from joint procurement effo rts. The participation of the large hospital Is, often, a major determinant of the success of the program. This Is especially true In regional group procurement.

2. Saudi-sized Hospitals. In any group procurement effort, both regional and national, 257 SOL smaller hospitals atand to profit more than larger ones* Small hospitals, due to their limited volume, are generally unable on their own, to seoure competitive prices* Their limited storage facilities often prevents them from ordering in bulk even where such orders are possible. Suppliers are usually not too eager to extend credit on a large-volume order to a small hospital. The ability to secure price savings is further minimized due to the lack of professional know-how in the area of procurement* The person responsible for the procurement function may be assigned many other responsibilities. Such a situation is not conducive to efficient procurement operations by the hospital* It is for these reasons that small hospitals may realize substantial benefits through group procurement, in terms of cost and services. Service facilities for research and testing are especially Important to small hospitals. They often lack the financial means and the technical know-how to perform such ser­ vices on their own. Price savings are also considerable* For small hospi­ tals, they range from twenty to twenty-five per cent of the value of items procured through a group agency. A two hundred bed hospital spends over half a million dollars on supplies

ll}LeBB than 300 beds. 258 and equipment. If only one-third of that ia channeled through group procurement at savings of twenty per cent It would mean a cost reduction of over $30,000. This does not take Into account improved quality merchandise and better service. Non-profit hospitals, whether small or large, should also mean non-loss. The Increasing demands for contributions have seriously limited the amount of available funds* Hospital administrators can no longer aocept mounting deficits as a normal characteristic of hospital operation. Oroup procurement provides hospital management with an Important means to control and reduce costs. The application of group proourement to a specific hospital depends on its needs, its size, the efficiency of its procurement function, and its location* These factors should be thoroughly analyzed in order to maximize benefits from any group proourement application. Changes in market conditions, souroes of supply and development of new products are matters of dally occurrence. It Is of vital importance to a ll hospitals to keep Informed of these changes at the time they ooour. Only through a group procurement effort is t ils possible, at reasonable oost to a ll members. The 1 importance of group proourement as a tool of manage­ ment can no longer be ignored* It la perhaps fittin g to close this study with a quotation from a member of the Board of 259 Directors of the Hospital Bureau—the "Elder Statesman" In the field of procurement. "The time has arrived to submerge blind individuality, adolescent egotism and false pride, into group action arrived l l at through collaborative planning and unified decision." Only time will tell how well voluntary hospitals in the United States will measure up to this challenge.

13. Paul J. Spencer "Opportunities through Regional Meet­ ings." Report of the Chairman of the Educational Committee, to the Annual Meeting of the Hospital Bureau, Inc., February 27, 1 9 5 8 , New Y o rk . 260

LIST OF APPENDICES1

Page

I* Appendix A - The Massachusetts General Hospital • • 261

II. Appendix B - The Hospital Purchasing Corporation. • 273

III. The Hospital Bureau, Inc ...... 301

Each Appendix Is preceded by a detailed table of contents. They have been Included here to give the reader access to the original material to which the author may have frequently referred. APPENDIX A

THE MASSACHUSETTS GENERAL HOSPITAL P a g e

1. Comparative B a la n c e Sheets, 1958 & 1 9 5 9 ...... MS 2. Balance Sheet, Period VII, April 1 9 6 1 ...... 863 3* Income it Expense Sum m ary, Period VII, 1961 ...... 366 4. Comparative Price A n a l y s i s , 1961 ...... 366 5. Census Budget, 1960-1961 ...... 36B 6 * Admissions And Patient Days, 1 9 6 1 ...... „ . 270 7* Statistical Report, October i 960 * ± ...... 371

861 263

b f c U l t i - 1 THE MASSACHUSETTS GENERAL HOSPITAL CONDENSED YEAR-END BALANCE SHEET

Sept. 30, 1959 Sept.30 1958

ASSETS Cash...... * 3,517,256,01 * 2 , 676, 362.88 Investments Bonds ...... 14,239,004.08 13,244,053.24 Stocks...... 12,203,477.13 12,750,924.90 ,924.90 Notss snd Coemeroial Paper ...... 2,074,262.07 1, 8 * 5,.777.20777.20 Real Estats ...... 259,447,63 2*8,309.75*75 Notss Receivable ...... 246,984,90 180,645.:*15 Accounta Receivable-Patients And OtharB (Lass Allowance for Doubtful Aooounta) 3,735,870.48 2,843,399.33 Xnvsntorlea of Supplies - At Estimated Cost...... 731,261,41 744,738.81 Prspald Items...... 61,357.72 53,544.01 Intsrsst In Mlsosllanoous A sssts.,••••••••• 11,00 9.00 Plant (Lass Provision for Depreciation).... 20,985,591.68 20,706,795.64 Construction Aooounts ...... 323,332*01 254,455.52 Dsfsrrsd Charges - Repairs,,...... 0, 35,640.30 cDiasuc assets *587377793^15 55,577,'W5.IM

LIABILITIES Aooounts Payable And Accruals,,...... * 730,955.83 * 536,470.9, Pension Reserves...... 268,155,49 811,483.35 W.C.A. And Repair Reaerves...... 71,595.65 9,977.51 General fund Treasurer*a Account...... 453,154.01 476,634.73 Director's Account,,, ...... 3,485,030.90 3,006,471.85 General Hospital Endowment funds Unrestricted as to Incone...... 4,972,860.61 4,816,338.88 Restricted as to Incone...... 15,861,644.27 15.147,541,60 McLean Hospital funds...... General fund Treasurer's Account...... (158,991,89) (55,911. Director's Aocount...... 347,833.79 850,809. Endowment funds...... 732,956.09 BulldlM funds ...... 079,944 .03 fftdu«M| funds...... 423,978,20 ,7 9 0 .g funds Invested In Plant...... 20,985,591.68 80,7 Temporary funds Geneyal Hospital...... 2,355,310.36 McLean Hospital...... 227,258.72 Fiduciary...... 6,103.64 Oeneral Investment Profit And Loss Ac...... 6,634,472.74 6,033,244.01. ? : s p CUMUi LIABILITIES * { ) denotaa

, *• ' ■"> /''fit1 •tiMfl'V -J. ... iJ** 1 263

Exhibit A-2

MASSACHUSETTS GENERAL HOSPITAL

Balance Sheet*

As of April 16, 1961

ASSETS

Cash $ 81/306.22 Aooounts Receivable (General Hospital Patients House Aooounts $ 640,889.39 Due from Individuals Be Agencies 1.642.707.48 Total (General Hospital 2,k6S,B96.8? Baker Memorial Houae Aooounts 658,099.64 Discharged Individuals 840,672.36 Phillips House Patients House Aooounts 329,857.54 Disoharged Individuals 28,176.36 Bnergency Hard 8,830.59 Vincent Memorial Hospital-House Aooounts 61,478.55 Vincent Memorial Hospital- Due from Individuals and Agencies 123,922.27 Due from Blue Cross-Blue Shield 832.59 Storrow House 19,162.58 Due from Treasurer 181,162.58 (Government Contraots 161,865.95 Miscellaneous Aooounts Receivable 449.258.27 Total Accounts Receivable 5,148,917.Si Less: Reserve for Bad Debts $452,739.90 Blue Cross Depo­ sit ( 90.306.13) 362.433.77 Hot Accounts Receivable 4,764,464.04 Materials and Supplies 686,594.57 Less: Reserve for Inventory Price Fluctuations 22,978.49 665,616.08 Contingent Accounts Receivable due from T r e a s u r e r R estricted Funds Available for Expendi­ tures at Hospital 2.163.984.35 TOTAL fiQ U m ASSETS

* Excludes fixed assets and (General Funds which are included in condensed year-end balance sheets. LIABILITIES

Aooounts Payable Vendors Reserve for Vaoatlon Pay Vincent Memorial Hospital Accounts held by MQH for Collection Fiduciary Exchange Aooounts 83,260.66 Special Nurses, etc. 344.327.45 Baker Professional PeeB Total Fiduciary Exchange General Store (Ladles Visiting Committee) Treasurer's Accountst October 2, i 960 4,320,972.45 Cash Received from Treasurer Current Period 60,000.00 Previous Periods 3.002.000.00 3,062,000.00 Total 7,382,972.45 Deduct Current Year Deficit 523,617.34 Expense Charged to Funds 2,5X7,773.03 Allowance for Depreciation Equity at April 16,1961 ..... Restricted Funds available for Expenditure s at Hospital TOTAL BBMHXj'BftBILlTIES 366 Exhibit A-3

MASSACHUSETTS GENERAL HOSPITAL Income and Expense Summary Period VII-Fisoal Year 1961 March 20-April 16, March 14- April 10 1961 I960 ______Gross Earnings $ 1,406,019.31 $1,233,592.60 Other Operating Income 232,141.4a Total Operating Income — i,s3e;i6u.7j i,n§lia3f!?i Less Deductions (Losses) In Area Pree Service is Allowance to Patients 1 7 9 , 5 1 4 .8 1 234,922.80 Public Agenoles Allowance 2 9 , 5 7 4 .7 4 62,431.24 Outside Area Pree Service A Allowance to Patients , 924.58 13,718.68 Public Agencies Allowances I ,185,53 Workmen's Compensation Allowance 2,693,53 Blue Cresa Allowance 7,455.36 20,555.86 Provision for Bad Debts ?1,723.62 3 2 ,1 8 4 .3 7 Total Deductions y B j , 8 2 4 .9 J 383,1UB."U3 1 Net Income 1,374,535.80 1,054,119*08 Operating Expenses! Salaries and Wages 877,441.70 835,168.54 Supplies and Expenses 478,516.01 3 8 7 ,2 5 1 .6 5 Provision for Depreciation (Formerly Equipment and Provision for Improvements and Alterations) 48,350.00 ____ Total Operating Expenses 1,404,307.71 1,273,804.81 Operating D eficit 29,771.91 219,685.73 Treasurer's Income Gross 124,861.23 105,291.76 Less Treasurer's Expense Treasurer's Net income — ii& lijfiog — Net Surplus 8 7 , 1 3 1 .1 1 (123, 8 2 6 . 26) 266

Exhibit i-4

COMPARATIVE PRICE ANALYSIS of Standard Hospital Items

Massachusetts General Hospital and Hospital Purchasing Corporation (As of July 1961)

Item ft D escription M.O.H. Price H.P.C. Price

Blankets, Cotton, ea. $ 1 .5 7 * 1 .7 2 Case, Pillow, Dz. 5 .2 2 4 .8 4

Cloths, Wash, dz. .7 5 .6 5

C o m b s,ea. .0 7 5 .0 2

Cover, tray, paper, 5x7, M. 2 .5 8 * 2 .5 4

" " 8 x 1 2 , M. 4 .4 6 2 .6 9 " " " 9 x 1 4 , M, 4 .1 0 8 3 .5 0 " " " 1 5 x 2 0 , M. 9 .3 5 8 .5 0 Cup, paper, 4 oz., M. 2 .9 0 2 .8 5

" " 8 oz., Hot Drink, M. 1 2 .0 4 1 0 .2 5 Film, x-ray list less 5# list less 17£ Cases, medical wholesale list same less 20£

Ocwns, bed, adult, ea. 1 .3 2 1 .3 5 Lamp, electric, 100 w. ea. list (. 1 8 ) list (.23) l e s s 44 1* l e s s 48 2% Mouthwlpea, cellulose, cs. 3 .7 3 3 .0 6 Pine, ponderosa, 1", ft. .3 0 .3 0

Plywood, AA. 4x8, #'f .2 5 .2 5 H 11 lr 11 ti 11 .2 0 5 .1 6

Rem, I o e , 100# list (13.95) list less 250 3heets, muslin, 72x100, dz. 2 2 .0 0 2 2 .5 4

Soap, outloura, lb. .2 0 .2 0 11 Ivory, bar, ea. .0 3 3 7 5 .0 3 7 5 11 " f l a k e s , l b . .1 5 7 5 11 powder, chlo, can, ea. .0 9 0 .0 6 2 5 2 6 7

Item & D escription M.Q.H. Prloe H.P.C. Prioe Solutions, x-ray li s t list less ] Spreads, ea. 2.25 2.25 Straws, drinking, os. 11.02 9.93 Tape, cellophane, 4x2592, roll .9^ ,6o Towels, bath, d z . 4.97 4.79 n huok, d z . 2.93 2.58 " paper, cs. 4,13 2.82 Apricots, halves 6.97 6.69 Beets, siloed 3.60 3.63 Cooktall, fruit 7.60 6.98 Corn, cream 3.52 3.14 Beans, out green 5.14 3.25 Juice, drape 4.80 4.65 H Grapefruit 2.37 2.62 " Pineapple 2.669 " P ru n e 3.25 " T om ato 3.25 peaches, sliced 6.20 6.05 " h a lv e d 6.00 5;98 Pears, halves 7.30 7.38 P e a s 5.10 4.55 Pineapple, crushed 5.922 5.759 Pineapple, broken siloed 6.50 6.438 266

Item it Description M.Q.H. Frloe H.F.C. Price Tea, baga, tagleas 2.65 2.53 Tomatoes 4.68 4.74 Tomatoes In puree 3*90 4.34 Tomato puree 5.75 4*38 2 6 9

E xhiM t A-5

MASSACHUSETTS GENERAL HOSPITAL

CENSUS BUDGET

1 9 6 0 -1 9 6 1 FIaoal Year

Patient Days

P h i l l i p s A v erag e B a k e r A v erag e G e n e r a l A v e ra j H ouse P e r Day M em o rial P e r Day H o s p i t a l P e r Di

