By R. Dana Barlow
Navigating from starting line to checkered flag using the serpentine maneuver.
Editor’s note: First in a multipart series.
What started in 1910 as “cooperative buying,” an outgrowth of the railroad industry, by New York-based Hospital Bureau of Standards & Supplies Inc., remains functionally familiar and somewhat similar even if the business modeling and financial and operational processes changed a bit after more than a century.
Back then, Hospital Bureau recruited hospitals to pool their collective buying power, access lower pricing for selected products under bulk/volume-oriented contracts and implement its purchasing standards. This foundational approach influenced the creation and development of scores of local, state, multistate, regional and ultimately national group purchasing organizations (GPOs) to provide contracting and other services for hospitals and other healthcare facilities.
Initially, healthcare providers paid a membership fee to participate, not unlike Costco or Amazon Prime today, or those services were covered by association dues. Decades later, some GPOs not only collected membership fees from providers but also administrative fees from suppliers to promote contracts to the membership. Later incarnations added rebates, share backs and other financial mechanisms to reward participation that raised eyebrows, invited scrutiny and piqued emotions.
By and large, GPOs promote what hospitals and other healthcare provider organizations expect them to deliver – namely cost savings on volume-based purchasing contracts that they have negotiated with vetted suppliers that meet their clinical, financial and regulatory requirements. This enables provider supply chain teams to focus on other functions and tasks to satisfy clinical and administrative customers in delivering patient care.
So far this century, providers and suppliers have weathered through numerous healthcare reform initiatives, an explosion of digital technology, waves of mergers and acquisitions, economic turbulence and a global pandemic. As a result, The Journal of Healthcare Contracting wanted to concentrate on GPOs as one of the established and fixed conduits between buyers and sellers and pinpoint what has worked and what may need improvement or elimination to better position the current slate of parent and offspring GPOs (e.g., smaller affiliates and shareholders), their functions and models for the future.
JHC used the analogy of a “house-shopping” television show where prospective buyers debate and discuss fixer-upper vs. move-in ready attributes, alongside character and charm vs. upscale and urban accoutrements and asked notable supply chain executives who possess both hospital and GPO experience for their insights.
When shopping for a house, prospective buyers evaluate what they see and save the information in three ways that increase in drama and intensity – what can be retained as relevant and useful, what needs to be updated because it’s outdated and what needs to be completely gutted.
Four seasoned supply chain executives assessed current GPO functionality and modeling along similar lines.
Retaining what’s inherently useful
Regardless of business model, GPOs are rooted in volume-buying contracts so that function and role obviously must remain.
“The core value of the GPO model remains as relevant today as it was when it was first created,” said Bruce Radcliff, President, Supply Chain Services, Premier Inc. “Healthcare organizations continue to benefit from the purchasing power, contract efficiencies and supply assurance that come from working together at scale, especially as financial and operational pressures continue to mount.
“At Premier, we also believe the future of the GPO model extends beyond purchasing alone,” he continued. “By combining the scale of our membership with data, technology and supply chain expertise, we can help providers gain insights into spending patterns, utilization trends and potential supply risks. As healthcare becomes more complex, that combination of scale and intelligence will continue to be a valuable part of the model.”
Prior to Premier, Radcliff spent more than a decade at Advocate Aurora Health leading supply chain operations.
Steve Downey, Chief Supply Chain and Patient Services Officer, Cleveland Clinic highlights how GPOs reflect the diversity of the marketplace they serve.
“GPOs have such variety, with all the offshoots and services, because of the variety of the U.S. healthcare system,” Downey noted. “Member size, clinical alignment, executive support and geographic diversity all contribute to the needs they have in sourcing, and therefore what the requirements are of their GPO partners. For example, Excelerate [Strategic Health Sourcing] works where there’s executive commitment to consolidating spend and standardizing supplier relationships, with support for systems that need help getting there. Other groups work well in a particular geography because of local relationships. All of those dynamics are necessary and serve particular needs.” Excelerate is Vizient’s “provider-led, physician-engaged sourcing model that uses evidence-based clinical outcomes to facilitate product decisions.”
Prior to Cleveland Clinic, Downey spent nearly a decade at Vizient and Excelerate in leading supply chain operations and consulting.
