Facing a $17 million reduction in Medicare payments alone this year, University Hospital is seeking an alliance with a North Carolina health company to get a better deal on supplies and services.
University Health Care System CEO James Davis told the hospital’s boards Thursday about the progress in reaching a deal with Novant Health Inc., of Charlotte, N.C.
University has signed a letter of intent for Novant to provide help with purchasing and information technology services. Davis said he hoped to have the contract completed in May and take effect in June.
Novant had nearly $3.4 billion in net patient revenues last year, representing 13 inpatient hospitals in North Carolina, South Carolina and Virginia and 350 clinics and nearly 1,200 physicians, making it almost 10 times University’s size.
“They go in with a much larger book of business to deal with than we do,” Davis said. “So this is a way for us to collaborate and help each other out.”
On just five commonly used items – from hip and knee prosthetics to pacemakers and stents – University could save $3.5 million a year, he said.
The hospital plans to move its computer servers and some other IT equipment to Charlotte to avoid paying $12 million to build a data center, and to outsource its information technology and other service contracts to Novant. Ultimately, it will amount to about
$6 million to $8 million a year in savings, Davis said.
“This is a big deal to do,” he said. “But it gives us the opportunity to save money without impacting the care of the patients here, or the staff.”
That is important in light of cuts to revenue, particularly for Medicare, from three big sources: the Affordable Care Act, sequestration and the “fiscal cliff” deal, Davis said.
“If you add all three of those together, University is down about $17 million on the same book of business we had last year from Medicare,” he said.
Hospitals in Georgia will not get the full trade-off from having nearly everyone insured next year because the state will not expand its Medicaid coverage, leaving another gap.
“There’s a big hole that we have to find ways to fill with expense reductions,” Davis said. “This is a great avenue to do that rather than just laying off a whole bunch of people.”