1 3 ,0 0 0 107 9 ,0 0 0 321 9 ,7 0 0 3 4 6

2 3 ,4 0 0 121 9 ,5 0 0 339 9 ,8 0 0 3 5 0

3 3 ,4 0 0 121 9 ,6 0 0 343 1 0 ,0 0 0 3 5 7 4 3 ,3 0 0 118 8 ,0 0 0 286 8 ,8 0 0 3 1 4

5 3,300 118 9,700 346 1 0 ,4 0 0 3 7 1

6 2,900 104 9,200 329 9 ,8 0 0 3 5 0

7 3 ,3 0 0 118 9 ,8 0 0 350 1 0 ,0 0 0 3 5 7 8 3,aoo 114 9,100 325 9 ,9 0 0 3 5 4

9 3 ,3 0 0 118 8 ,9 0 0 318 9 ,5 0 0 3 3 9 10 3 ,3 0 0 118 9 ,5 0 0 339 9 ,0 0 0 3 2 1

11 2 ,7 0 0 96 8 ,0 0 0 286 9 ,3 0 0 3 3 2

12 2 ,3 0 0 82 7 ,7 0 0 275 9 ,1 0 0 3 2 5

13 2 ,6 0 0 93 7 ,9 0 0 28 2 3 2 9 4 0 ,0 0 0 110 1 1 5 ,9 0 0 318 1 2 4 ,5 0 0 3 4 2

Phillips House 40,000

Baker Memorial 115,9001 Oeneral Hospital 124,500 270

Ex hit it A-6

MASSACHUSETTS GENERAL HOSPITAL

Admissions and Patient Days Fiscal Year 1961 Fiscal Year i 960 Admissions Patient Days Admissions Patient Days General Hospital 913 11#372 1 0 ,6 4 3 Baker Memorial 912 10,243 816§5i 9,781 Phillips House T2 Total T 7 &

Clinic Visits

Fiscal Year 1961 Fiscal Year i 960 MQH E&E MGH Staff A Others 413 221 New 391 660 385 629 Old 10,414 5,017 10,627 5,085 Total r o w "sM h - 11;Big i f r n A 271 Exhibit a -E MASSACHUSETTS OENERAL HOSPITAL STATISTICAL REPORT PERIODI Oct. 3 thru 30, I960

General Baker Phillips Massachusetts House Memorial House Oeneral Total Total Number of Hospital Admissions 934 814 244 1,992 patients Total Patient Days by Admission ClasslO,632 8,407 2,793 21,832 days Total Patient Days by Location 10,871 8,175 2,786 21,832 Average Dally Census (2 8 days) t Admission Classification 300.3 99.8 779*8 patlent 1 Physical Location 300.03 ZS-7 291.9 99.5 779.8 Bed Capacity (per Acotlng Office): 459 340 163 962 beds Percentage of Bed Occupancy (AHA): Admission Classification 82.75* 80.35* 59.9* Physical Location 04.65* 85.95* 59.75* 01.1)* Average Length of Stay Per Patient: Using the Dally Census figures 11.4 10.3 11.4 10.9 days Using the Discharged Days 10.2 10.1 10.8 10*2 days

Total Number of Patients Discharged 893 787 241 1,921 patients Total Number of Pt, Days Discharged 9.131 7,941 2,599 19,671 days Deaths: Ocourring under 46 hrs. 23 7 2 |2 deaths Occurring over 48 hrs. 42 20 4 98 Net Death Rate 4.75* 2.55* 1.75* 3.4)* Medicolegal Cases 7 2 0 9 coroner's Astopsies Performed 44 4 63 autopsies Astopsy Rate 67.75* 1555.6)* 66,7jJ 893 Hospital Re ad missions (MOH-MEEI reg.) 457 305 131 093 Or 46.5J< N«t death rats 1 Percentage baaed on only deaths ooourrlng after 48 hra. from adalaalon. Postoperative Death Rate as found on following sheets are classified as Any death occurring within ten days after an operations. ]

£72

CUMULATIVE COMPARATIVE STATISTICS PERIOD I Oot. 3 thru 30, I960

COVERING PERIODS1 I OENERAL BAKER PHILLIPS MASS.OEM. HOSP, HOUSE MEMORIAL HOUSE TOTAL

ADMISSIONS 1 1959 - 88; 1,953 patients 1960 - 93 1,992

PATIENT DAYS: jwnsiesioii Classification 1959 10,091 9,001 2,998 22.090 daya 1960 10,632 8,407 2,793 21,832 Physical Location 1959 9,975 8,920 3,195 22.090 days 1960 1 0 ,8 7 1 8 ,1 7 5 2,786 21,832 AVERAftI DAILY CENSUS 1 AMEElAOlMliridatlon 1959 360.1 321.5 107 788.3 patient 1960 379,7 300.3 99.8 779.) Physical Location 1959 356.2 318.6 114 788.3 patient 1960 388 .0 291,9 99.5 779J PATIENT DAYS DISCHARGED 1959 9,038 8,962 2,425 20,425days 1960 9,131 7,941 2,599 19,671 PATIENTS DISCHARGED 1959 853 788 l,893patlents 1 9 6 0 893 787 l,921patlents LENQTH OP STAY USING 1959 10,6 11.4 9.6 1 0 .8 d a y s 1 9 6 0 10.2 10.1 10,8 1 0 ,2 APPENDIX B

THE HOSPITAL PURCHASING CORPORATION

Pag*

1. Comparative Balance Sheet, 1959 A I960 ...... 274 2. Cooperative Statement Of Xnoome and Expenses »« . . , 1959 * I960 ...... 275 3* Statement Of Condition,Kay 31, 1961 ...... ♦ 276 4. Statement Of Xnooae & Expenses, Nay 31, 1961 . . . , 277 5. Analyala of Purchases, 1959 & I960 278 6. Analyala of Purchasec, 1958 % 1959 ...... * * 279 7* Analyala of Purchases, 1956 At 1957 2®° 8 . Summary of Participation, 1958 to i 960 281 9. New Member ship Regulations ...... 264 10. H.P.C. By-Laws ...... 267 11. Purchasing And Standardization Committee By-Laws . . 299 12. Sample Contraot...... • . . • *297 13. Membership L ist ...... 300

273 274 fit hibit B-l

HOSPITAL PURCHASING CORPORATION Statement of Condition A* at September 30 - i 960 and 1959

196o(«) 1959

MHtl Caah In Banks and on Hand $35*666.40 $30,722.99 Accounts Rsoalvabls - Hospitals 9,828.03 12,073*81 Notes Rsoalvabls - Supplies (l) 4,000.00 Dus from United Community Services 1,500.00 — Prepaid Expenses 772.03 253*49 Inventories —*■ 13,242.90 furniture & Equipment, less Amortisation 2,889.08 3*389.08 Total A»"tB >54.655.54 t i 9 . 6 6 a . t l

L iabilities and Working Capital (a) Liabilities —JU66WRI Payable to Vendors $ 2,952.39 $ 8,689.30 Notes Payable to Hospitals 39,773.90 37,880.40 Aoorued Expenses 400.00 510.00 Deferred Credits 1,250.00 050.00 Payroll Taxes Payable 594.87 603.24 Total Liabilities $44,971.16 $48,532.94 Working Capital 9*684.38 11*149.33 Total Liabilities and Working Capital $54,655.54 $59,682.27

(1) Secured by warehoui (a) Pre-audit a?* E chlblt B-2

HOSPITAL PURCHASING CORPORATION Income and Expense Statement Years Ended September 30, i 960 and 1959

Plsoal Year 1960(>) ______1959 ___ Expense R L L l P l e s $34,424.88 $29 , 609.25 Payroll Tax (0A3I) 671.77 492*77 Pood Procurement 1,250.00 — Rent and U tilitie s 2,608.27 2,4l4.87 Telephone 1, 161.58 1,040.88 Office Expense 2,194*99 2,053.16 Postage 559.50 493.77 Insurance 157*65 109 1.69 Travel ft Conferences 1,487.161,487*1' F*92 Testing and Consultation 957*68 639.74 Memberships ft Subscriptions Hospital Bureau 3,467.00 3,400.00 Other Memberships 70.00 130*50 Subscriptions 71.00 124.50 Equipment Amortization 500.00 500.00 Legal and Audit 440.00 510.00 Other Expense 258.76 818*36 Total Expense $50.280.32 $43.305.41

Income £A££lhldy and Dues From Hospitals Directly 12,040.84 3,716.75 From Hospitals through U.C.S. 36,000.00 43,977.00 Cash Discounts Earned 402.79 558*51 Other Income 471.74 105.20 Total Income $48,915.37 Net Income for the Year 1959 Ret Expense for the Year I960 $ 1,364.95

(a) Pre-audit 276

Exhibit B-3

HOSPITAL PUKCHA3IHQ CORPORATION STATCTKlfr OP CONDITION MAY 31* 1961

A33BTS Cuh $56346.96 Aooounts Raoalvable Hospltala For Purchases $11429. 07 Hospitals For Dues 2705*75 United Community Services 11669*00 — 2 5 8 0 3 .8 2 Inventory - Textiles 864.00 Furniture * Equipment, Less Amortization 2589.08 Prepaid Insurance 81.34 total assets

LIABILITIES and CAPITAL Notes Payable - Hospitals Aeoeunts Payable - Suppliers Payroll Taxes Payable 661.97 Acenaed Expense Food Procurement $ Audit Hospital Bureau Dues 863.34 1983.34 Deferred Income Hospital Dues 12758.35 UCS Orant 6066.66 — 19425.01 Suspense 8.01 General Fund Balance 19382.13 TOTAL LIABILITIES and CAPITAL |5*>685.3J E x h ib it b - k

HOSPITAL PURCHASING CORPORATION INCOME It EXPENSE STATEMENT

MAY 1961 and 8 MONTHS TO MAY 31* 1961

ACTUAL BUDQET EXPENSE MAY S MONTHS 8 MONTHS T s n n t E s $3134,n r Social Security Pood Procurement 4 i 6 167 2500.00 A u d it 33 266.66 I n s u r a n c e 1 4 0 .0 8 P o s ta g e .00 4 9 1 .7 0 m f 7 Rent ft E lectricity 233 .3 8 1 7 6 9 .4 9 1 7 5 0 .0 0 Office Supplies 121 .3 4 1 3 2 7 .9 6 1 5 6 6 .6 6 T e le p h o n e 119 .3 9 649.97 800,00 Travel ft Conferences 242 .7 7 9 2 2 .3 5 1 1 6 6 .6 7 L e g a l 200.00 Testing ft Consultations ( - 2 6 .3 4 527.66 1000.00 Memberships Hospital Bureau 4 4 1 .6 7 3 0 8 3 .3 4 3 6 8 3 .3 3 O th e r 1 5 .0 0 Subscriptions 2 4 ,0 0 1 4 1 .0 0 160.00 O th e r 6 .4 5 1 3 3 .3 4 E q u ip m en t TOTAL EXPENSE $34826.73 $39818,85 INCOME nemoershlp Dues $3189.58 $ 2 6 1 5 2 .4 8 $26000.00 Uhlted Community Services $ 1 6 6 6 .6 7 1 3 3 3 3 .3 4 1 3 3 3 3 .3 4 Cash Discounts (Net) 24.11 2 4 3 .1 5 200.00 O th e r —— 383.01 2 8 3 .3 2 TOTAL INCOME $4880.36 I ’40T1T.V8 $39818 . 88 NET INCOME '» n.w r r s s i x STS

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3 261

EXHIBIT B-8

THE HOSPITAL PURCHA3INQ CORPORATION SUHHAHY OP PARTICIPATION *

Fiscal Years 1958-1959 - 1959-1960

Total Total Approximate Com m ents 1958-1959 1959-1960 Increase or Approximate D ollar Values H o s p i t a l D e c r e a s e

BETH ISRAEL $8 7 ,6 7 7 $9 2 ,6 5 8 $5 ,0 0 0 Some products down slightly but food up $ 7 , 0 0 0 .

BOSTON Maintenance cut almost LYING-IN 30,723 33,533 3,000 completely. Pood up $3,500. Surgical supplies u p $1 , 5 0 0 .

CARNEY 13,769 28,687 1 5 ,0 0 0 Fuel oil up $12,000. Food up $ 3 ,0 0 0 .

CHARIES Linens up $1,000. X-ray CHOATE l b , 122 1 6 ,7 8 1 600 film and surgical supplies d r o p p e d .

CHELSEA 2 5 ,8 9 3 & Fuel oil out. Food and MEMORIAL 13,249 13,959 a 700 surgical supplies dropped. Linens and housekeeping supplies up.

EMERSON 19,390 22,655 3,200 Most items up slightly. Pood up $1,000.

FAULKNER 23,704 34,603 & 10,000 Fuel oil and linens both up 33,802 * by $4,000. Pood up by $2 , 5 0 0 .

FREE HOSPITAL 43,786 & Film up $1,500, Office FOR WOMEN 24,306 27,006* 2,700 furniture added $1,000. Most items went up.

* Hospital Purchasing Corporation Records, Summary of Annual Participation Sheets

* Less laundry (Laundry expenditure for each hospital appears in Exhibit B-5, P. 2 7 6 ). 282

GODDARD ICICRIAL $ 4,419 $24,725 4,500 Fuel o i l up $2,000. Film up $1,600. Qoddaid it purehating itm a not purehatad thru H.F.C. laat year (1996-1959).

