Expanding the Value Proposition of GPOs
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In healthcare, a group purchasing organization (GPO) aims to improve efficiency and care quality at member hospitals and care facilities. Today, progressive GPOs are expanding beyond the traditional capacity of pricing negotiations with suppliers, manufacturers, and distributors to play a more strategic role in procurement, outcomes, and payment.
With a continuing emphasis on value-based care and financial transparency, GPOs are in a unique position to partner with healthcare providers and suppliers in their joint missions to improve patient care. As advocates operating in the best interest of the hospitals they serve when it comes to supply chain, GPOs can empower hospitals and care centers to be proactive in their approaches to sourcing diversification, risk-based payments, population health, or other initiatives.
For example, with the global attention on COVID-19, GPOs have been central to tracking the availability of face masks and personal protective equipment for U.S. hospitals, directing efforts to alleviate isolated spot shortages and offering guidance on judicious use of resources. One GPO actively engaged with the U.S. Food and Drug Administration and the Centers for Disease Control (CDC) to track hospital inventories and preparedness efforts, including conducting a survey of U.S. hospitals to assess inventory levels. This information was proactively shared to inform the federal government’s understanding of the current state and potential future vulnerabilities.
According to a study published by the Healthcare Supply Chain Association (HSCA), supply costs account for about 15 percent of total hospital expenses. However, these costs can balloon as high as 40 percent for hospitals with high surgical volumes or case mix. The efforts of GPOs allow providers to secure lower prices for high-quality products, ensuring that healthcare providers continue to maximize value and deliver care in the most cost-effective manner. In the same HSCA study, one GPO respondent reported that a health system client saved $3.6 million on implants by regulating price disparities across functionally equivalent products.
Another respondent in the HSCA study reported helping a hospital client reduce its sepsis mortality rate by 45 percent through data analysis. This GPO leveraged the information it collected to identify key improvement areas, develop a plan of action, and create a sepsis triage tool that improved early detection.
Using robust data analytics, it’s clear that GPOs can increase cost transparency for providers to identify savings and efficiency opportunities and eliminate waste. But the most effective GPOs are those that are also staying on top of regulatory developments and marketplace dynamics to help resolve drug shortages, mitigate supply disruptions, develop risk-based contracts and optimize purchased services spend, among other activities.
Some GPOs are even using machine learning and artificial intelligence (AI) to monitor market demand and reduce supply costs. These new tools can predict shortage risks, recommend inventory levels, and lower the number of unnecessary orders.
Where can GPOs go from here?
As previously mentioned, GPOs form close partnerships with member hospitals and other care facilities. Because of this existing relationship, GPOs may be able to improve communication between care providers and their suppliers, mitigating the risk of pharmaceutical and other supply shortages.
Healthcare industry and GPO leaders suggest there are a few major areas into which the purchasing groups can expand, including disaster response, supply disruptions, and e-commerce.
Coronavirus has thrown into sharp relief the effect of relying on one geographic area for raw materials and manufacturing. The response has further demonstrated how healthcare providers count on their GPOs to ensure diversification of sourcing that prevents supply chain disruptions. Past epidemics such as H1N1, Ebola, and Hurricane Maria have highlighted vulnerabilities in the supply chain both from a drug and medical supply/device perspective, and some GPOs are taking lessons learned from these past events to proactively address supply chain vulnerabilities, including launching programs to bring shortage drugs back to market and ongoing efforts to understand and mitigate the downstream impact of COVID-19.
Natural disasters continue to hover on the precipice of supply chain stability, with California's ongoing fight against wildfires, flooding in North Dakota, and tornadoes in Tennessee. Once a community is in the midst of a disaster, natural or otherwise, it can be nearly impossible to properly oversee purchasing and inventory management. During Hurricane Harvey in 2017, Texas hospitals were closed due to massive flooding and had to be evacuated, with many hospitals experiencing severe water damage.
Many healthcare leaders believe that GPOs have the power to mitigate chaos amidst disaster response due to their unique role in the industry.
An article from mHealth Times notes that GPOs swung into action to help healthcare providers with their emergency preparedness during Hurricane Dorian in 2019. Premier, a healthcare improvement company with one of the largest GPOs in the U.S., has spent the past several years implementing advanced analytics and vendor logistics in an effort to manage and balance the supply chains of its member healthcare providers. As soon as Dorian was predicted to hit land, Premier and other GPOs used this intelligence to track the impact the storm could have had on members and offered guidance for care facilities on how to properly stock up on supplies.
Hurricanes and natural disasters are one of the root causes of product shortages in healthcare. Others include demand planning, margin compression, and even economic policies. The year 2018 marked a 36 percent increase in product shortages alone, and forward-thinking GPOs are proactively working with suppliers, distributors and industry organizations to create better upstream visibility and mandate notifications of potential disruptions earlier. A strong GPO partner aims to anticipate challenges before they occur.
This partnership is also beneficial in the non-acute care space outside the hospital. In an effort to streamline purchasing and monitor supply spending more closely, some GPOs are introducing e-commerce marketplaces, in which they apply their experience and expertise to the growing alternate site setting. By vetting and curating healthcare-specific sellers and products on one platform, GPOs with an e-commerce site offer non-acute care purchasers—who have traditionally procured supplies from a multitude of online retailers—cost, quality, and resource efficiencies in one convenient place.
The evolution of the GPO from simply cost controller to strategic supply partner has dramatically improved efficiency and care. As analytics continue to improve in the healthcare arena, we can expect to see even greater predictive solutions from the GPO segment.
Looking for more information on the unique role of GPOs in healthcare purchasing and communication? Watch our on-demand webinar, The Impact of IDN and GPO Consolidation on the Healthcare Industry, hosted by John Pritchard of Share Moving Media.
In this webinar, we cover:
- Key environmental factors influencing the healthcare landscape
- How top IDNs are using (and misusing) their GPOs
- Avoiding common contracting mistakes