A League of Their Own

As the non-acute care market gets bigger and better, GPOs find more opportunities to share.

If you haven’t already investigated the potential savings your non-hospital facilities can realize through GPO contracts, now may be the time to hop on the bandwagon. In fact, some experts question whether alternate care facilities – as well as manufacturers and distributors – can afford not to take advantage of group buying.

“Alternate care facilities are required to do more with less,” says Amy Anthony, VP of supplier services at VHA. “As reimbursement decreases, and non-acute facilities evaluate the cost of their goods, the demand for improved pricing in the non-acute care market [continues to be] present.”

“Manufacturers who choose not to participate with GPOs in this arena will eventually lose their traction in the non-acute market,” she adds.

The volume of non-acute care sales generated by GPO contracts grows tremendously each year, according to Tom Wessling, VP of nutrition and facilities services, Amerinet. “We see double-digit growth [in this market] every year,” he says. “Manufacturers are really being forced to play in this market. They can’t afford not to.”

Two different markets
Particularly in recent years, GPOs have recognized more and more the differences between the non-acute and acute markets, and have further developed their strategies for working with alternate care customers.

“The mix of products delivered to the alternate care market can be very different from those delivered to hospitals,” says Gary Green, senior VP of sales, alternate site market, MedAssets Supply Chain Systems. Also, the average size and supply/spend is different for an alternate care facility vs. a hospital, Green adds.

Michael Hamaker, VP, ambulatory care and physician practices, Broadlane, concurs. Low spend volumes compared to acute hospitals and the large number of alternate care sites in the United States sets the non-acute care market apart from the acute care market. “The logistics of moving products to so many non-acute sites makes this market a more expensive one in terms of moving products from point A to point B, because of the traditionally smaller units of measure,” he says.

“Vendors are less willing to provide the same pricing and service levels to smaller, alternate site facilities that they provide to acute care hospitals,” adds Green. “The challenge is getting manufacturers and distributors to recognize the non-acute market as a viable, growing market for their products. We have to educate manufacturers on the size of [physician] groups. There are a significant number of multi-physician groups that we work with. We’re not talking about three boxes of gloves [in a sale].”

After all, an acute care center in Montana may actually be smaller than a non-acute care center in New York City, Wessling points out.

Challenges
GPOs continuously work to fine-tune their alternate site contracts. Still, as with the acute care market, the challenge remains to standardize members’ product choices.

“Physician preference definitely influences the alternate care market,” says Hamaker. Particularly for doctors who own their own practices, physician preference items are often in high demand. “As [physicians’] margins decrease, we try to help them make choices that can [facilitate] up to a 15 percent or 20 percent savings,” he says.

Contracting for alternate care facilities demands a constant balance of need and education, Hamaker continues. “We must assess each new customer as to how much education it needs to standardize [its product choices],” he says. But, physicians and office managers are open to working with GPOs, especially when they recognize the potential savings that certain contracts can provide, he notes.

Working together
While GPOs are not newcomers to the non-acute market, in recent years they have zoned in on the needs – and value of – this customer base. “In the alternate care setting, the solutions that work best for physicians are those that let them focus more on the practice of medicine, rather than on the intricacies of running a business,” says Green.

“All physicians are open to significant cost savings on the items they buy, but the time commitment to get these savings weighs heavily into the equation,” he continues. “GPOs can enlist the support of physicians by reducing their involvement in the day-to-day tasks, yet guarantee substantial savings and seamless delivery.” Various companies, such as MediGroup, ILS, DoctorsManagement and e-Surge, help physician practices manage their business and take advantage of GPO contracting, he notes.

“Physicians are interested in efforts that positively impact their ability to effectively run their offices and provide the appropriate care for their patients,” adds Mary Starr, director of business development at Consorta. “They [tend to be] data driven, with limited time for these types of projects. Therefore, analytical information should be provided in simple-to-understand formats, with little room for misinterpretation.”

Savings
Depending on the level of standardization and the degree to which alternate care facilities choose to use GPO contracts, GPOs maintain they can provide annual savings of up to 15 to 20 percent for new participants. Even physician practices already aligned with GPOs can realize a continuing annual savings of 5 to 10 percent, according to Hamaker.

“We [totaled] $1.8 billion in non-acute-care contracting in fiscal year 2005,” says Wessling of Amerinet. “We saved these facilities [about] 15 percent across the board.”

“Surgery centers, as well, can realize 2 to 5 percent [annual] savings by utilizing [our] contracts,” says Green. “Physician practices can experience 15 or 20 percent savings of their total supply spend.”

There is no magic to saving non-acute customers money, says Wessling. “It’s a matter of doctors utilizing the right product for the right application.”

Key to success
In the end, the key to a successful contract is to involve the product users in the process, says Starr. “This ensures product acceptability and an understanding of the decision process for those who will later be working on implementation or product conversions.”

In addition, the final agreement should be clear-cut and easy to analyze, she continues. This means, single-tier pricing and no commitment forms. “Of course, at the same time, we have to add great value,” she says. “This [can be] tough to accomplish when suppliers who work with hospital contracts are very accustomed to including multiple tier pricing, rebates and other incentives, and commitment forms to track all of this.”

But, depending on the contract, non-acute customers can achieve the same pricing and incentives as hospitals. “In some cases, when surgery centers, physician offices and the IDN all work together, they can increase savings for all parties,” says Starr. And, that’s an opportunity few facilities can afford to pass up.

About Laura Thill

Laura Thill is a contributing editor for The Journal of Healthcare Contracting.

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