JOSEPH P . K— iTPy j r . w w n t i 5,265 2,560 2,700 No fuel puNhaMd 1959-60 (Wat $3,500. In 1996-59) Food and housekeeping tupplltt wont up*

MALDEN 50,434 60,959 10,00U Fuol and X-ray film both up by $4,000. Li nans up $2,000.

MARLBOROUGH 8,273 11,965 3,500 X-ray film up $3,000. Papar tuppiiaa up $200.

MASS. EYE & EAR 19,566 20,139 600 Fual up $700. No 1 inant in 1956-59, $1,300 In 1959-60. X-ray film up $1,000. Papar and maintananoa tuppliat both down by $1,000.

MASS. 129,616 2UU,935ft 13,000 Most itamt up, food by $7,000. ICMORIAL 142,566 a Fual oil down by $3,000.

MASS. GENERAL 296,397 553,061ft 91,000 Food up $38,000. X-ray film up 368,323* $45,000. Offlea Furniture up $5,000. yrjBAM 107,806 114,318 6,500 Food up $7,300. Lintnt dam $2,000.

MELTON 8,733 12,603 4,000 Food up $2,000. Other* up a lig h tly .

a c w r AUBURN 55,526 41,223 14,000 X-ray film down $21,000. Food up $6,000.

N.E. BAPTIST 74,506 96,610 24,000 Fuel o i l and food both up by $5,00u. Maintenance up by $7,000. X-ray film up by $6,000.

N.E. MEDICAL CENTER 51,109 157,034 16,500 Fual oil and linen* up by $2,500. Food up $7,000. X-ray film up $3,000.

N.E. PBABO0Y HOME 6,686 6,231 450 Drop o f $500. in fu el o i l . 203

NEWTON-WEIXESLEY 74,546 97,892 23,000 Everything up. Furniture new in 1959-60 adding $5,00u. PARK HI HILL MEDICAL 7,381 20,5198c 2,000 Everything went up. UENTER 9,682*

PETER BEKI BRIGHAM 78,977 99,451 20,000 Meet things went up. Food went up by $5,500. Linens up by $5,500.

ROBHIT BEET BRIGHAM 24,998 38,85*8! 3,000 Fuel o i l , food end linens went up 20,147 * notieeebly.

ST. MARGARET'S 18,964 30,013 11,000 Fuel o i l , X-ray f i l e , end food gained considerably.

WASHINGTONIAN 1,206 4,658 3,500 Food and fu el o il both went up by $1,5UU.

MIDDEN IOORI9L 1,263 10,730 9,500 Fuel o il jumped by over $9,000.

WINCHESTER 21,255 31,005 10,000 Most everything gained. Food up by $4,000. X-ray film up by $3,000.

OHODREN'S icdical 96,917 94,474 2,500 No fuel oil, resultant drop of CENTER $3,500. Maintenance equipment down $14,000, but Food up $4,000, paper by $2,000. X-ray film down by $8,000. 2 m

X ch lM t B-9

HOSPITAL PURCHASING CORPORATION

ANNOUNCE)*NT OP NEW MEMBERSHIP REGULATIONS

Following six ysars of successful growth and servioe to the hospitals of Greater Boston, the Hospital Purohasing Corporation now extends Associate Membership privileges to voluntary hospitals In New England, who are located outside of the Metropolitan Boston area* There are two (2) olasses of membership In "H*F.C."; Participating Membership and Associate Membership* At present, Participating Membership is restricted to hospitals located within a twenty-five (25) mile radius of Boston* The new Associate Membership regulation is explained belowt

1. Aaaoolate Membership in H,P*C« is available to voluntary hospitals and related institutions inoluding public city, county, or state hospitals located within the New England states t (l) who are not members of the Hospital Council of Metropolitan Boston, and (2) who are located outside of the Greater Boston area. II. Associate Membership shall entitle suoh members to, or exclude them from, rights and privileges as followsi (1) assoolate members shall be exoluded from a ll voting privileges in the affairs of the corporation; (2) asso­ ciate members may, at each suoh members discretion, purchase 205

any commodity for whlah this corporation has negotiated a contract with a supplier, provided that tha particular commodity can ba mad* available In the particular member1 a oommunlty by this corporation and/or the contracting supplier; and (3) aaaoclate member a shall be entitled to any other services, benefits, and rights which the Directors of this corporation may In the future make available to associate members.

I l l , Dues and Servioe Charges on Purchases: (1 ) P u e s i Annual dues for Associate Membership shall be determined each year by the Board of Directors of Hospital Purchasing Corporation and for the years 1953 and 1959 shall be $50 per annum which will be prorated the fir s t year from the date of acceptance Into membership to September 30th, the end of H.P.C*s fisca l year. (2) Servioe Charge on Purchasest A servioe charge shall be added to the actual H.P.C. COM of a ll oontraot commodities made available to Associate Members and shown separately on each in­ voice. Cash Dieoounts w ill be extended when avail­ able. The amount of said Servioe Charge (or mark-up) shall be established from time to time by vote of the Directors of H.P.C. and for the balance 286

of 1936 and 1939 shall be

•tV* Credit: It la the policy of the Corporation to H alt the

extension of credit to ita member hospitals to thirty ( 3 0 ) days from the date of billing. Any hospital whloh fa lls to maintain Its account with the Corporation on a current basis (30) days shall automatically be transferred to In­ active status and no further orders, or scheduled shipments under existing contracts, will be accepted, or shipments made until a current status has been restored through pay­ ment of the total outstanding account. The Executive Committee of H.P.C, may make exceptions In extenuating circumstances but will give consideration only to written requests.

V, Cash Discounts when available, may be taken only when Invoices are paid within the cash discount period,

VI. Membership Application and Approval 1 Eligible hospitals wishing to beoome Associate Members should make written application to the Corporation, and each such application w ill be promptly acted upon by H.P.C, 287

KthlMt B-10

HOSPITAL FQRCHAS3310 CORPORATION BY-LAWS

ARTICLE I MEMBERSHIP

SECTION 1. There shall not he less than seven members. The maximum number of members over the above minimum shall be fixed from time to time at any duly held meeting of the Board of Directors* The membership shall consist of the Incorpora­ tors and suoh other persons as the Board of Directors, at any duly held meeting, at whloh a quorum shall be present, by a majority vote of the Directors present, shall elect* SECTION 2 . Each member Bhall remain a member until h is resignation or Removal. SECTION 3* A member may resign at any time by a written realgnatlbti SBRressed and delivered to the Corporation* SECTION 4. A member may be removed at any time, with or without cause (out after a hearing, If requested), by a majority vote of the Directors present at any duly held meeting of the Board of Directors at which a quorum shall be present.

ARTICLE II OFFICERS i SUCTION. POWERS AND DUTIES

SECTION 1. Officers. The officers of the Corporation shall b4 a president, a Treasurer, a Clerk, a Board of not less than seven (7) nor more than fifteen (15) Directors and such other officers, including a Vice-President or Vice- Presidents and an Assistant Treasurer or Assistant Treasurers, as the Board of Directors may elect or appoint. The same person may simultaneously occupy more than one office (except the offices of President and Treasurer) but no offloer shall execute, acknowledge or verify any Instrument In more than one capacity If suoh Instrument Is required by law to be executed, acknowledged or verified by two or more offloers. No offloer or Director need be a member. 266

SECTION 2. Term*: Vacanoles. All officers and DirectoVi HU11 ’hold AFFlo* 'P6P ChA'term of one year and until their oucoesaora are ohoaen and qualified. In oase a vacancy shall oo our from any cauae In any offloe or in the Board of Directors, the Board of Directors (or the remaining Directors, although less than a quorum) may bp a majority vote f i l l the vacancy. An officer or Director so eleoted to f i l l such vacancy shall hold office only until the next meeting of members or Directors at which the offloe would regularly be filled and until a successor Is chosen and qualified. SECTION 3. Removal. Any offloer or Dlreotor may for cause, and Ahy officer eieoted or appointed by the Board of Directors may for or without cause, be removed at any time by a majority vote of the Board, Any offloer or any Dlreotor whom the members have power to eleot may be removed for or without osuse at any regular meeting of the members, or at any speoial meeting of the members called for the purpose by a vote of a majority of the members. SECTION ^. Resignation. Any officer or Director may resign at any €Tme by a wi*£TEen resignation addressed and delivered to the Corporation, SECTION 5. Board of Directors. The Board of Direo t o r s Bhall be anduE T ly eiectedTy tne members. Subject to the pro­ visions of Section 1 of Article II hereof, the exaot number of Directors constituting the Board shall be fixed from time to time by the members; and no vaoanoy shall be deemed to exlat in the Board u n l e s s the number of Dlreotors falls below the number so fixed. The Board of Directors shall have the general management and control of a ll the property and affairs of the Corporation, except suoh as are conferred by law upon the members. SECTION 6 . President. The President, who shall be annually eieovea by and rrom the Board of Dlreotors, shall, subject to the supervision of the Board, have general charge and control of a ll the affairs of the Corporation, shall be its chief executive offloer and shall preside at all meetings of the members and Directors at whloh he shall be present. SECTION 7. Vice-President. The Vice-President, if there be one, “ I K i r i be eleosea b y , duv not necessarily from, the Board of Directors. Unless his authority is expressly limited, he shall have suoh powers and be charged with such duties in­ cluding any and all of the powers and duties of the President as the Board may prescribe. 289

The Board of Directors nay aleot othar Vice-Presidents and may establish tha powers and duties to be exercised by each, SECTION 6. Treasurer. The Treasurer, who shall be annually exeb teo by m e members, shall keep or cause to be kept regular books of account which shall be open at a ll times to any director, and shall report to the Board of Dlreotors on the financial condition of the Corporation* He shall have the custody of the Corporate seal and of a ll documents of title and valuable papers* Subject to the supervision and control of the Board of Dlreotors, he shall reoelve and disburse the funds of the Corporation and shall borrow money on Its behalf* One or more Assistant Treasurers may from time to time be appointed by the Board of Directors, with such powers and duties, including any or all of the powers and duties of the Treasurer, as the Board may prescribe, 3BCT10N 9. Clerk* The Clerk, who shall be a resident of the uoaskonwtfalth of Massachusetts, shall be annually elected by the members, and shall be sworn to the faithful discharge of his duties* He shall attend a ll meetings of the numbers and Board of Dlreotors; shall keep minutes of the business trans­ acted thereat; and shall see to the giving and serving of notice of a ll meetings of the members. SECTION 10. Miscellaneous Duties and Powers. In addition to the fdWHblftft sap*AliiIV +ttUi*rat*d NuTINs aBTTftowers, the several officers of the Corporation shall be charged with such other duties and shall have such other powers as may be dele­ gated to them by the Board of Directors or may be Imposed upon them by law.

ARTICUS I II

MEETINGS OP MEMBERS

SECTION 1. Annual Meeting. Meetings of the members of the Corporation shall b# held wixhln the Coassonwealth of Massachusetts* The annual meeting of the members shall be held In every year on suoh date and at such time In the month of November as shall be designated by the dlreotors to eleot officers, to hear the report of the Treasurer, and to transact such other business as may properly coma before the meeting. In the event that for any reason the annual meeting shall not be held as herein provided, a subsequent meeting shall be held In lieu of and for the purposes of the annual meeting to be 290

called and held In the same manner as provided for special meetings of the members. SECTION 2. Speoial Meetings. Special meetings of the memberslliy,41 Any time oe oaiiea on the order of the President, Treasurer, or a majority of the Dlreotors, and shall be called upon written application of five (5) or mere members by the Clerk, or In the oase of his death, absence, incapacity or refusal, by any other offloer. All speoial meetings of members shall be held within the Commonwealth of Massachusetts. SECTION 3* Notloe. A written or printed notice of any meeting At ^ne members, stating the place, day, hour and pur­ poses thereof, shall be given by the Clerk, or. In the case of his death, absence, incapacity or refusal, by a person designated by the Board of Dlreotors, at least seven (7) days before the date of the meeting to each member by leaving such notloe at the memberls residence or usual plaoe of business or by mailing the same, postage prepaid, directed to him at his address as last reoorded on the books of the Corporation. No notloe shall be required if every member or his attorney thereunto duly authorized waives suoh notloe by a writing filed with the records of the meeting either before or after the holding thereof. SECTION 4. Vote. Each member shall be entitled to one vote which may be exercised in person or by proxy. SECTION 5 . Quorum. A majority of the members, or in case the muablr of melEEFs as fixed by the Dlreotors shall be an even number, half of the number of members constituting the membership as fixed by the Directors, represented at a meeting of members shall constitute a quorum for the transaction of businessj but less than a quorum may adjourn or dissolve a meeting which has been called. The vote of a majority of any quorum shall be sufficient to elect officers and transact any business, except as may be otherwise required by law.

