Lawton Burns has some ideas on how GPOs can keep materials managers happy.
ORLANDO, FLA – If, as the late Peter Drucker said, the result of any successful business is a satisfied customer, then group purchasing organizations are pretty successful. That is the opinion of Lawton Burns, Ph.D., director of the Wharton Center for Health Management and Economics at the University of Pennsylvania.
Directors of materials management are, for the most part, satisfied with the services they receive from their GPOs, particularly with the lower prices for the products they buy, says Burns, who recently conducted a survey on the subject. That said, GPOs could do a better job of educating their members about the supply chain and GPOs’ role in it, particularly in the area of innovative medical technology.
Silent majority
Speaking at the 2006 HIGPA International Expo, Burns elaborated on why he undertook a study last winter to find out just what materials management executives think of their GPOs. (See “Straight from the Source,” September/October 2006 Journal of Healthcare Contracting.) After reviewing the lists of witnesses who testified or submitted written testimony for the four U.S. Senate hearings on GPOs, Burns noted an “interesting pattern”: The ranks were dominated by manufacturers, attorneys and GPOs. Hospital administrators or contracting professionals were barely represented. In fact, of 17 witnesses, just one was a hospital administrator, and of 25 written submissions for the first two hearings, only one was from a provider.
“I thought, ‘We’re not really considering the hospital’s perspective,’” says Burns. He found that ironic. “It seems to me that the customer’s perspective is pretty important in this debate,” he says, particularly because some pretty serious charges were being leveled against GPOs, including:
- GPOs don’t reduce prices
- Contracts benefit GPOs at the expense of their hospital members (because of vendor-paid administrative fees)
- GPOs exclude small, innovative manufacturers from the market.
- Sole-source contracts are exclusionary
- GPOs engage in suspect ethical behavior based on conflicts of interest.
That’s why Burns set out to survey 5,000 hospital materials management executives about their GPOs. The 16 percent who responded didn’t agree with any of the charges, he says. Most contracting professionals believe GPOs save them money, primarily through lower prices, and that GPOs conduct themselves ethically. Moreover, hospitals disagree that GPOs limit their access to innovative technologies.
GPOs’ challenge
With all that goodwill behind them, GPOs should answer the charge that they have caused investment in medical device and biotech firms to dry up, says Burns. It’s a charge that was made by the executive of a venture capitalist association at the very first Senate hearing, yet “no one in your industry has challenged it,” notes Burns. And they should.
Burns says that a long-term view of medical products initial public offerings will show that such IPOs are cyclical. There was a downturn in the mid- to late-1990s, but that wasn’t due to GPOs so much as general skittishness about the market on the part of investors. Today, IPOs are on the upswing again, he says.
In addition to responding to the charges against them, GPOs should do a better job differentiating themselves from their competitors, says Burns. Based on surveys of hospital materials managers, he concludes that “GPOs are not as different as they think they are.” One area in which they can provide value to their members is facilitating independent, rigorous, head-to-head evaluations of new technology. Such evaluations are beginning to take place in the pharmaceutical area, but remain “sorely lacking” in the device and instrument sector, according to Burns.