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Group purchasing organizations reduce supply costs by 13.1 percent

Supply chain activity by GPOs could affect close to 60 percent of hospital and nursing home non-labor spend, report says.

Group purchasing organizations save the U.S. healthcare system up to $34 billion annually and will reduce healthcare spending by nearly half a trillion dollars over the next 10 years, according to a report released last week by the Healthcare Supply Chain Association.

GPOs reduce supply-related purchasing costs to hospitals and nursing homes by 13.1 percent compared to providers who do not use GPO services, the authors said. In addition, GPOs generate billions in Medicare and Medicaid savings.

The analysis is based on national expenditure data along with survey responses from healthcare providers that use GPO services and represent a total business volume of $59.7 billion.

WHY THIS MATTERS

GPOs leverage collective buying power on the part of hospitals, nursing homes, and other healthcare providers to deliver cost savings --
negotiating competitive contracts and discounts with manufacturers, distributors, and vendors.

Between 96-98 percent of hospitals use at least one GPO contract for their purchasing functions. The report, commissioned by the HSCA trade group, estimates that GPO activities could affect close to 60 percent of hospital and nursing home total non-labor spending.

GPOs also yield significant cost savings in hospital and nursing home expenditures for Medicare and Medicaid, according to researchers at the Washington, DC-based health economics and policy consulting firm Dobson DaVanzo & Associates, which submitted the report. They found GPOs generate $8.7 billion annually in Medicare cost-savings and will save Medicare $116.3 billion over the next 10 years; and save Medicaid $6.8 billion annually and will generate $90.1 billion in Medicaid cost-savings over the next 10 years.

THE LARGER TREND

With margins declining and supply chain expenses predicted to soon eclipse labor as the number one cost in healthcare, providers must find ways to effectively manage their supply chains.

ON THE RECORD

"America's hospitals, physicians, and other healthcare providers face mounting pressure to reduce costs, and they consistently turn to GPOs to deliver the best products at the best value," said HSCA President and CEO Khatereh Calleja. "The new analysis of CMS health expenditure data confirms what virtually all of America's 7,000-plus hospitals already know: GPOs are critical supply chain partners that reduce costs for the entire healthcare system, allowing physicians to focus on their core mission of providing first-class patient care."

Deirdre Fulton is communications professional and freelancer based in Maine.
On Twitter: @deirdrefulton

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