Premier Group Purchasing Policy

PREFACE

Premier is a voluntary alliance of healthcare and non-healthcare organizations that may be owners or members (collectively referred to as “members”) in Premier.  Among its core objectives, Premier is committed to enhancing the value of each owner’s interest in Premier and reducing the operating costs for all members by achieving economies of scale and innovations through group purchasing strategies and shared resources.  The group purchasing contracts developed by Premier are made available for use by all Premier members consistent with applicable policies.

Premier pursues two primary goals on behalf of its members: (1) choice and availability of quality products and services for healthcare, and (2) cost control and financial performance.  Benefits of group purchasing through Premier include:

• Controlling and reducing supply costs, which enhance members’ competitiveness and their ability to sustain high-quality services.
• Attracting and maintaining superior supply pricing immediately and over time.
• Meeting the market power of increasingly large and consolidated suppliers by pooling the large purchasing volume of the entire membership to drive pricing reductions as a result of suppliers’ recognition that members are willing to change suppliers in order to achieve the greatest savings.
• Promoting appropriate standardization and utilization around products of demonstrated value, efficacy and safety, known to support higher and more consistent quality of patient care services.

This policy applies to all entities listed on Premier’s membership roster (“members”), including, without limitation, all group affiliates and their members, all direct affiliates and all sponsored affiliates of members (collectively referred to as “members”).  As a matter of policy, Premier subscribes to and is committed to following its group purchasing code of conduct, which is described on Premier’s website (the “Code of Conduct”).

GENERAL POLICY PROVISIONS

General Purpose and Strategy

The purpose of Premier’s purchasing program is to provide superior value to members by developing and administering contracts and providing support services targeted at reducing costs for our members, and ultimately reducing health care costs for the consumer.  The superior value intended shall include price and quality (result or outcome, satisfaction, and safety for patients and health care workers).  A primary objective of our purchasing program is to help ensure that patients receive safe and efficient care.  In return for ensuring value to members, the purchasing program offers contracted suppliers the benefits of rapid conversion, reduced business costs, and a large, stable market for their products.

As part of its purchasing program, Premier will contract for high quality supplies and services with reputable suppliers regardless of their size.  Premier’s quality standards will continue to be a direct derivative of the quality standards of members.  Therefore, contract award processes will include extensive evaluation and member input ensuring product quality and acceptability.

Consideration of product quality and acceptability will include but not be limited to cost-effectiveness, clinical efficacy as reported by recognized authorities and member representatives, utility and reliability of products, safety for patients and workers, and the ability of the supplier to provide an adequate stock of consistent quality to members.

Premier promotes group contracting arrangements that achieve both high quality medical care and competitive pricing.  In developing any particular group contract, Premier with its member committees shall determine, consistent with its Code of Conduct, the most appropriate combination of contract features to achieve the best results for the specific product/service category involved.

Obligations of Members and Policy Spirit of Intent

Preference and utilization. Members will utilize Premier’s group purchasing contracts (see the following section, “Expectations Regarding Participation”) and Members will look first to the Premier program for their purchasing needs and give first consideration to its group contracts.

Confidentiality/leveraging. Members will protect the confidentiality of Premier group purchasing contract prices and terms and will not disclose the information to third parties, unless Premier has provided its prior written consent.  The purpose of this provision is to ensure the long-term competitiveness of the Premier program in terms of its ability to attract favorable terms from suppliers, and to uphold group contract obligations including mutual assurances that competitive information such as pricing shall not be disclosed.

• Members will not leverage Premier’s price or other data to create contracts with contracted suppliers which exclude Premier’s involvement.
• If a member finds that the Premier contract tier structure does not address the member’s needs, where applicable, the member will work with Premier to create a suitable tier which will be included in the national agreement.
• To the extent not precluded by existing confidentiality or other legal obligations, members shall share pricing information and other contract terms with Premier, including locally negotiated arrangements with contracted suppliers and off- contract purchasing from non-contracted suppliers (collectively, “Local Contracts”). Pricing information and other contract terms provided by members will be blinded if shared beyond the member that provided the information.
• Members will utilize best efforts to ensure that Local Contracts support the ability of members to exchange information with Premier and, in turn, other Premier members in order to further Premier’s goals of improving cost control and financial performance of its members.

Primary obligation. Members will utilize Premier as their primary group purchasing organization. Premier recognizes that members may use local and regional GPO contracts for those products and services that are not covered by Premier’s contracts.  Except for participation in Premier’s Foodservice Solutions Program or its alternate site purchasing programs, partial program participation, i.e., participating in some of Premier’s group purchasing program lines (pharmacy, med/surg, foodservice, etc.) but not all, requires the prior approval of the President of Supply Chain Services.  Unless otherwise approved by the President of Supply Chain Services, partial program participants must convert to full participation within one year.

Accountability. All members are responsible for their compliance with this policy and that of their respective member/affiliated organizations.  Each is also responsible for taking whatever action is necessary to comply with this policy.

EXPECTATIONS REGARDING PARTICIPATION

One of Premier’s principal objectives is to help its members greatly improve their supply chain and overall financial performance. Therefore, Premier members are expected to broadly utilize Premier group purchasing agreements. Participation is expected at the overall portfolio level rather than on an individual contract basis. As a general rule, members are expected to use Premier contracts in a manner consistent with Premier’s status as the member’s primary group purchasing organization. Premier will work with members to increase the percentage of a member’s spend covered by the Premier portfolio so as to further reduce the member’s overall supply costs.

