Healthcare Organizations Should Maximize GPO Relationship

Healthcare Purchasing News • David S Kaczmarek

Almost every healthcare organization belongs to a group purchasing organization (GPO). In fact, 96 percent of all acute-care hospitals and 98 percent of all community hospitals hold at least one GPO membership, according to the Healthcare Supply Chain Association (HSCA), a trade association that represents 16 GPOs. Further, more than 600 organizations in the United States participate in some form of group purchasing, HSCA reported.

The GPO landscape has changed significantly over the years. This started with formation of three large groups (including VHA, Premier, AmeriNet) in the late 1970s/early 1980s, continued as the market added alternative models (such as Tenet-driven Broadlane, HCA-driven HealthTrust, and Med Assets) at the end of the 1990s, and again in the last decade with the reemergence of smaller, more regional groups. Some organizations have even become their own GPOs. Most recently, we have seen three more major changes: Amerinet was acquired by its largest owner (Intermountain Healthcare), VHA and UHC merged (now called Vizient), and MedAssets has decided to leave the field by selling its GPO business to Vizient. If there is one constant evident it is that change will continue.

Where do these moves leave today's healthcare organizations? In one sense, little has changed. An organization's GPO should continue to be a resource, which is why it needs to maximize the effectiveness of the GPO relationship.

Belonging to a GPO is not the same as using that resource effectively and getting everything you can from it. There are four things to look for in the relationship and how to maximize it.

* The financial deal. Most GPOs receive an administrative fee from suppliers based on the amount of purchasing volume flowing through the contract. The percentage varies from contract to contract, and the overall percentage varies from GPO to GPO. Most GPOs return a portion of this to its members. This is called the "share back." The amount of share back that members get is different between GPOs and is often different between members in the same GPO. Those GPOs that offer lower share back percentages contend that members get additional value through lower contract prices or other benefits. At minimum, a healthcare provider organization should be receiving a share back that is consistent with other similar members.

* The contracts and how you use them. The raison d'etre for the existence of GPOs is to provide its members pricing for goods and services that is better than pricing those members can get on their own. This is based largely on aggregation of purchasing volume. But many members find that they are able to beat the GPO price. This is often due to their ability to standardize and commit. Some organizations have addressed this shortfall by creating "mini-GPOs" that are still part of the national GPO but generate better pricing based on commitment. Other organizations individually renegotiate numerous GPO contracts to secure better pricing for their individual organization. If you are in a situation where you feel the need to renegotiate all the contracts, you might question whether the GPO is the right one for you. Further, you should evaluate the benefit you are gaining vs. the resources you are using.

* The resources that the GPO should be providing to help you. Every GPO should support you, as its member, in maximizing the value of their portfolio and assisting you with any issues you have in accessing the contracts. For larger organizations this can include regular, even full-time, on-site resources. Are you getting the support you need?

* Ancillary resources beyond the contracting. The major GPOs have all expanded their portfolio of offerings to include many useful technology products. These include everything from price benchmarking to cost-per-case determination to quality indicators. Some of these are automatically included with membership, but many others are provided to some, but not all members without cost.

Organizations that have maximized their relationship with their GPO are comfortable that their financial return is market-competitive, use their GPO contracts as much as possible and/or belong to a subgroup that adds additional value through commitment, get all the support they need to maximize the contract portfolio, and get the technology offered by the GPO at little or no cost.

Organizations that are not currently maximizing the relationship should consider their options. Certainly one option, and the most obvious, is to meet with the leadership from your current GPO to discuss your participation and relationship. Let them know your concerns and see how they will address them. Another option is to test the market to see if there is a different GPO that would better allow you to maximize the relationship. For larger organizations, perhaps it is time to consider establishing yourself as a GPO. This is a significant undertaking with many risks. But others have weighed the risks and embarked on this course.

Remember that you are the GPO's customer, and you should be treated as a customer. If you are not getting everything you should from your GPO, take steps to see that you do. It is a valuable and important resource that should not be squandered.


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