What LTC should know about GPOs
Many long-term-living facilities, just like ambulatory care, home care, and physician practices, are members of group purchasing organizations. GPOs are new to some industries, but many long-term-care, hospitals, and other healthcare-related organizations have been members of GPOs for decades.
While there may be many reasons for this – such as working with GPOs that place a very high priority on customer service, are able to streamline purchasing, or can provide top-quality products – what continues to be the key reason for being a member of a GPO is that it can help organizations save money.
According to a July 2014 report by the Healthcare Supply Chain Association,* GPOs could help reduce overall healthcare spending in the United States by up to $864 billion by 2022. The report also argues this may be on the low side because “some portion of the savings [that should be] attributed to a GPO is ‘buried' and incalculable,” essentially meaning they get lost when all the savings are added up.
Let's clarify what a GPO is and how it works. GPOs are membership organizations. Invariably their members must meet certain standards and criteria in order to join the GPO. The GPO does not purchase products from manufacturers, store them, and then sell them to its members. That would be a buying group. Instead, a GPO secures pricing agreements with scores of different manufacturers, with the savings in these agreements passed on to the GPO member.
Also we must point out, should your facility join a GPO, it does not necessarily mean your organization must now deal with a new distributor or move to a new organization in order to purchase the goods you want. What customarily happens is the pricing agreement is between you and the manufacturer. The distributor handles the transaction, for which they receive their expected compensation.
However, what many administrators of long-term-care facilities and other healthcare-related organizations overlook is that some GPOs count service-related companies within their membership. They have secured pricing agreements with manufacturers that produce products and equipment used by these service organizations. The result is that some of the same cost savings enjoyed by long-term-care facilities when purchasing products from a GPO can be realized by working with a service company that is also a member of a GPO.
Saving on services
How does working with service providers who belong to GPOs lead to a cost savings for a long-term-care facility? The best way to explain it is to look at building service contractors.
Long-term-care and other healthcare-related organizations usually have a combination of in-house cleaning professionals and contract cleaners addressing their cleaning needs. Sometimes the duties of the contract cleaning company are focused on performing the “heavy-duty” work, such as detail cleaning, floor care, carpet cleaning, or window cleaning. In such situations, the in-house cleaning crew are more like day or evening “porters,” attending to cleaning and maintenance problems and issues as they arise during the course of the day. The bulk of the cleaning is then turned over to the contract cleaning company, which may service the facility in the evenings or at times when there are fewer staff or patients on the floor.
How does this translate into savings for a long-term-care center? It's a simple matter of dollars and cents.
Let's say you have invited three contract cleaning companies to bid on the cleaning needs of your long-term-care facility. After touring your location, in order for these contractors to determine their bid (charges), they typically look at four things:
The size of your facility in square feet that is actually being used**
Scope of services you've requested
Estimated number of people and time the contractor believes will be required to maintain the location (labor costs)
Based on these four components, what we see is there really is one key variable: supply costs. The square footage to be cleaned and the scope of services apply to all bidders. While the labor costs can vary, they are typically comparable from bidder to bidder. If too high or too low, it usually raises a red flag.
By comparison, supply costs are much more variable. If a cleaning contractor can secure its supplies for 15 to 30 percent less than the other contractors or purchase cleaning equipment for 30 to 50 percent less, that cleaning contractor has the opportunity to submit a more competitive bid.
This savings in products and equipment is actually for the cleaning contractor. But quite often, in cleaning and other service industries, the savings are shared with the end-customer, so all parties benefit from the GPO.
Tobi Colbert is business development manager for the National Service Alliance (NSA), the leading group purchasing organization for the professional cleaning and related service industries.
* A 2014 Update of Cost Savings and Marketplace Analysis of the Health Care Group Purchasing Industry: Released July 9, 2014.
** Some facilities may have, for instance, 10,000 square feet of space. However, they only use 8,000 square feet. Because of this, the bid must be based on the amount of space that is actually used.