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How Can Group Purchasing Organizations Help Hospitals Bottom Line?

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One of the staples of the healthcare and hospital supply chain is the GPO, or group purchasing organization. 

These organizations have been around for over 100 years. Why do they have such incredible staying power? It’s because they help hospitals, doctor’s offices, and other healthcare facilities significantly reduce supply-related costs. 

Just how effective is GPO cost cutting when it comes to helping hospitals save money?

GPO Cost Cutting: How GPOs Help Hospitals Reduce Costs

GPO purchasing networks are an important component of the healthcare system. Like doctors and nurses, they are on the front lines when it comes to patient care. GPOs support healthcare providers, as well as their patients, by providing safe, reliable products at more affordable prices. This benefits the hospitals by reducing overhead, which allows healthcare workers the opportunity to provide their patients with optimal care. 

According to the Healthcare Supply Chain Association’s most recent report, GPO cost cutting results in overall savings of more than $34.1 billion annually. Over the next decade, they’re also projected to reduce healthcare spending costs of hospitals and nursing homes by over $450 billion. Additionally, the report found that GPOs can help hospitals: 

  • Increase transparency: GPOs can help hospitals with supply decisions that will improve their efficiency, because of their expansive knowledge of all the products and services on the market.
  • Improve emergency preparedness: GPOs are true partners to their healthcare members. They help them prepare for natural or man-made disasters. They also help hospitals respond to public health threats after disasters occur. 
  • Increase their cybersecurity: AI, digital medical devices, and online services are helpful and necessary in our digital age. Unfortunately, they’re also vulnerable to cybersecurity threats that can jeopardize the health and safety of patients. It can also open hospitals up to the threat of lawsuits if a patient’s privacy is violated, or if they are physically injured as a result of the breach. GPO purchasing networks can provide hospitals with innovative products and/or services that also protect providers against cybersecurity threats. 
  • Prevent drug shortages: GPOs collaborate with government agencies (like the Food and Drug Administration) to ensure that there is an adequate supply of drugs, products, and supplies for patients’ needs. They also look for ways to address potential drug shortages. 
Illustrative chart depicting billions of dollars in healthcare system savings effected by GPOs, with positive testimonial quotes

Source: Healthcare Supply Chain Association

GPOs can help hospitals improve their efficiency and productivity. By finding the best prices for hospital purchasing, GPOs help ensure that hospitals are fully stocked with life-saving inventory, while also reducing work for the admin department. Price discounts and purchasing efficiency in the healthcare supply chain increases the predictability in supply chain management and ensures healthcare supply chain best practices. 

How GPO Cost Contracting Can Benefit Suppliers 

We know how GPOs help hospitals – they aggregate purchasing volumes, and then use that as leverage to negotiate discounts. How does that benefit Suppliers?

GPOs need to make sure they’re working to benefit their partners – you, the supplier – to ensure Suppliers get the value from the contract they need. Developing a good, trusting relationship with a supplier will help both parties in the long run. 

The GPO-Supplier Relationship

Your GPO representative will inform you of what their members (the hospitals) want in terms of volume of supplies, as well as the amount they can invest. That transparency fosters trust and can help you build a long-term relationship with your GPO. 

For manufacturers and suppliers, working with a GPO can help: 

  • Identify opportunities
  • Ensure consistent revenue
  • Net you many clients in a short amount of time
  • Shorten the selling period and streamline sales
  • Increase exposure for your company
  • Increase sales opportunities (particularly those that were once only open to larger suppliers)
  • Enhance your company’s sales efficiency

GPO Purchasing Networks Also Improve the Lives of Patients

Healthcare group purchasing organizations can see every aspect of the healthcare supply chain. They work hand-in-hand with doctors and hospital administrators every single day. Because of that, they play an integral role in the healthcare system, improving the health and lives of millions of patients around the country. 

A table illustrating several GPO accomplishments that helped to improve patients’ lives

Source: Healthcare Supply Chain Association

While the idea of developing hospital slippers for kids or special diapers for premature infants might not seem like a big deal to some people – it is a huge deal for the medical team, parents, and children. 

GPOs Meeting the Needs of Their Healthcare Partners

More hospitals than ever are facing financial pressures like never before. While budgets shrink and hospitals close, the patient population rises. Hospitals have to find ways to cut costs without impacting the quality of care they deliver to their patients. 