ARTICUB IV w u tu m a or t i bow of dinbctoiib

SECTION 1. Meetings of Directors. A regular meeting of the BoaN 6 t Dlfeetore snlxi~Te hfeitFiK- every year as soon as suy be after the annual meeting of members for the election of officers and suoh other business as nay properly oome before suoh meeting. 291

Any other Me tings nay be held at euoh tine or tinea aa nay be fixed by the Board of Dlreotors. Speoial nestings of the Board of Dlreotors nay be oailed on the order of the Presi­ dent, Treasurer or any two Dlreotors. Any regular or speoial meeting of the Board of Dlreotors may be held either within or without the Conaonwealth of Massachusetts. SECTION 2. Notloe. Notloe of any regular or speoial meeting 6F CM Boarff "CTTJireotors (exoept for the f ir s t regular nesting of Dlreotors held after the annual nesting of members, of whloh no . notloe need be given) shall be given by the Clerk, or other offloer eailing the Meting orally, or by mall, tele­ phone, cable, radio or telegraph. Notloe so sent to a Director's usual and last known plaoe of business or residence two (2) days at least before the meeting shall be sufficient notloe in all caseaj and any notloe received by a Dlreotor In tlM to enable him to attend the Meting oonoemlng whloh such notloe Is given shall be likewise sufficient. Any m s ting shall be legal without notloe i f each Director waives such notloe by a writing filed with the reoords of the Meting either before or after the holding thereof. Any business whatever may be transacted, at a Meting of the Board, although It nay not have been specified in the notloe of the Meting. SECTION 3. Quorum. A majority of the number, or In case th* HUM? of lANEEdrs as fixed by the Mmbers shall be an even number, half of the number, of Dlreotors constituting the Board as fixed by the mshbers for the tlM being shall (exoept as otherwise provided In Section 2 of Article II hereof) oonstltute a quorum for the transaction of business but a smaller number may adjourn or dissolve a Meting whloh has been called. The vote of a majority of any quorum shall be suffi­ cient to transaot all business cooing before the Meting.

ARTICLE V OFFICE AND SEAL

SECTION 1. Looation. The Corporation shall have suoh of floes in aooxTion to one principal offloe set forth in the AgreeMnt of Association and Articles of Organization as the Board of Directors or members may from tlM to tlM designate. SECTION 2. Seal. The corp orate seal shall be In suoh form as thi BoAFd or Directors may from t l M t o t l M d eterm in e. S9S

ARTICUa VI MISCELLANEOUS

SBOnOtfl. Bonds. The Board of Directors nay front tine to time MfUinTfrM in&r one or no re of the officers or agente of the Corporation that he or they shall give bends for the faith fu l performance of dutiesj and the prealuas for a ll such bonds shall be paid by the Corporation. SECTION a* Fiscal Year. The flsoal year of the Corpora­ tion s h ill, UHl*!a ofNEWise rixed by the Board of Directors, end on the la st day of September In every year. SECTION 3. Execution of Writings. Unless the Board of DlrectoBI 69 Hlbe»f"SAAll IStnSrVXIA AeKerally or in any sped- flo instanoe provides (a) any bill, note, check, or negotiable instrument shall be signed or endorsed in the name and on behalf of the Corporation by the President, or a Vioe-Presldent, or Treasurer, or an Assistant Treasurer, and shall bear suoh countersignature of an officer of the Corporation other than the of floor so signing or endorsing as may be required by the Board of Directors; and (b) any other instrument whatsoever shall be signed In the name and on behalf of the Corporation by the President, or a Vloe*President, or Treasurer, or an Assistant Treasurer, and any officer so signing any Instrument may also seal, acknowledge and deliver the Instrument. SECTION A. Execution of Certifications. Any action ta- ken by BAA BilbArs 5F "B5m ~oT Dlf W fflT W 'MJ meeting may be certified by the officer whose duty i t is to keep the minutes of such meeting or by the officer or Dire otor keeping the records thereof or presiding thereat; and any such certificate shall be conclusive evidence for all purposes that the aotlon so certified was taken. ■- SECTION 5. Compensation for Services. The Corporation shall noc pay any oompehaaiion ror servioef~of any kind to any Incorporator, member, or direotor nor to any officer of the Corporation, except the Treasurer as stated below, unless such officer shall be a substantially full-tim e employee carrying on the activities of the Corporation. The Corporation shall make no payments for servloea except payments In reasonable amounts for services actually rendered determined with regard to time actually spent, and no payments for servloes shall be made exoept to (l) members of recognised professions who are not Incorporators, members, or directors, (a) substantially full-tim e employees (other than incorporators, members, or Directors) who are engaged or employed In connect Ion with the 293 actual operation* of the Corporation, and (3) the Treasurer, who aagr be a full-tim e employee or a part tine employee as detenlned from time to time by the Board of Directors. Any person may, In the discretion of the Board of Directors, be reimbursed by the Corporation for any actual cash disbursements made by him In the prosecution of the in* terests of the Corporation and be reimbursed, indemnified, and exonerated by the Corporation from any lia b ility , damage, or expense Incurred or suffered and arising out of the a o tlv ltles or affairs of the Corporation. SECTION 6. Amendment. These By-Laws may be altered, added to, ABtnaea, 5F"Plp1Ced at any meeting of the members by affirmative vote of a majority of the members, or In case the number of members as fixed by the Directors shall be an even number, half of the number, of members oonstltutlng the membership as fixed by the Directors for the time being, pro* vlded notice of the proposed alteration, addition, amendment or repeal shall have been given in the notice of such meeting.

ARTICUS T il PERSONAL LIABILITY

Neither the Board of Directors, nor any officer, shall have power to bind the members of the Corporation, or the Individual Directors or officers personally. All persona of corporations extending oredit to, contracting with, or having any claim against the Corporation, shall look only to the funds and property of the Corporation for payment of any such con* traot or claim, or for the payment of any debt, damage, Judgement, or decree, or of any money that may otherwise become due or payable to them from the Corporation, so that neither the members nor the Directors, nor the officers, present or future, shall be personally liable therefor. Each Director and offloer of the Corporation shall be entitled, without prejudice to any other rights whloh he may have, to be reimbursed by the Corporation for and Indemnified by the Corporation against all legal oosts and other expenses reasonably Incurred by him In connection with or arising out of any claim, action, suit or proceeding of whatever nature In whloh he may be involved as a party or otherwise or with whloh he may be threatened by reason of his having served as a Direc­ tor or officer of the Corporation or by reason of any aotlon alleged to have been taken or omitted by him as suoh Director or offloer whether or not he continues to be such Director or officer at the tine of incurring auoh ooata or expenses, includ­ ing amounts paid or lnourred in oonneetlon with reasonable settlements (other than amounts paid to the Corporation itse lf) made with a view to curtailment of oosta of litigation. No such reimbursement or indemnity shall be paid or made for any ejqpenee incurred or settlement made by such Director or officer in connection with any matter in which he shall be finally adjudged In any such action, suit, or proceeding to have been derelict In the performance of his duty as such Director or officer. The amount of any such reimbursement or Indemnity paid or made to any Dlreotor or offloer In respect to any matter on which settlement or compromise is effected by any suoh Direc­ tor or officer, lnoluding the amount paid by him In such settlement, shall not, unless otherwise authorised by a majority of the Directors then in office other than those Involved, exceed the expense which might reasonably have been paid or incurred by ouch Dlreotor or offloer in conducting such actual or threatened litigation to a final conclusion. In no event shall miything herein oontalned be construed so as to protect or to authorise the Corporation to indemnify any suoh Dlreotor or offloer against any oosts or expenses lnourred or settlement made in oonneetlon with any matter arising out of his own neg­ ligence or w illful misconduct. The Corporation and its Directors, officers, and employees shall not be liable to anyone for making any determination as to the existence or absenoe of lia b ility or for making or refusing to make any payment hereunder on the basis of suoh determination or for taking or emitting to take any other action hereunder in reliance upon advice Cf counsel. 295

Ithibit B-ll

H.P.C. STAMP AKDIZATIOK A PURCHA3IM0 COHGTTEB

BY-LAWS

Pressblc i Bar vote of the H.P.C. Board of Directors the Cowl ttec la charged with tha following duties i 1* To recommend auoh ohangoa In purchasing policy or prooedure aa it foala aro desirable. 2, To aoloct products for standardization *nd contract purchasing. 3* To appoint sub-coral t tee a to devalop standards and opaci­ fications and to suggest sources of supply. To approve standards and specifications developed by its sub-committees. 3 . To advise tha Manager of H.P.C. in developing purchasing agreemnts of coraodltles It has approved for purchase. 6. To review and vote on all contract bids, contract negotia­ tions and prloe offer agreessnts and advise the Manager (or his staff) on the awarding of oontracts or issuanoe of prloe offers. 7. To solicit the cooperation of (other) participating member hospitals in H.P.C. oontraots. 8. Advance the beat Interests of the Corporation. Coraittee Rules and Regulations: Voting membership In the Coraittee shall be limited to one person from eaoh MParticipating Member" Institution who has been appointed In writing, by the Administrator or Dlreotor of the member Institution. Other representatives from member institutions will always be welcome to attend Coraittee meetings. The Committee shall elect a Chairman, a Vioe-Chalman who shall conduct the meetings In the absence of the Chairman. Persons so elected shall serve for one (l) year er until their suooessors are elected. Tern of office shall baftA* October 1st, the beginning of the Corporation's fisc a l year* 296

The Chalman of tha Standardisation ft Purchasing Coaalttee shall be an ex*offlclo oenber of a ll sub*eo*Mlttees appointed by the Coaalttce. Five (5) Members of th e Comm! t tee shall constitute a quoru*. A Majority vote of the MCMbers present, provided there is a quorum, shall carry a ll notions duly nade and seconded except that notion for reconsideration of previous ooaaittee action shall require a t*o#thlrds vote. Whenever a vote Is not unanlnous, It shall be oounted by a shoe of hands and the vote recorded* Henbers of the H.P.C, staff serve In an advisory capacity only and shall not vote in the affairs of the ConMlttee, 297 EXHIBIT B-12 W HOSPITAL PURCHASING CORPORATION (Standard Contract Fbrn) D ata

CONTRACT NO. COMMODITY CLASSIFICATION: Contraot Periods ______

AGREEMENT For tha contract period stipulated above tha HOSPITAL PURCHASING CORPORATION ("H*P*C.") of Boston, a non-profit corporation ohartarad under the laws of the Commonwealth of Maaaachuaetta agrees to buy, and the _ ("the supplier11) with lta principal office In ’ agrees to s e ll, and supply the Items described oeioW xn accordance wnJFi prices, terms and condltlona herein stipulated.

CONDITIONS OF CONTRACT Q uantities. Item Description Contract Prices

Special Contract Price Provisions;

Terms: Allowable Quantity Variations > (Use only when applicable) 898

CONTRACT NO. C oont'd

Delivery Stipulations t (a) Minimus Quantity Far Shipment or Dali vary (b) Others

Quality Specificationsi

Ordering and Paytaontai (Use tha paragraph below that la appll- “ “ oable to tha olrcumstanoes)

(a) Hoapltala will place their order a with ______and ahall pay lnvalaaa* BaAh ■on'cA _ w ill supply ana ti./.b, orfloe with a breakdown ty iwvpiiiL, of tha approximate total dollar billings during the pravloua month under thla contract, (b) Hospital Purchasing Corporation w ill guarantea paywant of all lnvoloes In aooordanoe with tha terms ana ibnaitiohl ox" tnls oontraot. If tha supplier falls to perform tha terms and conditions of this oontraot satisfactorily H.P.C. nay at Its option terminate this oontraot, and. If It so elects, purohaao elsewhere tha quantity of goods and supplies tha supplier would hare bean required to deliver hereunder but for suoh termination, and the supplier agrees to reimburse H.P.C *j for any Increased cost It nay suffer oooasloned by the supplier's failure to perform satisfac­ to rily . However, the contractor shall not be responsible for failure to perform herelnunder if suoh failure is due to acts of Qod, War or other onuses beyond his oontrol. 299

CONTRACT NO, C con'td IN WimSS WHEREOF, tha HOSPITAL FURCHASIM8 CORPORATION has oauaed the a a preaenta to be axeoutad In Ita n*aa and befcalf by Its Manager hereunto duly authorised on tha day and year notad on page 1 hereof* Slgnad toy i _ _ _ Title t

IN WITNESS WHEREOF, tha ______haa oauead thaaa praaanta to bd axaoutaa in isd benilf oy iCa haraunto duly authorized on tha a air ana yaar noted on ptoge 1 hereof*

Slgnadt Title* 300

Exhibit B-13

THE HOSPITAL PURCHA3IH0 CORPORATION " ' ' LIST W MEMBER HOSPITALS

A.H.A. I960

Beth Israel ------———————Boston Boston Lying-In ------——- — Boston Brookline — ------—------Brookline Charles Choate Manorial ------Woburn Chelsea Manorial ------Chelsea 99 Children1 ■ Ntdloal Center ------Boston 345 Emerson — —— — — — — — -Concord 85 Faulkner — ------— ------— — Jasisl oa Plain 147 Free Hospital for Women ------— —Brookline 90 aoddard ------Stoughton 66 Jordan------——------Plymouth 47 Joseph P. Kennedy Memorial------—Brighton 125 Lynn — — —— —— — — ——™ i^rim 280 Malden ------—------Malden 218 Marlborough ------Marlborough 103 Mass. Bye At Ear Infirmary ------Boston 169 Mass. General ------Boston 916 Mass. Memor ia l ------Boston 2; MoLaan ------—Belmont M ilton ------—------—....-.-M ilton Mount Auburn------—------Cambridge 2 New England Baptist ——------Boston 251 New England Medical C enter ------Boston 306 N .I. Peabody Hone for Crippled Children ------Newton Centre 92 Newt on-We lie Bley ——------Newton Lower Falls Parker H ill Medical Center ------— Boston * 8 Peter Bent Brigham------Boston 286286 Robert B* Brigham — ------Boston St. Margarets — ------Boston x g | Union - ———------—lynn 106 Waltham------Waltham 146 Washingtonian — -— ------Jamaica Plain 80 Whldden Memorial ------Everett 114 Winchester ------—— Winchester 110 TOTAL 6,127 APPENDIX C

THE HOSPITAL BUREAU, INC.

