Observation Deck – Opportunities and Challenges

There’s a good chance you already belong to, – or are considering joining – a regional purchasing coalition, or aggregation group. As our story in this month’s issue points out, small, regional groups are catching on.

The interesting thing – and something that few might have expected 10 or 15 years ago – is that most of these groups are forming under the auspices of one of the major GPOs, such as Premier, Amerinet or Novation. In many cases, hospitals are joining these coalitions in order to take advantage of higher-tier pricing on national contracts. That’s especially attractive for smaller hospitals.

It’s really not that surprising that GPOs are facilitating these regional groups. After all, they have proven remarkably adaptable over the past 15 years or so. Back then, some observers were predicting the demise of the national GPOs. They thought that IDNs would supplant them. Vendors were particularly hopeful, because they thought that the emergence of IDNs would open up more doors to them. Instead, most IDNs chose to continue to outsource their contracting functions to a GPO, at least for a big chunk of the items they buy. Meanwhile, GPOs quickly decided that they could best ensure their future by helping IDNs, not fighting them. If memory serves me correctly, Amerinet was the first out of the box to recognize that if it didn’t help IDNs succeed from a contracting and group purchasing point of view, it might lose its place in the market. So in the mid-90s, Amerinet created its Options committed-volume program for IDNs. And now, today, each of the major GPOs has one or two people who specialize in overseeing the formation and management of regional GPOs.

For Journal of Healthcare Contracting readers, the formation of regional groups presents opportunity and challenges. The opportunities are better pricing, and the possibility of engaging in joint activities with neighboring hospitals may be laundry, warehousing, etc. It’s the shared-services model. These opportunities can only come through some hard work, and that’s the challenge. To make a regional group work, you’re going to have to attend some more meetings; spend some more time strategizing; maybe serve on a board or even as president of the group for a year or two. It’s all good, of course. But it is an investment. You’ll need to let your bosses know of the good, hard work you’re doing on your institution’s behalf.

And for vendors? My sense is that they’re hopeful once again – particularly vendors of the specialty products that haven’t hit the GPOs’ radars yet. For them, regional groups represent an opportunity to gain a bigger chunk of sales than they could with a hospital-by-hospital approach. Of course, specialty products won’t fly without buy-in from the clinical staff, and chances are, clinicians are not too involved with regional groups.

In this business, the unexpected always seems to happen. What’s next? It’ll be interesting to see how these regional groups develop.

About the Author

Mark Thill
Mark Thill is the Editor of The Journal of Healthcare Contracting and has been reporting on healthcare supply chain issues since 1985. He is a graduate of Dominican University in River Forest, Ill., and he received a master's degree in journalism from Northwestern University in Evanston, Ill.