Understanding The Group Purchasing Organization (GPO)

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WHAT IS A GPO?

A group purchasing organization (GPO) helps its members save money and become more efficient by combining their purchasing volume. GPO members include hospitals, clinics, surgery centers, nursing homes, and home health agencies. Historically, GPOs developed first in the rural areas of the United States, where small healthcare facilities banded together into coalitions to acquire goods and services at volume prices.

Today’s GPOs use their purchasing volume to negotiate discounted contracts with pre-selected vendors that provide products and services. The goal is value: obtaining the best products at a fair price.

In addition to cost savings, another significant advantage of the GPO is its vetting process. Before granting a vendor a contract, the GPO will have screened it for multiple performance criteria, including length of time in business, outstanding FDA compliance issues, on-time supply chain fulfillment, quality of service, and more. GPOs also help their members by streamlining and standardizing the purchasing process, saving both time and staff hours. More recently, GPOs have expanded to provide services such as data analysis and benchmarking, innovative technology integration, market research, emergency preparedness, and best practices education.

A 2014 study of Medicare claims found that “GPOs reduced healthcare costs by up to $55 billion annually, and up to $864 billion over 10 years. Former Federal Trade Commission Chairman Jon Leibowitz recently analyzed the GPO market and found that hospitals save 10% to 18% by buying through GPOs.” https://www.supplychainassociation.org/about-us/faq

While participation in a GPO is voluntary for both hospitals and vendors, the reality is that virtually all of America’s 7,000+ hospitals, as well the vast majority of the 68,000 non-acute care centers, belong to at least one GPO. On average, hospitals belong to 2-4 GPOs. https://www.supplychainassociation.org/about-us/faq

GPOs vary greatly in membership size, ownership, the types of hospitals they serve, the types of products they provide, their geographic focus, and the scope of their services to members. In fact, there are over 100 GPOs across the country. https://www.supplychainassociation.org/about-us/faq

Tier One (National) GPOs

Vizient considers itself as the largest member-owned health care company in the United States. Membership includes academic medical centers and affiliated hospitals, community hospitals, nonprofit research facilities, and large, integrated health care delivery systems. It serves the top 14 hospitals named to US News and World Report's 2016-17 Best Hospitals Honor Roll; provides services to more than 50% of the nation’s acute care health systems; and has more than 500 consultants dedicated to improving members' performance. It serves more than 20% of the nation’s ambulatory market and approximately 95% of the nation’s Academic Medical Centers. Vizient represents $100 billion in annual member purchase volume, the industry's largest. www.vizient.com

Intalere: As of December 2019, Intalere’s membership totaled more than 110,000: 3,726 acute care hospitals, over 45,000 clinics, more than 14,000 long term care facilities, 119 hospital-based physicians, over 4,000 ambulatory surgery centers, almost 1,300 emergency services, and more than 41,000 other members. Headquartered in St. Louis, Intalere is now substantially owned by Intermountain Healthcare of Salt Lake City. www.intalere.com Intalere has the reputation as the most lenient GPO in terms of purchase compliance requirements.

Premier Purchasing Partners: Based in Charlotte, NC, its membership includes 2,500 hospitals and nearly 70,000 other healthcare sites.Premier is owned by more than 200 not-for-profit hospitals and healthcare systems, with strong representation from community hospitals as well as large systems and academic medical centers.www.premierinc.com

HealthTrust Purchasing Group represents 1,600 hospitals; 43,000 alternate sites, including ambulatory surgery centers, physician practices, long-term care and alternate care sites; and $45 billion in purchasing power. www.healthtrustpg.com HealthTrust’s hospitals are the most contract-compliant of any GPO, with materials managers measuring at a 90%+ compliance rate.

Tier Two (Regional) Purchasing Groups (RPGs)

Here are two examples:

Banner Health, based in Phoenix, has 29 hospitals and 293 clinics with more than 48,000 employees serving patients in seven states. It has created a supply chain services team to reflect the broader scope of managing all non-labor spend and to accomplish a culture change wherein expense management is everyone’s business. Banner Health’s supply chain is currently ranked fourth among health systems and 11th overall in Gartner’s Healthcare Supply Chain Top 25 ranking. https://www.bestsupplychainpractices.com/2016/06/banner-health/

Kettering Health Network, in southwest Ohio, has eight hospitals, Kettering College, over 120 outpatient facilities, nearly 12,000 employees and 2,100 physicians. Kettering’s GPO is Physician Health Alliance (PHA), which purchases 36 different categories of goods and services, from wall art to medical waste disposal. https://ketteringhealth.org/pha/group_purchasing_program.cfm

Exactly how do these organizations operate? We’ll talk about that next.

THE BUSINESS CASE FOR GPOs

The GPO does not do the actual purchasing. It serves as a middleman, negotiating the contract with each supplier.

The actual supplier selection is made by the healthcare provider, which establishes a committee of professionals to choose the products that meet the institution’s specific needs. Then the GPO goes to work on the hospital’s behalf.