FJtOE

1 . Comparative Balance Sheet, 1959 ft I9 6 0 ...... 302 2. Cooperative Statement Of Income A Expensea, 1959 ft I960 ...... 30 k 3* List of Patronage Re funds, 4 th Quarter I9 6 0 ...... 30? 4. Purchasing Agents Committee, Representation and 307 By-Laws...... 3. Sample Contract - Linen...... 310 6 . Membership L ist...... 317

301 302

Xchlblt C-l

HOSPITAL BUREAU, INCORPORATED £ A Neabership Corporation) COMPARATIVE BALANCE SHOT as of DaoMber 31# i960 and Deceaber 31# 1959

ASSETS ■ Deceaber Deceaber 31^ M

Cash In Banka and Of floe j * 137,690.93 230,126.35 General Aooount Pay Roll Account M32.®» 6,477.37 n » T W 0 7 7 5 a s b #r a : Y u Accounts Raoalvabls from Members: Por Merchandise $ 465,068.31 347,001,16 For Dues 460.00 3477541^16" Miscellaneous Accounts Receivable i Rebates Due froa Suppliers 757.91 8 6 0 .2 1 Deposit on Credit Cards - American Airlines 425.00 425.00 $— i,iay.yi Inventory on Merchandise 61.92

TOTAL CURRENT ASSETS $ 609,880.24 585,430,09

FIXED ASSETS1 ur'H.ce rurnlture & Fixtures $ 11,297.21 13,364,96 (Less Depredation) OTHER ASSLTSt TWd Ultla Pending 2 , 206,08 Notes Receivable $ 4,100.00

TOTAL ASSETS » 625r277.45 Ig^OOl^ 303

LXJgHJTIES AMD CAPITAL

Deoeaber Deceaber ^ w 2 0 2 2

LIABXLITUS

Aooounta Payable t For Merchandise $ 146,266.10 124,276.04 Duo Member H ospitals 259.86 $ 146,8^186 m , 5 S 5 w M iscellaneous Aooount a Payable 6 0 2 .1 0 2 5 6 .9 6 Taxaa Withheld from Employees 2,234.52 3,262.55 Dues Received In Advance 4.830.00 6.140.00 P.I.C.A. Taxes Payable 717.50 170.60 Accrued Expense 1.200.00 1.200.00 Discounts Due Umbers 38,511.14 33,104.35 Certificates of Indebtedness 45,141.80 4 7 . 3 3 6 . f t l TOTAL LIABILITIES $ 240,087.12 216,006.77 OPERATING CAPITAL ♦ 365,190.33 38ft,994.36

opdulthw capital 304 Inhibit C-2

COMPARATIVE STATEMENT OP INCOME AMD EXPENSES for the Years Ended Deceaber 31, i 960 and Deceaber 3 1 , 1959 Hospital Bureau, Incorporated Year Ended Year Ended December December 31. i960 31. 1959 IMC< Members Dues 4 123,061.64 $119,425,95 Service Charges and Miscellaneous Income 129,100.25 1 2 0 ,8 0 7 .4 8 Interest Income . 9 5 2 .8 1 Net Discounts Earned 14,579.85 8,234,682'59S*5§ TOTAL INCOME 4 267,694.55 $252,064.59

EXPENSES*

Salaries $151, 13 5 .1 5 qroup Ins. Prems. A Pension 2,820.12 Federal Old Age Benefit Tax 3,835.20 3,044.73 Office Expense 8 ,l5 |.7 3 Stationery and Printing 7,106.91 m : i Poetage 5,183.76 4 , 1 3 4 ,4 2 Telephone and Telegraph 6,275.46 4 , 6 9 9 .1 1 Rent 19 ,000.08 19 ,000.06 Depredation of Office Furniture and Fixtures 2,276.40 2,124.56 Traveling Expense and Meetings 35,864.32 29,833.93 Research 3,416.83 Publicity 5,424.90 t. m i Fees 1,251.92 Commercial Bond

TOTAL EXPENSES $240,267.55

Net Income Transferred to Operating Capital 4 195.97 $ 1 1 ,7 9 7 .0 4 K chlblt C-3

HOSPITAL BUREAU. INC. 60 West 55th Street New York 19, N. Y. INDIVIDUAL MEMBER TOTAL FASROMA0B REFUND INCLUDING X-RAY CREDIT NEMOS for THE FOURTH QUARTER OF i 960

OVER *1.000 -- Akron General Hospital, Akron, Ohio Co—unity Hospital at Glen Cove, Glen Cove, L .I., N.Y. Danbury Hospital, Danbury, Connecticut Easton Hospital, Easton, Pa. Kaeksnaaok Hospital Asaoolation, HSokensaok, N. J. Mary Hltohoook Ms no rial Hospital, Hanover, N. H. The Hospital Center at Orange, Orange, N. J, Jefferson Medical College Hospital, Philadelphia, Fa. Laurence * Meaorlal Hospitals, New London, Connecticut Lowell General Hospital, Lowell, Mass. Mercer Hospital, Trenton, N. J , Mountainside Hospital, Montclair, N. J. Muhlenberg Hospital, Plainfield, N. J. New York Medloal College - Flower & Fifth Avenue Hospitals, New York, N. Y. North Carolina Baptist Hospitals, Winston-Salem, N. C. Robert Packer Hospital, Sayre, Fa. St. Luke*a Hospital, New York, N. Y. St. Luke's Hospital, Bethlehem, Pa. South Shore Hospital, So. WSynouth, Mass. Toledo Hospital, Toledo, Ohio 4500 to >1,000 ~ Abbott Hospital, Minneapolis, Minnesota Columbia Memorial Hospital, Hudson, N. Y. Dixie Hospital and Hampton Training School for Nurses, Hampton, Virginia Eastern Maine General Hospital, Bangor, Maine E llio tt Community Hospital, Keene, M. H. Evangelloal Hospital Asaoolation of Chicago, Chicago, 111. Hlghsmlth Hospital, Fayetteville, N. C. House of the Good Samaritan, Watertown, N* Y. Hunterdon Medloal Center, Flsejlngton, K. J. Lee Memorial Hospital, Ft. Meyers, Florida Montgomery Hospital, Norristown, Fa. Moore Memorial Hospital, Pine hurst, H. C. Niagara Falls Memorial Hospital, Niagara Falls, N. Y. Norwood Hospital, Norwood, Mass. 306

$500 to 11,000, continued

Petersburg General Hospit ad, Petersburg, Virginia St* Dominic's-Jackson Memorial Hospital, Jackson, Miss. Samaritan Hospital, Troy, N, Y. Southeastern General Hospital, Lumberton, N* C, Stanley County Hospital, Inc., Albemarle, N. C. Staten Island Hospital, Tompklnsville, 8.1,, N, Y, Warren Hospital, Philllpsburg, N» J. Wesley Hospital k School for Nursing, Wichita, Kansas ♦850 to »500---- Caldwell Memorial Hospital, Lenoir, N, C. Cape Pear Valley Hospital, Fayetteville, N. C. Children'■ Hospital, Columbus, Ohio Clinton Hospital, Clinton, Mass, Good Samaritan Hospital, Lebanon, Pa* Hahnemann Hospital, Scranton, Pa* High Point Memorial Hospital, High Point, N* C. Alice Hyde Memorial Hospital, Malone, N. Y* Kent General Hospital, Dover, Delaware Manhattan Eye, Ear k Throat Hospital, New York, N*Y* Memorial Mission Hospital of Western North Carolina, Ashvllle, N. C. Morristown Memorial Hospital, Morristown, N. J* Mount Sinai Hospital Association, Minneapolis, Minn. Newton Memorial Hospital, Newton, N. J, St* Peter's Hospital, Albany, N* Y, Sampson County Memorial Hospital, Clinton, N. C, Southampton Hospital Asaoolation, Southampton, L .I., N. Y. Sunbury Community Hospital, Sunbury, Pa* Matte Hospital, Durham, N* C* Wilmington General Hospital, Wilmington, Delaware Windham Community Memorial Hospital, Wllllmantlc, Conn.

COUNCILS i Hospital Counoll of Western Pennsylvania, Pittsburgh, Pa. Cleveland Hospital Counoll, Ohio Hospital Purchasing Corporation, Boston, Mass. Rooheater Regional Hospital Council, N* Y* 307 Exhibit C-t

PURCHASING AQENT3 COMMITTEE OF HOSPITAL BUREAU. INC. Chairmani Paul E. Widman Vioe Chairman: Joseph P. H ill Hoapital Bureau Rapra sentatlon Edward S. Fabian, Purchasing Agent, Mary Hitchcock Manorial Hoapital, Hanover, Naw Hampahlre B. H. Graham, Aas't. Admr., North Carolina Baptiat Hospitals, In c,, Winston-Salem, North Carolina L. R. Keheley, Dlraotor of Purchasing, St, Luke1 a Hoapital, 421 Neat 113 Street, Naw York 25, N. Y, Paul E. Widman, Dlraotor of Purchasing, Cleveland Cllnio Foundation, 2020 East 93 Street, Cleveland 6, Ohio

Counoll Rapra aant at Ion Clateland Council: Clarence W. Millar, Aas't, Director, Euolld»Glenvllle Hospital, East 185 St, a Lake Erie, Euclid 19, Ohio Harold Taylor, Purchasing Agent, Cleveland Hoapital Counoll, 1001 Huron Road, Cleveland 15, Ohio Hoapital Purchasing Corporation: Joseph P, H ill, Jr., Dlraotor of Purchasing, Massachusetts General Hospital, Fruit St., Boston, Maas, George E. Pettenglll, Executive Assistant, Hospital Purchasing Corp., 25 Huntington Ave,, Boston 16, Mass, Hospital Council of Western Pennell van! a: Theodore F. Xaap, Jr., Purchasing Associate, Hospital Counoll of Western Pennsylvania, 130 DeSoto Street, Pittsburgh 13, Ps* Mrs. Helen Nicholson, Purchasing Agent, Elizabeth Steel Magee Hoapital, Forbes and Kalket Streets, Pittsburgh 13, Pa. 300

Rochester Regional Hoapital Counoll, Inc. t Henry H, Hannel, Dlreotor of Purchasing, Rochester Regional Hoapital Counoll, Inc., 134 Eaat Ave., Rooheater 4, N. Y. Ex Offloloi DeForeat T. Whipple, with voting right Manager of eaoh Council Riohard L. Davie

PURCHASING! AGENTS COMMITTEE OF THE HOSPITAL BUREAU, INC. Membership In the Committee The Purohaalng Committee shall be oomprlsed of two members appointed or elected from each Counoll, or group purohaalng agenoy, Eaoh Counoll or group purohaalng agenoy shall appoint, or eleot those persons it deems best suited to repre­ sent its interests. In addition to the above appointees, the President of the Bureau shall appoint additional persona from the individual Bureau member hospitals who shall serve on the Committee, The Kxeoutive Dlreotor of the Hospital Bureau and the Manager of eaoh member Counoil, or group purohaalng agenoy shall be ex offloio members of the Committee, Expenses in regard to Attendance at Meetings The Counoll, or group purchasing agenoy shall pay all the expenses of one of its appointees In attend­ ing meetings. The Bureau s h a ll pay a l l the expenses o f the other Counoll, or group purohaalng agenoy Committee repre­ sentative and the additional appointees from the Individual Bureau member hospitals.

P ro c e d u re The Committee sh a ll e le o t I t s own Chairman and a Co- Chairman who shall aot In the absence of tha Chairman. The Chairman shall appoint a secretary who shall keep the Minutes of the Meetings. 309

Meetings The Committee shall meet In September, December, March, and June of each year on suoh dates, and at suoh times as the Chairman shall decide or at such other times and dates as may be deolded by the Committee* The Chairman or Co-Chairman shall oall a special meet­ ing at his discretion and five or more members of the Committee may In writing request that the Chairman oall a Special Meeting; suoh meeting shall then be called. Duties and Objectives of the Coosnlttee The Committee shall act in a contracting, and an ad­ visory oapaoity to the Exeoutlve Director of the Bureau and to the Committee of Council Managers. The Committee shall establish and approve standards and/or apeolfloations for "national contracts" in whioh the Councils have agreed to participate and shall vote oontraot awards based on competitive bids or competitive negotiations• It shall make recommendations as to purchasing policy and procedure. It shall review existing, and potential group purchasing agreements and/or contracts, end consider what agree­ ments can most advantageously be negotiated on a national scale by the Bureau and on a local basis by Councils * An analysis of the factors involved to arrive at speci­ fic conclusions suggests three l i s t s B h o u ld be made as fo llo w s : a) For national contracting b) For local or Council contracting c) Other 310

Enhlblt C-5

HOSPITAL BUREAU

Sample Contract *

Memorandum of terms of a Purchasing Contract between

MORRIS BROTHERS, IN C» a n d HOSPITAL BUREAU, IN C .; ROCHESTER

REGIONAL HOSPITAL COUNCIL, IN C .; HOSPITAL COUNCIL OF WESTERN

PENNSYLVANIA! CLEVELAND HOSPITAL COUNCIL an d HOSPITAL PURCHASING

CORPORATION, and suoh other H ospital Purchasing Councils,

Hospital Purchasing Corporations or Bureaus and Individual

Hospitals as shall be certified by any of the five above-named

Hospital CouncllB or Bureaus.

