Inside HSCA: Inside HSCA Guest Blog - GPOs: Relevant Today. Tomorrow?

Group purchasing organizations (GPOs) play an important role in hospital spending decisions, particularly for smaller hospitals. Their negotiating power during the procurement process clearly appeals to hospitals looking for any means to keep costs down. Yet this is no cause for complacency. L.E.K. Consulting’s research shows that GPOs should consider creatively expanding their services if they wish to meet the changing needs of their clients.

Earlier this year, L.E.K. undertook our fourth annual survey of nearly 200 senior hospital decision-makers. The survey tracks changes in hospital strategies and purchasing trends. More than 60% of U.S. hospital executives surveyed expect budgets to increase in the next five years—mostly due to investment in IT and facilities. As in previous years, administrators identified managing costs as their top priority. That’s good news for GPOs, who still carry clout among hospital decision-makers when compared to MedTech sales representatives, as the below results from our survey indicate.

Our survey also found that many hospitals are using GPOs for an expanding range of products, including capital equipment. Some of our respondents observed that GPOs are effectively using capital equipment offerings to recruit new clients. As one Director of Materials Management at a New York Hospital put it in his response to the survey, “A lot of GPOs have group-buys, which are great for hospitals. If they have a group buy on a CT scan, they can group hospitals together and get great discounts. But you can’t purchase your CT scan until you get ten hospitals buying in …”

Although they are well-positioned now, GPOs will not be entirely unruffled by changes to the healthcare industry. As big hospitals consolidate and build their own procurement capabilities, the value proposition of GPOs may diminish. Our survey found that some 40% of larger hospitals and hospital systems—particularly those above 500 beds—plan to set up or expand internal procurement groups in the next three years. Many have already done so. That is not to say that GPOs can’t build relationships with these hospitals. Even some of the most sophisticated procurement groups in large hospital systems see GPO contracts as a useful starting point for direct negotiations with medical device manufacturers.

Executives at larger hospitals are looking to broaden their catchment, treatment footprint, and focus on patient acquisition strategies. In order to stay relevant to these strategies, GPOs should consider an expansion of their services and a change in their business model. Hospital decision-makers told us they are looking to partners to help address next-order needs – such as risk sharing, patient engagement and training, financing and others. Some forward-thinking manufacturers are already evolving in this direction, particularly for larger hospital systems. Expanding their service offerings will allow manufacturers to pull themselves up from the transactional nature of a traditional procurement cycle. In reaction, GPOs need to think about how their role may need to change as hospitals’ needs and the surrounding ecosystem evolve. As a seemingly neutral third party, GPOs will have to find areas where they have “market permission” to expand their services.