Friday, September 2, 2011

GPOs Deliver the Goods for Hospitals

GPOs Deliver the Goods for Hospitals

Survey finds seven in 10 hospitals estimate they save 5% or more on supplies bought through group purchasing organizations.

Chicago, IL (Vocus) August 18, 2010

America’s hospitals and health systems say they’re cutting their supply costs significantly—typically by 5 percent or more—by using group purchasing organizations (GPOs) and plan make further use of these alliances in the next year. Nearly 70 percent of the respondents to a recent Hospital & Health Networks (H&HN) survey say they plan to boost purchasing through GPOs in the next year, with four in 10 projecting the increase will be by 10 percent or more.

The survey results demonstrated overwhelming support for these shared-service purchasing entities, with 90 percent of the respondents saying they’re “satisfied” or “very satisfied” with their GPO relationships. Seven in 10 respondents estimated their GPOs have helped them shave 5 percent or more off their overall supply costs, while one in four respondents reported savings of more than 10 percent.

For decades, hospitals and health systems have strategically managed their supply chains through the use of GPOs, which obtain volume discounts by combining the purchasing power of hundreds and sometimes thousands of hospitals. Beyond negotiating better prices for supplies, GPOs add value by allowing hospitals to use a lean staffing model for contracting.

But just how much value hospitals place on their GPO relationships, how much they save and how loyal providers are to their purchasing business partners have not been as well understood. The 2010 Hospital GPO Usage survey, conducted jointly by H&HN magazine and the Association for Healthcare Resource & Materials Management (AHRMM), examined these and other aspects of how health care providers monitor the value of their GPO relationships.

Among the key findings:
While hospitals tend to purchase most of their supplies, including medical-surgical, pharmacy and office products, through one or more GPOs, there’s still room to expand purchasing volume through GPOs. For example, about one in five respondents (21 percent) noted that less than 40 percent of their total spending for supplies was transacted through GPOs, with another 21 percent saying they buy 40 percent to 60 percent of their supplies through GPOs. The remaining 58 percent of respondents buy 61 percent or more of their supplies through GPOs.

Hospitals’ relationships with GPOs tend to last. More than 53 percent of the respondents either hadn’t switched their primary GPO for more than 10 years or had never changed their GPO. Many larger hospitals and health systems are also partial owners of their GPOs, which tends to further solidify the relationship.

Hospitals closely monitor their GPOs. The survey found that 95 percent of respondents monitor adherence by suppliers to GPO contract prices and terms; 93 percent monitor cost savings by product or initiative; and 91 percent monitor vendors’ compliance to contract terms.

Beyond cost savings and contract management services, GPOs now offer many “extras” such as consulting services, quality initiatives, education and benchmarking tools. The survey found, however, that many respondents don’t place high value on some of these offerings.

For example, while 90 percent of the respondents rated consulting services for contracting as “important,” fewer than half gave the clinical consulting areas an “important” rating. Still, for those who effectively employ consulting services from their GPOs, the savings can be substantial.

Cedars-Sinai Medical Center in Los Angeles has used cost benchmarking tools provided by its GPO to avoid paying higher prices for operating room and cath lab supplies. The savings totaled about $2.5 million.

“We see what our peer hospitals are paying, then we go back to our suppliers and show the benchmark,” says Gerry DeSilva, director of facilities and materials management at Cedars-Sinai. “That helps in negotiations, and that cost avoidance [results] in real savings.”

The 2010 Hospital GPO Usage survey was sponsored by HealthTrust, HLN MedFreight and Premier Inc. A complete report on the survey findings can be found in the July issue of Hospitals & Health Networks magazine (http://www. hhnmag. com).

About Hospitals & Health Networks
Hospitals & Health Networks, a publication of the American Hospital Association’s Health Forum group, is the flagship magazine of the American Hospital Association (AHA) and is the leading publication for hospital executives.

The Association for Healthcare Resource & Materials Management, of the American Hospital Association, is the premier membership group for health care supply chain professionals, representing about 4,000 members.

About Health Forum
Health Forum is a center for the exchange of credible information, insights and data to help hospital management and suppliers improve performance. We embrace innovation and knowledge where the leaders of hospitals, health systems and their suppliers are committed to improvement and trusted by their communities.

Contact: Bob Kehoe, special projects editor, Hospitals & Health Networks, 312-893-6898, rkehoe(at)healthforum(dot)com.