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The benefits of Using a Healthcare Group Purchasing Organization
What is a group purchasing organization?
According to Weinstein (2006), a group purchasing organization, also known as GPOs refers to an entity that assists organizations and agencies to realize their savings and productivities by accumulating purchasing volume and then using the same leverage to make negotiation for discounts with different manufacturers, vendors and distributors.
Role of GPOs
GPOs are responsible for sourcing and negotiating prices for various products as well as services. These include medical devices, drugs and other related products and services for the sake of healthcare providers, including public and private hospitals, physician practices, ambulatory care amenities, nursing homes as well as home healthcare agencies. Also, GPOs help in saving money for different healthcare providers alongside patients. Through this, they reduce costs mainly through two important instruments including lowering the transaction costs and lowering prices through some joint negotiation.
History of the GPOs
The first Group Purchasing Organizations can be traced the back to early 1900s which served in the healthcare industry. Currently, healthcare still holds more GPOs than the rest of the health industry sector. Group purchasing organization were first entity in the United States that was created to leverage the entire purchasing power of any group of diversified businesses to acquire discounts from the vendors based on a collective procurement power of the GPO as whole members (Weinstein, 2006). Over the years, GPOs have been faced with increasing expenditures due to extraordinary advances in healthcare and from an aging population besides low reimbursement from the federal government as well as the private sector contributors.
What is a healthcare GPO?
A healthcare group purchasing organization, commonly known as GPOs refers to an entity that assists the healthcare industry providers like nursing homes, hospitals as well as other home health agencies. Aforementioned will help them to realize their savings and productivities by accumulating purchasing volume and then using the same leverage to make negotiation for discounts with different manufacturers, vendors, and distributors.
How is group purchasing used in healthcare?
Hospitals and the rest of the healthcare providers utilize group purchasing to acquire the right products at a very favorable price. Approximately 72 percent of the entire purchases that most hospitals make a pass-through GPO contracts.
How do GPOs save money for health facilities?
Since GPOs embody many healthcare services, they provide economies of scale to the entire healthcare supply chain. Through the aggregation of hospitals’ purchasing power, GPOs aid in balancing and negotiating the equation between various clients and vendors.
Amount of money physicians and hospitals save using a GPO
Doctors and physicians save a lot using GPOs on behalf of the hospitals and self-supporting nursing homes from around 10-15 percent off the entire purchasing costs. That implies that GPOs enable most hospitals to save approximately $33 billion annually through lowered prices of products. It is through the purchasing needs of a company that attracts thousands of different companies across the entire country. By taking the commercial needs while leveraging them with those of other corporations’ purchasing orders, most GPOs are capable of negotiating contracts with different suppliers who then reduce the cost considerably.
Essentially, the GPO bridges companies as a well-linked partner with specialization in the purchasing process through a compilation of billions of dollars in capacity and then negotiate the contracts, eventually saving the organization more money.
Furthermore, GPOs deliver some valuable cost-evasion savings strategies to various hospitals as well as other providers by assisting them to rationalize and update their procuring, besides reducing the number of engaged non-staff that organizations must hire to negotiate procurement contracts.
How does group purchase work?
Most of the healthcare providers comprise the GPO selections in most of the committee setting, typically composed of the healthcare professionals, like doctors, nurses as well as other clinicians. These respective committees assist in determining which of the medical supplies are most suitable from a quantifiable viewpoint. Once a rational decision is made, the GPOs then correspond to work together in a bid to negotiate different contracts with the available healthcare distributors, suppliers, and manufacturers.
After a collective decision is made, a group purchasing agreement is initiated, where it lies with the critical hospital to choose from which product seems more appropriate as compared to the best available options in each context and then make it the most suitable purchase. Most GPOs do not make procurement to any products. They concurrently negotiate contracts that the entire hospitals can utilize when making their purchases.
What types of healthcare entities utilize group purchasing services?
Most of the healthcare organizations employ group purchasing services. Virtually, every medical service provider in the United States about 96-98 percent opts to utilize the GPO contracting services for their procuring functions. Furthermore, estimates show that many hospitals across the entire United States employ, on average, no less than two and maximum of four GPOs for every facility. An increasing share of the ambulatory care, long-term care, physician practice, doctor practice markets and home care mostly utilize the group purchasing organizations to help decrease costs while improving productivity (Burns, 2002). Additionally, the federal government of United States as well provides the GPO services to numerous administrative branch agencies.
Are there different types of GPOs?
