Supply Chain
A group to discuss the healthcare supply chain and how to more effectively source reliable and... View more
Organizer:
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GPO’s
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GPO’s
Good Morning Everyone,
I was wondering if there are any Supply Chain managers in this group? I am specifically interested in learning more about why Hospitals use GPO’s. To me it is a lame excuse to hire lazy materials managers and take their decision making ability away. It is my understanding that the way GPO’s get paid is through membership fees and a % of total spend. Isn’t this a classic conflict of interest? Unless I am wrong, Hospitals use GPO’s to get preferred pricing, however they are being charge by the GPO for every dollar spent. Does a GPO really want to save the hospital money? Do they want to look for no cost alternatives? Is there any reason why a skilled Materials Manager couldn’t negotiate as good or better pricing? I would love to get some feedback and a discussion going here.
Have a Great Day!
Mike
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1 Reply
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The report found at the Federal Trade Commission regarding Group Purchasing Organizations (GPOs) is an excellent source for detailed information about GPOs. It’s important to note that GPOs are not specific to healthcare and are found in numerous other industries. Data from numerous reports show that GPOs contribute to significant reductions in pricing due to their aggregation of member spend to drive negotiations at the national level and reduce overall costs. GPOs offer further benefits aside from contract pricing as indicated by the Healthcare Supply Chain Association that provide deeper insights and resources to hospitals. Also of note – most GPOs are member-driven and according to Becker’s Hospital Review 96-98% of hospitals belong to at least one GPO; if hospitals did not see cost reductions in both supply expense and resource reductions through centralized sourcing and analytics, GPOs would not be utilized.
No GPO covers 100% of all categorical spend and hospitals are not bound to purchase from any GPO contracts. Hospital value analysis and sourcing teams routinely evaluate/purchase products from non-GPO contracted vendors and do look to lower costs, mitigate risks and improve patient outcomes where appropriate. The Journal of Healthcare Contracting “Helpful or Harmful” highlights a study by Lawton Burns, Ph.D. from Wharton School conducted on GPOs and helps highlight some of the benefits of GPOs and shortcomings that can be overcome by hospitals.
Transparency could be the key to driving further cost reductions – if manufacturers/distributors posted pricing online through an open market the need to negotiate nationally and locally may not be required due to the increased natural competition from sellers. An interesting article from the National Law Review “Lessons to be Learned from Amazon’s Step Back from Entry into the Hospital Supply Chain” illustrates the complexity of healthcare purchasing and highly regulated framework, painting a realistic view of challenges for potential disruptors seeking to change traditional healthcare purchasing methods.
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