Tessa Quinn
Group purchasing organizations (GPOs) are entities that help hospitals and other healthcare providers save money by negotiating contracts for products and services on their behalf. GPOs aggregate the purchasing power of hospitals, allowing them to secure bulk discounts and streamline their purchasing processes. By joining a GPO, hospitals can cut costs, improve efficiency, and gain access to a broader range of services and resources. GPOs also help standardize product use, educate clinicians on best practices, and facilitate data analysis, market research, and technology integration. This article will explore the benefits of marketing to hospital buying groups, including increased cost savings, improved operational efficiency, and enhanced patient care.
| Characteristics | Values |
|---|---|
| Group purchasing organizations (GPOs) | Help hospitals save money by leveraging the collective purchasing power of member facilities to negotiate savings on purchased goods and services |
| GPO membership | About 97% of hospitals have an affiliated GPO |
| GPO savings | GPOs save the healthcare system billions of dollars annually, with estimates ranging from $55 billion to $864 billion over 10 years |
| GPO fees | GPOs are financed by fees paid by vendors, typically ranging from 1.22% to 2.25% of the purchase price |
| GPO services | GPOs offer a range of services beyond cost savings, including data analysis, market research, innovative technology integration, electronic product tracing, infection control, and knowledge-sharing among healthcare providers and supply chain experts |
| GPO contract strategy | GPOs should have a diversified product contracting strategy, alternate-vendor relationships, and offer value-added services such as custom contracts |
| GPO clout | GPOs should have the ability to leverage relationships with manufacturers to fulfill large orders on accelerated timelines and step in when demand exceeds supply |
| GPO support | GPOs should offer guided onboarding and continued support to hospitals, especially rural and community hospitals, to ensure a dynamic and collaborative partnership |
| GPO standardization | GPOs help standardize product use in hospitals, reducing medical errors and improving patient care |
| Hospital acquisitions | Hospitals may acquire physician groups to diversify their services, increase their market share, reduce costs, and improve care coordination |
| Hospital challenges | Hospitals face challenges due to the entrance of retail clinics, large-scale mergers, and shifting market demands, requiring them to adapt and maintain their patient populations and revenue streams |
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What You'll Learn
How Group Purchasing Organizations (GPOs) reduce healthcare costs
Group Purchasing Organizations (GPOs) are critical supply chain partners that help reduce healthcare costs in a variety of ways. GPOs negotiate contracts with manufacturers, distributors, and vendors on behalf of their healthcare provider members, leveraging their collective purchasing power to secure significant savings. This collective purchasing power allows GPOs to obtain market-leading prices and favourable terms for their members. For instance, HealthTrust, a group purchasing organization, leverages the combined volume of its 1400 healthcare member hospitals and over 1000 commercial members to establish a broad and market-leading portfolio of products and services.
GPOs also help healthcare providers reduce costs by standardizing and streamlining their purchasing processes. By aggregating the purchasing power of multiple hospitals, GPOs balance the negotiating equation between purchasers and vendors, allowing providers to secure better prices and terms than they could individually. GPOs also help providers avoid the need to employ additional non-clinical staff for contract negotiations, further reducing costs.
Additionally, GPOs often provide valuable services beyond volume discounts, such as data analysis, benchmarking, innovative technology integration, and market research, as well as emergency preparedness and natural disaster response. These services help healthcare providers optimize their operations and make more informed purchasing decisions, ultimately contributing to cost reduction. GPOs also play a role in reducing medical errors by helping to standardize product use in hospitals and educate clinicians on best practices.
The GPO Safe Harbor, established in 1987, further enhances cost savings. It allows GPOs to earn administrative fees from vendors, which in turn enables hospitals and providers to allocate more resources to direct patient care. These administrative fees are generally based on the purchase price of products procured through GPO contracts and range from 1.22% to 2.25%. This fee structure is transparent, with GPOs disclosing all fees annually and any fees above 3% included in contract agreements.
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Benefits of a hospital acquiring physician groups
The benefits of a hospital acquiring physician groups are varied and have been a growing trend in recent years. Firstly, there are financial benefits for both parties. Hospitals can diversify their services by acquiring physician groups, particularly those with a specialty focus, which can lead to additional revenue. Physician groups can also benefit financially, although some studies suggest these benefits may be limited.
Physician groups can offer scheduling flexibility, which can be a more desirable arrangement for providers. The smaller size of these groups can also foster a sense of community and give physicians more of a voice in decision-making processes. This can lead to better cooperation and a reduction in competition between providers and departments.
Physicians may also be attracted to the idea of offloading administrative burdens and gaining a better work-life balance. The move towards hospital-owned practices has been driven in part by the increasing financial and administrative difficulties of operating an independent practice. The regulatory and reimbursement issues associated with independent practices can be a significant burden, and many physicians feel that commercial insurer policies interfere with their ability to practice medicine.
Finally, the larger size of hospitals means they can offer a wider range of services and focus more on primary care. This shift towards larger practices and hospital-owned groups is a notable change in the medical practice model, with nearly 80% of physicians now working for hospitals or corporate entities.
