What to Expect From a Group Purchasing Organization

The Balanced Budget Act of 1997 replaced the retrospective payment system with per resident, per day reimbursement, dramatically changing the purchasing and reimbursement process in the long-term care world. In response, Life Care Services, Inc. (LCS), a long-term care development and management organization in Des Moines, Iowa, formed a national vendor contract division in 1999. The purpose of that division, Care Purchasing Services, Inc., was to negotiate vendor contract discounts for pharmacy, therapy, and medical supplies—the three biggest sources of Medicare outgoing dollars. The organization soon began negotiating contracts for food, office supplies, and carpet. For example, LCS spent more than $1 million on coffee a year but did not have a national coffee contract. We met with several coffee distributors and selected a corporate-approved vendor that offered great pricing and excellent service. The new coffee program now saves LCS communities more than 10%, or $100,000 a year.

Independently operated facility administrators began asking if they could access Care Purchasing Services’ vendor pricing. Life Care Services saw the benefit of sharing corporate contracts with non-LCS clients. Since purchasing is a volume game—i.e., the more goods or services purchased from vendors, the lower the price—allowing other facilities to use our contracts would help them with better pricing and LCS with increased volume. Today, the group purchasing organization (GPO) Care Purchasing Services has more than 3,000 clients and offers products and services ranging from advertising to wound care products.

Not all long-term care facilities and GPOs are created equal. Facilities should ask the following questions to determine if their GPO meets their needs:

Does your GPO charge a membership fee or require you to purchase from a certain number of vendors? GPOs may charge a fee to cover administrative costs incurred. Savings realized by purchasing through a GPO must be able to cover any membership fees. Since Care Purchasing Services is looking for volume to help negotiate pricing, we do not charge a membership fee to clients or require a certain amount of participation.

What type of support do you want or expect from your GPO? GPOs may offer very aggressive pricing but little support. A facility that wants the lowest price for incontinence briefs, for example, can contract with a GPO that has the best price for briefs, but it may never hear from or see the GPO. Other facilities want the added services of nurses who do evaluations, sizing, and clinical in-services. If you want education, in-services, or benchmarking, you need to make sure the GPO offers these benefits.

Will your GPO go to bat for you if you’re having problems with accounts payable? Care Purchasing Services will call the vendor partner on behalf of a facility that is having trouble paying some bills. For example, if one of our member clients is having difficulty paying its pharmacy bill, we’ll call the pharmacy and negotiate a payment plan on behalf of the client. Not all GPOs will perform this service.

Will your GPO help solve your vendor problems? The GPO representative can resolve issues, such as chronically late deliveries, incorrect invoices, and poor service, so that the facility won’t have to worry about them. This is an advantage of GPOs that offer consulting services.

Does your GPO help to combat fraud? Department heads can be tempted by gifts and kickbacks from vendors. For example: A facility may need a new rooftop air-conditioning unit that costs $75,000, and the plant operations manager will be responsible for obtaining quotes. A vendor might approach the manager and say, “I’m going to give you a quote for $75,000, but the unit really only costs $50,000. You and I can split the $25,000 margin.” By using a GPO that has contracts for air-conditioning units and can supply pricing to the facility, the department head is less likely to be tempted to participate in this type of behavior. The GPO is an impartial entity to provide price quotes.

Department heads can also become too comfortable with specific vendors. Vendors that have conducted business with a facility for 20 years know the likelihood of the facility doing business with them in the future is pretty good. But the vendors’ pricing can start creeping up if no one is watching the store. The facility is probably not getting the most aggressive price if a vendor knows that no one is monitoring prices. A facility should have a mandate to solicit bids for products and services.

Does your GPO specialize in the products and services that you typically buy? For example, do you typically purchase the same products that a hospital would use? If so, there are several GPOs that are geared toward the acute care industry. Facilities may also be willing to pay a little more for products and services to get better customer service and consultation; others may just want the lowest price. Some GPOs will negotiate both manufacturer and distribution agreements, allowing you to use the distributor of your choice.

Does your GPO confirm that you have the best price? Many of our products and services are capital-related (higher-priced items). For example: Ordering office chairs might be on the to-do list of an office manager who may not be cognizant of the budget. The manager should get a quote through the GPO to confirm the facility is getting an aggressive price or to see if the GPO can save the facility money.

Does your GPO regularly audit your pricing? Care Purchasing Services randomly audits clients’ invoices to ensure that they are accessing our corporate pricing. A facility should select some of its higher-dollar vendors and fax its invoices to the GPO from time to time to ensure that it is receiving the proper price; 20% of prices are typically incorrect. When prices increase, the local vendor salesperson might not realize that the client is part of the GPO. If your GPO doesn’t audit those invoices, the 20% could compound every year.

Does your GPO cover the cost of paying invoices and negotiating with vendors? A facility’s dietary manager may have peaches on an upcoming menu. The facility wants to find the best price for those peaches, so the manager calls three or four peach distributors to find the lowest price. But the facility doesn’t factor in how much time it took the dietary manager to call the different distributors. Paying multiple vendor invoices also has a cost. A facility can “cherry-pick,” but they incur administrative costs—which can be more than $30 per transaction—to interact with several different vendors. Using a quality GPO for most of your purchasing needs can eliminate unnecessary administrative costs.

Does your GPO offer both national and regional vendors? A GPO-contracted manufacturer that doesn’t deliver a product to a specific region or area doesn’t benefit the chain client. Ask your GPO if it is willing to negotiate a regional contract on your behalf if your volume justifies it. Keep in mind that the GPO will expect a commitment from the chain or group to negotiate a regional vendor agreement.

Does your GPO endorse vendors that offer online purchasing? The trend in purchasing in the long-term care industry is online purchasing options. Online purchasing allows chains to mandate that facilities purchase items on formularies, thus saving the organization money. The chain does lose some flexibility using formularies but can save money if the process is properly managed.

Is your GPO willing to go the extra mile? When Hurricane Katrina struck in 2005, Care Purchasing Services worked with distributors in Houston to get medications, medical supplies, and food to our New Orleans–area clients. With no way of communicating with vendors and with New Orleans distributors under water, facilities couldn’t order medications, medical supplies, and food for residents. Care Purchasing Services coordinated with local authorities to allow essential supply trucks with police escorts into the highly restricted area. Equally important was our ability to work with our pharmacy provider to coordinate the delivery of vital medications throughout the city’s recovery period.

Does your GPO offer ancillary or value-added services? These are programs in which facility staff can access corporate contracts. For example: A Care Purchasing Services client facility employee can buy a new General Electric refrigerator at the national GPO discount price, and it will be delivered to the employee’s home. Value-added offerings of this type from Care Purchasing Services include computers, appliances, paint, and wireless service purchases. Care Purchasing Services offers “employee-based” programs as a human resources benefit to assist with employee retention.

To be successful in today’s long-term care business climate, a client should utilize a GPO that can be a “true business partner,” a GPO that will work with you and for you, tailoring programs for your organization’s needs and assisting you to achieve short- and long-term strategic goals.

Kevin Meyer is Vice-President of Operations for Care Purchasing Services, Inc., a wholly owned subsidiary of Life Care Services, LLC.

For more information on Life Care Services, phone (515) 875-4500 or visit https://www.lcsnet.com. For more information on Care Purchasing Services, phone (800) 543-3491 or visit https://www.carepurchasing.com. To send your comments to the author and editors, please e-mail meyer0707@nursinghomesmagazine.com.

Topics: Articles , Facility management , Finance