Publisher’s Letter May/June 2009

The Rise of Regions

We can always learn from the past. In the case of the largest GPOs, they continue to grow by expanding their contract offerings, as well as consolidation efforts. In the last few years, the six major GPOs have solidified their position on top of the GPO market, with few – if any – new players entering the arena

But traditional business history tells us that new niche players will rise, inserting some fragmentation back into the marketplace. This leaves the large stalwarts with the decision to react or start to lose share to the new competitors. I thought perhaps we would see new GPOs formed to specialize in certain service or clinical lines. But this reaction hasn’t happened yet.

Instead, the market is reacting through regional cooperation by IDNs and hospitals forming what we have termed “Regional Purchasing Coalitions.” Organizations like Coastal Cooperative of New Jersey, Texas Purchasing Coalition and Western North Carolina Health Network seem to be establishing themselves as sizeable opportunities for suppliers.

Our research has identified 107 Regional Purchasing Coalitions that are responsible for 575,000 beds, 18 million annual admissions and over 80 million outpatient visits per year. The size alone of care that these organizations manage screams legitimacy. They’re here to stay.

These organizations have been created to aggregate volume to ensure the participants can take advantage of their GPOs best tier pricing. And from there it has further evolved into committed buys, and sometimes sole source agreements, that are better than national contracts in place. The kicker is that the GPOs are doing the contracting for them most of the time.

It will be interesting watching these organizations grow. I would not be surprised to see most hospitals and IDNs participating with one in some fashion in the next few years. As long as customers are willing to move incremental sales to suppliers, there will be declining costs for the hospital.

Thanks for reading this issue of The Journal of Healthcare Contracting.

John Pritchard About John Pritchard

John Pritchard is the publisher of The Journal of Healthcare Contracting as well as The Major Accounts Exchange (The Max).

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