Economies of scale

Share this article:
Economies of scale
Economies of scale
In today's turbulent economic climate, where dwindling reimbursement and climbing operating costs are challenging mainstays, long-term care organizations must scrutinize every expense and seek smarter ways to trim any fat. And if they haven't yet forged a relationship with a group purchasing organization, they could be throwing valuable dollars right out the window, purchasing experts warn.

While long-term care GPOs aren't exactly new, group purchasing has been — and continues to be — a somewhat foreign concept for some operators. The reason has been twofold: In the not-so-distant past, many GPOs turned the lion's share of their attention to their higher-volume acute care customers, which left the sub-acute segment largely underserved. At the same time, some long-term care operators have grown so comfortable in their longstanding relationships with their local or regional suppliers, they stopped questioning whether they were getting the best price and value for their dollar.

“But that's beginning to change. We're seeing business really accelerate now [in the non-acute space],” says Joe Flannery, director of non-acute member solutions for Amerinet. Amerinet currently has more than 6,000 non-acute customers. “Long-term care is looking for ways to reduce costs and is now primed and ready to listen to what GPOs have to offer.” 

Think beyond supplies
The breadth of GPO offerings may surprise some long-term care operators. Today, buying groups are providing their long-term care customers with a similar depth of products and services as their hospital customers, not to mention, more focused attention and guidance to help operators get the most bang for their buck.

While relying on a GPO for some of the more commonly used resident care supplies, such as wound care and incontinence items, can certainly generate savings for operators, experts stressed that's just the tip of the iceberg.

In addition to offering a plethora of medical supplies, GPOs also provide access to an array of services and commodity items. This includes food service and hospitality items such as dishes and linens, as well as overnight mail service, telecommunication plans, pest control and information technology solutions. Building and renovation materials and services (think carpeting and paint, for starters) are also offered, along with furniture, respiratory equipment and basic operational items, such as paper products, garbage bags, pens, light bulbs and batteries.

“Because of sheer volume, those commodity items can give you the biggest savings,” says Chris Weber, Standard Register Healthcare's director of GPO operations. “If you're just focusing on medical supplies, you're missing some very big opportunities.”

Closed-door pharmacy services are another GPO offering that might be worthy of a closer look. “These pharmacy programs can offer purchasing power, combined with pharmacy administration for long-term care providers,” notes Kevin Ryan, JD, a partner at Epstein Becker & Green's Health Care & Life Sciences practice in Chicago.

Beyond that, some GPOs offer contracts with rehabilitation companies and staffing agencies. Some even offer contracts that allow a long-term care operator to offer an employee benefit to their staff, at no cost to the facility.

“This kind of service can help with staff retention, creating savings for the long-term care [facility] that impact operations and quality of care,” says Marty Heath, MBA, director of marketing for Provista.

Savings challenge
Despite the inherent value of group purchasing, long-term care operators can't afford to sit back and assume that any GPO will automatically deliver the best prices and value. The best way to maximize savings, experts stressed, is to challenge buying groups to drive savings across the entire operational spend, and then compare those offerings and anticipated savings to other GPOs.

“GPOs need to be challenged. It's best to shop around,” confirms John P. Sganga, FACHE, president and CEO of Innovatix LLC. The pricing transparency afforded by GPOs allows long-term care operators to determine actual product and service costs, and quickly determine the best route to savings. If a long-term care operator is facing resistance from facility executives about a GPO's value, or is having difficulty choosing between two buying groups, Sganga suggests bringing both buying groups on temporarily to see which offers the best value and, above all, the highest quality products and services.

“Unlike most acute care GPOs where you're locked in to one GPO, that's not how it is in long-term care,” he explains.

Access to an actual price of a product or service allows nursing homes to benchmark the lowest price, truly compare apples to apples, and open an honest dialogue with their current distributors to address higher rates and mark-up fees, and, perhaps, negotiate better deals on existing distributor contracts.

“We GPOs are trying to emphasize the fact that we want to offer solutions and help solve some of [long-term care operators'] problems,” Flannery notes, adding that the goal of GPOs is not to take business away from distributors and local businesses, but rather to partner with them whenever possible to better serve their mutual long-term care customers.

