GPO Evolution and Progress, 1987-1997

“GPOs began to address the broad ‘alternate care market,’ [including] long-term care, physician practices and other healthcare providers. Hospital-focused GPOs had not been able to capture the long-term care market. Group purchasing affiliations continued and mid-Atlantic GPOs supplemented their portfolios with MAGNET-negotiated capital equipment agreements.”

– Jack Anderson, President, Material Resources Inc.,
and former hospital supply chain and GPO executive
 

“Size mattered! During this era the healthcare GPO marketplace was dominated by five large national GPOs that were, alphabetically, AmeriNet, Consorta, HCA, Premier and VHA. Contract volumes grew rapidly, individual hospitals and regional alliances lined up with one of the major players and the GPO industry was no longer the cottage industry from which it had come. Competition for key hospitals and systems grew more fierce, and the point of sale was no longer the department head level. It was the CEO/CFO, mirroring the original VHA model.

“As contract volumes and corresponding administrative fee revenues grew exponentially, the supplier industry grew increasingly concerned about the extreme influence these large organizations could have on sales and profitability, and their trade associations mounted significant efforts to challenge the GPO industry legally and politically. Ultimately, the GPOs emerged unbroken, but with a greater degree of government-imposed transparency and revenue temperance.

“During this time as well GPOs began to engage more frequently and more effectively in previously untouched physician preference product areas. Reimbursement pressures on providers facilitated more competition among manufacturers of physician preference products who found themselves forced to compete more on price and product performance than on product loyalty. Involvement of physicians and clinicians in the contracting process also became more frequent, and aided in success in these areas, benefitting the hospitals enormously and impacting the suppliers’ revenues significantly.”

– Robert “Bud” Bowen, retired CEO, Amerinet Inc.,
and former long-term care supply chain, GPO and distributor executive

“GPOs expand to other classes of trade beyond hospital. PDM Healthcare, established in 1991, is the among the first GPOs to service all classes of trade in the healthcare industry, maintaining separate and distinct contract pricing for each class of trade.”

– Ash Chawla, R.Ph., Chairman & CEO, PDM Healthcare
 

“This was the age of the computer and electronics — moving from paper catalogs to electronic media — CD to beginning to use computer systems. Consolidation begins — moving from a number of regional/hospital associations to national organizations, such as Amerinet, AmHS, etc.”

– Todd Ebert, R.Ph., President and CEO, Healthcare Supply Chain Association (HSCA) and former GPO executive
 

“GPOs expanded their contracting focus to surgical, laboratory and pharmaceutical products within hospitals and med/surg products in non-acute care facilities. For-profit hospitals began to contract for committed-volume contracts and used this cost competitive leverage in an aggressive facility acquisition strategy. This forced GPOs [representing not-for-profit facilities] to respond with more compliance and mandated committed programs. This evolved to regional purchasing cooperatives through aligning non-competitive hospitals, which created more purchase commitment, better pricing and higher contract compliance. GPOs expanded their service offerings to national and regional networking and education events, provided consulting services around product standardization and surgical product usage, and created private-label portfolios for competitive differentiation and margin enhancement.”

– Greg Firestone, Chief Customer Officer,
Resource Optimization & Implementation (ROi)

“This decade was largely defined by the rise of the for-profit healthcare chains and the corresponding focus on aggregating purchase volume. For-profit healthcare systems began to expand and purchase not-for-profits. In addition, large for-profit groups – like Columbia/HCA – began to compete directly with community-established IDNs. This forced not-for-profits to find ways to cut costs to remain competitive. VHA and University HealthSystem Consortium both catered to not-for-profit systems and specifically worked to alleviate those stresses. This helped lead to the formation of Premier and Novation for greater aggregation.”

– Jody Hatcher, President, Sourcing and Collaboration Services, Vizient Inc.
 

“As hospitals searched for ways to increase their purchasing power, they started looking outward from regional GPOs to nationally based GPOs. The leading GPOs were able to offer broader contract portfolio’s with stronger price opportunities due to the ability to drive larger volumes for the manufacturers.  As a result, smaller and regional GPOs were acquired by the national GPOs. During this period the strength of a GPO’s portfolio was based largely on their breadth of contracts with price points as the focal point. This same consolidation was also being experienced by the supply distribution industry with smaller and regional distributors being acquired by the national suppliers to match the broader geographic coverage of health systems and GPOs.”

