The real value proposition of GPOs
October 09, 2020
Business Affairs
From the October 2020 issue of HealthCare Business News magazine
By Valerie Dimond
If you’re a healthcare supply chain professional, you’re probably working with a group purchasing organization (GPO). On average, most hospitals contract with two to four GPOs which, according to a report released in March by the Healthcare Supply Chain Association (HSCA), can cut supply-related purchasing costs by more than 13% across most expense categories. HSCA asserts that GPOs save the healthcare system up to $34.1 billion annually and the industry upward of $456 billion over a ten-year period.
While some argue the savings aren’t that impressive, that could have less to do with the GPO and more to do with how a healthcare facility manages its supply chain internally, according to Brent Petty, an executive healthcare industry consultant at Lexmark International and former system vice president of supply chain at Wellmont Health System.
“GPOs are going to begin with bringing basic cost savings, yet the dollar amount is in direct proportion to strength and resources of the IDN,” said Petty. “Many health systems have invested in their supply chain to enable them to drive out cost. For example, they would have advanced value analysis and C-suite sponsorship and participation. Those who have made that investment may have captured much of the basic cost savings on their own. Others have not made that investment and have a greater opportunity to achieve savings with a GPO.”
How much money a GPO can save an organization varies by category. Med/surg products could save 2% to 3%, pharmacy could yield 8% to 9% savings, and purchased services can go well into double digits, says Petty. According to HSCA, more than 100 national GPOs compete with each other to provide services. Selecting the right ones for your organization requires considering a few factors.
“My advice is to understand the data as it is being presented; often the first step when evaluating a GPO is conducting a market basket — where a GPO compares what you buy today with what they have under contract,” Petty said. “Not necessarily every item but focusing maybe on the top 25% of your item master based on volume or dollar spend. The comparison usually is shown in three categories: like-to-like, like-to-similar and no-cross-reference.”
If a GPO doesn’t offer a high no-cross-reference percentage, be aware. Petty also advises to be careful with like-to-similar categories, which you may need to explore a little deeper if they are clinical preference items — just to make sure clinicians are comfortable with switching to achieve savings. As for the like-to-like category, make sure you qualify for the tier that the bidding GPO is quoting.
By Valerie Dimond
If you’re a healthcare supply chain professional, you’re probably working with a group purchasing organization (GPO). On average, most hospitals contract with two to four GPOs which, according to a report released in March by the Healthcare Supply Chain Association (HSCA), can cut supply-related purchasing costs by more than 13% across most expense categories. HSCA asserts that GPOs save the healthcare system up to $34.1 billion annually and the industry upward of $456 billion over a ten-year period.
While some argue the savings aren’t that impressive, that could have less to do with the GPO and more to do with how a healthcare facility manages its supply chain internally, according to Brent Petty, an executive healthcare industry consultant at Lexmark International and former system vice president of supply chain at Wellmont Health System.
“GPOs are going to begin with bringing basic cost savings, yet the dollar amount is in direct proportion to strength and resources of the IDN,” said Petty. “Many health systems have invested in their supply chain to enable them to drive out cost. For example, they would have advanced value analysis and C-suite sponsorship and participation. Those who have made that investment may have captured much of the basic cost savings on their own. Others have not made that investment and have a greater opportunity to achieve savings with a GPO.”
How much money a GPO can save an organization varies by category. Med/surg products could save 2% to 3%, pharmacy could yield 8% to 9% savings, and purchased services can go well into double digits, says Petty. According to HSCA, more than 100 national GPOs compete with each other to provide services. Selecting the right ones for your organization requires considering a few factors.
“My advice is to understand the data as it is being presented; often the first step when evaluating a GPO is conducting a market basket — where a GPO compares what you buy today with what they have under contract,” Petty said. “Not necessarily every item but focusing maybe on the top 25% of your item master based on volume or dollar spend. The comparison usually is shown in three categories: like-to-like, like-to-similar and no-cross-reference.”
If a GPO doesn’t offer a high no-cross-reference percentage, be aware. Petty also advises to be careful with like-to-similar categories, which you may need to explore a little deeper if they are clinical preference items — just to make sure clinicians are comfortable with switching to achieve savings. As for the like-to-like category, make sure you qualify for the tier that the bidding GPO is quoting.
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