A hospital that uses a GPO typically has a limited number of suppliers – generally just one or two -- for each product or service category. There are some clear advantages for the hospital:

· Purchasing through a GPO gives the hospital a lower-than-market price for a specific product.

· In addition to lower pricing, the GPO typically negotiates better payment terms and warranties for this hospital.

· Vendors are pre-screened for product quality, performance, service standards and reliability, taking much of the time and risk out of the purchase decision.

· The GPO charges the vendor an administrative fee for their services. Depending on the GPO, this fee can range from .5% to 4%. These fees are based on the purchase price that a hospital pays for a specific product, when sourced through the GPO. The hospital receives a percentage of this fee as a rebate, which can then be returned to direct provision of health care.

· If a vendor is not under contract to a GPO, it is unlikely that it will have the opportunity to submit a bid for a product or service with a given hospital. That greatly limits business opportunities. Vendors have to decide whether that access is worth giving a lower price and giving up about 3% to the GPO on the amount of each sale.

· GPO contracts have a 3-year term – a double-edged sword. The vendor becomes a preferred supplier for that period of time. At the same time, it also guarantees pricing for that same period. Production cost variations from fluctuating tariffs and currency rates, as well as materials availability problems, can all have a negative impact on profits. Vendors should build in not only a 3% administrative fee but also 5% of wiggle room to accommodate unknowns.

Theoretically, going with a GPO-approved product is voluntary for the hospital. In reality, it happens most of the time. This means that nurses and managers won’t even speak to a vendor unless they are under GPO contract. However, if a nurse or manager believes that a non-GPO product is special and immediately necessary, they can act as the vendor’s spokesperson/advocate to get purchase approval. The hospital processes this off-contract purchase by typically requiring a trial or training period and an official quote submission before a purchase order is issued.

How do you go about actually doing business from a GPO? What does it take to get a GPO contract? That topic is next.

GETTING GPO APPROVAL

Three-year contracts mean that every three years the GPO will be selecting and negotiating with vendors on behalf of the hospital. A potential vendor’s first step is to understand what category its product or service fits, and where it falls in the bid calendar -- the month and year when the evaluation and selection process will take place.

No matter how high-profile a new product is, a vendor should not expect to hear proactively from a GPO. The vendor will have to solicit each GPO to learn the details on their specific bid process.

A vendor who wants to apply for a GPO contract should be prepared to sell their product through the prism of today’s healthcare needs. Features are important, but benefits make the sale. The vendor should frame the product or service in relation to solving key issues and concerns:

· How does it reduce costs?

· How does it produce a better patient experience?

· How does it create a better employee experience, thereby increasing retention?

· How does it create a better patient flow?

If a 3-year wait seems like a lifetime, a vendor has one alternative. GPOs have special back-door selection processes for products and services that they consider to be new technology. Participating in this process can shorten the acceptance time by up to 2 years.

For example, Health Trust has an annual technology summit – like a 2-day mini trade show -- at which time innovative products are selected for immediate acceptance. A vendor can go to the Health Trust website and submit its product for consideration at the new technology summit. That submission should happen at least 3 months in advance.

The GPO brings in category experts – nurses, infection control experts, Value Analysis Committee members, materials managers, biomedical engineers and hospital administrators -- to evaluate the innovative products.

Each vendor has the opportunity to present its product at a booth. The vendor should create as robust a sales presentation as possible to impress the experts. Typically a vendor will want its 2 most knowledgeable and convincing people there – people who understand the product’s technology front to back. They should also be able to speak to the potential of their product as it relates to both the current and future markets. The key is to be able to explain “why we are different.” Graphs, data sheets, research results, clinical impact statements are critical to help build the case.

The experts complete score sheets on all the products and then tally the results. The high scorers in each category are immediately awarded a contract. Inevitably, not every product or service gets the nod as innovative. The vendor needs to decide whether the chances are good enough to spend the time and money to apply.

Even if you’re contracted by a GPO, that doesn’t mean you can walk right into a member hospital.. or any other hospital, for that matter.

Stay tuned for more related to more on GPO's....

Michael Maske is the President of ZM Medical headquartered in Scottsdale, Arizona. His group of professional representatives provide products and services for hospitals and surgery centers in the Southwest. He is a 12 year veteran of the Armed Services, and the author of the book “Voice of the Nurse”. He holds multiple patents on Safe Patient Handling Devices within Healthcare. He has a passion for serving in Healthcare. He is married to Elizabeth, and has two daughters, Zoey and Kaydence. Michael is active within the Down Syndrome community with his daughter Zoey.

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Share 81 11 Comments Daphne Wang Stubbs 1y

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Great insights. Thanks Michael.

Like Reply 1 Reaction Linda Snyder RN, BSN 1y

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Great information

Like Reply 1 Reaction Mikal Sanders,PT,DPT 3y

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Great article! Thank you for your content.

Like Reply 1 Reaction Suzi Collins, FAHRMM, CMRP 5y

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Great job!

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