1 . The p a r t i e s t o t h i s C o n tr a o t a r e MORRIS BROTHERS,

IN C ., h e r e i n a f t e r known a s "MBI" a n d HOSPITAL BUREAU, IN C .;

ROCHESTER REGIONAL HOSPITAL COUNCIL, IN C .; HOSPITAL COUNCIL OF WESTERN PENNSYLVANIA! CLEVELAND HOSPITAL COUNCIL and HOSPITAL

PURCHASING CORPORATION, h e r e i n a f t e r know n a s "HOSPITAL BUREAUS."

2. Tams of Contract: Contract shall be for a period

ending December 31, 1961 and shall become effeotive upon the

signing of the Contract.

3. All prices fixed under the terms of this Contract

shall be for the period above described only and shall be effec­ tive as to all written orders given during the above period.

4. "MBI" shall provide a performance bond In the

amount of $3000.00 by a recognized bonding company whloh bond

s h a l l be p o s te d and d e l i v e r e d t o "HOSPITALS BUREAU, IN C ." a c t i n g

for "HOSPITAL BUREAUS" within a reasonable time after the signing 311 of this contract. The premium for amid bond shall be paid by "MBI/1 and the said bond shall provide for a performance of this Contract with respect to any of the "HOSPITAL BUREAUS" or Its certified members. The "HOSPITAL BUREAUS* reserve the right to add additional Hospital Councils affiliated or associ­ ated with "HOSPITAL BUREAUS" to the performance bond. "MBI" undertakes to provide the merchandise desorlbed In a price lis t of materials attached hereto and marked Exhibit "A" at the prices stated therein. The prices set forth In the said Exhibit "A" shall be a firm price through the period ending Deoember 31/ 1961. In consideration of the firm prices herein provided, no reduction of any price shall be made during the term of this Contract resulting from price reductions by any mills or suppliers nor shall there be any price Increases chargeable to the "HOSPITAL BUREAUS" resulting from any Inoreased charges by the mills or suppliers to "MBI." 3 . "MBI" warrants that a ll merchandise delivered under the terms of this Contract shall meet or exceed A.S.A. Standard L.4.1-1948 or later revisions and a ll applicable Federal speci­ fications as set forth on the attached prloe list or later revisions thereof. 6. Orders for the merchandise described In Exhibit "A" shall be In writing and delivered to "MBI" not later than August 1, 196l. Upon receipt of a ll orders not later than August 1, 1961, suitable preparation shall be made by "MBI" to make 312

deliveries promptly, as specified on orders, between the dates of September 15/October 15 and November 15/Deoember 1 5 , 1961 , "MBI” hereby quarantees to make deliveries within the periods specified* Any orders received after August 1, 1961 are subject to acceptance by "MBI" as to prloe and date of delivery. 7. The "HOSPITAL BUREAUS" shall have the privilege of reducing the amount of the orders up to fifteen per cent ( 155*) of the total quantity thereof by giving thirty ( 30) days1 notice prior to September 1, 1961 of such reduotlon. In addi­ tion, "HOSPITAL BUREAUS" shall have the privilege of Increasing the total quantity by giving written notice and providing suitable written orders on or before November 1, 1961* Orders for the merchandise intended to be sold herein shall originate with, be prepared by, and delivered by any one of the above named "HOSPITAL BUREAUS." The said order form shall be uniform in setting forth price, quantity and item. All orders shall never be less than for a case lot. Any orders

which Bhall be for I b b s than a case lot are subject to accept­ ance by "MBI" and an adjustment in prloe, 8 . The merchandise to be delivered under the said orders shall be at the prices as listed on the attached Exhibit " A. " 9. All goods delivered under the terms of this Contract shall be paid for by any one of the "HOSPITAL BUREAUS" originating the order and payments shall be made on each in­ voice within twenty (20) days from the mailing date thereof. 313

Failure to pay the Invoice within the twenty (20) days afore­ said shall give to "MBI11 the following oululative options: (a) to add an Interest charge on the said Invoice at the rate of per annum from the due date thereof until date of receipt of payment; and (b) to cancel outstanding orders and withhold shipment of any orders received originating from suoh Hospital Bureau until all delinquent invoices have been paid* All merchandise delivered under this Contraot shall be presumed to meet the specifications and the quantities unless, within fifteen (15) days from the date of the receipt of such merchandise, the hospital receiving the merchandise shall, in writing, notify "MBI" of any defects or shortages* Ho credits, refunds or allowances shall be made for any merchan­ dise which is defeotlve or short in quantity unless suoh written nttlce is received within fifteen (15) days from the receipt of the merchandise by the said hospital. Upon the receipt of such notice, "MBI" shall have the option, within fifteen (15) days from receipt of said notice to (a) request the return of such merchandise and then to replace the said merchandise, or (b) to grant an allowance, refund or rebate based both as to quantity and as to quality. No returns of merchandise w ill be acceptable to "MBI" unless there Is written direction to return the said merchan­ dise, In the event merchandise is returned for reasons given 31* above, "MBI" shall have an additional fifteen (15) days to teat check the said merchandise and If the test cheok proves the contention of "HOSPITAL BUREAUS" or an affiliated hospital; the said merchandise w ill be replaced within a reasonable time, not to exceed thirty ( 3 0 ) days after the conclusion of test check. 10. In consideration of the HOSPITAL BUREAU, INC. negotiating this Contract, "MBI" undertakes And agrees to pay a sum equal to one-half of one per cent (l/2 of 1%) of the total amount on orders paid for by the "HOSPITAL BUREAUS* which payment shall be made on a monthly basis based on the amount of merchandise paid for during any one month of this Con­ tract with a payment to be made fifteen ( 1 5 ) days after the end of each such month. "HOSPITAL Bureau, Inc." further undertakes to become liable and to pay for any invoice which shall remain unpaid under the terms of payment set forth In Paragraph Nine and will within ten (10) days after written notice of failure by any of the "HOSPITAL BUREAUS" pay the amount then due and owing. 11. The "HOSPITAL BUREAUS" shall have the privilege of adding to the list of Hospitals attached and forming part of the "HOSPITAL BUREAUS" and shown as Exhibit "B", additional hospitals, which hospitals the "HOSPITAL BUREAUS" shall certify In writing are members In good standing and/or eligible to participate In the benefits of this Contract. It Is understood 315 that the "HOSPITAL BUREAUS" when certifying the additional hospital to be Included In their respective Bureaus shall also undertake to become liable for tha payment of any mer­ chandise ordered for such additional Hospital under the terms of this Contract. 12* "MBI" reserves unto Itse lf the right to reject and refuse any and a ll orders by any Bureau whose credit rating shall, In the sole Judgment of "MBI", be or become unsatis­ factory, provided that notice of such rejection shall be given in writing within 30 days after receipt of suoh order* In the event any one or more of the Bureaus listed above shall be unable to provide a suitable Dun and Bradstreet report or other financial report Indicating satisfactory financial responsibility, "MBI" shall, at its option, provide that shipments of a ll goods by such Bureau shall be by payment In advance• 13* All orders accepted under the terms of this Contract shall be subject to the following provision, to wit, all times and dates of delivery are subject to strike, both at the level of the mill and the transportation oompanles, floods, riots, wars, civil strife. Insurrection and other acta of Qod or events over whloh "MBI" shall have no control* 316

IN WITNESS WHEREOF> the parties hereto Intending to be legally bound, have by their duly authorized agents or officers, set their respective hands and corporate seals.

MORRIS BROTHERS. INC. Dated: By: (SEAL) n?ea surer ATTEST

HOSPITAL BUREAU, INC.

Dated: By : Executive Director ATTEST

ROCHESTER REGIONAL HOSPITAL COUNCIL,IB

Dated By; E x e c u tiv e D ir e c t o r ATTEST

HOSPITAL COUNCIL OP WESTERN FENNSYLVAt

Dated: By: Executive Director

ATTEST

CLEVELAND HOSPITAL COUNCIL Dated i By: Executive D ir e c t o r ATTEST

> 317

HOSPITAL PURCHASING CORPORATION

Dated: ______By: ______Executive Director

ATTEST: ______

# This is the first contract drawn by the newly reorganized

Purchasing Agent Association of the Hospital Bureau. Special care should be taken in the interpretation of the terms of payment of this contract (#10) since they represent a departure from regular procedure. In lieu of the regular method of forwarding orders to the Bureau and the Bureau relaying them to the Supplierj Hospitals under this contract forwarded their orders to their Regional Council office which sent them to the Supplier. The Bureau did not receive payment from the

Hospitals as is usually the case but was paid by the Supplier the amount ^ of 1 per cent of total orders referred to in the contract. The Regional Councils received no payment for their services. 3lS Ex hi "bit C-£

THE HOSPITAL BUREAU, INC.

MEMBERSHIP LIST - HOSPITAL BUREAU INC. AS OF JANUARY 1961 RESIDENT MEMBERS Beekman-Downtown Hospitals New York, N.Y. Brooklyn Hospital Brooklyn, N.Y. Brooklyn Eye & Ear Hospital Brooklyn, N.Y. House s f The Holy Comforter New York, N.Y. Lenox Rill Hospital New York, N.Y. Manhattan Eye, Ear & Throat Hospital New York, N.Y. Memorial Hospital New York, N.Y. Methodist Hospital of Brooklyn Brooklyn, N.Y. New York Hospital, Society of New York, N.Y, New York Infirmary New York, N.Y. New York Medical College—Flower & Fifth Avenue Hospitals New York, N.Y. Presbyterian Hospital New York, N.Y. St. Lukefs Hospital New York, N.Y. Trafalgar Hospital New York, N.Y.

OUT-OF-TOWN HOSPITALS Abbott Hospital Minneapolis, Minn. Akron City Hospital Akron, Ohio Akron General Hospital Akron, Ohio Alliance County Hospital Burlington, N.C. Albany Hospital Albany, N.Y. Susan B. Allen Memorial Hospital El Dorado, Kansas John D. Archlbold Memorial Hospital Thomasvllle, Georgia Auburn Memorial Hospital Auburn, N.Y. Beebe Hospital of Sussex County, Inc. Lewes, Delaware Berwick Hospital Berwick, Pa. Benedictine Hospital Kingston, N.Y. Beverly Hospital Beverly, Mass. Bloomsburg Hospital Blommsburg, Pa. Booth Memorial Hospital L .I., N.Y. Bridgeport Hospital Bridgeport, Conn. Brookton Hospital Brockton, Maas, Brookhaven Memorial Hospital Hospital Rd. L .I,, N.Y. Burke Foundation White Plains, N.Y. 3iy

Caldwell Memorial Hospital Lenoir, N. C. Gape Fear Valley Hospital Fayetteville, N, C. Carbondale General Hospital Carbondale, Fa. Centre County Ho vi t a l Beliefonte, Pa. Children's Country Home Westfield, N. J. Children's Hospital Columbus, Ohio CUBVBLAHP HOSPITAL COUNCIL Cleveland, Ohio Hospitals Includei Booth Memorial Hospital Cleveland, Doctors Hospital Cleveland Heights, Cleveland Clinic Cleveland, Buelld-Qlenvilla Hospital Euolidk Evangelical Deaconess Hospital Cleveland, Falrview Park Hospital Cleveland, Grace Hospital Cleveland, Huron Road Hospital Cleveland, Lake County Memorial Hospital Palnesvllle, Lakewood Hospital Lakewood, Lutheran Hospital Cleveland, Marymount Hospital airfield Heights, Mount Sinai Hospital Cleveland, Polyclinic Hospital Cleveland, St, Alexis Hospital Cleveland, St. Ann's Hospital Cleveland, St.John's Hospital Cleveland, St, Luke's Hospital Cleveland, St. Vincent Charity Hospital Cleveland, Suburban Community Hospital Warrensvllle, University Hospitals Cleveland, Woman's Hospital Cleveland, Clinton Hospital Clinton, Mass. Columbia Memorial Hospital Hudson, N.Y. Coluabus Hospital Newark, N.J, Community General Hospital Reading, Pa. Community Hospital at Qlen Cove Glen Cove, N.Y. Community Hospital of Schoharie County Coble skill, N.Y. Cottage Hospital of Grosse Pointe Grosse Pointe Farms, Mlohigan Crestline Memorial Hospital Crestline, Ohio Danbury Hospital Danbury, Conn. Day Kimball Hospital Putnam, Conn. Delaware Valley Hospital Walton, N.Y. Dettmer Hospital Troy, Ohio Detwiler Memorial Hospital Wauaeon, Ohio Dixie Hospital and Hampton Training Sohool for Nurses Hatton, Va. 320

