What Are GPOs & What Role Do They Play?
Many hospitals, healthcare systems, and other healthcare providers use group purchasing organizations (GPOs) to control costs and improve efficiency in medical supply purchases. For MedTech companies and vendors on the other side of the deal, working with a GPO can provide advantages as well. To make an informed decision about whether or not to sell through a GPO, start by learning more about these organizations, how they work, and the benefits they can offer your business.
Healthcare GPOs were first created to help providers enhance their level of care while saving money. By pooling purchasing power, a GPO can negotiate lower prices than an individual healthcare provider could. The Healthcare Supply Chain Association (HSCA) published the results of a 2017 study that found that healthcare providers can save between 10 and 18 percent by purchasing through a GPO.
GPOs also makes purchasing more efficient, especially for large health systems with locations over a broad geographic area. Through a GPO, healthcare organizations can centrally manage purchasing and standardize products and tools used throughout the organization.
Vizient — one of the largest GPOs in the country, topping the list of U.S. GPOs with $100 billion in purchases annually — points out that there are additional benefits to healthcare providers:
- A GPO does the legwork to find innovative solutions and the best values, providing healthcare providers with more agility when they need new tools or capabilities.
- Membership in a GPO also provides healthcare organizations with a network of peers they can turn to for information.
- Analysis of data across the network can provide members with valuable insights.
Types of GPOs
The HSCA says that large, national organizations like Vizient are just one type of group purchasing organization. GPOs can vary in size and type. Some serve only a particular category of healthcare facility and some provide only specific types of products.
There are also GPOs owned by healthcare organizations themselves. The diversity among HSCA member organizations is proof that one GPO can be very different from another.
Pros & Cons of the GPO-MedTech Company Relationship
According to the HSCA, GPOs are financed in part by fees that vendors pay to provide their products through the GPO. These vendor-paid administrative fees allow healthcare providers to focus their financial resources on purchases, not the support of the GPO. A GPO’s administrative fees are typically 1 to 3 percent of the price you would negotiate with the GPO. Administrative fees, however, can be higher. Both are definitely things to keep in mind and balanced with the pros of a contract when you negotiate.
Once you have successfully negotiated a deal with a GPO, the most obvious benefit for a MedTech company is the potential for a larger volume of sales. There are, however, additional advantages, such as simplified sales and contract processes. As RevCycle Intelligence points out, working with a GPO saves the costs associated with individual transactions between vendors and healthcare providers. For example, if a vendor sells one product to 1,000 hospitals, that’s 1,000 negotiations that need to take place to determine prices. Group purchasing virtually eliminates that time and effort on your part.
Working with a GPO can also make more healthcare providers aware of your brand and your products, without expending additional marketing resources. Although the GPO isn’t a marketing organization, your company’s name and products will be added to lists in the GPO’s app and on its member portal, and will appear when members search for the type of products you provide.
Although it may seem that GPOs will have the upper hand when it comes to negotiating, it’s a fact that unless GPOs can develop strong relationships with MedTech companies and other vendors, they can’t do their jobs. Healthcare organizations aren’t required to use GPOs, so group purchasing organizations have to demonstrate the value they provide through the MedTech companies and other vendors they provide access to in order to attract members and continue to operate.
There is also the question of whether GPOs “compete” with you for sales — after all, they are selling the same products you sell in the same market. It’s probably more accurate, however, to think of a GPO as a distributor of your products that can reach customers you probably wouldn’t otherwise be able to reach. In addition, it’s possible to work with GPOs, perhaps even referring healthcare providers to a GPO to help them save money — which could result in new users you may not otherwise be able to close deals with.
GPOs are a viable option for a MedTech go-to-market strategy. Investigate the opportunities available to you to add your products to group purchasing organization lists, as well as what doing so could mean for your business growth.