GPO Evolution and Progress, 2007-2017

“Two phenomena dominate this time. A major GPO consolidation along with renaming and repositioning as VHA/Novation became Vizient and included UHC and MedAssets. Then Amerinet shareholder Intermountain Healthcare bought out its Amerinet partners and renamed the company Intalere. The second change was the advent of regional purchasing collaborates within existing GPOs as demonstrated by Vizient, Premier and Intalere.”

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

“GPOs were starting to talk about cost tied to revenue and now with the advent of bundled payments like [comprehensive joint replacement], there is a clinical integration of the supply chain with physicians and aligning physicians through compensation mechanisms with bundled payment and the supplies associated with them.”

– Rand Ballard, Chief Customer Officer, Vizient Inc.
 

“Since my retirement in 2006, I have noted one significant element in the healthcare procurement environment. That is the emergence of regional purchasing collaboratives. As GPOs became larger and larger, individual hospitals and even systems found themselves less and less relevant to the contracting process. GPO contracts that worked well across the country for a large contingent of hospitals did not always represent the best solutions for regional members. Over the last 10 years or so, a number of these regional groups have formed and initiated selective contracting activities to meet their own unique market needs. Most of them operate with the blessing of the large national GPO to which they belong, and oftentimes collaborate with the national organization for assistance in their efforts. High physician preference items in particular were better addressed by smaller groups of hospitals that could directly involve the affected physicians in the process, and greater contract compliance could be achieved with that involvement. Their scope is narrow, but highly focused and successful.”

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

“Healthcare reform in 2010 caused the increased healthcare services and sector to include previously uninsured individuals, which increased purchase levels for healthcare facilities, thereby further increasing demand for GPO services. Additionally, the reimbursement changes in the DME/HME industry called for cutting Medicare costs so the manufacturers were told to give back 2.5 percent of their revenue. Brand-to-Generic drugs caused more focus towards GPOs for market share penetration by manufacturers. This resulted in more opportunity for and proliferation of niche GPOs to contain healthcare costs. Many more co-ops were formed.”

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

“Regardless of what time frame you are reviewing, a key issue is that your portfolio is or remains competitive, [particularly in terms of] price. Providers continue to seek the best price possible for the products and services they use. I have always said, price counts. But there is a push for value and total cost in terms of an effort to move from price to total cost of the product/ownership. Data use and analytics generate increased interest as good data helps make good decisions. GPOs are working closely with their customers to mine their data to determine opportunities to enhance the value of the supply chain, such as reducing duplication, enhancing standardization, reducing costs, etc. GPOs also offer value-added services and try to differentiate themselves from competitors in the areas of revenue cycle, customer service, flexibility, clinician preference, clinical data, etc. Customer feedback and direction become more important, too, as in listening to customer in the contract decision making processes via committees that are actively involved in portfolio and service development.”

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

“GPOs continued to expand service offerings focused around value analysis, spend and clinical analytics, revenue cycle management and a variety of consulting services. Larger GPOs are challenged to negotiate competitive pricing with suppliers due to larger market transparency. GPOs quest to expand service offerings and MedAssets’ acquisition of Broadlane and VHA’s acquisition of MedAssets created market disruption and misalignment with provider and supplier expectations. This allowed for new model offerings and competitive differentiation. Consolidation of major GPOs continues as GPOs are challenged by the reduction of loyalty hospitals, health systems and IDNs due to the many disruptions taking place.”

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

“This decade was defined by adjusting to the Accountable Care Act and by consolidation – among GPOs, providers and suppliers. The ACA drove almost everything in healthcare during this decade. Moving from fee-for-service to value-based reimbursement affected everyone and changed the way we evaluated contract awards to suppliers on behalf of our members.

“This period was also marked by significant cost-cutting measures – driven by lower reimbursement and the recession. Pressures to help members lower supply costs were more critical than ever. All of this led to consolidation. Major suppliers (Medtronic-Covidien, BD-Carefusion, etc.) all began mergers and partnerships. Many hospitals did the same to drive cost efficiencies and improve patient care. GPOs also experienced changes.  or example, Consorta joined HealthTrust, Premier went public and we (Vizient) first merged VHA, University HealthSystem Consortium and Novation together, and then acquired MedAssets’ [Supply Chain Management division] and Sg2.””

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

“This period experienced significant changes with the merger and acquisition of hospitals and their expanded support of non-acute clinical care locations. In addition, this period experienced a further consolidation of supply distributors and remaining GPOs. While pricing within each contract portfolio remains an important factor, it is important to look at the additional programs and services offered by each GPO to maximize the value of their relationship. This period witnessed the emergence of top-notch consulting, IT/data management and revenue cycle services, plus specialized supply chain technology solutions by the largest and most sophisticated GPOs.”

