Group purchasing organizations

According to some industry experts, group purchasing organizations (GPOs) are still in their infancy, but are beginning to explode. Why? With reimbursements dwindling, savvy administrators need to find ways to cut expenses where they can.

Group purchasing organizations are companies that aggregate volume purchases on behalf of their members to help reduce the cost of goods and services. Some companies charge a fee to join the group. GPOs purchase everything from medical and surgical supplies to cell phone use for employees.

John Sganga, president and CEO of Innovatix, LLC, says the “old days” of having individuals predominately doing the purchasing or contract negotiation are gone. Innovatix limits its service to the long-term care industry. “It’s probably in their best overall interest to allow the GPO to do the contracting in an aggregated form on behalf of the individual nursing home than to have a department of three, four, or five people.”

Sganga says there are smaller regional long-term care communities that have never even heard of a group purchasing organization. Typically one can find a GPO though associations, trade conferences, trade journal advertising, word of mouth, and the Internet.

When considering joining a GPO, Sganga says to ask the following five questions:

1. Is there an access fee?

2. Do you have to use one company exclusively, or can you use other GPOs?

3. What is the breadth of the company’s portfolio?

4. What are the “out clauses” or how can you terminate the contract you’re asked to sign?

5. Does the GPO offer any added value?

Group purchasing organizations are companies that aggregate volume purchases on behalf of their members to help reduce the cost of goods and services.

He says with a little research, administrators can realize significant savings to their communities enabling them to focus on what really counts and that’s quality care.

Andrew Huber, director of sales and business development for Ceres Purchasing Solutions, says those considering joining a GPO should ask what healthcare segments comprise their membership.

“This will help the member know how in tune the GPO might be to market-specific news and product needs,” Huber says. He also says the number of members is important because it may dictate pricing levels. Huber and Sganga agree that knowing whether there is an access fee is important.

Mitch Steiner, vice president of sales and marketing for the Tidewater Group Purchasing organization owned by Omnicare, says to also ask the GPO if it will require a minimum purchase and also if it serves the long-term care market specifically. “We have a lot of acute care GPOs in our market and they are not familiar with how long-term care operates,” he cautions.

Steiner says frequently GPOs only focus on food and medical supplies. “Administrators should be looking for a GPO that can provide alternative services like spend management consulting or nontraditional purchasing programs. We offer a contract therapy rehab program, waste management, legal services; things of that nature that usually aren’t associated with a GPO.”

A GPO should have enough salespeople to adequately service its accounts. Ask if there is a local sales representative available to you. Steiner says a lot of companies have very limited staff with a few representatives covering the whole country.

Support important

Expect support from your GPO. According to Steiner, routine business reviews and pricing audits should be in your agreement. “Often the vendors or suppliers we work with manage multiple agreements, so it’s really important for the GPO to make sure we audit those vendors for correct pricing to our members and that we monitor formularies and standardization to maximize the members’ savings.”

Huber feels direction, service, and innovation are three important support services. Sorting through a GPO’s supplier list can be a daunting task, Huber says. “A solid GPO should provide guidance to its members regarding which products to select and which suppliers would best suit that member’s needs.”

As far as service, he says GPOs that are closely tied to their suppliers should be able to aid members in finding beneficial products, and resolving service- and product-related issues. Is the GPO innovative? Is it discovering new suppliers, new products, and new cost-cutting strategies that will positively impact the member’s bottom line? “The best member/GPO relationship is where the member looks to the GPO for savings and strategies. The open lines between partners is vital,” Huber advises.

Unique position

Jerry Sanburg, senior vice president of procurement for Golden Living, is in a unique position. He belongs to a GPO and Golden Living also owns a GPO, Ceres Purchasing Solutions, housed under the company’s Golden Innovations Group. The company is also unique by its sheer size. It spends $850 million per year for products and services.

Sanburg says what he looks for in a GPO is, “how they build their contracts to address all of my needs, not just the best price point.”

“Price is pretty far down on the list, actually,” he says. “We want to make sure we have assurance of supply, quality, and that the service level is there.” Sanburg says he looks for flexibility in building a relationship with a GPO. “How can I still take my business and leverage it with my key suppliers because again, I want to maintain control of that relationship.” He says it is key to identify what services or commodities are more advantageous to purchase through a GPO and which ones are more advantageous to maintain your own control over.

…administrators can realize significant savings to their communities enabling them to focus on what really counts and that’s quality care.

“I know from our perspective one of the things we feel critical to maintain is control over our spend and over our suppliers, and you give up a little of that when you go into a GPO relationship because now you’re using someone else’s contract,” Sanburg says. “The first thing a facility needs to do is really analyze its spend and its needs and determine what it feels would be most advantageous to gain from a GPO relationship.”

To further maximize its purchasing power, Golden Living has contractually partnered with Adventist Healthcare, a member and owner of the largest healthcare GPO, Premier, Inc. Golden Living is also a member of Premier. “We look for opportunities to take our spend in key categories and leverage that along with Adventist’s spend to further drive down our costs. In some cases, we use our contracts, Premier contracts, or Golden Living/Adventist Healthcare contracts. We can often put better agreements together than the GPOs to meet our particular requirements,” Sanburg explains.

GPOs can be an important part of your cost-saving measures. Knowing what to look for is the first step in what could be a long and profitable relationship.

To send your comments to the editor, please e-mail mhrehocik@iadvanceseniorcare.com.

Long-Term Living 2010 July;59(7):23-24