7 things to know about vendor limit by GPO

Group Purchasing Organization(GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from venders.

This helps healthcare providers realize savings and efficiencies by aggregating purchasing volume and using that leverage to negotiate discounts with manufacturers, distributors and other vendors. Hospitals and other healthcare providers use group purchasing to obtain the best products at the best value. 72% of purchases that hospitals make are done using GPO.

To maximize the efficiencies of administration, most of the health care facilities limit the numbers by 2-4 vendors. But some of Limited Vendor policies by GPO’s are not effective and have failed its main objectives.

1. Limited Vendor’s price is not the best price

Theoretically, limited vendor policy by GPO should get the health care facilities the best discounted price. This should eventually drive the cost down and would benefit patients and taxpayers. But in some cases, personal interests and back door incentives for a specific parties’ benefit could drive the cost up instead down and ultimately would not save any money to use Limited Vendors. And the surgeons are often left with limited product choices for the patients.

2. Request for Proposal (RFP) or its decision-making processes for GPO’s Limited Vendor list is unclear and not disclosed

Currently, the number of spine hardware vendors is over 200 in the United States. Usually GPO composes Value Analysis Committee and decides Limited Vendors through Vendor Fair. Committees analyze every vendors’ products, services and prices. But sometimes its decisions are not disclosed and do not reflect physicians’ opinion which makes the whole decision process unclear and questionable.

3. Dispute of Accounting monitor between physician & hospital administration
Spine surgery is very complex procedure and is done by both Orthopaedics & Neuro surgeons. They have trained with different sources and have used various devices. They have their personal preferences and choices that work best for them and for the patients’ best outcome. A Limited Vendor policy by GPO would significantly limit the physicians’ choice to only 3 to 4 vendors though there are over 200 choices available in the market. This is because sometimes hospital administration and management will not let physicians involve into the decision.

4. Limited Vendor’s policy by GPO hinders technology development of health care industry

Currently, there are over 200 small manufactures that make spine hardware and devices. They are trying to make unique devices by developing and adopting newer technologies. They mainly gather their ideas from spine surgeons with discussion during surgery observations. A Limited Vendor policy would make it difficult by eliminating this opportunity between small vendors and spine surgeons and it would hinder the industry’s technology development.

5. Failure case of vendor limit by GPO

One hospital Group in US had 2 vendors for a spine program for 2 years. This severely limited the choices for the spine surgeons who wanted the best outcome for their patients. Since the majority of the spine surgeons in the group were private practitioners, a lot of them decided to change their operation facilities outside of the hospital to ASC and other facilities. Within 2 years, the hospital lost 50% of its spine surgery revenue.

6. Ideal case of vendor’s limit by GPO

Some Hospitals set up 3 or 4 of Limited Vendors as 1st tier and gave them 80% of purchasing power. In addition, hospital set another 3 or 4 vendors as 2nd tier with 20% of purchasing power. The selection and decision of 2nd tier involved all the spine surgeons in the hospital which allows more choices for the surgeons and patients.

7. Any policies by health care facilities should place the patients first

Patients should be the priority for the surgeons and health care facilities. Seeking the best option for the patient’s health and best outcome should come by collaboration between health care facility and physicians.

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