The Value of the GPO Sourcing and Contracting Process

February 2024 – The Journal of Healthcare Contracting

By Todd Ebert, R.Ph., President and CEO of the Healthcare Supply Chain Association (HSCA)

Healthcare providers initially formed GPOs in the early 1900s as an efficient means to aggregate purchasing volume, drive competition among suppliers, and reduce healthcare costs. Today, traditional healthcare GPOs serve as the sourcing and contracting partners to hospitals, long-term care facilities, surgery centers, clinics, and other healthcare providers across the country. GPOs secure high-quality medical products at fair prices for the benefit of patients, providers, Medicare, Medicaid, and taxpayers. Both independent and industry funded studies confirm the effectiveness and tremendous value of GPOs, finding that GPOs deliver annual cost savings of 12-18%.1, 2

Through their comprehensive sourcing and contracting process, GPOs allow smaller providers to obtain critical supplies at the same value as large providers while allowing all healthcare providers to focus on their core mission: providing first-class patient care.

GPOs take a comprehensive approach to sourcing and contracting that not only accounts for the competitive price offered, but also the quality, reliability, and stability of supply. The GPO business model is voluntary, flexible, and clinically driven. GPOs work in close collaboration with member hospitals and healthcare providers to develop sourcing policies and contract award decisions. GPOs recognize that market conditions change, and when they do, work with suppliers to adjust contracts. GPOs work diligently to ensure member hospitals and providers can select the products they need to care for their communities and patients most effectively and provide clinical resources across their network of providers.

GPOs help create a fair, open, and competitive marketplace. With a fair, open, and competitive marketplace, GPOs compete for business based on a variety of factors including, but not limited to, supplier product pricing, strength of GPO supplier contract terms, breadth of contract portfolio, supply chain and clinical analytical assistance, and customer service. GPOs encourage competition among suppliers, work to expand the number of suppliers in the market and incentivize them to continue producing essential products and life-saving medications.

Health systems depend on GPOs. Many health systems and independent physician offices often depend on GPOs for much more than their ability to collectively aggregate purchasing power. GPOs provide a range of services, including broad clinical feedback and providing supply chain analytics, which are especially important in rural and underserved areas. Individual practices and community hospitals do not have the resources, scale, and expertise to perform themselves.

GPOs routinely evaluate drug suppliers. GPOs take a multifaceted approach to their contracting and sourcing process that involves evaluating drug suppliers. Suppliers are evaluated on the consistency of product availability, fill rates, recall frequency and management, disaster preparedness, secondary supply lines, and manufacturing transparency. GPOs recognize and reward quality while encouraging a healthy market. GPOs also identify and support alternative sources and clinically appropriate substitutes.

GPOs evaluate manufacturer value propositions. A manufacturer’s value proposition is integral to the GPO sourcing and contracting process. If a manufacturer’s value proposition only focuses on FDA approval of their products and price, it does not provide an additional explanation as to why the products certain manufacturers make are beneficial to the overall supply chain process. GPOs evaluate the quality of a manufacturer’s facilities and the raw materials they use during the sourcing and contracting process, to ensure that their healthcare provider members can receive the best products, devices, and medications they need to be able to effectively help their communities.

GPOs identify and source high-quality products. GPOs identify and source high-quality products at the best value with information that is available and provided during the sourcing process, providing stability and savings across the industry, and work diligently to ensure a robust, competitive, market for healthcare products by expanding the number of suppliers of essential products and life-saving medications.

The Healthcare Supply Chain Association (HSCA) and its member GPOs are committed to meeting the needs of their healthcare provider members and their patients across the country, and through their comprehensive sourcing and contracting process, will continue to deliver the highest-quality products at the best value to their members.

1 Burns, Lawton R, and J Andrew Lee. “Hospital purchasing alliances: utilization, services, and performance.” Health care management review vol. 33, no. 3, 2008, pp.203-15 2008: 203-15. doi:10.1097/01.HMR.0000324906.04025.33

2 Dobson, Allen, and Joan DaVanzo, “A 2018 Update of Cost Savings and Marketplace Analysis of the Health Care Group Purchasing Industry,”
Dobson DaVanzo & Associates, LLC, Apr. 2019.

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