GPOs and Advances Purchasing Mechanism - IESE Blog Community

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Introduction GPOs are playing an important economic role in the different health-care systems in which they operate. Their major contribution is to help hospitals and other providers in reducing their supplies expenditures. In our GPOs analysis, we will review the Spanish health-care system, the US market, (currently, US hospitals channel approximately 72 percent of non-labor expenditures through GPOs), and also that of Europe. Our motivation to choose this subject is to understand the role GPOs play and their implications for the different actors of the health-care system: health-care providers, suppliers and policy-makers. Group Purchasing: typology and general characteristics. Graph 1 - Typology of advanced purchasing mechanisms 1 2 3 4 Unique supplier Unique catalogue (voluntary) Unique catalogue (compulsory) Unique catalogue + logistics Several models have been implemented to improve the purchasing mechanisms in Hospitals, which derive historically from public tenders and isolated purchasing by each hospital. The first of these models (implemented in the mid-nineties by Hospital Reina Sofía de Córdoba) is the unique supplier of several products model. The main characteristics of this model are the following: - Suppliers are usually against this model because it limits free competence in the sense that there would be only one supplier of several products, many of which would not be produced by this supplier (it would act as a mere intermediary). - The unique supplier may or may not be in charge of the management of the stocks. - Prices are known (purchases are done through a catalogue). - There is a unique speaker and a better control of the supply chain. - However, it conveys risk and service control to an outsourcer. The unique supplier model, but reduced to the supply management of one department or service area (e.g. Laboratories, Radiology, Kitchen), seems to give better results. Its main characteristics are the following: - There is resistance to implement this model, because professionals are used to contact several suppliers. - This model gives the possibility (sometimes obligation) for the supplier to introduce new technologies to guarantee the hospital’s service level agreements included in the contract. - If the contract is signed for a long period (3 to 4 years), hospitals can obtain bigger value from suppliers by homogenizing the information systems of all the laboratories of the hospital and forcing the supplier to make the necessary investment. In these situations, the supplier is usually building a huge barrier to exit. The unique catalogue model has been applied by the ICS since 1994 (also by Servei Valencia de Salut and Servicio Extremeño de Salud). The model can be either voluntary -3-
or compulsory for the participant hospitals. Each year, a catalogue is developed with unified criteria by purchasing officers and by professionals, reaching today to 6.000- 7.000 products. There is a unique supplier per product in 82%-83% of items. The tender consists of two phases: first, each hospital provides its needs and a tender is issued as the sum of needs with a maximum price (only technically correct suppliers will make it to the second phase); second, the ICS centralizes the tender and negotiates consumptions and prices with the suppliers. During the first years of the implementation, little hospitals were the most favoured by the system. Some of the main characteristics of this model are the following: - If more representativity is given to the users that consume the product the most, they will choose their usual supplier. - Professionals spend time evaluating products, not in their professional activity. - Some professionals do not consult the catalogue. - Another problem is the amount of time spent by professionals from different hospitals to decide what products are selected. This last problem will be solved in the future by creating a register system whereby for each product you have all the references from the product as of today available in the market, the supplier reference and its technical note. This new methodology makes sense for products with low differentiation relative to high-technological products. In some cases, this unique catalogue model has been institutionalized through a group purchasing organization (GPO), an entity that helps health care providers-such as hospitals -realize savings by aggregating purchasing volume and using that leverage to negotiate discounts with manufacturers, distributors and other vendors. In a more general sense, GPOs provide three essential functions for health care providers: - Aggregate buying power in order to obtain discounts from manufacturers and distributors (strategic alliance, pool purchasing dollars to exert leverage over suppliers, concrete avenue for economies of scale, lower unit costs for members, negotiate & manage contracts). - Facilitate and enhance comprehensive product comparison analysis, using clinician input (update pricing changes, disseminate information from vendors under contract, cost reduction tools for members, benchmarking data). - Finally, they streamline and standardize the purchasing process, thereby reducing the inefficiencies inherent in today’s health care systems and offering valuable cost avoidance savings to providers (product standardization programs, product utilization programs, designate authorized distribution agents (ADAs), private label programs for smaller manufacturers). In the future, the next step for GPOs would be to assume the logistic function of the hospitals it serves and to expand its services through Internet. -4-
Page 1 and 2: Advanced purchasing mechanisms and
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