Group Purchasing Organizations, or GPOs, have been around for quite a while now, and they are used to great advantage by companies who combine their purchasing efforts in order to reduce the overall cost to each member of the GPO. In this article, we'll discuss exactly what GPOs are, and how it is possible to achieve significant advantages by belonging to one of these organizations.
What is a GPO?
Any group purchasing organization has a single reason for its existence, which is to gain additional leverage through their combined purchasing powers, which often bring into play significant discounts. With this kind of collective buying power, it's possible to generate advantageous prices and contract terms, as well as to free up resources for internal procurement.
This works for both parties in a purchasing arrangement, because suppliers also experience significant benefits from this kind of arrangement. When GPO organizations purchase products from you, it will give you an expanded market share, and will provide greater access to industries, so that you will have better overall relationships with customers. The types of industries where GPOs are most commonly formed are within healthcare and hospitality companies, as well as food service, plumbing, and industrial manufacturing.
There are really just three kinds of group purchasing organizations, with those being a horizontal market, a vertical market, and a master buyer. In a horizontal market, member organizations of a GPO might exist in several different industries, but they purchase many of the same goods and services in order to operate their businesses.
In a vertical market GPO, there is usually a single industry involved, for example the healthcare industry. There might be many different sized medical centers involved in this type of GPO, but all of them have joined forces in order to collectively lower their expenses.
In a master buyer GPO, you'll find that there is a single buying organization which might have a number of different contracts in place with suppliers, while allowing other companies to purchase from those contracts. A good example of this kind of master buyer arrangement is in the automotive industry where one company might arrange for favorable contracts with specific vendors, and then have Tier 1 and Tier 2 suppliers purchase some of those contracts from the original buyer.
How Does This Benefit a Hospital?
It can be extremely advantageous for individual healthcare organizations to belong to a group purchasing organization, and for a number of different reasons. Chief among these reasons is the fact that GPOs are always able to deliver significant cost savings, and this has been proven time and time again by any number of surveys and studies.
According to Modern Healthcare, it is estimated that GPO's currently save taxpayers $55 billion every year due to the lower costs that member organizations are privy to. Even the Federal Trade Commission has been able to confirm that GPO's save money for patients, providers, and taxpayers alike, and that the modern-day GPO model contributes significantly toward cost savings and promoting competition.
Not surprisingly, the American Hospital Association has discovered that hospitals in this country are overwhelmingly satisfied with the kind of savings which GPOs have returned to them. No hospital is obliged to become a member of a GPO, nor are suppliers required to contract with them. However, both parties voluntarily enter into agreements because it is mutually advantageous to do so. In fact, many hospitals will belong to multiple GPOs, and each of these GPO's competes with each other for members' business.
Apart from all the savings which can be obtained by participating in a GPO, hospitals also are able to deflect any threats by using healthcare supply chain consulting services for instance in the area of prescription drug shortages. GPO's work diligently with all medical personnel and suppliers to ensure that patients have access to life-saving drugs, and when some drugs are unavailable, they will find alternate sources.
In some cases, GPO's are actually owned by their members, and they operate under the ‘safe harbor' provision specified by our federal government, which means they are subject to specific requirements related to fee arrangements and reporting. No member organization is allowed to retain any rebates passed on by suppliers, these are instead simply applied as a cost-reduction, which further lowers the negotiated cost of supplies.
How Do You Become Part of One?
It's a fairly simple process to become a member of any group purchasing organization, especially if there are a number of them in your industry which have already negotiated contracts with suppliers that you'd like to take advantage of. Being involved with a GPO is very much like a big box membership club, although it has no membership fee whatsoever, and does not have its own facilities such as warehouses for storage.
All you have to do is contact the group purchasing organization you wish to join and let them know of your intentions to join. At this time you would specify which of the negotiated contracts you would like access to, so that you can begin placing orders for products or services from some of the suppliers which they have negotiated with.
There are generally a great number of negotiated contracts which you will have to choose from, and you might even want to become involved with multiple GPOs because of this wide variety. The more products that you buy, the greater will be the savings that you realize from your membership, and there are no minimum purchasing requirements which you have to adhere to, so you are completely free to buy whatever you need without penalty.
Joining for Benefits
In the competitive business world we all live in today, it is essential to save money wherever possible, so that your business can stay profitable and so your bottom line can stay healthy. For medical organizations, one of the best ways of achieving consistent cost savings is by becoming a member in a group purchasing organization. The collective buying power that such an organization has enables it to realize tremendous savings by purchasing in volume, thereby entitling itself to whatever discounts are offered by specific suppliers.
Vendors also benefit by working with GPOs, because it provides them with access to more markets, and increases their volume of business as well. If you are thinking of becoming involved in a group purchasing organization, you should contact us at Community Hospital Corporation, so we can inform you about the kind of savings you might be able to realize from contracts we've negotiated with suppliers.