In fact, one GPO executive stressed that if a long-term care operator is happy with its current med/surg distributor, it will want to make sure that it can keep them. “If not, you'll want to be sure that you have options for finding a better distributor,” Heath says.

In some cases, larger operators with high purchasing volume can serve as their own buying group — and, in some cases, negotiate lower prices than traditional GPOs. With 23 continuing care retirement communities across eight states, ACTS Retirement Life Communities has a dedicated supply and support services executive on staff who routinely bids on products and services, often using supplier pricing obtained by a GPO to determine the best deal.

“Because of our volume, I'm able to [approach] our purchasing like a hospital would. If I know I'm going to buy one thousand widgets, it's my job to go out and find who is going to give me the best price for a certain period — whether that's for two years, three years or four, for example. That way, we can lock in and control our pricing,” explains Gary Ginter, vice president of supply and support services for ACTS. The organization's size even allows it to bid on natural gas and electricity.

Despite its strong buying and negotiating power, ACTS does rely on GPOs for certain services, including food and cell phone and mail service.

“Sometimes, buying groups can deliver the most savings. Sometimes, they might not,” Ginter says. “You have to have someone looking at these things regularly, exploring all the options and then reviewing contracts to make sure you're still getting the best price. Buying groups may not always be the solution for everything, but you should still be using them as a resource to reduce supply costs.”

That's sage advice that even the smallest long-term care operators can use.

“The notion that mom-and-pop facilities can't work with a GPO is simply not true. Every facility can see real savings, regardless of size or geographical location,” assures Sganga. “In these austere times, every dollar should be open for discussion. Every facility should challenge GPOs to drive savings across their entire operational spend.”

Greater value also can be found by having an engaged account executive. As Heath explains, contract portfolios are complex, with multi-tiered pricing structures and requirements for getting the best deals. “If you have selected the right GPO, you can rely on your account executive to help [ensure] that you have the right forms on file in the right places to get your pricing.” Stating the supply chain goals with the GPO representative and holding periodic meetings with the distributor and GPO representative will further help an operator meet its supply chain goals, he added.

Another critical point long-term care operators can't afford to overlook: Even the largest GPO discounts won't manifest into meaningful savings if purchasing compliance isn't a top priority.

As Weber explains, getting maximum value from GPO partnerships requires operators to commit to an annual spend — usually from 70% to 80% of their total expenditure for each product or service category that the operator chooses under the GPO.

When it was recently discovered that multiple wound care product lines were in use, ACTS turned to its analysis committee — comprising members from different communities — to put the products in use to the test. Currently, two ACTS campuses are evaluating which wound care products are the best fit.

“All products need to meet our needs. The product that exceeds our needs and expectations is the one we recommend,” says Ginter.

Of course, needs evolve over time, so long-term care operators must keep a finger on the pulse of their GPO's offerings to ensure that their supply needs are still being met. And it's critical that they keep GPOs informed of those changing needs, so buying groups can begin negotiating new contracts to drive even deeper savings for their long-term care customers.

“We're constantly asking our customers what else they need,” says Sganga, adding that such dialog exchange recently led Innovatix to seek a golf cart contract to better meet communities' campus transportation requirements. “[Long-term care operators] must continue to challenge GPOs to help them provide the best quality patient care — at the best price.”
Share this article:

More in News

Nursing home antipsychotic use has dipped nearly 19% under national effort, latest figures show

Nursing home antipsychotic use has dipped nearly 19% ...

The percent of long-stay nursing home residents receiving antipsychotic medication has decreased 18.8% under a nationwide initiative that started in 2012.

Jimmo succeeds in getting Medicare coverage, two years after landmark case ended

Glenda Jimmo has reached a settlement with the federal government and will finally receive Medicare coverage for claims that were denied in 2007, which led her to file a class-action lawsuit over the so-called "improvement standard."

Breier named new CEO at Kindred

Breier named new CEO at Kindred

Kindred Healthcare announced Thursday that it has chosen a new top executive to lead its push toward creating a mammoth national brand. Benjamin A. Breier, the company's current president and ...