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The value of assessing a supply chain's group purchasing organization contracts

GPOs can help drive savings and utilization, but it's worth re-examining the contracts every so often to get the most out of the relationship.

Jeff Lagasse, Associate Editor

Hospital supply chains often contract with group purchasing organizations, and it's pretty clear why: GPOs can help leverage the purchasing power of a group of businesses to get discounts from vendors based on the collective buying power of the GPO members.

But like anything else, a GPO relationship is worth assessing every so often to confirm that it's giving a hospital the best deals. And according to Tony Bramer, vice president, Quorum Purchasing Advantage at Quorum Health Resources, it's ideal to assess those relationships about every five years.

"Because the hospitals purchase services, and supply chain spend may change over five years. What a GPO did for you five years ago may not cover the breadth of products or where the hospital is going," Bramer said.

THE MARKET BASKET

It's important, said Bramer, to conduct an updated market basket. In healthcare, a market basket measures the pure price change of inputs used by a provider in supplying healthcare services by using price data from the Bureau of Labor Statistics.

If the market basket tops 50 percent of an organization's spend, it's helpful to look through each item to see if the GPO is effectively covering those items under contract. If it isn't, a healthcare organization may want to look at other GPOs that potentially offer better deals.

Another important step in the process is to look at six-month usage for each item; if a hospital has the product description and data on usage, they can check to see if the GPO can match it with an item they have on contact, and can sometimes allow them to plug in their own pricing.

"Hospitals shouldn't give the current price they're paying," Bramer said. "When they do it allows for a GPO to maybe provide numbers that aren't as actual. They might give you a price another customer has achieved based on their own negotiating."

THE BEST FIT

While hospitals need to assess pricing, they also need to consider what values they don't currently have that may be critical for them. What most hospitals struggle with is full spend data, not just what's going on with the GPO, said Bramer.

An important question to ask is whether the GPO can help them drive not only price, but utilization. An organization may pay only a dollar for an item, but if they have to use three of those items, that's of little help.

Bramer recommends doing this via requests for information, a cousin of the request for proposal. These ROIs need to delineate the hospital, the current spend, the market basket and what the GPO can bring in terms of value. Bramer said hospitals should do that with a competitive GPO.

"The other thing I think is critical is that, as a hospital, you need to decide if going to a national GPO is really your best option," he said. "If I'm a large hospital system, and I spend $100 million a year with a GPO, chance are you're going to go directly to a GPO and get the best deals.

"But if I'm a small critical access hospital, I may not get a lot of those value-added services. The hospital should ask, 'Do I have enough power to go through a GPO, or do they have a channel partner?' They may have better pricing, and may give you value-added services a larger GPO may not provide."

Channel partners are companies that partner with a manufacturer or producer to market and sell that manufacturer's products, services, or technologies. In healthcare, the channel partners belong to the national GPO and extends pricing to other hospitals. They may have their own corporate supply chain, or may help hospitals with capital decisions and benchmarking. They may also have subject matter experts who can help hospitals improve their processes.

When deciding on a channel partner versus a GPO, scale is a prime consideration. Smaller organizations don't have a lot of built-in resources, in which case a channel partner would provide them with the requisite knowledge base.

SAVINGS

If a hospital and a GPO are aligned well, Bramer said they can expect between 8-10 percent savings over their current supply chain. Areas in which hospitals tend to see most of those savings include community-facing products, bedpans, and most everyday-use items.

There are also potential savings to be had among physician preference items, as well as purchased service areas, such as maintenance, elevator and parts contracts.

"The small guys often don't understand there are potential savings out there," said Bramer. "Let's not get to the pain point. Let's do this proactively.

"If I'm a small hospital, but I can work with a channel partner who can drive $40 million worth of spend, I can bundle those and negotiate a price that will benefit all the channel partners. Information is power, and if you don't know, you're at the mercy of a vendor being in charge."

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com

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