3 Steps To A More Effective GPO Strategy

Everyone in supply chain circles has bought into the value of GPOs in reducing their healthcare organization’s supply chain expense savings. Yet, our studies have shown that you can have an even more effective GPO strategy by following these three steps:

1. Don’t Sign On To A New Or Renewal GPO Contract Until You Have Conducted A Value Analysis And Utilization Study.

It’s been our clients’ experience to save up to 26% on a commodity group by performing a value analysis and utilization study prior to signing on to a new or renewal GPO contract. For example, instead of one of our clients automatically signing up for their GPO’s new wound care dressing contract, they decided to conduct a comprehensive value analysis and utilization study of this commodity group. The result of this VA & UM study was a cost optimization savings of $262,000 on this client’s wound care dressings. If this client just accepted their GPO contract as-is, they would have only saved 10% on this commodity group.

2. Include Your GPO’s Vendors (But Don’t Limit Other Bidders) In Your Bid/Negotiations For Your New Or Renewal Purchased Services Contracts.

The best way we have found to obtain the lowest cost on purchased services contracts (PSC) is to include but not be limited to only your GPO’s vendors in your bid/negotiation of your (PSC) contracts. This is because your off-the-shelf GPO contracts are not customized to your customers’ exact requirements, nor are they the lowest cost option if you structure your PSC bids properly.

3. Perform A Functional Analysis On Your GPO Purchases To Lower Your Cost Of Goods Purchased.

The theory behind the concept of functional analysis is that your customers don’t need everything they are specifying for their commodities you are purchasing for them. Once you have your customers justify the functions (primary, secondary, and aesthetic) they absolutely, positively require, you can re-specify their products, services, and technologies and save in the range of 29% to 76% annually.

GPOs can be quite effective in lowering your price at the pump by about one or two percent annually, but by employing the strategies we suggested above, you too, can save significantly more beyond price on your purchases without decreasing quality.

Message from the Trenches

Is It Time To Start Saving Again?

We are all in a new world of mitigation, PPE, social distancing, etc., that has been a laser focus for over two years now. The goal was to stop the coronavirus pandemic from spreading and prevent the overwhelming of our healthcare systems. Now that we see a light at the end of the tunnel, we need to start thinking about refocusing our hospital supply chain efforts on cost optimization to ease the budget pressures of our healthcare organizations.

In our opinion, it will be almost impossible to obtain price concessions from your vendors as you open for business since they are in a cash crunch themselves due to the effects of the pandemic. Therefore, savings beyond price (i.e., value analysis, lifecycle cost analysis, utilization management, etc.) should be the focus of your cost optimization. This can save your healthcare organization 7% to 15% almost overnight, or a minimum of one million dollars per 100 occupied beds.

Prior to Covid-19, hospitals, systems, and IDNs had reached a high level of maturity with their price and standardization efforts. However, this only represents one-percent savings for a healthcare organization’s total annualized supply budget. Considering that 87% of all hospitals, systems, and IDNs have not engaged in a cost optimization program or even had an annual non-salary cost assessment, we see a whole new world of savings opening up for you and your healthcare organization.

Robert W. Yokl and Robert T. Yokl, SVAH Senior Management Team

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