The numbers don’t lie: More and more long-term-care facilities and chains are joining group purchasing organizations

There’s no denying it. As nursing homes seek greater value from their spending, they increasingly are partnering with group purchasing organizations. But, that’s not all. The GPOs want – and need – distributors to come on board as well.

“Spending and participation is on the rise as the long-term care industry seeks help in controlling costs,” says Russ Ede, vice president of non-acute care, Amerinet. In 2004, the St. Louis-based GPO served 1,799 long-term-care members, he points out. Today, this number has grown to 3,280. “In the past, we focused more on the acute care and ambulatory/surgery center markets. Now we are focused on the long-term-care market as well.”

Amerinet is not alone. In recent years, MedAssets doubled its long-term-care customer base, according to Chet Chandler, vice president of long-term care. “Within the next five years, we expect at least 95 percent of nursing homes and long-term-care facilities to work through GPO contracts,” he says. “The long-term-care market is increasing as baby boomers age. And, many long-term-care facilities’ not-for-profit missions are being challenged by today’s economic climate, creating a need for products and services that address cost, efficiencies and quality of care.”

Indeed, in spite of recession-like conditions, long-term-care and other forms of extended care facilities spend about $223.9 billion annually on patient care, equipment and products, notes Ede, who cites statistics provided by the Health Industry Distributors Association (HIDA). This is projected to reach $373 billion by 2017, leaving the industry little choice but to access more competitive contracts, he says.

Add to this the fact that over half of all nursing homes are owned by one of 600 chains, according to HIDA. So, it’s no surprise that in 2008, MedAssets formed an agreement with the American Association of Homes and Services for the Aging to provide the association’s 5,800 members with access to 400+ vendor contracts. Some of the most popular products the GPO is marketing to long-term-care members include medical supplies, food, therapy services and capital equipment, according to Chandler.

Opportunity calls
Although some distributors may feel threatened by GPOs, executives like Ede and Chandler are insistent that while the market is shifting, no one is getting the big squeeze.

Distributors do a great job offering added value to long-term-care customers, he continues. But, in the end, it comes down to providing more competitive pricing, which can be accomplished by a strong distributor-GPO partnership. As long-term-care administrators are better informed on ways to reduce spending, the industry is already shifting to include GPOs, he says. “We’re not necessarily cutting distributors out. Yes, everyone needs to earn a margin for providing services, but this calls for creativity. What if you make your margins but can’t stay in business? That doesn’t benefit anyone.

“Some things distributors do well and other things we can do well,” says Ede. “A collaboration of both parties benefits the long-term-care customer. We are trying to formalize our partnership with distributors in order to serve this market well.”

“As more and more long-term-care facilities choose to partner with group purchasing organizations, it will present an opportunity for small independent distributors to partner with GPOs, allowing them to offer additional products and value-added services,” adds Chandler. “They need to establish relationships sooner rather than later.”

About the Author

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