Premier, Inc.

Write a summary of the Premier Inc. case study. Attached is the case study

Revised February 15, 2005
Premier, Inc. (A)
Rick Norling, CEO of Premier, Inc., a leading hospital purchasing organization, unfolded
the March 4, 2002, West Coast edition of The New York Times. The article he had been
anxiously anticipating ? the first in a series ? was prominently featured in the upper left corner of
page one, over a photograph of a doctor tending a newborn baby. Under the series title,
?Medicine?s Middlemen,? ran the headline, ?Questions Raised of Conflicts at 2 Hospital Buying
Groups.? Norling quickly scanned the first few paragraphs.
Amid a tangle of wires and worried faces, the brief life of Joshua Diaz was
slipping away, and Dr. Mitchell R. Goldstein knew he must soon make an
agonizing decision.
For 30 minutes, Dr. Goldstein?s emergency team had medically assaulted the 2week-old baby with lifesaving measures, none of which appeared to be working.
Worse, a device called a pulse oximeter failed to detect a pulse or show how
much oxygen Joshua?s blood was ferrying to his vital organs.
?I had the nurse and respiratory therapists asking me, ?Why are we doing this???
said Dr. Goldstein, of West Covina, California. Some feared they were just
torturing the baby. But the doctor pressed ahead after attaching a second,
experimental monitor that showed encouraging signs: Joshua?s blood was taking
on more oxygen.
Today, Joshua Diaz is a healthy 7-year-old living in Ontario, Calif. ?We probably
would have given up,? Dr. Goldstein said, were it not for the second monitor.
Norling took a deep breath. ?A desperately ill baby, heroic doctors and nurses,
and a lifesaving device,? he thought. ?I?m not sure I like the direction this is headed.?
Professor Anne T. Lawrence, San Jose State University, prepared this case as the basis for class discussion, rather
than to illustrate either effective or ineffective handling of an administrative situation. The author wishes to thank
Richard A. Norling and Megan Barry, both of Premier, Inc., and Kirk O. Hanson and the staff of the Markkula Center
for Applied Ethics at Santa Clara University for their assistance in the preparation of this case. This case received the
Emerson Center Award for the Outstanding Case in Business Ethics for 2004, awarded by the North American Case
Research Association and Saint Louis University, and is published in collaboration with Babson College Case
Copyright ? 2005 by Anne T. Lawrence and licensed for publication to Babson College and to Harvard Business School
Publishing. To order copies or request permission to reproduce materials, call (800) 545-7685 or write Harvard Business
School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in any retrieval system, used in
a spread sheet, or transmitted in any form or by any means ? electronic, mechanical, photocopying, recording, or otherwise ?
without the permission of copyright holders.
This document is authorized for educator review use only by Saleh Bajaba, King Abdulaziz University until June 2016. Copying or posting is an infringement of copyright. or 617.783.7860
The article went on:
Premier, Inc. (A)
But seven years later, its inventor, Joe E. Kiani, says he still cannot sell his
oximeter, regardless of the price, to many American hospitals, even though
medical experts say it helps the most fragile of patients ? premature infants.
The reason, Mr. Kiani says, is that he has effectively been locked out ? his much
larger competitor has secured exclusive contracts to sell its device to thousands
of hospitals, in part by paying fees to two national purchasing groups that largely
determine which products many hospitals buy.
These two private groups act as middlemen for about half the nation?s nonprofit
hospitals, negotiating contracts last year for some $34 billion in supplies, from
pharmaceuticals to pacemakers, bandages to beds.
Each group has the same basic mission: to use the market power of its more than
1,500 hospitals to find the best medical products at the lowest prices.
But many in the medical world ? Mr. Kiani among them ? question whether that
mission is being compromised by financial ties that the groups, Premier and
Novation, have to medical supply companies, ties that, according to an
investigation by The New York Times, are both extensive and highly unusual.1
Over the past year, Norling and his colleagues at Premier had cooperated extensively
with the reporting team from The Times, sitting for interviews, answering written questions, and
providing scores of company documents. Yet, as the dialogue proceeded, Premier executives had
become increasingly concerned that The Times might file a story critical of the company. Now,