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How HealthTrust's Group Buy program works
HealthTrust is a leading healthcare performance improvement organisation that serves approximately 1,800 hospitals and more than 70,000 non-acute facilities in the US and the UK. HealthTrust's Group Buy program works by leveraging the combined volume of its 1,400 healthcare members hospitals and over 1,000 commercial members to establish a broad and market-leading portfolio of non-clinical products and service offerings.
The Group Buy program helps members secure market-leading pricing from suppliers and even better pricing when committed volumes are concentrated in specific timeframes. This means that whether a member is building a new hospital or simply replacing old equipment, the Group Buy program will help align their purchases with that of other members, potentially saving them millions of dollars in acquisition costs.
The Group Buy program also provides members with national coverage through HealthTrust supplier agreements, a superior cost structure compared to fee-based consultants, and customized hedging strategies to minimize cost volatility. Additionally, HealthTrust's Facility Infrastructure Solutions offers access to over 100 top-quality suppliers that can help with facility start-up construction, renovation, or operating needs.
HealthTrust's Group Buy program also extends beyond cost savings. HealthTrust works with top manufacturers to help healthcare facilities utilize their products to improve patient care, quality, and efficiency across a variety of departments. HealthTrust also offers customized workforce solutions to enhance patient and employee satisfaction, optimize labor productivity, and manage labor costs.
Overall, HealthTrust's Group Buy program provides members with immediate and sustainable savings through access to purchasing contracts for supplies and services, educational resources, and participation in clinical and advisory engagements.
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Valify Solutions Group's data-driven market intelligence
Valify Solutions Group is a tech-enabled group purchasing organization that uses data-driven market intelligence to generate savings on purchased services. It is the first and only organization dedicated to managing purchased services in healthcare. Valify's purchasing volume and market intelligence provide leverage to generate savings on purchased services averaging 10 to 25%—a significant improvement on what hospitals could achieve independently.
Valify offers a preferred supplier network option for healthcare providers, giving them access to the HealthTrust Purchased Services portfolio without being an exclusive HealthTrust member. Valify's Advisory experts help create value by reducing costs while improving service levels. They also help align purchased services spend with contract coverage and compliance and assist in developing category sourcing strategies.
Valify's team includes experts in sourcing intelligence, product management, and business intelligence. The sourcing intelligence team is responsible for benchmarking purchased services and supporting the RFP module in the Valify Application. The product management team identifies and prioritizes new product features and functionality, while the business intelligence team leads the client data intake process and oversees reporting initiatives to help clients maximize the value of their data.
Valify's data-driven market intelligence provides significant savings for hospitals by leveraging the collective purchasing power of member facilities to negotiate savings on purchased goods and services. This helps hospitals reduce spending and balance the negotiating equation between purchasers and vendors. Additionally, Valify's market intelligence helps hospitals standardize and streamline their purchasing, reducing the number of non-clinical staff required to negotiate contracts.
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How GPOs help standardise product use and educate clinicians
Group Purchasing Organizations (GPOs) are entities that help healthcare providers, such as hospitals, nursing homes, surgery centres, clinics, and home health agencies, realize savings and efficiencies by aggregating purchasing volume. GPOs negotiate contacts that hospitals can use when making purchases. They do not purchase or buy any products. GPOs help hospitals save money by reducing the number of non-clinical staff that hospitals must employ to negotiate purchasing contracts. GPOs also help hospitals save money by reducing transaction costs and lowering prices through joint negotiation. GPOs negotiate one price for each product on behalf of their members, reducing the number of negotiations and prices to determine.
GPOs also help standardise product use by aggregating the purchasing power of hospitals, offering economies of scale to the healthcare supply chain. GPOs help balance the negotiating equation between purchasers and vendors. GPOs also provide valuable cost-avoidance savings to hospitals and other providers by helping them streamline their purchasing. GPOs are also leaders in reducing medical errors by standardizing some of the product use in hospitals and educating clinicians on best practices.
GPOs have operated under the same model for over 100 years. Congress included the GPO Safe Harbor in its 1987 Medicare and Medicaid Patient Protection Action to protect the cost savings realized through lawful GPO practices. GPOs deliver billions in annual savings to hospitals and other healthcare providers, Medicare and Medicaid, and taxpayers. Independent, empirical, and industry- and non-industry-funded analyses of GPOs have found that GPOs deliver billions in cost savings every year to the healthcare system.
GPOs are owned by their provider members and do not take title to or possession of products. The central purpose of GPOs is to improve efficiency. GPOs have sought to differentiate themselves by offering a range of additional services to healthcare providers, such as data analytics, that may further lower costs or improve operations. GPOs also provide market research and innovative technology integration.
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Frequently asked questions
A GPO is an entity formed to help healthcare providers save money, lower patient costs, and become more efficient. They negotiate contacts that hospitals can use when making purchases.
GPOs help hospitals save money by leveraging the collective purchasing power of member facilities to negotiate savings on purchased goods and services. GPOs also provide valuable cost-avoidance savings to hospitals by helping them streamline their purchasing and reduce the number of non-clinical staff they employ.
HealthTrust, CHC Supply Trust, and Valify Solutions Group are some examples of GPOs.
When evaluating a GPO, hospitals should consider their mission and find a GPO that supports it. A GPO should have a diversified product contracting strategy, offer value-added services, and have the ability to leverage relationships with manufacturers to fulfill big orders.
