Vizient, HealthTrust and Premier now serve more than 80% of U.S. hospitals, up from 62% a decade ago. Hospital supply chain leaders want the three group purchasing organizations to put their market power to better use, from pricing and transparency to supply resilience.
For Don Barton, chief technical officer and director of supply chain management at Shelbyville, Ind.-based Major Health Partners, the biggest issue is tiered pricing on commodity products. He wants the major GPOs to negotiate “one price for all” when a product costs the manufacturer about the same to make no matter who buys it.
“A product coming off an assembly line does not cost the manufacturer significantly more to produce simply because it is going to a 50-bed community hospital instead of a 1,000-bed health system,” Mr. Barton said. “Why should a patient at a small community hospital pay more for the same commodity product than a patient receiving care at a much larger institution?”
He acknowledged that volume should carry value and that manufacturers need incentives to win business. But he said the consolidated GPOs have enough collective purchasing power to set a fairer model. As it stands, he said, the tier structure lets manufacturers protect their margins by offering aggressive pricing to the largest buyers while smaller hospitals subsidize some of those discounts through higher acquisition costs.
Vini Manchanda, vice president of supply chain services at Bloomington, Minn.-based HealthPartners, wants more visibility into how GPOs work with suppliers.
“How are manufacturer rebates earned and redistributed? How is supplier performance truly monitored? How are suppliers truly held accountable?” he said.
Dameka Miller, senior vice president of supply chain management at Livonia, Mich.-based Trinity Health, said the next version of the GPO model needs to balance cost savings with risk mitigation.
“Cost still matters, but resilience should carry equal weight in supplier selection and contract design,” she said.
Because GPOs represent such a large share of hospital purchasing power, Ms. Miller said that leverage should be used to build a supply base that is measurably more resilient and protects providers’ ability to deliver care.
Michael Alfaro, director of materials management at Ventura, Calif.-based Community Memorial Healthcare, said GPOs should move beyond standard volume discounting and align their portfolios more closely with health systems’ internal strategies. That means a fully integrated partnership in which all purchasing categories, purchased services and atypical supplier channels are reviewed and vetted in lockstep with the GPO, he said.
None of the leaders said they planned to leave the big three. Several instead described ways to gain leverage within the existing system.
“My strategy is to engineer leverage from within,” Mr. Alfaro said.
Community Memorial operates within a smaller purchasing coalition inside the Vizient ecosystem. He said that setup allows the system to drive focused supplier standardization and better pricing without giving up the weight of a national network.
Mr. Barton pointed to a similar trend. Hospital purchasing collaboratives, many with fewer than 100 members, can sometimes negotiate better prices than those same hospitals receive through a GPO’s highest tier.
“If a smaller group can accomplish that, it raises an important question about how much additional value the larger GPOs could deliver through their tremendous aggregate purchasing power,” he said.
As those collaboratives grow, Mr. Barton said, they often join a major GPO, sometimes gaining access to a special collaborative tier. He sees that pattern as a sign that the big three could adopt pricing models that reward participation and volume without penalizing community hospitals that cannot match a large system’s purchasing volume.
Ms. Miller said regional and specialty GPOs can complement a primary GPO relationship by covering spend categories that are not already under contract. Mr. Manchanda noted that a smaller GPO could give a large integrated delivery network more influence over sourcing decisions and additional revenue, though he said those motivations feel counterintuitive if the industry is aligned on reducing the total cost of care.