A member may elect to purchase from a non-contracted supplier in a clinical or physician preference product category based on such member’s clinical discretion. In the case of “Core Contracts,” defined as contracts that are not in clinical or physician preference product categories, and which cover products that are relatively interchangeable from supplier to supplier (e.g., commodities), members are expected to utilize Premier group purchasing agreements in a manner consistent with Premier’s status as the member’s primary group purchasing organization.

In the event a member elects to purchase supplies off-contract that are available through the Premier program, the member will notify Premier of its decision and the reasons for the off-contract purchase.  Each member is expected to disclose to Premier if it participates in any other GPO.

IMPLEMENTATION AND PROGRAM PROVISIONS

Transition period.  In general, members should be utilizing Core Contracts within one year of the contract’s start date or Premier membership start date, whichever is sooner. Members should be utilizing clinical and physician preference product contracts as soon as possible.  Written phase-in strategies will be acceptable where necessary and where the intent is clear.  Premier recognizes instances where new members join Premier with prior supplier agreements that contain continuing commitments.  These situations should be identified in a phase-in strategic plan developed with Premier.

Solicitation of quotations, renewals and extensions.  Consistent with the intent that Premier’s group purchasing program will use active participation as a key strategy to attract favorable pricing and terms, it is also our expectation that prior to contract award members will not, without Premier’s knowledge, independently solicit quotations from a Premier supplier for products or services covered under Premier group purchasing contracts, nor reveal the pricing offered under any Premier group purchasing contract to leverage the pricing that might be offered directly to members by a supplier.

To address unique marketplace situations that may arise at times, Premier may include in select agreements a pricing tier that supports local and regional contracting.  Premier will support enhanced pricing for all Premier agreements where consistent with Premier’s program policies and agreement terms.

To the extent consistent with the participation expectations of the applicable Premier program, any locally negotiated arrangements between individual members and contracted suppliers shall be subject to the terms and conditions of the applicable Premier contract such that Premier is credited with any sales resulting from such arrangements.

Outside service providers.  If a member contracts with an outsource service provider for departmental services, the member is expected to require such company to utilize Premier group agreements for products and services utilized in the member location.  Exceptions will be considered for pre-existing arrangements and only for the term of the member’s then-current agreement with the outside service provider.  Such outsource service providers will enter into a confidentiality agreement with Premier relating to Premier pricing and other terms.

PROGRAM ADMINISTRATION

Program direction and oversight. With guidance from its Member Value Improvement Committee (“MVIC”), Premier’s senior management will provide general oversight of Premier’s group purchasing programs and specifically will:

• Oversee implementation of this policy and policies regarding member relations (the “Policies”).
• Recommend to the MVIC and the Member Agreement Review Committee of Premier’s Board of Directors (the “Member Agreement Review Committee”) additions, changes or modifications to the Policies.
• Advise the MVIC and the Member Agreement Review Committee regarding Premier’s owner recruitment plan, general owner and affiliate relations, and methods for strengthening Premier’s relationships with its owners, affiliates and members.
• Advise the MVIC and the Member Agreement Review Committee regarding group purchasing strategies and plans for implementation.
• Report to the MVIC and the Member Agreement Review Committee individual members’ adherence to the Policies.
• Assist with the resolution of issues that may arise among sourcing committees and the Strategic Advisory Committee related to contract awards with oversight and support from the Board as deemed necessary.

Compliance with regulatory requirements.  Members shall comply with all statutory and regulatory requirements relevant to their participation in Premier’s group purchasing programs.  All members that are required to report their costs to Medicare, that receive remuneration from Premier (including, without limitation and as applicable, the various forms of value received in connection with or related to any reorganization and initial public offering (“IPO”) of Premier, such as increases in the fair market value of equity held by such members, proceeds from the purchase of Class B Common Units from such members immediately following such IPO, limited partnership distributions, sharebacks of administrative fees  collected by  or  remitted to  Premier based upon such owners’, members’ and other customers’ purchases through  group  purchasing contracts,  and tax sharing  payments) shall appropriately reflect such value in their cost reports to Medicare in an appropriate manner, after consultation with their costing reporting accountants and other advisors regarding the appropriate manner in which to reflect such value.  For example, we believe that one reasonable approach to reflecting the value of an owner’s equity resulting from the IPO on an owner’s Medicare cost report would be to track the seven-year vesting schedule associated with that equity.  Under this approach the owner would record on its cost report as a purchasing expense offset to the applicable cost centers – regardless of when it actually elects to exercise its exchange rights — the fair market value of one-seventh of its equity and the present value of the associated tax sharing payments that such owner would be eligible to receive had the owner exercised its exchange rights at the earliest possible date following such vesting.  Similarly, the proceeds from the purchase of Class B Common Units from Premier owners immediately following the IPO should be reflected by owners that are required to file Medicare cost reports as a purchasing expense offset in a manner consistent with cost reporting principals.  Premier will furnish to each member applicable reports setting forth the amount of such value, to assist the members’ compliance with such cost reporting requirements.

Implementation. With oversight by the MVIC, Premier will adopt procedures as needed to effectively implement this Policy. Any changes to this Policy require approval by the MVIC.

Approved by the Premier, Inc. Board of Directors on August 16, 2013