Dobbs Ferry Hospital Association Dobbs Ferry, N.Y, Duke Hospital Durham, N. C. Eastern Maine General Hospital Bangor, Maine Eastern Memorial Hospital (name changed to Maine Coast Manorial Hospital) Ellsworth, Maine Easton H$l£itIX Easton, Pa, E lliott Coaounlty Hospital Keene, New Hampshire Englewood Hospital Association Englewood, N.J, Evangelical Hospital Association of Chloago fthicago, 111* Flagler Hospital Augustine, Fla, Mary Fletoher Hospital Burlington, Vt. Fraalnghan union Hospital Framingham, Mass, Frederick Manorial Hospital, Inc., Frederick, Md, Gallon Community Hospital Gallon, Ohio Geo. F. Gelsinger Memorial Hospital Danville, Pa, Gifford Manorial Hospital Randolph, Vt, Oood Samaritan Hospital Lebanon, Fa* Graoe Hospital Detroit, Mleh* Grace-New Haven Community Hospital New Havan, Conn. Greenwloh Hospital Association Greenwloh, Conn. Griffin Hospital Derby, Conn* Haokensaok Hospital Association Haokensaok, N.J, Hahnemann Hospital Scranton, Fa. Harper Hospital Detroit, Mloh. High Point Memorial Hospital High Point, N*C * Highsmith Hospital Fayetteville, N.C. Mary Hltohoook Memorial Hospital Hanover, N. H, The Hospital Center at Orange Orange, N. J. includeAT N.J. OFYhopAASxc Hospital Orange Memorial Hospital HOSPITAL COUNCIL OF WESTERN PENNSYLVANIA Pittsburgh, Pa. Hospitals Includet Allqulppa Hospital, Allqulppa, Pa. Allegheny General Hospital, Pittsburgh Allegheny Valley Hospital, Natrona Heights Altoona Hospital, Altoona Beaver Valley General Hospital, New Brighton Braddoek General Hospital, Braddook Brownsville General Hospital, Brownsville Butler County Memorial Hospital, Butler Canons burg General Hospital, Canonsburg 321

Charleroi-Monoseen Hospital, N. Charleroi Children*a Hospital, Pittsburgh Cltlsena General Hospital, New Kensington Columbia Hogpltal, Pittsburgh Coneeaugh Valley Memorial Hospital, Johnstown Divine Providence Hospital, Pittsburgh Kllwood City Hospital, Kllwood City Rye and Sar Hospital, Pittsburgh Falk Clinic, Pittsburgh H. C, Frick Memorial Hospital, Mt. Pleasant Greene County Manorial Hospital, Wayneaburg Harmarvllle Rehabilitation Center, Pittsburgh Hone for Crippled Children, Pittsburgh Homestead Hospital, Homestead Indiana Hospital, Indiana Jameson Memorial Hospital, New Castle Jeannette District Hospital Association, Jeannette John J, Kane Hospital, Pittsburgh Latrobe Hospital, Latrobe Lee Hospital, Johnstown Elizabeth Steel Magee Hospital, Pittsburgh McKeesport Hospital, McKeesport Memorial Hospital of Bedford County, Everett Memorial Hospital of Monongahela, Monongahela Mercy Hospital of Altoona, Altoona Mercy Hospital of Johnstown, Johnstown Mercy Hospital of Pittsburgh, Pittsburgh Miners* of Northern Cambria County, 3pangler Monteflore Hospital, Pittsburgh New Castle Hospital, New Castle Ohio Valley General Hospital, MCKees Rocks Fassavant Hospital, Pittsburgh Pittsburgh Hospital, Pittsburgh Presbyterian university Hospital, Pittsburgh Providence Hospital, Beaver Palls Rochester General Hospital, Rochester Rosalia Foundling & Maternity Hospital, Pittsburgh St. Clair Memorial Hospital, Pittsburgh St. Francis General & Rehabilitation Inst., Pittsburgh St. John*s General Hospital, Pittsburgh St. Joseph's Hospital, Pittsburgh 3t. Margaret Memorial Hospital, Pittsburgh Salvation Army Booth Memorial Hospital, Pittsburgh Sewiokley Valley Hospital, Sewlckley Shadyslde Hospital, Pittsburgh Sharon General Hospital, Sharon Somerset Coomunlty Hospital, Somerset South Side Hospital, Pittsburgh Suburban General Hospital, Pittsburgh Titusville Hospital, Titusville Uhlontown Hospital, Uhlontown Washington Hospital, Washington 322

Warren General Hospital, Warren D.T. Watson Hone for Crippled Children, Leetsdale Western Pennsylvania Hospital, Pittsburgh Western Psychiatric Institute & Clinic (Ublverslty of Pittsburgh), Pittsburgh Westmoreland Hospital, Greensburg Woman's Hospital, Pittsburgh HOSPITAL PURCHASING CORPORATION Boston, Mass. Hospitals Include t Beth Israel Hospital, Boston Boston Lying-In Hospital, Boston Brookline Hospital, Brookline Chas, Choate Memorial Hospital, Woburn Chelsea Memorial Hospital, Chelsea Children's Medical Center, Boston Emerson Hospital, Concord Faulkner Hospital, Boston Free Hospital for Women, Brookline Goddard Memorial Hospital, Stoughton Jordan Hospital, Plymouth Joseph P, Kennedy Jr. Memorial Hospital, Brighton Lynn Hospital, Lynn Malden Hospital, Malden Marlborough Hospital, Marlborough Massachusetts Eye & Ear Infirmary, Boston Massachusetts General Hospital, Boston Massachusetts Memorial Hospitals, Boston McLean Hospital, Belmont Milton Hospital & Convalescent Home, Milton Mt, Auburn Hospital, Cambridge New England Baptist Hospital, Boston New England Medical Center, Boston New England Peabody Home for Crippled Children, Newton Centre Newton-Wellesley Hospital, Newton Lower Falls Parker H ill Medical Center, Boston Peter Bent Brigham Hospital, Boston Robert Brack Brigham Hospital, Boston St, Margaret's Hospital, Boston Waltham Hospital, Waltham Washingtonian Hospital, Boston Whldden Memorial Hospital, Everett Winchester Hospital, Winchester House of The Good Samaritan Watertown, N.Y, Charlotte Hungerford Hospital Torrington, Conn. Hunterdon Mtdloal Center Flealngton, N.J. Alice Hyde Memorial Hospital Malone, N.Y, 323

Iowa Methodist Hospital Dee Moines, Iowa Jamaica Hospital Jamaica, N.Y. Jefferson Hospital $ Medical College Philadelphia Jewish Hospital Association Cincinnati, Ohio The Jewish Hospital of St. Louis St. Louis, Mo. John Hopkins Hospital Baltimore, Maryland The Cyril k Julia C. Johnson Manorial Hospital Stafford. Springs, Conn. Kent Oetieral Hospital Dover, Delaware Kerbs Menorlal Hospital St. Albans, Vt. Kessler Institute for Rehabilitation Orange, N.J. King Edward VII Memorial Hospital Hamilton, Bermuda Lawrenoe A Memorial Hospitals New London, Conn. Lee Mortal Hospital Ft, Myers, Florida Lewistown Hospital Lewlstown, Pa. Litchfield County Hospital Winsted, Conn. Nathan Llttauer Hospital Qloversville, N.Y. Little Falls Hospital Little Falls, N.Y. Look Haven Hospital Look Haven, Pa. Lowell General Hospital Lowell, Mass. Clara Maass Memorial Hospital Belleville, N.J. Maine Coast Memorial Hospital (formerly Eastern Melorlal Hospital) Ellsworth, Maine Jojpn T. Mather Memorial Hospital Fort Jefferson, N.Y. Memorial Hospital Albany, N.Y, Memorial Hospital Carthage, 111. Memorial Mission Hospital of Western North Carolina Ashvllle, N.C, Mercer Hospital Trenton, N.H. Mercy Hospital Toledo, Ohio Mercy Hospital Scranton, Pa, Mercy Hospital-Street Memorial Vloksburg, Miss. Middlesex Memorial Hospital Middletown, Conn. Monmouth Medioal Center Long Branch, N.J. Monadnock Community Hospital Peterborough, N.H. Montgomery Hospital Norristown, Pa. Moore Memorial Hospital Plnehurst, N. C. Morristown Memorial Hospital Morristown, N.J, Moses-Ludlngton Hospital Tleonderoga, N.Y. Mountainside Hospital Highland Ave., N.J. Mount Desert Island Hospital Bar Harbor, Maine Mount Slnal Hospital Association Minneapolis, Minn. Mount Vernon Hospital Mt. Vernon, N.Y, Muhlenberg Hospital Plainfield, N.J. Muncy Valley Hospital Muncy, Pa. 324

Nassau Hospital Mineola, N.Y. Newark Beth Israel Hospital Newark, N.J. New Britain General Hospital New Britain, Conn. New England Deaconess Boston, MAss. The Mi. Newton Meaorlal Hospital Winfield, Kansas Newman Memorial County Hospital Emporia, Kansas Newport Hospital Newport, R.I. Newton Memorial Hospital Newton, N.J. New York Hospital-Westchester Division White Plains, N.Y. Niagara Palls Memorial Hospital Niagara F alls, N.Y. North Carolina Baptist Hospitals Winston-Salem, N.C. Northern Hospital of Surry County Mount Airy, N.C, Norton Memorial Infirmary Louisville, lty. Norwood Hospital Norwood, Mass, Olathe Community Hospital Olathe, Kansas Ohio Valley General Hospital Wheeling, West Va. Onslow Memorial Hospital Jacksonville, N.C. Oswego Hospital Oswego, N.Y, Overlook Hospital Summit, N.J. Robert Packer Hospital Sayre, Pa. Park View Hospital Association Rocky Mount, N.C. Paterson General Hospital Paterson, N.J, Annie Penn Memorial Hospital Reidsvllle, N.C. Petersburg General Hospital Petersburg, Va. Placid Memorial Hospital Lake PI add, N.Y. Henry W. Putnam Meaorlal Hospital Bennington, Vt. Rex Hospital Raleigh, N. C. Rhode Island Hospital Providence, R.I. Richmond Memorial Hospital Staten Island, N.Y. Rochester Methodist Hospital Rochester, Minn. Riverside Hospital Wilmington, Delaware ROCHESTER REGIONAL HOSPITAL COUNCIL, Rochester, N.Y, Hospitals Include: Arnot~Ogden Memorial Hospital, Elmira Bethesda Hospital, Horne 11 Clifton Springs Sanatorium, Clifton Springs Coming Hospital, Coming Danstllle Memorial Hospital, Danavllle Ira Davenport Memorial Hospital, Bath Genesee Hospital# Rochester Geneva General Hospital# Geneva Arnold Gregory Memorial Hospital# Albion Highland Hospital of Roohester# Rochester Lakeside Memorial Hospital# Brockport Lyons Hospital# Lyons Medina Memorial Hospital# Medina Myers Community Hospital# 3odus Newark Wayne Community Hospital# Newark Park Avenue Hospital# Rochester Roohester General Hospital# Rochester St. James Mercy Hospital# Hornell St* Joseph's Hospital# Elmira Seneca Palls Hospital# Seneca Palls Schuyler Hospital# Montour Palls Soldiers and Sailors Memorial Hospital# Penn Yan Strong Memorial Hospital# Rochester Taylor Brown Memorial Hospital# Waterloo P* P. Thompson Hospital# Canandlagua Rutland Hospital Rutland# Vermont 3t* Dominic' a-Jaokson Memorial Hospital Jackson# Miss* St* Elizabeth Hospital Utica# N.Y* St* Joseph's HCspltal Carbondale# Pa. St* Joseph's Hospital Syraouse# N.Y. St. Luke's Hospital Bethlehem* Pa* Jacksonville* Fla.St* Luke's Hospital Association Jacksonville* Fla.St* St* Mary's Hospital Amsterdam* N.Y. St* Peter's Hospital Albany# N*Y* Sacred Heart Hospital Manchester* N.H. Samaritan Hospital Troy# N*Y. Saqpson County Memorial Hospital Clinton* N.C* T* J* Samson Coanunlty Hospital Glasgow* Ky, Self Memorial Hospital Greenwood* S.C. Marlon Sims Memorial Hospital Lancaster* S.C. Southeastern General Hospital Lumberton* N.C. South Shore Hospital So* Weymouth* Hass Southantpton Hospital Association Southampton* N.Y* Stamford Hospital Stamford* Conn. Stanley County Hospital# Inc. Albemarle* N.C* Staten Island Hospital Tompkinsvllle* N.Y Sunbury Community Hospital Sunbury* Pa* Syraouse Memorial Hospital Syracuse* N*Y* Syracuse Uhi varsity (Hospital of The Good Shepherd) Syracuse* N.Y. Toledo Hospital Toledo* Ohio 326

Union Memorial Hospital Monroe, N.C* Union Hospital in Pall Elver Fall River, Mass. Union Protestant Hospital Clarksburg, W. Va. UNITED HOSPITALS OF NEWARK Newark, N.J. Hospitals Include; Presbyterian Hospital in Newark Newark, N.J. Hospital for Crippled Children Babies1 Hospital Eye and Ear Infirmary Warren Hospital Fhillipsburg, N.J* Washington Hospital Center Washington, D. C. Waterbury Hospital Waterbury, Conn. Watts Hospital Durham, N.C. Wayne County Memorial Hospital Honeedale, Pa. Wesley Hospital & School for Nursing Wichita, Kansas Wilkes-Barre General Hospital Wilkes-Barre, Pa. Wilkes General Hospital North Wllkesboro, N.C* Roger Williams General Hospital Frovldenoe, R.I. Wilmington General Hospital Wilmington, Del. Chaa. 3. Wilson Memorial Hospital Johnson City, N.Y* Windham Community Memorial Hospital Wllllamatlc, Conn. BIBLIOGRAP HY

