Purchasing Power in Practice
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Purchasing Power in Practice
Sarah Daly , Value First member liaison , NY & MA
It is no secret that the not-for-profit provider world faces extreme funding and regulatory challenges . With increasing external pressures , many provider organizations find themselves strapped for cash and looking for ways to save money . For many , the visceral response to financial pressure is to cut down on unnecessary spending and purchases . For some members it means delaying renovations and cutting expenses and for others it may even mean staff cuts . While a natural reaction , it overlooks one of the most useful tools available to members : Group Purchasing Organizations .
A group purchasing organization ( GPO ) is an entity that helps organizations realize savings and efficiencies by combining purchasing volume and using that leverage to negotiate purchasing contracts with manufacturers , distributors and other suppliers . GPOs negotiate these agreements at scale and offer contracted pricing to participating organizations . With these vendor agreements , organizations can take advantage of good competitive pricing , without having to go negotiate with a vendor on their own .
With group purchasing , providers can obtain the right products at the best price . Some GPOs also offer value added services which may include technical assistance and procurement procedures .
There are several GPOs nationwide , many of which service niche industries . GPOs are particularly important to healthcare providers – such as hospitals and long term care providers – because these organizations require a wide variety of goods and services but don ’ t generally have enough scale to negotiate competitive pricing on their own . With group purchasing , providers can obtain the right products at the best price . Some GPOs also offer value added services which may include technical assistance and procurement procedures .
Because most GPOs represent a niche market of similar organizations and provider types , they can also offer economies of scale to the healthcare supply chain . By aggregating the purchasing power of these facilities , GPOs help balance the negotiating equation between purchasers and vendors . Additionally , GPOs provide valuable cost-avoidance savings to providers by helping them standardize and streamline their purchasing , as well as reduce the number of staff needed to negotiate purchasing contracts .
A GPOs primary purpose is to negotiate good pricing on as many items as possible with a vendor . This translates into an organization ’ s ability to exercise full purchasing freedom when placing orders . A GPO user has no obligation to purchase any given item on or offcontract . The organization exercises full discretion in making purchasing decisions even while being on a GPO contract . GPOs do not place any orders themselves . All purchasing operations remain in control of the provider organization .
In considering which GPO to choose , it is important to note that most are non-exclusive ; meaning you are able to work with several purchasing services depending on which GPO offers a more competitive contract with a given vendor . Many GPOs also offer individual benefits and incentives through their program . For example , some GPOs offer unique rebates or rewards .
Increasingly , providers are relying on GPOs to help manage the complex system of purchasing . Many GPOs offer e-commerce solutions to help manage their purchasing . Others may provide training for facility staff to increase efficiency within their procurement process . Even with these added services that surpass the standard vendor agreements , most GPOs offer their membership at no cost to the provider .
( See Purchasing Power on page 46 )
37 Adviser a publication of LeadingAge New York | Fall 2017