Knowledge Expansion

Sponsored by MGMA BestPrice: Dinosaurs, Aggregators, and the Case for Commitment in Group Purchasing

Insight Article

Contracting

Practice Efficiency

“GPOs are really dinosaurs in the industry. They are working to change … they must change to survive.” Rob Austin, Director of Navigant1

Rob Austin’s recent remarks in Modern Healthcare echo the conclusion that many providers have reached about national group purchasing organizations (GPOs): They no longer meet the definition of a GPO, and it is time for a change.

Why? Simply put, most of the national GPOs have lost their provider focus. Many GPOs have transformed from organizations that are buying groups to leverage their collective purchasing power to corporate entities that are driven by profit margins instead of member savings. They are focused on collecting administrative fees, expanding their services outside purchasing and even working with aggregation groups to renegotiate their own contracts because their pricing is no longer competitive. Reducing costs is no longer a priority.

This shift has caused national GPOs to lose members and consolidate. Going larger scale without commitment isn’t fixing the problem. Instead  aggregation groups are forming to renegotiate better prices that general GPOs can’t offer because of an inability to leverage their massive scale.

The result is general GPOs offering consultant-esque agreements while providers develop regional coalitions and even choose self-contracting to find better prices.

With these changes, it should be no surprise that there has been a 15% decrease in spend through national GPOs since 2005. Now, GPOs represent only a 56% share of spend.2 And these new aggregation groups are leaving out nonacute providers unless they are owned by hospitals.

What option does this leave independent MGMA members?

The answer is a committed GPO. These GPOs — like HealthTrust, the only national GPO to implement a committed model — are provider-run and provider-focused organizations that have stayed committed to the key elements of the GPO model despite the turmoil in the marketplace. They have also worked with independent providers from the beginning and offer a nonacute provider program exclusively used by MGMA BestPrice.

What does that mean for independent providers and practices? Let’s go back to the beginning and gain a better understanding about what a GPO is and how we got to where we are now.

Back to basics: GPOs defined
A GPO has one objective: to reduce costs. That objective is achieved through:
  • Collective buying power: Two or more providers select suppliers that will work with GPO members.
  • Leveraged purchasing power: Providers use their buying power to gain suppliers’ interest and support.
  • Commitment: Suppliers reward provider loyalty with lower product prices. Suppliers also pay an administrative fee of 3% or less that supports a GPO’s infrastructure.
In a functioning GPO, all of these elements work together. It is a simple concept, but the dynamics of the marketplace are making it increasingly complex for any provider to benefit from a general GPO membership. For independent, nonacute providers, it is impossible.

Where we are now

The four national GPOs in today’s marketplace fall under two categories: general and committed. Three of the four national GPOs are considered general GPOs because they share these characteristics:
  • Profits before providers: The primary interest of general GPOs is recruiting and retaining members to collect more administrative fees. The consequence of this choice is twofold: As providers join more than one GPO, suppliers no longer offer lower pricing to general GPOs because of their overlapping rosters. This in turn causes general GPOs to lose their negotiating power.
  • No cost leverage: Because general GPOs know their members aren’t committed, there is no motivation to make cost savings a priority. Instead, these GPOs are moving into non-GPO activities like consulting on product standardization, utilization strategies and care delivery process improvement to set themselves apart. These are activities that are largely designed to support hospital-based customers and revenue.
  • No member loyalty: General GPOs do not ask members for commitment. General GPOs are focused on collaborations with aggregation groups and are encouraging members to join them. But these aggregators are not focused on nonacute providers unless they have hospital ownership.
These traits reinforce the argument that today’s general GPOs no longer meet the definition of a GPO. As a result, members are either abandoning them for a national committed GPO or dedicating time and resources to develop their own smaller GPOs in a specific region or for a particular focus. And as mentioned above, the general GPOs are encouraging these groups in order to save some portion of their revenue stream.

The downfall of general GPOs is leading to growing support for committed GPOs, which prioritize growing membership (or collective buying power) to offer members greater leverage and lower costs. To achieve this goal, committed GPOs work to simplify administrative activities, build strong relationships with carefully selected suppliers and remain focused on what is most important: cost savings. The primary characteristics of a committed GPO include:
  • One price for all: In committed GPOs, small, independent providers enjoy the same benefits as their larger counterparts.
  • Market leverage: Committed GPOs are powered by the aligned purchasing power of their members so the organization can negotiate the best prices.
  • Provider engagement: Committed GPOs often consult with providers to conduct clinical evidence reviews of new technology and physician preference items. For example, HealthTrust established HealthTrust Physician Services to spearhead these evaluations and give their members a say in how supplies are sourced and ultimately used.
Committed GPOs: A catalyst for cost savings

Across the healthcare sector, support for the committed GPO model is growing.

Intermountain Healthcare, a Utah-based hospital system, adopted a committed contracting portfolio for selected products when a lack of standardization and commitment in commodity areas led to higher prices. The initial result was a savings of $2.78 million.

Baylor, Scott & White saved $32 million when its 48-hospital system developed a committed program for purchasing joints and cardiovascular devices and supplies— a successful disintermediation of the general GPO model.

Unfortunately, not all MGMA members have the time or resources to renegotiate their GPO contracts. That is why MGMA is focused on helping members make the most of opportunities that committed GPOs have to offer.

MGMA members and GPOs: What’s next?

While MGMA members can choose among contracts within a general GPO, choosing a committed GPO allows them to select a GPO that serves them best. The result of this self-selection is a GPO membership that strategically coordinates purchasing decisions, maintains high-quality standards and achieves the best price.

The GPO “dinosaurs” have lost their way and are becoming extinct. For MGMA members, this means it is not a matter of whether to join a committed GPO, but when. Now is the time for members to start evaluating their options.

MGMA recommends that members use MGMA BestPrice to conduct a free cost study of their practice’s purchasing. Through a partnership with HealthTrust GPO, MGMA BestPrice offers members access to a committed GPO and competitive pricing on medical and nonmedical supplies. Currently, over 2,000 MGMA member practices participate in the MGMA BestPrice program and save over $12.6 million annually on
selected vendor services.

To sign up for a free cost analysis to find out if the committed GPO through HealthTrust proves to be the right option for your practice, visit mgma.com/mgmabestprice.

Notes:
  1. Kacik A, “Cutting Links Out of the Healthcare Supply Chain,” Modern Healthcare, Feb. 3, 2018.
  2. “Group Purchasing’s Impact of Spending Examined,” Journal of Healthcare Contracting, Jan. 18, 2018.
  3. Kacik, “Cutting Links Out of the Healthcare Supply Chain.”

MGMA BestPrice

MGMA is proud to partner with MGMA BestPrice, our handpicked GPO works with members to save money on the items they already buy and maintain their existing vendor relationships. MGMA BestPrice has over 2300 members and delivers a cost savings of 11-18%. Unlike other programs, you're free to order all the same products with the added benefit of group pricing.

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