President, Spend Management, Vizient
The traditional GPO foundation still matters, according to Simrit Sandhu, President, Spend Management, Vizient. She points to a “supply chain lifecycle performance gap between the value negotiated and the value realized.
“The gap is not a rounding error,” she continued. “Across the industry, it represents billions of dollars in waste and value leakage caused by fragmented workflows across contracting, operations and utilization.”
Every health system experiences leakage in some form, Sandhu observes, spotlighting four key examples: “Spend that is not contracted, spend that never reaches the right contract, pricing that breaks down between purchase order and invoice, overspending and overutilization including clinical variation that increases cost without improving outcomes. When health systems recover more of that value, the impact can help offset reimbursement pressure, improve operating margin or expand the capacity to invest in care access, infrastructure and communities,” she said.
Sandhu previously led supply chain operations at Cleveland Clinic for nearly 15 years.
“Volume aggregation is still a useful concept, even in a consolidating market,” said John Strong, a veteran healthcare supply chain executive with experience in the hospital, logistics services, GPO and consulting segments. “It is still most useful for smaller hospitals, clinics, [ambulatory surgery centers] and other organizations along the care continuum. As consolidation of hospitals and health systems continue, one must wonder whether more will opt to do their ‘own’ GPO in the future.”
He recently retired as Co-Founder and Chief Consulting Officer, Access Strategy Partners Inc., and his career included serving as president and CEO at Consorta for nearly 11 years before it became part of HealthTrust, leading the original Premier Health Alliance GPO for seven years and prior to that serving as Chairman, Division of Materials Management at Lutheran General Hospital and President of Healthcare Materials Corp.
Strong questions whether hospitals and hospital systems that launch and operate self-contracting and distribution centers fully realize the value they seek in allegedly controlling their own destinies. “While contract administrative fees are lucrative, I still believe for these captive organizations pricing, partnership, meaningful value-added services and other benefits can come from direct business partner relationships,” he told JHC.
Hospitals and other healthcare facilities work with GPOs, by and large, for two primary reasons, according to Strong. “They feel they are getting greater expertise, and they believe it saves money because outside operators can do it more efficiently,” he said. Further, he recognizes that some of that expertise comes from former hospital and supplier supply chain and sales professionals, respectively. “You have to ask yourself, if there are no layoffs when an outside organization provides the service, and things marginally improve, is it worth what you are paying?” He cautions hospitals and other healthcare organizations to thoroughly examine and evaluate the terms of their contracts to look for verbiage that extends well beyond the simple discounted price for satisfying a specified volume commitment of purchases.
“Centralizing contracting and using one contract among, say, 2,000 hospitals should save suppliers money, which theoretically should reduce supply prices for providers,” he said. Strong references that in the pre- and early internet days, GPOs sent staff out to introduce new contracts and oversee compliance with contracts as a service covered by manufacturer-paid contract administration fees, as a team with suppliers.
Updating old-fashioned out-datedness
Beyond the fundamentals, GPOs may need to update a few elements to meet the demands of a changing market in the future. Some argue that by adding data management and information technology services, labor management and workflow consulting, clinical and demand management consulting and capital asset management, among other additional services, the GPOs strive to stay ahead of the curve, while critics contend that those services merely detract and dilute from the core competencies.
“The biggest opportunity for modernization lies in moving beyond retrospective reporting and static contracting models,” indicated Premier’s Radcliff. “Healthcare organizations increasingly need real-time visibility into spending, utilization patterns, contract performance and supply chain risk.
“At Premier, we believe the future of the GPO model includes greater use of data, advanced analytics and AI-powered decision support that helps providers make faster, more informed decisions,” he continued. “The goal is not simply to negotiate contracts, but to help healthcare organizations fully realize the value of those contracts while improving operational performance and resilience. Increasingly, providers are looking to connect supply chain decisions with clinical and financial outcomes rather than evaluating each independently. That requires a more integrated view of data across the organization and a move away from siloed decision-making.”
Cleveland Clinic’s Downey argues that GPOs need to steer clear of the generic, off-the-rack mentality.
