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Drug Suppliers, Hospital Chain Team to Cut Costs

May 28, 1999|From Reuters

Two big drug distributors and the operator of a major hospital chain, which together spend about $1.5 billion a year on pharmaceuticals, said Thursday they will combine their purchasing power in order to trim drug costs.

The agreement brings together Orange-based drug distributor Bergen Brunswig Corp.; Cleveland-based NCS HealthCare Inc., which supplies pharmaceuticals and services to long-term care facilities; and Santa Barbara-based Tenet Healthcare Corp., which owns and operates 130 acute-care hospitals in 18 states.

The cost-cutting effort comes on the heels of two consecutive years of 7.5% increases in health care premiums--nearly four times the rate of inflation.

Those rates are being driven by an aging population, new pharmaceuticals and advances in medical technology, according to a recent study by the Washington Business Group on Health and consulting firm Watson Wyatt Worldwide.

Under the alliance, Bergen will assume day-to-day relations with drug manufacturers, and Tenet subsidiary BuyPower, a group purchasing organization, will market the initiative to other health care networks.

In a separate agreement, Bergen will become the primary supplier of pharmaceuticals to NCS in a seven-year agreement valued at over $400 million annually.

"This combined purchasing organization is a very important step in our program to reduce pharmaceutical costs and improve operating margins," Kevin Shaw, chief executive of NCS HealthCare, said in a statement.

Bergen also will extend its exclusive supplier agreement with Tenet until 2006 for a value of more than $400 million a year.

NCS, Tenet and Bergen said they expected to reduce the costs of pharmaceuticals significantly each year through better pricing and to gain other efficiencies for each company.

Tenet said it expected to save at least $7 million a year through lower drug costs.

Bergen's stock closed Thursday at $21 a share, up 6 cents. NCS shares were off 63 cents to $13.56, and Tenet shares dropped 38 cents to $23.

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