The Bigger the Deal, the Greater the Leverage
If you’ve ever needed to negotiate the price you pay for goods and services with providers, you can attest to a particular balancing act that takes place. Various factors can shift your bargaining and negotiating power closer to or further away from your side of the table. One significant factor that can sway leverage from a provider to the buyer is the size of the need, and in turn, the potential deal.
To maximize leverage and receive an optimal price, many healthcare organizations have sought membership in what is called a Group Purchasing Organization—or a GPO.
“What exactly is a GPO?”
As the name implies, a Group Purchasing Organization (GPO) is a unifying entity that represents several buyers of commercial goods and services. GPOs use their combined members’ purchasing needs to allow for greater negotiating leverage with business solution providers. Though GPOs first served hospitals and healthcare providers (which is still their main focus), many have branched out to help facilitate buying arrangements with educational organizations, automotive services companies, and various other industries. The ultimate goal of a GPO is to provide its member organizations with a price advantage on business goods and services that they wouldn’t be able to facilitate on their own.
“What kinds of goods and services can GPOs help my healthcare organization save money buying?”
From surgical supplies, drugs, and hospital equipment to copiers, printers, scanners, furniture, and beyond, a GPO can facilitate significant cost savings for your healthcare organization among commercial goods and services providers. These savings span most of the needs of member entities. Many member companies even have restrictions that require goods and services to be purchased through a GPO to ensure maximum savings.
“Do business solutions companies dislike GPOs?”
One would imagine that business solutions companies would have a distaste for GPOs—after all, their primary goal is to endow smaller healthcare organizations with increased bargaining power and savings. While this is true, any lowered prices are likely offset by the increased deal size that may result from such affiliations. Being that a large number of healthcare companies have guidelines that require them to do much of their purchasing through a GPO, solutions provider companies have a business incentive to work closely with GPOs. The deal potential is too big for any scoffing.
“How much money can a GPO save my healthcare company on commercial goods and services?”
While negotiations still exist between GPOs and business solutions companies that can affect pricing, a GPO-generated report from 2014 states that GPOs saved healthcare systems an average of $55 billion a year. Another report by former FTC Chair Jon Leibowitz, as well as former FTC Deputy Director, Bureau of Economics Dan O’Brien reported that GPOs save the average healthcare entity between 10%-18% on goods and services.
“How much does it cost to join a GPO?”
Many Group Purchasing Organizations (GPOs) have no membership costs for associated companies other than purchases made through their organizations. Others have nominal membership fees typically offset by cost savings.
“Who benefits the most from GPOs?”
One could say that hospitals and other healthcare organizations experience the most benefit from GPOs . Others may argue that providers of goods and services themselves benefit by affiliating with GPOs that can facilitate massive deals to which they may not have otherwise had access. While these are both valid answers, cost savings to the entire healthcare industry, including workers and patients, may benefit most. According to a report by economists Dobson DaVanzo & Associates, they estimate that GPOs may help to reduce overall spending in the healthcare industry by as much as $864 billion by the year 2022.