Group purchasing organizations save the U.S. healthcare industry approximately $36 billion dollars annually, according to an April 2009 study by Eugene Schneller, PhD, called "The Value of Group Purchasing — 2009: Meeting the Needs for Strategic Savings." For ambulatory surgery centers looking to reign in supply costs and outsource supply contract management, joining a GPO is an obvious choice. However, if an ASC finds that its GPO partnership is not working well for the center, it may be time to make a change.
GPO 'red flags'
"When evaluating whether their current GPO is a good fit for them, ASCs must first and foremost sit down and evaluate whether the GPO is really realizing the savings that it said it would realize initially," says Josh Billstein, senior associate with Eveia Health Care and treasurer and member of the executive committee of the Washingtion ASC Association.
ASCs need to take a hard look at their books of business and see if the promised supply chain cost savings are being realized, as this is the primary reason for joining a GPO. They also need to look into how the GPO is proving cost savings. "Sometimes GPOs will offer the ability to provide informatics," Mr. Billstein says. "If they offer that, then look into the information. If not, be cognizant of whether they are being responsive to your questions and concerns."
Also, GPOs should offer great customer service. If the GPO does not have representatives who are willing to come out to your facility a few times a year at minimum, it may be time to think about joining a new GPO, according to Mr. Billstein.
"You should expect to be shown that your business is valued," he says. "They should be willing to have onsite evaluations on the rates that you spend on vendors. They should also give you a direct line to single GPO representative, who is assigned to your center only."
Another red flag is if the GPO offers restrictive contracts, says Jean Skora materials manager at The Surgery Center of Pinehurst (N.C.). "Due to the constant fluctuation in case volume within an ASC, a GPO should not have restrictive contracts. If an ASC finds that they are being held to a monthly purchase guarantee, this would not be a good fit for any ASC."
According to Ms. Skora, other reasons to consider leaving a GPO are if the organization doesn't offer local representation or if the GPO is more hospital-focused than ASC-focused.
Preparing to leave a GPO
Leaving a GPO is not a decision that should be taken lightly. It can have a major impact on ASC operations and its bottom line if the center does not plan effectively. Here are some considerations for ASCs looking to leave their GPO as well as preemptive steps to take:
1. Look into whether the current GPO contract can be salvaged. Before taking any steps to prepare for leaving their GPO, ASCs should bring their concerns to a representative and see if their current GPO will address their problems. "And if they can't think of a person to talk to or don't have the direct phone line of any GPO rep, then they should probably consider leaving," says Mr. Billstein.
Oftentimes GPOs can provide informatics. The organization can look into the data and see where they are falling behind and see whether the GPO can help, Mr. Billstein says. If they can make changes, the surgery center can consider working with the GPO to improve their current contract.
2. Have a back-up plan in place. "I wouldn't advise a surgery center to leave its current GPO until it has a new plan in place," says Mr. Billstein. "There is no sense in moving outside a GPO system where they are enjoying some discounts to a situation where they are totally unprotected."
Either contract with a new GPO or build local vendor partnerships as an alternative to the GPO. "Local, boots-on-the-ground vendors can be a viable option for ASCs," Mr. Billstein says. "It is something surgery centers may want to explore."
When considering other options, ASC administrators need to understand and evaluate their center's supply costs and then look into where the current GPO is falling short. Once administrators have that information, they, along with their materials managers and buyers, can look into new GPO or local vendor contracts and find one that will suit their facility.
"Do your homework," says Ms. Skora. "If you plan on changing to a new GPO, make sure it is ASC-focused. ASCs are demanding better representation and are being considered a viable industry within healthcare. Use this to your advantage and negotiate the best possible fit for your facility."
3. Take a deep dive into potential financial setbacks. ASCs need to check their current GPO contracts and see if there are any financial clauses tied in. For example, ASCs considering an early termination should look into whether they will be penalized, according to Ms. Skora.
Also, if the GPO offers annual rebates to the facility, ASCs need to look into how significant the loss would be before terminating the contract, says Ms. Skora. Overall, they should look at all of their large volume distributors and vendors and make sure their pricing won't increase significantly on a locally based contract.
"Some manufacturers only have GPO-based contracts and won't negotiate on a local level," she says.
4. Get physicians onboard. Physician buy-in is key for the success of changes in supply chain management, according to Mr. Billstein. ASC administrators can engage physicians by understanding supply costs and presenting good data to physicians in support of the changes being proposed.
"If you can prove to the physicians that you are pivoting from one GPO to another to ensure a positive change to the bottom line, they will get onboard," says Mr. Billstein. "If you can show them that a new GPO will better meet the centers' needs at a lower cost and that they will still be able to use the implants they want, they will be supportive. Through good data, demonstrate that you understand the costs and that you are making this decision based on those costs and the bottom line."
5. Communicating with staff members. When negotiating new supply chain contracts, a whole gambit of things could go wrong, such as supply delays and unit of measure errors, says Ms. Skora. Hence, ASC administrators need to keep the staff abreast with supply chain management changes taking place at the center.
"If there is any type of value analysis team committee [at the ASC], they should be a part of the [supply management] decision-making process," she says. "At the Surgery Center of Pinehurst, we have a supply value analysis team that consists of mostly staff members. Their input and knowledge plays a key role in implementing any changes to the facility."