Not really. GPOs, as seen, vary significantly in numbers and size as well, type of proprietorship, rights, and services offered to their members. Some of the GPOs are maintained by hospitals, while the others do not have such a connection to services they serve. Some of the GPOs only serve the non-profit hospitals, while the rest serve just the patented facilities, and some of them even serve a combination of the two as mentioned above. Some of the GPOs provide to hospitals the capacity to make purchases nearly every possible product type and brand, while the others focus on specific product groups. Furthermore, some of the GPOs concentrate in particular types of healthcare and packages, like long-term care.
How many GPOs are there in the U.S.?
Currently, there exist around 600 General Purchasing organizations in the entire United States that engage in group purchasing functions. Approximately 30 of the total 600 GPOs are valid and approved-GPOs that negotiate considerable agreements for their respective members. The rest of the organizations tries to offer their affiliates membership with access to other more extensive groups’ contracts with negotiating terms and with local vendors for some particular services.
What types of services do GPOs provide beyond volume discounts?
Most healthcare providers apart from hospitals increasingly rely on the GPOs services to assist them to manage the entire complex system involved with purchasing. Many of the GPOs bargain and offer e-commerce healthcare solutions to help in managing their entire purchasing processes. The GPOs also as leaders to condense the medical errors through assisting to regulate some of the product uses in various hospitals, providing clinicians with knowledge on the best practices, and leading as well lead a drive to establish and implement the barcoding techniques for medical products.
GPOs also provide an excellent mechanism to any group of hospitals for them to coordinate not only their entire purchasing power but as well their intellectual power. Correspondingly, from the drawings made from their respective broad-based connections, GPOs provide to doctors, pharmacists, nurses plus the rest of the clinical experts a path for assessing new products and the impact they have on quality care. GPOs tries to utilize the old saying which says that two are better than one, and put on this into the healthcare product procurement and decision making.
How do GPOs make money?
GPOs rely partially, on the fees paid by different merchants to finance the GPOs services offered by healthcare providers. Correspondingly, administrative fees charged as a way of funding themselves is commonly based upon the entire purchase price that a particular healthcare provider recompenses for a specific product that is purchased through the specific GPO contract. The remuneration is paid when the GPO’s provider-subscriber through utilization of a GPO contract. Also, every GPO is organized in different ways (Weinstein, 2006). Some of the GPOs charge their members a fee for their entire services granted to them, while the rest of the GPOs get paid by the dealers themselves. This process in turn finance the provider program; who happens to be the GPO, membership fees freely.
What is the value in allowing GPOs to earn administrative fees from vendors?
The value found in this act of earning administrative fees is attributed to the fact that it permits healthcare providers especially hospitals to commit more monetary resources to the direct delivery of patient care, like employment of supplementary doctors and nurses, buying cutting-edge products, and a host of other related goals.
Without the facility to receive administrative fees, most hospitals would be in an awful situation. They would be left with options to choose from between diversion of incomes from direct administration of patient care to fund the GPOs operations or instead they would have to halt the use of GPOs overall, thereby trailing in the volume discounts on top of raising the rate of healthcare.
Do GPOs only exist in the private sector of healthcare?
Categorically not. In the healthcare, and for the Federal government, Department of Defense, and the rest of the departments utilize as many of the similar methods when it comes to purchasing products through GPOs. Beyond health care, the notion of GPOs is understood all over the economy. Indeed, GPOs offer hospitals and the rest of healthcare providers the capability to utilize the basic economic values to decrease the cost of buying products and expand the quality of healthcare.
A thriving independent medical practice is an important option to keep open for patients shopping for healthcare. Clearly, large health systems provide principle services, however the small to large private practices do as well. Patients need choices as well as the medical professionals who work in these facilities and organizations. Reducing costs is an important task for any office’s financial wellness. MPPG has successfully negotiated the best possible prices for the independent medical practice regardless of size or specialty. Lowering medical supply acquisition costs at, or often below those of the health systems’ GPO healthcare contracts gives the independent medical practitioner the financial flexibility to compete on a more level playing field. MPPG is a physician buying group that provides this service at no charge. From vaccine discounts to revenue stream opportunities, MPPG is working hard to assist physicians and their staff access important savings opportunities.
References
Burns, L. R. (2002). The health care value chain: producers, purchasers, and providers. Jossey-Bass.
Weinstein, B. L. (2006). The Role of Group Purchasing Organizations (GPOs) in the US Medical Industry Supply Chain. Estudios De Economia Aplicada, 24(3).