March 20, 2020
A group purchasing organization (GPO) is a company that negotiates prices for drugs, devices and other medical products or services on behalf of healthcare facilities, including hospitals and nursing homes. These savings that healthcare facilities experience are then passed onto the patients—and ultimately to taxpayers. As such, GPOs are a hugely important part of the American healthcare system right now, and understanding how they function within your healthcare facility is imperative for helping you be a strong advocate for your preferred medical devices.
To better understand how GPOs operate and how you can be an internal product champion, read on.
What is a Group Purchasing Organization?
A GPO is an organization that helps healthcare facilities, including hospitals and nursing homes, find cost and process efficiencies. GPOs vary greatly in size, type of ownership and services they offer their members; however, they all work from an income model that’s based on generating revenue by charging healthcare, medical and pharmaceutical manufacturers fees to use their services.
Currently, it is estimated that there are over 600 GPOs, with up to 98% of hospitals using GPO contracts for their purchasing. Within the 600 GPOs, there are five that healthcare facilities primarily work with:
Vizient®
Intalere
HealthTrust
Premier
Forum Purchasing
These GPOs create efficiencies in sales supply processes, which helps provide healthcare facilities with enhanced savings and more streamlined purchasing control. Facilities can—and often do—work with multiple GPOs simultaneously, helping maintain competitiveness within the market.
It’s important to understand that a GPO does not take possession of medical products. Instead, their focus is on lowering operating costs for their members while improving the quality of services. They often have tens of thousands of product options, helping make them a more efficient purchasing option (think a “one-stop-shop”). And, with GPOs, various financial and logistical reporting is available, helping simplify management and procurement activities.
Essentially, GPOs manage the burdens of negotiating and managing purchasing contracts that most healthcare facilities couldn’t undertake on their own consistently.
How Are GPOs Regulated?
GPOs are an extremely transparent industry within health care that have a high level of oversight, both through “safe harbor” regulations, as well as federal review.
Within the federal Anti-Kickback Statute (AKS), “safe harbors” were established to address GPOs and help ensure disclosure and accountability. These "safe harbor" regulations address statutory and regulatory requirements for disclosure, reporting and transparency, mandating full disclosure and reporting of cost savings that healthcare facilities gain through affiliations with GPOs. This, in turn, helps ensure that GPOs are helping national healthcare programs benefit from lower costs.
Per the Healthcare Supply Chain Association, these “safe harbor” regulations ensure that any payments made to a GPO by vendor of goods and services—in order to not be considered violative of the AKS—adhere to the following standards:
The GPO must have a written agreement with each individual or entity, for which items of services will be furnished, that provides either of the following:
The agreement states that participating vendors from which the individual or entity will purchase goods or services will pay a fee to the GPO of 3% or less of the purchase price of the goods or services provided by that vendor.
In the event that the fee paid to the GPO is not fixed at 3% or less of the purchase price of the goods and services, the agreement specifies that amount. If the amount is not known, the maximum amount will be used. The GPO will be paid by each vendor, where such amount may be a fixed sum or a fixed percentage of the value of purchases made from the vendor by the members of the group under the contract between the vendor and the GPO.
Where the entity which receives the good or service from the vendor is a healthcare provider or service, the GPO must disclose in writing to the entity at least annually, and to the Secretary upon request, the amount received from each vendor with respect to purchases made by or on behalf of the entity.
These provisions help ensure that GPOs maintain beneficial to healthcare organizations, as well as are held accountable for their actions.
Additionally, GPO cost savings, administrative structure and business practices are all reviewed by the Department of Justice, Federal Trade Commission, U.S. Government Accountability Office, the U.S. Supreme Court, the 8th Circuit Court of Appeals, academia and a majority of the nationwide hospitals. All of this oversight helps ensure that GPOs continue operating in an effective—and ethical—manner, prioritizing cost-savings and efficiencies within the American healthcare industry.
What Benefits do GPOs Offer?