Leaving a GPO is challenging process, and ASCs must remember that it is a timely one. All actions should be thought out very carefully to help make the transaction as financially and operationally smooth as possible, says Ms. Skora.
Buying in bulk, just in time purchasing, consignment: Which supply-ordering pattern is right for your ASC?
The road to ASC financial success: 10 supply chain cost-cutting strategies
GPO 'red flags'
"When evaluating whether their current GPO is a good fit for them, ASCs must first and foremost sit down and evaluate whether the GPO is really realizing the savings that it said it would realize initially," says Josh Billstein, senior associate with Eveia Health Care and treasurer and member of the executive committee of the Washingtion ASC Association.
ASCs need to take a hard look at their books of business and see if the promised supply chain cost savings are being realized, as this is the primary reason for joining a GPO. They also need to look into how the GPO is proving cost savings. "Sometimes GPOs will offer the ability to provide informatics," Mr. Billstein says. "If they offer that, then look into the information. If not, be cognizant of whether they are being responsive to your questions and concerns."
Also, GPOs should offer great customer service. If the GPO does not have representatives who are willing to come out to your facility a few times a year at minimum, it may be time to think about joining a new GPO, according to Mr. Billstein.
"You should expect to be shown that your business is valued," he says. "They should be willing to have onsite evaluations on the rates that you spend on vendors. They should also give you a direct line to single GPO representative, who is assigned to your center only."
Another red flag is if the GPO offers restrictive contracts, says Jean Skora materials manager at The Surgery Center of Pinehurst (N.C.). "Due to the constant fluctuation in case volume within an ASC, a GPO should not have restrictive contracts. If an ASC finds that they are being held to a monthly purchase guarantee, this would not be a good fit for any ASC."According to Ms. Skora, other reasons to consider leaving a GPO are if the organization doesn't offer local representation or if the GPO is more hospital-focused than ASC-focused.
Preparing to leave a GPO
Leaving a GPO is not a decision that should be taken lightly. It can have a major impact on ASC operations and its bottom line if the center does not plan effectively. Here are some considerations for ASCs looking to leave their GPO as well as preemptive steps to take:
1. Look into whether the current GPO contract can be salvaged. Before taking any steps to prepare for leaving their GPO, ASCs should bring their concerns to a representative and see if their current GPO will address their problems. "And if they can't think of a person to talk to or don't have the direct phone line of any GPO rep, then they should probably consider leaving," says Mr. Billstein.
Oftentimes GPOs can provide informatics. The organization can look into the data and see where they are falling behind and see whether the GPO can help, Mr. Billstein says. If they can make changes, the surgery center can consider working with the GPO to improve their current contract.
2. Have a back-up plan in place. "I wouldn't advise a surgery center to leave its current GPO until it has a new plan in place," says Mr. Billstein. "There is no sense in moving outside a GPO system where they are enjoying some discounts to a situation where they are totally unprotected."
Either contract with a new GPO or build local vendor partnerships as an alternative to the GPO. "Local, boots-on-the-ground vendors can be a viable option for ASCs," Mr. Billstein says. "It is something surgery centers may want to explore."
When considering other options, ASC administrators need to understand and evaluate their center's supply costs and then look into where the current GPO is falling short. Once administrators have that information, they, along with their materials managers and buyers, can look into new GPO or local vendor contracts and find one that will suit their facility.
"Do your homework," says Ms. Skora. "If you plan on changing to a new GPO, make sure it is ASC-focused. ASCs are demanding better representation and are being considered a viable industry within healthcare. Use this to your advantage and negotiate the best possible fit for your facility."
3. Take a deep dive into potential financial setbacks. ASCs need to check their current GPO contracts and see if there are any financial clauses tied in. For example, ASCs considering an early termination should look into whether they will be penalized, according to Ms. Skora.
Also, if the GPO offers annual rebates to the facility, ASCs need to look into how significant the loss would be before terminating the contract, says Ms. Skora. Overall, they should look at all of their large volume distributors and vendors and make sure their pricing won't increase significantly on a locally based contract.
"Some manufacturers only have GPO-based contracts and won't negotiate on a local level," she says.
4. Get physicians onboard. Physician buy-in is key for the success of changes in supply chain management, according to Mr. Billstein. ASC administrators can engage physicians by understanding supply costs and presenting good data to physicians in support of the changes being proposed.
"If you can prove to the physicians that you are pivoting from one GPO to another to ensure a positive change to the bottom line, they will get onboard," says Mr. Billstein. "If you can show them that a new GPO will better meet the centers' needs at a lower cost and that they will still be able to use the implants they want, they will be supportive. Through good data, demonstrate that you understand the costs and that you are making this decision based on those costs and the bottom line."
5. Communicating with staff members. When negotiating new supply chain contracts, a whole gambit of things could go wrong, such as supply delays and unit of measure errors, says Ms. Skora. Hence, ASC administrators need to keep the staff abreast with supply chain management changes taking place at the center.
"If there is any type of value analysis team committee [at the ASC], they should be a part of the [supply management] decision-making process," she says. "At the Surgery Center of Pinehurst, we have a supply value analysis team that consists of mostly staff members. Their input and knowledge plays a key role in implementing any changes to the facility."
Leaving a GPO is challenging process, and ASCs must remember that it is a timely one. All actions should be thought out very carefully to help make the transaction as financially and operationally smooth as possible, says Ms. Skora.
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The road to ASC financial success: 10 supply chain cost-cutting strategies