3^7 BIBLIOGRAPHY

A* Books

Aljian, George W. Purchasing Handbook, McGraw-Hill, New York, 1958. Cady, E. L. Industrial Purchasing, McGraw-Hill, New York, 1 9 ^ 5 * ------Casey, Elizabeth, Salesmanship and Buymanshlp, The H, M. Rowe Co,, Baltimore, marylana7 iyd8. Predrloh, A* Wlshbum, M,D. The Massachusetts General Hospital, Its DevelopmenF^9^o-iydd, rf&Ujfcincon rfirflln Company,' Boston, l93y. Gray, Albert W, Purchase Law Manual, Conover-Mast Publica- tlona, New York, iy4>. Hayem, Oliver, How to do Business with the Uhited States Government,“07 Burrell, New York, 1^49, Helnrltz, Stuart P. Purchasing, Prentice Hall, Englewood Cliffs, New Jersey, iy4r. . Purchasing: Principles and Applications, Prentice Hall, Englewood clirrs, Hew JeF5ey,i959. Hodges, Henry G, Procurement, Harper & Brothers, New York, 1961 , Laiande, Charles. L1organization des approvislonnements dans l 1 Industrie, ounod, Paris, l^TT. Lewis, H. T, Procurement, R, D, Irwin & Company, Chicago, 1948. ------Procurement: Principles and Cases, R ich ard D, IHTTn, m e ,, Homewood, illln oiB , Lyon, Leverett 3. Hand-to-Mouth Buying, The Brookings Insti­ tution, Washington, TJ. u, iyiiy. McMillan, A. L, The Art of Purchasing, Exposition Press, New York, 1959. . How to Teach Purchasing, Exposition Press, New York, 1959. 3ey

Monte1th, R. Methods & Procedures in Federal Purchasing, B. Humphries, incT, Boston, 1933. Robey, Ralph West, Purchasing Power—An Introduction to Qualitative Craaicgon-crol, JWent^e*Hall7 lyjBT Rorem, C, R, The Public*s Investment in Hospitals. University of Chicago"?!**'*; Chicago, UUhoTg,"liSS. ---- Thome, W.V.S. Hospital Accounting & St at is tic s, E. P. Dutton ft Company xoric, l^lS. Tlmbergen, Jan. Centralization & Decentralization in Eco­ nomic Policy, worth Holland~Pubiiflhing company, Amsterdam, 3.954, Witte, E. F. Purchasing Policies and Practices of Chain Drug Companies, University or Chicago PressT bKicagoV Illin ois. T933T

B. Periodical Articles

American Hospital Association, Hospitals—An Annual Oulde Issue, Part II, 1959 & I960*: Basil, Douglas C. "Wanted: A Training Program for Purchasing" Southwestern Purchasing Agent, October 1958, Behrman, E. A. "A Plea For Competence" Hospital Progress, October, i 9 60 . Berke, Mark. "An Administrator Looks At Purchasing" Hospital Management, December,i 960 . Brackebusch, Ludwig L. "The Pro and Con of Cooperative Buying" Southern Hospitals, May 1957. Brennan, John J. "Hospitals Need Business Know-How" Harvard Business Review, September-October 1954, " Buss, W. "Purchasing Standardization Needs Medical Staff Cooperation" Hospitals, May 1952. C arlisle, Benny, "Small Hospital Eoonomlcs Point to Oroup BuyingJ Hospital Management. December 1959. 330

Carr, P. V. "Purchasing (Functions" Hospitals, June 1952* "Cleveland Hospital Council's Purchasing Department Cuts Costs” The Midwest Purchasing Agent, October i9 60 . Davis, Richard L. "Croup Buying” The American Surgical Trade Association Journal, July 1961 . Dean, Ammer S. "How to Measure Purchasing Performance” Purchasing, October 27, 1956. "Know the Pacts About Your Vendor" Purchasing, November 1957* Ebersole, Olenn W. "The CaBe for Group Purchasing for Hospi­ ta ls ” The Hospital Forum, August i 960 . Eubanks, M. B# "Inventory Control" Connecticut Purchasor, December 1958. Goubeau, Vincent dePaul. "How to Get the Most Out of Standardi­ zation" Purchasing, November 1959. Heyd, H. E. "Spot Check System Offers Continuous Stores Control" Hospitals, October 1, 1958. "HereAs How You Can Function More Effectively: Key Points In a Public Relations Program for Purchasing Agents" Purchasing Week, October 12, 1962 . Holland, S. E, ”Is Group Purchasing Practical" Hospital Management, November 1959* "Hospital Statistics, 1959” Hospitals, Guide Issue, August i 9 60 , "How Purchaeors Measure Their Performance" Central New York Purchaser, December 1958* Johnson, Paul H. "F.O.B. MeanB a Lot More Than 'Free on Board'" Purchasing, July 21, 1958. Kane, W illa r d G. "Economies Rendered by Centralized Purchasing A Case History: Asphalt Cement" Municipal Purchasing B ulletin, November 1959. Larke, George R. "Test the Quality of Purchases ...... and Save" School Board Journal, December 1959* 331

Lee, Christian C. "Group Purchasing As I Have Known I t 11 Southern Hospitals. August 1956. Leonard, Sloans. ’'Dishonesty In the Purchasing Department" Purchasing, September 1, 1959. Lindsay, E. D. "Centralized Purchasing Brings 15$ Saving to City of Montebello1' Pacific Pure has or, November 1959. Loftus, C, T. "Group Purchasing Is More Effective With Small Hospitals" The Modem Hospital, April 1957. Macfarlane, Alberta M, "Guide To Table Appointments! The Important Paotors in Purchasing Flatware" Institutions, January 1959. Marooux, R. L, "Inventory Control by Tab Machine" The American city, October 1959. "Massachusetts General! An Archipelago of Excellence" Fortune, August 1961, p. 105. Mathewson, A, H, "Selling Ability Also Needed By Purchasing Agents," Hospitals, August 1952. Padevanl, J. A, "Planning and Installing A Mechanized Purchase Order Writing System" Paolflo Purchasor, December 1959. Parker, Perry D. "Group Purchasing**An Appraisal of Seven Years," Hospitals, November 6 , I960. Pearson, A. "16 Ways to Evaluate Purchasing Performance," Purchasing, December 1957. Perkins, C. S. "Present Needs for Purchasing Training" Southwestern Purchasing Agent, December 1958. Rhatlgan, Frank M, "Hospital Group Purchasing" The American Surgical Trade Association Journal. July 196X7" Roberts, N. D. "Do Hospital Administrations Really Administrated Hospital Management, January 1950 Rose, Joseph L. "City Purchasing" American City, January 1959. Shepherd, Aaron C. "Methods of Measuring Purchasing Performance" Municipal South. November 1959. 332

Sherwin, F. S« "Value Analysis Works Two Ways To Help Pur­ chasing" New England Purchaser. December 1958 Sister, Mary C.S.C, "Standardisation! A Kay to Scientific Management" Hospital Progress, October i 960 , p, 5^. Skolaut, Milton W, ,1How the Pharmaciat Can Help Solve Prob- lems In Purchasing Medical Supplies" Hospitals, November 1958. * ------"Three Avenues to Better Textile Buying" Institutions, January 1939* "Travelling Requisition" Canadian Purchaser, November 1959, Walter, Brookings J, "Purchasing’s Big Role In Capital Equip­ ment Buying," Purchasing, March 8 , 1959. Walters, F, C. "Data Processing As A Purchasing Tool" The Chicago Furohasor, November 195©. Walters, L. L, "Advantages and Disadvantages of Buying Foreign Products" The Hoosler Purchaser, November 1958, Wldm&n, Paul E. "Hospital Qroup Purchasing" The American Surgical Trade Association Journal, July 1961, Wilkins, R, W,, Stanton J. R, "Elastic Stockings In the Prevention of pulmonary Embolism" New England Journal of Medicine, June 25, 1953. ------

C. Publications of Learned Societies And Other Organizations

Acland, L. Charts & Their Use in Purchasing, The International Management in5titute,“CFInIva7 Switzerland, 1932, American Management Association, Essentials of Machinery Pro­ curement, American Management Association, flew Yo'Fk 1*752, ______» Purchasing for Profit, AMA, New York, 1958. Bailey, Earl A. Small Orders 1 Problems and Solutions, National IndgiOTal TSKTsrcfigl •BgtfdTTfaVi ¥oyg7"l96o. Haas, George K, Purchasing Department Organization and Authority. American ManAgefcent Association, New YoPk, I960, 33b

Timms, H. L, Inventory Management of Purchased M aterials, National Association ofFur chasing Agents/ New 'York, 1959*

D. Government Publications

Council of State Government, Purchasing by the States, Chlaago, Illinois, 1956- ““ E lsworth, Ralph H. Agr3.jultural Co-operative Associations, Marketing Jfc Purchasing, Department or Agriculture, Washing­ ton” b . c . 7 T92ST Lister, John H. Cooperative Purchasing, United States Farm Credit, Special nepox^t #0 6 , Wasmngton, D, C., 19**1. . Survey of Co-operative Purchasing in Kentucky and 'Jehngssee. United States Department of Agriculture, 1 942 . Mather, J* W, & Scearce, J. L, Handbook on Major Regional Farm Supply Cooperatives, lypj * inarms uredit Admini­ stration, Waamngton, u. C,, 1955* New York Mayor1* Central Purchasing Organization, Government Purchasing, Nathan Press, New York, 1915* United States Congress-Senate Committee on Small Business, Government Purchasing, U. S. Printing Office, 1957* United States Congress-Senate Committee. Government Purchasing Case Studies, U. S. Printing Office, i9b7*

E, Special Reports Banks, Harold. ’'School and Hospital Unite to Educate the Doctor 11 Boston Sunday Advertiser, for the 150th Anniversary of the Massachusetts General. Hospital, December 3* 19&1, P. 2. Dean, A* Clark and Mary E, Hurst. 11 Staff Organization and Administration at the Massachusetts General Hospital,” ■arehblfh}, p. 3 . Foster, F. D. "Some Principles and Some Problems In Group Procurement, 11 Report of the Annual Meeting, Hospital Bureau, Inc., February 27, 1958. 33^

MacEachero, M, T. Hospital Organization and Management, Physicians Record company, cmcago,"TIlinois, xyM6, Martin, Thomas & Leroy, Hospital Accounting, Physio Ians Record Company, Chicago, Illin o is, lybl* ’’Massachusetts General Hospital—>14th Annual Report,” Report of the Treasurer, Boston 1959* P« 135. Metropolitan Life Insurance Company, Policy Holders Bureau, Functions of the Purchasing Agent, New York, 19^1# P« 36* Polioy Holders Bureau, Centralized Purchasing In Motels, 1936, New York. Polioy Holders Bureau. Centralized Purchasing in colleges and universities, New Yorx, 193 s* • Polioy Holders Bureau, Centralization & Decentralization of Management, New xorx, iyju. ~” . Polioy Holders Bureau. Organized Purchasing procedure. New York, 1932, Partners in Quality. A Supplier's Guide to Purchasing, Ford motor coo4>an|y, Dearborn, 1961. Purchasing Agents Association of Connecticut, Manual for a Basic Purchasing Course, New Haven, i 960 . ” Shaw, W. A. it Co, Purchasing & Employment : Organizing a Purchasing Department, Chicago, London; 1 9 1 7 » ” Sheet Evaluation: A Report on Nine Major Brands, The Research Department of"tne HospTYai sUriau, inc., naaoh i 9 6 0 . Twyford. H, B. Purchasing, Its Economic Aspects A Proper Methods, D. Vah NoSWaM6 Colkfcahy, l^ T T T ------— Walter, Lacy. Purchasing for Hospitals, Chicago, Physicians Record Company, lWf.

P. Unpublished Theses

Brennan, John James, Purchasing For Hospitals (Doctoral Thesis), Harvard UhiVArsity,- ITFadUate SoEool of Business Administration, Boston, Massachusetts, 1953* 335

Chayrou, de la Combe, Pierre* Achats at approvlaionnemants dans lea admlnlstrations puoiisuel" 7Ko^oi*aI tMft is ) , CT5faI7Ifl'"au 'W gqgll '3I?ey, P M I, 1940. Learned, E. P. Problems of the Quantity Buyer Prom the Seller*■ View roinc TDoSTGral Tnesls), flarvai^a University, OrSSGRT sonooi or Business Admlnlstret Ion, Boston Massachusetts, 1929. Miller, Stanley S. Value Analysis in the Procurement of Materials (Doctoral TKRlTJT HarvaTd uni viraicy, “Graduate School or Business Administration, Boston, Massachusetts, 1954 .

0. Addresses

ClaiW.Qlty J. Cooperative Purchasing, An Address to the Cleveland hospital council, bxeveland, 1956. Davis, Rlohard L. group Purchasing—An Objective Analysis. An Address to'TEe American HoapHai laftodistion delivered, in Chicago, San Franoisoo and Minneapolis in I960. Rhatiaan. P. M. The Supplier *s Viewpoint of Hospital Pur­ chasing, An TOTress flellvirtfl at CTT Wgiy n rH«g ftg , San Franoisoo, California, April 23, 1955. Ward, John P. governmental Purchasing In Bis Business, An Address dellTriiWBr Y<5“the CiPic Fed?7aTTon orCmcago, Ohioago, Illin o is, October 28, 1959. William, Prioe 3, Oroup Buying, An Address to the annual meeting of the H o sp ital dureau, Inc., New York, March 5, 1959.

H. Unpublished Material

Fetterman, E. H. Purchasing Projeot 1961, Unpublished Report to the Southwestern hionigAn Hospital Council Members 1961. MOroup Purchasing—-The Basic Principles," The Hospital Bureau, Ino., 1956.