Regional, local alliances playing a bigger role

Study shows that most are affiliates of national GPOs

Purchasing through national alliances has somewhat diminished, according to the authors of a study published this summer in Health Care Management Review.

Over 10 years, hospitals have diversified GPO memberships to include regional/local alliances (many affiliated with their national GPO) and engaged in self-contracting. At the same time, hospitals have increased purchases of many categories of supplies/services through national GPOs and endorsed their value-added functions and increasingly important role.

The study, “Hospital purchasing alliance: Ten years after,” examines purchasing alliances at two points in time – 2004 vs. 2014 – using surveys of hospital materials managers. It was prepared by Lawton R. Burns, PhD, MBA, the James Joo-Jin Kim Professor, Department of Health Care Management, The Wharton School, Philadelphia, Pennsylvania; and Allison D. Briggs, BA, BSPH, a doctoral student, Department of Health Care Management, The Wharton School. Supported by a grant from the American Hospital Association, the report addresses hospitals’ usage of national GPOs, their use of regional/local GPOs (as well as self-contracting), the ability of GPOs to provide cost-savings and value-added services, and the assessment by materials management executives of GPO business practices.

Some highlights:

  • In 2004, 71 percent of spending went through national alliances. But in 2014, hospitals reported only 55 percent of purchases through the national alliances, routing some spending through regional (10 percent) and local (5 percent) alliances.
  • Most of the regional/local alliances used were affiliates of the national GPOs.
  • Overall, 62 percent of 2014 purchases went through national alliances and their affiliates; 5 percent and 3 percent, respectively, went through non-affiliated regional and local groups.
  • Most materials management respondents believe their national alliance achieves demonstrable cost savings and margin improvement (mean = 4.10 out of 5.00). But the level of agreement has fallen slightly over time (4.19 in 2004).
  • Materials managers report significantly lower satisfaction with GPOs’ ability to get excellent prices on physician preference items, falling from 3.47 in 2004 to 3.33 in 2014.
  • Unchanged is materials managers’ evaluation of their alliances’ ability to obtain cost-savings through lower prices overall (4.19 in 2004 vs. 4.14 in 2014).
  • Materials managers report significantly greater satisfaction with the ability of GPOs to achieve cost-savings through contract administration fees shared with the hospital (from 3.57 to 3.71); information technology (from 3.26 to 3.67); and centralized staffing (from 2.74 to 3.60). According to the authors, this suggests a shift in cost-savings from price to non-price sources.
  • The findings reflect growing use of national GPO prices as market ceilings and use of regional/local alliances to leverage such contracts to extract more discounts.
  • Materials management report significantly greater satisfaction with their national alliances in the areas of: clinical improvement (3.43 in 2004 vs. 3.65 in 2014), consulting services (3.46 vs. 3.58), clinical expertise and data support for value analysis (3.46 vs. 3.69), direct input into product and service selection (3.45 vs. 3.59), auditing for implant procurement (3.00 vs. 3.19), assisting with contract conversion for PPIs (3.01 vs. 3.21), and item master maintenance (2.88 vs. 3.08).
  • On the other hand, they report significantly lower satisfaction in three other areas – their national alliance’s safety improvement initiatives (3.57 vs. 3.45), ability to bring innovative products to their attention (3.64 vs. 3.50), and impeded access to innovative devices and manufacturers (2.29 vs. 2.40).

For more information on the report, go to Health Care Management Review at

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