– Doug Heywood, Managing Partner, Ron Denton & Associates LLC,
and former hospital supply chain executive
 

“GPO value gains recognition and the first wave of consolidation occurs. Volume and compliance become factors in GPO pricin,g and GPOs obtain size and scale through combinations among national GPOs, such as VHA and UHC forming Novation, and AmHS, Premier and SunHealth forming the new Premier and other affiliations between national and regional GPOs. The ‘dot-com’ influence begins to threaten GPOs and influences the evolution of e-commerce portals as GPOs market technology-oriented solutions. By decade’s end, GPOs and suppliers scramble to build e-commerce portals and participate in shared exchanges. The national GPOs adopt technology and analytics platforms and broaden their service offering from pure price to include business analytics and cost management. Contracting along supplier lines, such as bundling, with compliance incentives leverage price advantages.”

– Al LoBiondo, Managing Principal, MedGap Solutions LLC, and President,
A.J. LoBiondo Associates LLC, and a former hospital supply chain and group purchasing executive

“The open-ended reimbursement system — coupled with advances in medical technology — resulted in rapidly escalating healthcare costs through the early 1980s. As a result, supply chain executives were put under more pressure to save money. This ushered in the era of cost containment, where the services provided by GPOs became an essential component of provider financial strategy. Members could now work with their GPO to view available agreements through a contract management system, use technology to analyze spend through purchase order data, and benchmark prices against their peers.”

– Christopher O’Connor, President, Nexera Inc. and GNYHA Services

“This era saw regional groups aligning for greater leverage with suppliers by increasing volume – Amerinet formed by four regional groups, SunHealth, Premier and AmHS forming Premier, etc. There is less emphasis on local/regional contracting as the greater opportunities with national suppliers increased in importance. The [Balanced Budget Act] in 1997 resulted in the beginnings of the development of critical access hospitals, a new market for purchasing groups to serve.”

– Mike Reid, Vice President of Construction, Capital and Facility Contracting, Intalere, and unofficial, but widely acknowledged, resident historian within Intalere
 

“GPOs were much more concerned with politics from local hospital associations. GPOs competed frequently with local hospital associations that had developed their own supplier agreements. GPOs did not use hospital data effectively. They depended on manual usage data supplied by the [member hospitals]. GPOs did not cover many purchased services agreements – mostly med/surg.”

– Glenn Sherman, former hospital supply chain and group purchasing executive

“GPOs became more structured, and often were member-driven. Many were still organized as cooperatives at this time. As they grew, they changed their names. The Consortium of Jewish Hospitals became Premier Health Alliance after it began attracting hospitals without a Jewish heritage. There was a significant wave of consolidation as AmHS, Premier and SunHealth merged into the ‘new’ Premier. Initially, Premier focused on sole-source, committed products in some cases. Although told it was crazy, and that ‘all the profit had been wrung out of contrast media,’ Premier entered a sole-source committed contract, and prices tumbled more than 40 percent almost overnight. Contract Administrative Fees rose to a new ceiling of 3 percent around 1990. Collecting CAF required a government ‘Safe Harbor’ regulation. During this period, GPOs such as Premier began offering an array of ‘value-added’ features and benefits. Premier, for example, offered members meetings around ‘Technology Futures,’ and began experimenting in the insurance market. Suppliers during this period – large and small – generally believed they got ‘good value’ by paying fees to have their products on contract with the GPOs.”

– John Strong, Principal, John Strong LLC,
and a former hospital supply chain and group purchasing executive

Story 1: GPO Inc. demonstrates heavy, but precious mettle

Storty 2: Looking back to where GPO Inc. may be heading

Sidebars:
GPO Evolution and Progress, 2007-2017
GPO Evolution and Progress, 1997-2007
GPO Evolution and Progress, 1987-1997
GPO Evolution and Progress, 1977-1987