UNDERSTANDING GROUP PURCHASE ORGANIZATIONS

A healthcare group purchasing organization (GPO) is a business that negotiates pricing on medical & non-medical products, equipment & services on behalf of healthcare facilities such as hospitals and clinics. As a result, GPOs are a critical component of the healthcare system right now and understanding how they work within your healthcare facility is critical.

What exactly is a Group Purchasing Organization (GPO)?

A GPO is a company that assists healthcare facilities, such as hospitals and clinics, in finding cost reductions and process efficiencies. GPOs vary greatly in size, ownership, and services offered to members; however, they all operate under an income model based on charging vendors, suppliers, and manufacturers fees to use their services.

It is currently estimated that up to 98 percent of hospitals in the United States use GPO contracts for purchasing1.

These GPOs improve supply sales processes, allowing healthcare facilities to save money and have more streamlined purchasing controls.

It is critical to understand that a GPO does not purchase healthcare products. Instead, their priority is to reduce operating costs for their members while improving service quality. They frequently have tens of thousands of product options, which contributes to them being a more efficient purchasing alternative. Furthermore, GPOs provide various financial and logistical reporting, which aids in the simplification of management and procurement activities.

What advantages do GPOs provide?

According to the Healthcare Supply Chain Association (HSCA), GPOs saved the US healthcare system up to $34.1 billion in 20161, with hospitals benefiting from a large portion of these savings. Furthermore, in a nationwide survey of executives conducted by the University of Pennsylvania2, respondents strongly agreed or agreed that GPOs generate:
• Savings from lower prices (88%)
• Proven cost savings and enhancements (86%)
• Cost savings from contract standardization (84%)
• Cost savings from providing the market price point (73%)
• Cost savings from information technology (64%)

GPOs operate on the basis of membership, creating membership value opportunities through cost-reduction strategies, pre-negotiated contracts, state of the art technology, and professional services to attract healthcare providers. This “incentive structure” provides evidence that GPOs will reduce rather than increase provider costs, which is also strongly supported in economic literature.

Aside from healthcare savings, facilities are increasing their reliance on GPOs to help manage other complexities in healthcare purchasing. To meet these demands, GPOs are actively working to broaden their offerings beyond cost-cutting assistance, such as data analysis, benchmarking, and innovative technology integration. GPO networks are also actively working to standardize product use in healthcare facilities in order to improve patient care and increase efficiency of day to day operations.

How do Hospital Organizations Partner up with GPOs?

Working with a GPO involves layers of negotiation as well as ongoing internal communication to determine the best purchasing options. It typically entails the following steps:
1. The majority of organizations will make purchasing decisions by committee, which will include individuals from various roles throughout the facility. These committees will then decide which products are necessary and relevant for purchase.

2. Once product decisions are made, then sourcing options are considered. The GPO can negotiate contracts on behalf of its members individually, or for the entire membership with manufacturers, distributors, suppliers and vendors. The member can source through the GPO contract.

3. After the GPO contract is completed, the healthcare facility must still decide which products are approved for use in their facility. They will then be able to purchase these products based on the GPO-negotiated contracts.

Working with BMGP will ensure that the steps mentioned above are less lengthy & frequent as the case might be with other GPOs in general.

It is critical to remember that GPOs do not purchase products; rather, they are the driving force behind the contracts that lead to purchasing through the applicable healthcare facility. If a product is on contract within your facility, ordering it should be simple. Having a product on contract within a GPO simplifies the purchasing process, allowing you to get the products or services you need faster, easier & at reduced cost.

References:

  1. https://www.supplychainassociation.org/wp-content/uploads/2019/05/HSCA-Group-Purchasing-Organizations-Report-FINAL.pdf
  2. https://www.supplychainassociation.org/wp-content/uploads/2018/05/AHA_AHRMM_Wharton_2014_Surve.pdf
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