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

“The GPO industry matures and further concentrates with the Broadlane/MedAssets merger, and ultimately they roll up with Novation. Public and private ownership models – as in private equity or publicly traded vs. owned by NFP providers, trade associations or cooperatives between providers – become more commonplace. GPOs compete on a complex value equation to a consolidated provider market. This value equation is broadened from what was once simply product price to include clinical and operational consulting, spend analytics and benchmarking, revenue cycle, resident resources (analysts and managers), IT solutions, revenue sharing and equity. GPO focus is increasingly on consultative and outsource programs, including clinical benchmarking, resident supply chain management, supply chain and spend analytics. Clinical value analysis consulting becomes part of the broadened value proposition. Sourcing models become more sophisticated, mimicking an industrial supply chain approach. GPOs engage in off-shore direct sourcing for commodities and concentrate on private-label or self-branded items.”

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

“While aggregation remains a core function of GPOs, it is performed much more strategically today. The needs of every hospital and health system are different, so many GPOs are taking a much more individualized approach to their members’ purchasing challenges. Physician preference items (PPI) have always been a difficult category. They are often the most costly and are of particular concern in a value-based payment environment. GPOs have begun to offer contracts that take comparative effectiveness and physician concerns into account. Providers can access GPO technology that measures PPI against related outcomes data to support supply chain and financial professionals in cost-based conversations with their owned or affiliated physician partners. The next phase, while still progressive, is to work with suppliers and providers to assess risk-based contracting options that pay suppliers for their products or services based on patient outcomes tied to those products or services.

“As reimbursement becomes aligned across the continuum of care, the hospital supply chain shoulders the burden of standardizing purchasing practices across health systems or accountable care organizations. In response, GPOs are creating more holistic supply chain solutions that give providers enterprise-wide insight into their purchasing practices. Today’s supply chain executives must understand how to manage the intersection of CQO — total input costs, care quality and financial outcomes. This expands their responsibilities beyond negotiating, ordering, and receiving to managing logistics and value-based purchasing decisions strategically across the continuum of care. The CQO concept provides them with a framework for initiating this change. As the role of the supply chain executive has evolved, so have the offerings provided by GPOs.”

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

“Consolidation of healthcare facilities impacted GPO memberships and purchase volumes. Increased [non-acute care] development provided GPOs growth opportunities but with less purchases per member. GPOs looked to diversify member types by building out GPO companies for education facilities, etc. Pressure for GPO value increased as Medicare reductions continued. GPOs have progressed significantly in the last 10 years in that the early to mid- 2000s brought a continued focus on transactional purchasing and leveraging volume to secure lower pricing for their member base. They have now turned the corner a bit in that their maturity has helped them to recognize that the days of transactional purchasing, although occurring, are not really the focus of their ‘total cost of ownership.’ It is because of the recognition of what it takes to truly manage your clinical and operational performance is more than the price at the pump. As GPOs continue to look for ways to improve that performance, the focus will not only be on the ‘price at the pump,’ but the entire non-labor spend, including all of the hidden costs. More and more solutions will be brought to the table to support the providers in continuing to deliver the highest quality of care at the lowest price and the most efficiently.”

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

“GPOs still compete with hospital associations in areas such as energy and temp agency/workforce management, but not as much with med/surg. GPOs use hospital purchasing data much more effectively than in the past.  Direct feeds from hospital AP departments are commonplace. GPOs have developed data tools that they now market to hospitals showing where there are opportunities for savings. GPOs now offer many types of consulting engagements to hospitals, including population health, reimbursement, marketing and strategy, etc. GPOs give away equity to obtain high-volume hospital clients.”

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

“MedAssets and Premier went public. Up until this time, GPOs were more structured to give back their profits and value to their owners — who were generally hospitals and health systems. Now, two of the GPOs were not only working for their generally not-for-profit health system owners, but also investors. Regional purchasing groups (RPGs) and some large health systems with their own GPO have emerged. This is generally in response for them to offer supplier sole-source agreements with committed volume – again. With the exception of HealthTrust, there has/had been significant discount erosion in the market because of all the multi-source contracting going on. The RPG strategy allowed health systems to gain additional discount through strategies of standardization, sole-source contracting and commitment. Thirty to 40 years ago there was far more loyalty by members to their GPO.  Today, that loyalty is largely gone. The focus is completely on price, and many health providers view their GPO relationship as just another business decision based on pricing, and the return of contracted administrative fees they get from their GPO.  Some of the ‘free’ value-added services of a decade before are now chargeable services by the GPOs to their members.”

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

“Our scope in the last 10 years has expanded beyond the traditional GPO core categories of commodities, such as med/surg, pharmacy and capital equipment, to include non-traditional categories, such as energy, facilities management, human resources, IT and workforce management. This expansion is consistent with our total spend management focus and has spawned a new GPO model outside of healthcare, thereby adding incremental purchasing power for all HealthTrust members.

“Also, to affect the meaningful merger of clinical and supply chain data, our organization has made significant investments in CMO and other clinical leadership, advisory boards and data scientists. The resulting marriage of data results in actionable outputs for providers which is critical in a value-based care environment. And we have seen the embodiment of true best-practice sharing going well beyond group purchasing. Providers looking for guidance in areas outside of sourcing and purchasing have recognized and embraced the value our organization brings via our distinct operator advantage, unique insights and financial capabilities in supply chain, clinical performance and workforce operations.”

– Doug Swanson, HealthTrust’s Senior Vice President, Sales and Marketing

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