By Todd Ebert, R.Ph., President and CEO of the Healthcare Supply Chain Association (HSCA)
October 2023- The Journal of Healthcare Contracting
The healthcare supply chain is made up of many different moving parts that all depend on one another to ensure the success of the overall healthcare industry. One integral component of the healthcare sector is the role of traditional healthcare group purchasing organizations (GPOs). Traditional healthcare GPOs are the sourcing and contracting partners to virtually all of America’s 7,000+ hospitals and a vast majority of the 68,000+ long-term care facilities, surgery centers, clinics, and other healthcare providers.
A 2018 analysis found that GPOs save the U.S. healthcare system $34.1 billion annually and up to $456.6 billion over ten years, with Medicare savings of up to $116.3 billion and Medicaid savings of up to $90.2 billion over the same period. The value and services that GPOs provide allow healthcare providers and physicians to focus on their core mission: delivering first-class patient care. Healthcare GPOs continue to effectively support the healthcare sector by identifying best practices, lowering costs, and encouraging cross-industry collaboration.
Reduce healthcare costs
By negotiating contracts with suppliers, including medical device companies and drug manufacturers and by leveraging the combined purchasing volume of its members, each GPO reduces the cost of products and services for hospitals, providers, and other non-acute care facilities such as long-term care providers, surgery centers, and home health providers across the country. Through lowering transaction costs and prices through joint negotiation, GPOs help reduce costs for their members. An economic analysis found that on average, GPOs save providers between 10%-18% on products and services. GPOs routinely monitor market conditions and provide their customers with bulk purchasing power, which allows them to reduce costs by purchasing at this bulk rate. GPOs reduce overall healthcare costs, allowing providers to receive the drugs, products, and services they need to effectively serve their communities. Because GPOs contribute to reducing healthcare costs, providers can receive the drugs, products, and devices they need to effectively serve their communities.
Increase competition
GPOs support and encourage competition within the market, as competition only serves to make the market stronger and benefits all stakeholders within the healthcare industry. Providers are free to choose from multiple GPOs and often source and work with more than one GPO at a time. The ability to choose from multiple GPOs encourages and increases competition between GPOs, which sustains a healthy market. GPOs also encourage competition between suppliers. By working to expand the number of suppliers in the market and encouraging them to continue producing life-saving medications and products, suppliers can access a large number of buyers, thereby growing their business and supplying their products to healthcare facilities across the country. By encouraging new domestic manufacturers and suppliers to enter the market during the COVID-19 pandemic, GPOs helped expand the capacity for critical medical supplies, allowing hospitals and care facilities across the country to effectively treat their patients.
Supporting and encouraging transparency throughout the supply chain
Traditional healthcare GPOs are one of the most transparent sectors in the healthcare industry, promote transparency across the supply chain, and adhere to reporting requirements that maintain a high standard of transparency in accordance with the federal regulatory Safe Harbor under which they operate. The Healthcare Supply Chain Association (HSCA) and its member GPOs voluntarily participate in the Healthcare Group Purchasing Initiative (HGPII), an industry governance organization that annually reviews suppliers on several factors, including: the consistency of product availability, fill rates, recall frequency and management, disaster preparedness, secondary supply lines, and manufacturing transparency.
By evaluating these criteria, GPOs can determine how to best support their members by providing them with access to the drugs, products, and devices particular to their needs. HSCA and its member GPOs continuously work to encourage transparency between both the public and private sector and encourage cross-industry collaboration to strengthen the healthcare supply chain.
Traditional healthcare GPOs have supported hospitals, nursing homes, surgery centers, and other non-acute care facilities across the U.S. for more than a century. GPOs are an integral part of the healthcare industry. HSCA and its member GPOs are committed to meeting the needs of providers and patients across the country and will continue to work to strengthen the resiliency of the healthcare supply chain.