By Shaneka N. Wright, RN, BSN, MHSc, CIC
How can provider-owned, regional GPOs maintain their viability?
In recent decades, IDNs have created provider-based or regional group purchasing organizations (RGPOs) or co-ops for volume-based contracting in the belief that smaller, regional, niche GPOs will be powerful sources driving value and savings for the membership. RGPOs are appealing because they offer flexibility and nimbleness, closer relationships with end users, the ability to drive compliance (perceived), and customized Request for Proposals (RFPs), further driving down price and increasing value.
With boutique GPOs formed in today’s market hoping to aggregate purchasing volumes and streamline negotiations with suppliers, is this truly a win-win?
Regional GPOs have put millions of dollars back on the bottom line for hospitals and IDNs nationwide. They offer a collaborative work environment, custom contracting and in most cases, direct access to end users, administrators, physicians, supply chain executives, etc. Despite the many “value-adds” of RGPOs, there are reasons why the provider-owned GPO is challenged.
Can nimble regional buying groups and hospital systems have more control of member purchases? I would have to say no. There cannot be affective change in physician preference items – one of the largest savings opportunities for IDNs – if the C-suite fails to persuade and support standardization. Not only is PPI key for savings, but consolidating vendors and systems means fewer reps and more surgical nursing staff providing case support, driving costs down significantly.
Avoid these pitfalls
The 2017 Healthcare Supply Chain Association’s annual value report describes the many values GPOs bring to the table, including reduction of healthcare costs, increased competition, transparency, improvement of healthcare processes and added value for suppliers.
Despite the success of negotiating regional-based contracts and generating higher sharebacks for its members, regional GPOs should work to avoid a few potential pitfalls:
- Members demanding best price, with little (to no) commitment levels, versus supplier demands to have increased market share, and perceived unwillingness to give value above the national agreements they hold.
- Unwillingness of the members to trust and utilize contracts in place with the regional GPO on their behalf. At times, hospitals will write local agreements because they feel they can achieve greater price concessions. In actuality, the vendor may have been creative with contracting, and provided back end incentives. Negating the agreement in lieu of incentives to achieve “at the pump pricing” undercuts the vendor/GPO relationship and shows the lack of trust in the GPO/provider relationship. How to get buy-in from the end users is one of the key success triggers of any RGPO. If members do not trust the decisions being made at the contracting level, buy-in will be low and ultimately affect compliance and standardization opportunities.
- Members wanting the very best value, at the lowest cost (e.g., “We want the best, thickest, aromatic, impregnated cloth, for the price of the thinnest, smallest, non-impregnated, fragrance-free cloth.”) Negotiation in this situation is hard on both ends of the spectrum, and the outcome can only be found somewhere in the middle. The challenge is to reduce cost using best practices, which truly leads back to standardization.
- Difficulty veering away from “owner’s remorse.” Providers may not adhere to the recommendations of the RGPO because they feel it is an owned entity and perhaps just another department within the hospital functioning as a contracting service. They refute the entire consultative component, which, due to enhanced analytics and benchmarking, provides recommendations that if followed, could afford IDNs millions of dollars in savings.
- Flexibility is one of the attractive benefits of the regional GPO. But that flexibility also presents challenges. Regional GPOs cater to their limited membership and are left negotiating additional language not customarily found in national agreements. RGPOs must be structured wisely. To allow sourcing analysts the proper time to devote to custom contracting for the membership, a staff consisting of contract administrators to perform analysis, answer and research contract pricing discrepancies, etc., should be in place.
- Constant comparison to the national GPOs and their large purchasing volume. Although the large GPOs don’t always know if there will be product utilization, there is the larger potential based on volume, while regional GPOs have a set membership and known capitated volume.
- Lack of access to the level of national data available to consultants and national GPOs is absolutely one of the roadblocks to transparency for members and participants in regional contracts. However, a subscription to some of the national benchmarking tools now available can make it work.
- Sophisticated technology to support the large scope of utilization analysis, data gathering, and benchmarking from multiple, fragmented sources is essential. There is an abundance of data; but if it is not translatable, there may be missed opportunities for savings.
Dollars left on the table
Having an RGPO allows for contract customization, compliance/commitment of multiple facilities, and volume-based tiered pricing. Yet, there are millions of dollars left on the table if members fail to buy into the global GPO picture, and further, if non-hospital-owned physicians fail to standardize.
Currently the market is dominated by the national powerhouses of group purchasing, yet there will certainly continue to be “heightened demands for data availability, access and standards; price concessions and reductions, increased competition from local and regional contracting efforts as well as provider-based consolidated service centers and shared service organizations.”
With the recent mergers resulting in “mega” GPOs, and multiple smaller (still powerful) mergers, one wonders, what is the survival rate of regional, boutique GPOs created by providers? I propose that if there were a further neo-model with clinical-driven contracting, IT sophistication, available and transparent data, large volumes to drive prices down, larger sharebacks to participants, and consolidated distribution, we would see the formation of a new, tailor-made GPO that finds new ways to generate cost savings for its membership, and a decline of niche, boutique, provider-owned GPOs.
For an RGPO to remain successful, it must have clinical, business, and operational buy-in, to encourage standardization and transparency. Fortunately, by avoiding some of the potential pitfalls, GPOs will continue to add value and drive healthcare costs down, adding millions back to the bottom line of healthcare institutions.
Shaneka N. Wright is a senior strategic sourcing analyst with 15+ years of clinical experience and multiple years in supply chain, regional GPO contract negotiations, value analysis and sourcing for a member-driven organization dedicated to providing clinical quality and cost-savings to its members with the ability to function on a local, national and/or international basis.
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