August 2022 – The Journal of Healthcare Contracting
By Todd Ebert, R.Ph., President and CEO of the Healthcare Supply Chain Association
More than 130 rural hospitals have closed over the past decade, and close to 900 hospitals – more than 40% of all rural hospitals in the country – are at risk of closing in the near future. Many of these hospitals have lower capacity and struggle to maintain positive operating margins, even with the help of COVID relief funding, grants, and other subsidies. Margins for hospitals across the country are still cumulatively negative and continue to fall behind pre-pandemic levels, according to a recent report from Kaufman Hall. Patient volume is increasing as more patients are scheduling delayed procedures and emergency room visits have begun to spike due to warmer weather, but these surges are not enough to offset inflation and increased labor costs, per the report. Even with some return to normalcy, hospitals continue to struggle.
Rural hospital closures can have disastrous effects – longer travel times and delayed care for patients, loss of employment for healthcare workers, and community-wide economic depression. Healthcare group purchasing organizations (GPOs) closely monitor the needs of hospitals and are constantly evaluating the best ways to support their members. The following are some of the ways that GPOs help small hospitals realize cost-savings and efficiencies.
Leveling the Playing Field to Deliver Critical Discounts. Rural hospitals with fewer beds don’t have the same purchasing power as large hospital systems. GPOs aggregate purchasing volume across their members and use this leverage to negotiate discounts with manufacturers and distributors. GPOs also reduce transaction costs for smaller hospitals by consolidating the number of negotiations that take place, allowing them to take advantage of the same efficiencies as larger hospitals.
Encouraging Competition and Providing Flexibility. Hospitals and other healthcare facilities can choose from a wide variety of GPOs and oftentimes use more than one GPO at a time, which encourages a highly competitive procurement market. Virtually all of America’s 7,000+ hospitals belong to at least one GPO, but GPO participation is completely voluntary. Providers always have the flexibility to purchase outside of a GPO contract to meet patient needs.
Taking on the Administrative Burden. GPOs evaluate manufacturer reliability and vet products for quality during the contracting process to ensure that hospitals receive the safe products. A 2018 report estimated that shifting these responsibilities to GPOs saves providers over $2 billion annually. Transferring this administrative burden also allows hospitals to make better use of their staff and reach greater efficiencies – a key benefit during a worsening healthcare workforce shortage.
Supporting Hospitals During Public Health Crises. GPOs have consistently worked to reduce the burden on health systems when the strain on resources and personnel is more severe. During the COVID-19 pandemic, HSCA member GPOs brought in suppliers from non-traditional and adjacent industries such as distilleries, textile manufacturers, steel manufacturers and automobile manufacturers to fill supply gaps for essential products like PPE, hand sanitizer, and nasal swabs.
GPOs save the entire U.S. healthcare system $34.1 billion annually, up to $456.6 billion over ten years, and up to $116.3 billion in Medicare and $90.2 billion in Medicaid savings over the same period (2017-2026.) HSCA and its member GPOs will continue to be allies of small rural hospitals, allowing them to access savings and services that help them deliver quality care to patients.