“Anything built on a ‘one-size fits all’ assumption, and anything that still relies on manual and lagging data,” he specified. “Delayed reporting, siloed systems and spreadsheet-dependent workflows are the most visible symptoms. The infrastructure behind most GPO operations was designed long ago and hasn’t kept pace. They need to evolve to allow for faster processing, stronger data quality check, and information that moves at the speed members need.”
Vizient’s Sandhu urges GPOs to go beyond what has been tried before.
“Scale, contracting expertise and supplier relationships create the aggregation platform providers rely on. But contract access should be treated as the starting line, not the finish line,” she insisted. “Closing the performance gap requires supply chain orchestration: Connecting workflows across the full supply chain lifecycle of contracts, pricing, supplier performance, purchasing, payment, utilization, implementation and measurement. The future is not going back to the basics. It is being brilliant at the basics while building intelligent orchestration of supply chain workflows to ensure negotiated value becomes realized financial performance.”
Vizient is building capabilities to close the supply chain workflow gaps where value is most often lost, Sandhu shares. “For example, in the contracting gap, agentic contracting solutions like tail spend automation can help convert fragmented, unmanaged spend into prioritized contract opportunities. In the operations gap, procure-to-pay and price assurance capabilities can connect contract and invoice intelligence to identify, resolve and ultimately prevent pricing and contract exceptions. In the utilization gap, solutions like clinically integrated supply chain capabilities can connect product cost, utilization, procedural, outcomes and contract intelligence so teams can reduce unwarranted variation while protecting quality and outcomes. These are just a few of the solutions Vizient is building to address waste and variation we see in supply chain across non-labor spend categories,” she noted.
Sandhu adds that Vizient strives to “help providers maximize the impact of every dollar spent by addressing the industry performance gap across contracting, operations and utilization – connecting people, data, contracts, workflows, expertise and accountability so spend management becomes a measurable enterprise performance lever.”
Strong points to the admin fees, rebates and share backs compensation mechanisms that need to be updated because they have become somewhat outdated. Much of that is linked to automation and data systems that may not be calculating accurate information.
“Over-reliance on rebates by GPOs creates issues for some customers because they may lack the resources to effectively ensure they are receiving the rebate and applying it to the correct purchases,” he indicated. “If rebates are not applied correctly by the provider, there is a risk that questions could be raised during a CMS audit. You also must remember that rebates have some significant disadvantages: The time to process them in view of the time-value of money; obfuscation of real price for hospital cost accounting; difficulty managing them and other factors that fall to providers.” He further mentions that hospitals and GPOs have to employ people to manage the rebate process, which taken together, the time to process may reduce the real value of the rebate by as much as 50%.
“Many suppliers feel they do not get any real value from paying contract administrative fees, and in some cases they are being asked for far more than the old ‘standard’ of 3%.,” Strong continued. “Suppliers view the contract and payment of [admin fees] simply as a ‘hunting license.’ I’ve always believed that both parties – both the supplier and the customer of the GPO need to find meaningful value.”
Strong expresses concern about an “over-reliance on ‘share backs and dividends’” by some providers. “They wrongly believe that receiving these offsets the costs of operating their supply chain,” he said. “Dividends are great, but are they really revenue? Ideally, both should be applied to the cost of the goods purchased, not revenue.” He acknowledges that this is more of a provider behavioral problem but that the GPOs can be seen as feeding that behavior. He further notes that providers may not receive these benefits until the end of the year, which can reduce the value of the discount. “At Consorta, we estimated what share backs were going to be, paid them quarterly and then did a fifth payment each year to reconcile the amount due,” he recalled.
Gutting the familiar and vintage
Occasionally, even the original vintage look or well-meaning renovation of a house on the market needs to be gutted to please the interests and tastes of a prospective modern buyer. The same can be said of GPOs facing a turbulent economic future that cannot be assuaged by pulling market share from competitors or infusing their financial coffers with private venture capital funding or even going public.
Premier’s Radcliff cautions against holding a fire sale.
“Rather than eliminating core services, the industry should focus on replacing outdated processes that no longer meet the needs of modern healthcare,” he urged. “Many healthcare organizations still struggle with fragmented data, manual workflows and limited visibility into what’s happening across their supply chain.
