Understanding Purchasing Coalitions and Current Trends

By Alan Cherry

Purchasing coalitions are more relevant today than ever as they evolve to meet and support the expanded role that supply chain leaders are playing. Although purchasing coalitions may have initially formed in order to aggregate spending to drive down pricing, these groups now focus on far more advanced initiatives, according to supply chain leaders who spoke on a panel at this year’s Association of National Account Executives meeting.

“It is not just about bottom-line savings today,” said Kim Moon, director of supply chain for Tucson Medical Center, part of Vizient’s West Coast Purchasing Coalition. “We have to look at healthcare across the continuum of the patients’ lives and we need suppliers to partner with us to drive down the length of stay and bring quality products at the most economic value.”

For Moon and TMC, being a part of an RPC is key, not just to better pricing, but to the health provider’s survival. “The bottom line is that we have to provide quality patient care at a reasonable price, or our stand-alone facility won’t be standing for much longer.” For this reason, she believes that the future will continue to see coalitions grow and merge and get bigger and better.

The starting point
One of the primary values RPCs provide to their members is by working to extract additional value out of GPO contracts.

When [our GPO] goes out and negotiates national contracts, the idea at CCG is not to come off any of those awarded suppliers – it is to extract the best value out of one of those suppliers,” said Shaun Clinton, SVP, supply chain, Texas Health Resources. “I think 15 years ago I would have just said, ‘Give us your best price.’ I think value is really starting to change on that and hopefully will become less transactional.”

Moon said she and her organization view the GPO as a starting point. “It’s where we look to compliance and to make sure that, when we are looking at who we want to speak with around a certain commodity or product line, we are looking at who are we currently aligned with. It’s important that we remain compliant with our standardization programs for continuing to earn rebates.”

J.R. Kyle, director of sourcing integration for BJC HealthCare noted that, “[GPOs] have the ability to negotiate national contracts, which provides significant value to the MSS coalition. I think that there is valuable insight into pricing that is brought forward through the GPO… but we have to be able to work more aggressively together.” He cautioned that it was not as important to work aggressively to get a certain number of suppliers on contract, but rather to get suppliers on contract that provide higher value.

Looking to the future, Kyle thinks GPOs will change dramatically. “We find great value within our GPO, Vizient, today. Will this GPO be the same today as it is tomorrow? I don’t believe so.” He said he does believe that GPOs are going to morph into providing more services and that their business model will revolve less and less around contracting.

Changing relationships
As times change, so too will the relationships between purchasing coalitions and suppliers. For Moon, this means providers and suppliers “need to be honest and fair with each other. We need you to work within the boundaries of [our] RFPs and bring transparency and bring your best value forward to begin with.” Companies that don’t bring their best value to the table to start with are likely to get left behind.

Kyle echoed the sentiment. “We’re going to have to learn to trust each other, work more aggressively together and make those win-win contracts,” he said.

“For MSS, the way we negotiate contracts is going to change. Owners will be more active in the negotiation process … I think we will be looking to bring forth one statement to suppliers and it is that, ‘We are a unified force, we support each other, we want to support you as well, but we want negotiate contracts that are going to be beneficial to us, not just the GPO world itself.’ I think that’s going to be a big change.”

Shaun Clinton, SVP, supply chain for Texas Health Resources, said in the future, the discussion will, “not be so much around price [as it will be that] we have got to start using less stuff in healthcare. I think that will be one of the focuses for CCG moving forward. We might pay a little more for a particular item but if we know that, over the long haul, we’re going to use less of it and be able to drop that to the bottom line – that’s going to be much more impressive.”

All the panelists agreed that being transparent and sharing best-practices is going to be vitally important and that the days of transactional relationships are long gone.

The emphasis on having good relationships is about more than being friendly; there is a very practical purpose as well as providers looking more thoroughly at risk sharing agreements.

“All of that risk can’t sit on our side and all that risk can’t sit on your side,” said Clinton. “We need to meet in the middle somewhere.”

Clinton also predicted that, “at some point we are going to have to start contracting with our suppliers around episode-of-care… I can’t look at bundled payments around episodes of care and not be able to contract on the back end around that. That will get horribly disjointed and it will continue perpetuating the bureaucracy that adds cost.”

To that end, he noted that there are many pieces that are difficult for both providers and suppliers because of the longstanding tradition of contracting on a transactional basis. “If we move into a risk-sharing environment, we have to ‘level-set’ and establish the baseline, and that’s been the hardest part for us… I think risk-sharing is coming, I just don’t think we’re that good at it, on either side, right now.”

Moon recognized that the relationship has to be a two-way street. “If [suppliers] can guarantee market share and/or work with us to enable the supplier to bring additional value, whether it’s through market share or spend or possibly through utilization – it has to be a partnership. Because [suppliers] can’t continue to drive pricing down and we can’t just expect that to happen. [You suppliers] have to be able to run your business profitably, and we need to partner with you on that.”

1 Comment on "Understanding Purchasing Coalitions and Current Trends"

  1. I can’t comment or add much to this article other than, Healthcare must move into a utilization management state of mind. Lower Prices, Value propositions don’t mean much if you continue to use more than it is needed to deliver care. The only logic conflict in all of this, vendors are here to make a profit, and healthcare is looking for better value. There are two opposing views and to be honest were is the carrot for the vendor to reduce cost and encourage utilization management? All these issue require everyone to reevaluate our own axioms in the delivery of affordable care.

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