An analysis through the Healthcare Supply Chain Association (HSCA) found that GPOs save the healthcare system up to $34.1 billion annually, with hospitals and nursing homes benefiting from a large portion of these savings.
Furthermore, within a nationwide survey of executives completed by the University of Pennsylvania, respondents strongly agreed or agreed that GPOs generate:
Savings from lower prices (88%)
Demonstrable cost savings and improvements (86%)
Savings from contract standardization (84%)
Savings from providing the market price point (73%)
Savings from administrative fees rebated to hospital (67%)
Savings from information technology (64%)
GPOs function based on membership, creating an incentive to be competitive in cost and efficient in order to attract healthcare providers. This “incentive structure” provides the evidence that GPOs will reduce—not increase—providers’ cost, which is strongly supported in economic literature, as well.
Beyond just healthcare savings, facilities are increasing their reliance on GPOs to help manage other complexities within healthcare purchasing. To answer these needs, GPOs are actively working to expand offers beyond just cost-saving assistance. These include:
Data analysis and benchmarking
Innovative technology integration
Market research
Emergency preparedness
Natural disaster response
GPO networks are also actively working to help standardize product use in healthcare facilities to improve patient care and reduce medical errors.
How do Hospital Organizations Work with GPOs?
The process for working with a GPO involves layers of negotiation, as well as ongoing communication internally to determine the best purchasing options. Typically, though, working with a GPO will involve the below steps:
Most organizations will make purchasing selections by committee, incorporating individuals from various roles throughout the facility. These committees will then determine which products are necessary and relevant for purchasing. It’s imperative that those who have preferred devices work to be involved in these committees or have the opportunity to present to these committees to help promote their preferences.
Once the product decisions are made, the GPO will work directly with manufacturers, distributors and suppliers to negotiate contracts on behalf of the healthcare facility.
After the GPO contract is completed, the healthcare facility will still need to decide which products are most important in select healthcare situations. They will then be able to purchase these products based on the negotiated contracts the GPO has finalized.
It’s important to remember that GPOs do not purchase any products; rather, they are the driving force for negotiating the contracts that lead to purchasing through the applicable healthcare facility. If a product is on contract within your facility, then ordering it should be easy for you. Having a device on contract within a GPO simplifies the purchasing process—helping give you quicker, easier access to the medical devices that you need.
If your preferred product is not on contract, though, it typically won’t show in the system when purchasing requests are made. As such, it’s essential that you work to be an advocate for it within your healthcare facility to help ensure that those devices are considered when GPO contracts are created or renegotiated. This can include being actively engaged with your facility’s value analysis committee, which could play a part in purchasing decisions when working with a GPO.
The process for working with a value analysis committee varies from facility to facility; however, the below questions can help guide better understanding your specific process:
Who needs to be the product champion internally?
How do you engage the value analysis committee to be able to present?
What information is needed when presenting a new device?
What is the specific process for the actual presentation?
Who should be the main point of contact throughout the process?
All healthcare facilities are different, though, so it’s important that you work with your supervisor or value analysis committee to better understand what your facility’s specific process is.
In all, being a proud advocate for your preferred devices—and taking the strides to get this preference in front of the right decision makers—can help ensure that these devices are included in the applicable GPO contracts and are made easy to purchase.
How is Bionix® Improving Medical Device Purchasing?
Bionix® is proud to be affiliated with Vizient®, ProVista and Intalere, helping make purchasing our innovative devices easier and more cost effective when done within our GPO contracts.
Plus, Bionix received the Innovative Technology contract from Vizient, the largest member-driven health care performance improvement company in the country. This contract was based on a recommendation of Bionix Lighted Technology products by hospital experts—showcasing the ongoing value of our devices.
“After a review of the Lighted Technology Products, Vizient’s member council agreed the technology offers a unique benefit over other products available in the market today and recommended it for an innovative technology contract. We are pleased to award this new contract to Bionix®.”
-Debbie Archer, director of procurement and leader of the Vizient® Innovative Technology program for su