“Healthcare is moving too quickly for organizations to rely on disconnected systems and retrospective reporting,” he continued. “The future belongs to more connected, transparent and intelligence-driven approaches that help providers anticipate challenges instead of simply reacting to them. The most successful organizations will be those that break down traditional silos and bring together supply chain, clinical and financial insights to support better decision-making.”
Cleveland Clinic’s Downey pokes at the granular.
“Watch for anything that’s a conflict of interest, like accepting a tariff and then making more administrative fee on that agreement,” he advised. “The fix isn’t just transparency. It’s replacing the metrics entirely. Contract coverage and admin fee generated measure GPO activity. Savings and supply expense impact measure GPO value. Those are not the same thing, and pretending they are is how conflict persists.”
Strong cites the method of determining potential contractual interests among members requires wholescale process renovation.
“I’m guilty of this when I ran GPOs, and the process continues today,” he lamented. “I believe that the process of asking members what their ‘preferred’ brands of product are, and what they would recommend a contract for has led to a lack of competition in the market. These ‘preferred’ brands are generally market-share leaders who squeeze out lower-cost products and more innovative suppliers. This process may have worked when there were several dozen national GPOs, but with today’s consolidated GPO market, it has led to stagnation of choice and price creep over several decades. One of the principles from a supplier’s perspective of national accounts contracting is to maintain or raise pricing over time.”
Contracts then become more like market share popularity contests, according to Strong.
“I think the way you improve it is by doing meaningful value analysis on some of those products,” he recommended. He acknowledges that executives on both sides of the transaction can look at some of these commodity products as “beneath where they need to focus their attention,” which can be a mistake. He advocates for a market leader and at least one alternative. “You may be getting the best market price from that market leader, but that doesn’t mean someone else can’t do it cheaper,” he added. He quips that some of the products might be private-labeled and come from the same overseas factory anyway.
“Over the decades, and especially during times of inflation, many CEOs have questioned the value they are getting from ‘their’ GPO because of the growing costs of supplies and drugs,” Strong said, citing statistics from 2025 research that show expense growth for drugs and supplies far outpacing that of labor and workforce expenses.
“If these statistics are correct, one must ask themselves, ‘What are we missing?’ There are a lot of non-price factors that can drive these costs, despite having consulting services and including using more costly products than necessary on a patient (think orthopedic implants as an example), product waste, lack of proper standardization and others. Standardizing on large sizes of product and costly solutions that are intended only for certain patients can drive this number,” he indicated.
“What would it look like if GPOs did meaningful value analysis before they contracted for certain products?” Strong asked. “They could offer the winning participants a contract, even if the ‘preferred’ products were still in demand. I know some GPOs do offer the preferred product and a ‘value’ option, but this would go beyond that.”
Strong acknowledges that these efforts can be cost-prohibitive in terms of hard and soft dollars stemming from labor and supplier relationships.
Still, he refers to one GPO that embraces volume, compliance and 3% admin fees that emphasize “price at the pump” over rebates and share backs. Their philosophy? “If you don’t comply with the small portfolio of products we ask you to, we will kick you out, no matter who you are, think you are, or how valuable your business is to [us],” he said. “I respect all of that.”
Strong believes, however, that GPOs may have no choice but to make improvements based on what a small, but influential number of medical technology manufacturers are looking to do directly with provider organizations, by aligning their products with the patient journey, which could result in suppliers having more control over large accounts than their GPO.
Editor’s Note: Next edition, the expert GPO quartet explores the emerging landscape, full of challenges and opportunities.
Key Takeaways
- GPOs’ core value still matters. Volume aggregation, contracting expertise, supplier relationships and purchasing efficiencies remain important, particularly as healthcare organizations face financial and operational pressures.
- The GPO model needs to become more data-driven and integrated. Experts say GPOs must move beyond static contracts and retrospective reporting toward real-time data, analytics, AI and better coordination across contracting, purchasing, utilization and payment.
- Some longstanding practices need a fundamental rethink. Administrative fees, rebates, share-backs, preferred-product arrangements and other traditional practices can create inefficiencies or conflicts; future GPO value should be measured by actual savings, supply expense impact and improved outcomes, not simply activity or revenue.