GPO Contracts: Are You Game?

IDNs and their non-acute-care members find more reasons to leverage GPO contracts.

Five years ago, few surgery centers knew much about GPO contracts. Today, however, as non-acute-care facilities and long-term-care chains work to maintain healthy margins, these groups are considering contracting opportunities GPOs can offer. Manufacturers that don’t participate in group purchasing contracts for non-hospital facilities should re-think their strategies, warn GPO executives.

“We [surgery centers] are being challenged to justify our existence,” says Bob Schaff, materials manager at Seven Hills Surgery Center (Henderson, Nev.), a freestanding facility with five ORs and two procedure rooms. “We need GPO support to accomplish this.” Seven Hills is a customer of Dallas-based Broadlane.

Open lines are best
Many alternate site customers would agree that maintaining open lines of communication with their GPOs is essential, for the process to be of value to either side.

For example, Schaff relies on Broadlane as a starting point for making the purchasing choices. After reviewing monthly e-mails, bulletins and communications on product changes or new contracts, he voices his concerns or questions to the GPO. So, for instance, if a manufacturer is rumored to be dropping a product, he can verify this through Broadlane.

“We work through our GPO if it’s possible,” adds Ted Beer, senior vice president, Miller’s Merry Manor, an Indianapolis, Ind.-based chain of 31 nursing homes and nine assisted living centers, and an Amerinet customer. “When [we learned that] one of our vendors didn’t have a contract with Amerinet, we contacted both the vendor and the GPO,” he recounts. In the end, Amerinet signed a contract with the manufacturer.

Some surgery centers and freestanding facilities have task forces that inform their GPOs of their needs. “I am on a task force that provides insight to our GPO, in order that it can gear business to us,” says Frances Walters, materials manager at Community Healthcare Network of Indianapolis, a chain of five surgery centers. The VHA customer has been using GPO contracts “for as long as I can remember” and, in doing so, has access to a “wealth of services.”

“VHA did a gap analysis for us,” she says. “The GPO showed us how to save by changing certain products. There was no pressure for us to go with the GPO contract items, but we now have more options.”

That’s not to say the GPO/alternate care relationship is never challenged. Contracting issues are often a work in progress. For instance, pricing is always a factor, according to Walters. Other snags may include the variety (or lack of variety) of products or manufacturers on contracts, and that some facilities are too small to qualify for rebates.

For Community Healthcare Network, high-volume purchases are not an issue, since the group of surgery centers contracts together with the three hospitals with which they are affiliated. “Pricing and volume are geared to our whole network,” says Walters. “So, we don’t feel a conflict.” GPOs do, in fact, encourage their alternate care members to aggregate their purchases with other facilities (including acute-care hospitals) in their IDNs.

Challenges or no, benefits appear to flow both ways between GPOs and their non-acute customers. According to Walters, GPOs offer more services than ever, including, capital equipment contracting, consulting services and Web-based sites for customers to look up pricing.

And then there are the savings. “Seventy-five or 80 percent of the time, I use the GPO contract, and the savings are about 15 percent annually,” says Schaff.

“Each month, I can prove my cost-savings,” continues Schaff. “Essentially, I can recover my salary within the first quarter of each year. At least, this is always my goal.” Still, he would never consider trading in a high-value product for a better price. “Care always comes first,” he says.

Get on the stick
GPO executives warn that manufacturers cannot ignore the growing power of GPO contracts in the non-hospital market. The volume of non-acute-care sales generated by GPO contracts grows tremendously each year, says Tom Wessling, VP of nutrition and facilities services, Amerinet, St. Louis. “We see double-digit growth [in this market] every year. Manufacturers are really being forced to play in this market. They can’t afford not to.”

Two different markets
In recent years, GPOs have recognized the differences between the non-acute and acute markets, and have refined 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, Cape Girardeau, Mo. What’s more, the average size and supply/spend is different for an alternate care facility vs. a hospital, he adds.

Michael Hamaker concurs. He is VP, ambulatory care and physician practices, Broadlane, Dallas. 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 …, because of the traditionally smaller units of measure,” he points out.

Product standardization
As in the acute care market, the challenge for GPOs and non-hospital purchasers remains standardizing members’ product choices.

“Physician preference definitely influences the alternate care market,” says Hamaker. “As [physicians’] margins decrease, we try to help them make choices that can [facilitate] up to a 15 percent or 20 percent savings.”

Contracting for alternate care demands a balance of need and education, he says. “We must assess each new customer as to how much education it needs to standardize [the products it uses],” he says. But, physicians and office managers will work with GPOs, especially when they recognize the 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 worked to zone in on the needs, and value, of this customer base. “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,” says Green. “GPOs can enlist the support of physicians by reducing their involvement in the day-to-day tasks, yet guaranteeing substantial savings and seamless delivery.”

“Physicians are interested in efforts that positively impact their ability to effectively run their offices and provide appropriate care for their patients,” adds Mary Starr, director of business development at Consorta, Schaumburg, Ill. “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.”

GPOs claim savings
Depending on the level of standardization and the degree to which alternate care facilities choose to use their 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 or 10 percent, says Hamaker.

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

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

Involve end users
As in the acute-care market, the key to successful non-hospital contracting is involving 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.”

The final agreement should be clear-cut and easy to analyze, she continues. “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. That’s an opportunity few facilities can afford to pass up.

About the Author

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