Such a challenging task often requires outside assistance. That is where GPOs come in to help hospitals save money and ensure optimal patient care. They do this by leveraging the hospital’s purchasing power as well as peer collaboration. As the healthcare field and the healthcare supply chain continues to evolve, the partnerships between healthcare suppliers, GPOs, and hospitals will be more important than ever. 

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How GPOs Can Help Failing Hospitals by Optimizing Cash Flow

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Group purchasing organizations, or GPOs, have become the champions of healthcare providers when it comes to purchasing supplies and optimizing cash flow.

GPOs are formed by groups of individual hospitals, sometimes under the same ownership or located in the same geographic area, working together to obtain the products and services they need. There are over 600 GPOs in the United States, representing almost all of the hospitals, clinics, and healthcare providers in the nation.

These GPOs serve as negotiators – a contracting agent between suppliers and healthcare providers – working to find the best deals for their members. In this way, GPOs save time and optimize cash flow for for hospitals.

4 Ways GPOs Can Save Hospital Cash Flow

According to studies, GPOs reduce the cost of supplies for hospitals by 10-18%. These tremendous savings are achieved by the collective power of the hospitals and other healthcare providers coming together to negotiate contracts with suppliers.

Group purchasing organizations save individual hospitals from having to go through numerous conversations and negotiations to get what they want. Instead, they source out the best deals on behalf of their members (hospitals and healthcare providers).

Independently, a hospital’s supply chain leader will spend a lot of time and money sourcing out and purchasing the equipment needed to keep the hospital running and the patients properly cared for. The variety of supplies required would result in numerous small purchases and deliveries from a variety of vendors and manufacturers. These costs add up quite quickly and hinder the hospital from investing money into other areas of their operation.

Here are four ways that joining a GPO would optimize that same hospital’s cash flow:

1. Bargaining Power

By handling cases in bulk, GPOs give hospitals more bargaining power because they can negotiate deals for larger purchases. Operating on behalf of an entire group of hospitals and healthcare providers, GPOs offer suppliers much larger contracts than any individual organization could. The industry competition created by these big contracts also gives the GPOs a better chance of getting a good deal from suppliers looking to undercut the opposition. This is a particular benefit for small hospitals that can join forces with the “giants” of the industry, like national GPOs or larger hospitals.

2. Flexible Options

Almost all of the hospitals across the United States are members of at least one GPO and use those services to secure supply contracts. However, many still purchase more than ¼ of their supplies outside of GPOs. While group purchasing organizations can generally get hospitals better prices for supplies than they can find on their own, that is not always the case. Hospitals are not required to stick solely to the suppliers that were sourced out by their GPO, allowing them to find the best options to meet their individual needs.

3. Better Access

Thanks to the bargaining power of GPOs, hospitals have better access to innovative and specialized equipment. Some group purchasing organizations have policies in place to identify new technologies and products, and to get them into the hands of healthcare providers as soon as possible. Being member owned, GPOs also have a strong incentive to get their people the best tools and technologies available.

4. Improved Service

GPOs help hospitals get access to the unique supplies that they need to be able to operate effectively and efficiently. By saving hospitals money, ensuring that they have the supplies they need, and securing them access to innovative products and technologies, GPOs allow their members to provide better service and potentially lower costs. This in turn improves the patient/customer experience, and making sure that patients are satisfied with their care is what matters most.

GPOs: The Helpers to Hospitals Everywhere

Using the power of synergy, GPOs have become trusted partners, helping to save hospitals by optimizing cash flow. Thanks to group purchasing organizations, hospitals are no longer left to fend for themselves, devoting extensive resources to acquiring the products and services that they need to keep operating. GPOs give hospitals greater bargaining power, offer them more options and better access to get the equipment that they need, and allow them to provide the best possible care.

GPOs do not deserve all of the glory, though. The distributors and manufacturers also play a part in saving hospitals money and getting them the life-saving equipment that they need by teaming up with the GPO to find a deal that works for everyone.

A Manufacturer’s Part in the GPO Cash Flow Rescue Mission

Healthcare manufacturers are in the unique position of contending for the chance to work with GPOs to most effectively meet the needs of their members. 

The competition is not small. Getting the chance to play a role in a GPO cash flow rescue mission requires more than a willingness to negotiate. It calls for a deep understanding of these GPOs – who they are, what they stand for, and what they need. It demands a trustworthy brand.

Do you want to know how to build a trustworthy brand as a manufacturer? Subscribe to SMM’s Marketing Minute for all the latest healthcare marketing advice.