despite their best efforts, the influential newspaper had published what appeared to be a direct
attack on the company?s hard-earned reputation for integrity. Although much of the article, on
first reading, appeared to Norling to be unfair and misleading, in the aftermath of public outcry
over the Enron collapse no company could afford to be complacent about charges of ethical
malfeasance. Norling quickly finished the article, then slipped it into his briefcase. He, his
executive team, and the Premier board would need to address this challenge head on.
Premier, Inc.
In 2002, Premier, Inc. was a voluntary alliance of more than 200 independent not-forprofit hospitals and healthcare systems. The company was wholly owned and governed by its
member organizations. These included some of the nation?s foremost academic, religious, and
community medical centers; among them, the Cleveland Clinic, Catholic Healthcare West,
Baptist Health Systems of South Florida, Vanderbilt University Medical Center, Montefiore
Medical Center, Mount Sinai Hospital, and PeaceHealth. Together, Premier?s members made up
about a quarter of all not-for-profit hospitals in the United States. In addition, more than one
Walt Bogdanich, Barry Meier, and Mary Williams Walsh, ?Medicine?s Middlemen: Questions Raised of Conflicts at
2 Hospital Buying Groups,? The New York Times, March 4, 2002, p. A1, A18.
This document is authorized for educator review use only by Saleh Bajaba, King Abdulaziz University until June 2016. Copying or posting is an infringement of copyright. or 617.783.7860
Premier, Inc. (A)
thousand other health care institutions also used its group purchasing, insurance, and other
programs as non-owner affiliates. Headquartered in San Diego, California ? with other major
facilities in Chicago, Charlotte, and Washington DC ? Premier had 1600 employees and, in 2001,
revenues of $515 million.
Premier?s stated mission was ?to help our not-for-profit members deliver better
healthcare to their patients at lower cost.? The company?s business was comprised of three main
Group purchasing. Premier?s primary role was to provide group purchasing services and
supply chain management for its allied organizations. The company aggregated the buying power
of its many members and affiliates to select and negotiate the best prices for a wide range of
medical products and services. Norling stated the company?s value proposition this way:
Group purchasing enables our member hospitals to deal effectively with a huge,
complex medical product marketplace, characterized by large, global suppliers of
pharmaceuticals, clinical equipment and other products needed to provide care.
Premier also has the size and scope to identify and evaluate new technologies
from manufacturers and suppliers of all sizes ? a task beyond the capability of
any single hospital purchasing department.
Premier?s group purchasing services were supported by contract administrative fees, or
CAFs, paid to Premier by the vendor, based on the dollar amount of goods sold. These typically
varied between 2 and 3 percent of the purchase price, with an average CAF of 2.1 percent.2
Health care informatics. The term health care informatics refers to the use of
appropriate information to support clinical care, research, teaching and administration in the
healthcare industry. Because Premier served hundreds of healthcare organizations, it was able to
collect and analyze large amounts of clinical, financial, and operational data. The company
maintained many comparative databases that were made available to its members, who could use
them to discover opportunities for improvement and benchmark their performance against others.
Informatics data were also sold to hospital vendors and other firms.
Other support services. Finally, Premier also operated several subsidiary enterprises
designed to support the delivery of healthcare services, which the company grouped under the
heading of ?performance solutions.? These included the following.
Healthcare Waste Solutions managed waste, including biomedical waste, for
members and affiliates.
Insurance. Several Premier subsidiaries developed group insurance and benefit
policies and provided risk management and audit services for health care
Contract administrative fees were normally paid in cash. However, in a very few cases involving small
startup firms, Premier accepted stock or options in lieu of cash fees from vendors. At the time of The Times
article, Premier did not have any contracts in effect in which payment was received in the form of equity.
This document is authorized for educator review use only by Saleh Bajaba, King Abdulaziz University until June 2016. Copying or posting is an infringement of copyright. or 617.783.7860

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