GPOs gaining ground: Using group purchasing organizations to your advantage
GPOs gaining ground: Using group purchasing organizations to your advantage
Once the exclusive domain of the acute-care sector, GPOs are now looking to expand their membership bases. Long-term care is a primary target. The resulting connection is symbiotic, says industry analyst Pam Poshefko, consulting manager for Chadds Ford, PA-based IMA Consulting.
“We have seen non-acute care GPO memberships double since 2005,” she says. “Long-term care providers are looking for ways to contain their costs and recognize that every dollar they save goes directly to the bottom line. In turn, the GPOs have gotten much more aware that long-term care facilities are using many of the same products they already have under contract. So they are making overtures toward these organizations.”
Healthcare market conditions are now at a point where GPO membership makes sense for the long-term care community, says Joan Ralph, vice president of Continuum of Care Services for Charlotte, NC-based Premier.“With the state of the current economy and cuts to reimbursement, long-term care facilities face similar cost pressures as hospitals,” she says. “Some long-term care organizations are now realizing the need to manage their supply chain in a more effective manner.”
Historically, Irving, TX-based VHA, the GPO giant, did not focus on recruiting new long-term care members. But that has changed dramatically with the addition of Tidewater, a new niche GPO, says Richard Peters, senior director of VHA's Non-Acute Operations.
“As a result of VHA's interest in serving the rapidly growing long-term care market, we recently created a relationship with Tidewater to accelerate our growth in this market,” he says. “The strength of our combined purchasing power will help bring lower prices on more things long-term care providers use.”
Product portfoliosAlthough GPOs have recognized that long-term care facilities use many of the same products as their hospital counterparts, there are certain categories they use more of. These areas include incontinence care, enteral nutrition, wound care, linen and office supplies.
“While long-term care facilities function very much like a hospital, they are using different products in different quantities,” Poshefko notes.
The American Association of Homes and Services for the Aging had an internal group purchasing program for more than 15 years. In 2008, it forged a partnership with Alpharetta, GA-based MedAssets to create a purchasing program for the single largest pool of nonprofit long-term care providers in the country.
In running down the list of products favored by members, Zachary Sikes, senior vice president of services for AAHSA, says construction and maintenance products, such as paint, floor covering, drywall, light bulbs and air conditioning systems, have been in big demand. Members also are interested in purchasing more “green” products, he says.
With RUG-IV government reimbursement change affecting the skilled nursing side, therapy services have become the fastest growing program among those members. It is the largest single contributor to AAHSA's goal of $22 million in savings, Sikes says.
“We get an incredible amount of satisfaction in helping members create value from financially troubled therapy programs,” he explains.
One factor that has kept long-term care organizations from joining GPOs is that they don't have the resources devoted to procurement. A material manager is a luxury few independent nursing facilities can afford.
Tonia Kraus, senior vice president of alternative care at MedAssets, concedes that the lack of a supply management team has historically put long-term care organizations at a disadvantage in relation to acute-care organizations.
“While hospitals have dedicated purchasers, long-term care organizations may have a director who has purchasing as an added task,” she says. “Typically, they make purchases with the path of least resistance—whatever gets it off their plate—but it dilutes the savings they could get with a primary GPO.”
Some of the larger chains may have a dedicated purchasing manager, Peters says, and directors of nursing are heavy “influencers” since the nursing staff uses the products. Dietary staff also serve in supply management capacities, he says.
Poshefko points out that technology has reached a point where ordering can be done much more simply.
“GPOs have essentially a web-based contract availability and web-based ordering, so it's an easier process for the long-term care facility,” she says. “With that, long-term care members are getting operational savings as well as pricing discounts.”
Custom contracting also has given long-term care providers purchasing accessibility and choices that they didn't have in formulary-driven high-commitment contracts, according to Poshefko.
The advantage of using a GPO for purchasing, says MedAssets Vice President of Long-Term Care, Chet Chandler, is that it provides “an infrastructure to make the process more efficient” for facilities.
Ralph adds that “in the past, there was fragmentation among these facilities with department heads managing their own supply chain. The industry is evolving and many are realizing the value in centralizing their supply chain management function within the facility and at the corporate office.”
Still, group purchasing for non-acute providers isn't a new idea. Both MedAssets and New York-based Innovatix have been providing that service since the early 1990s.
Innovatix, a joint venture between the Greater New York Hospital Association and a subsidiary of Premier, started out as a GPO for home infusion companies, long-term care pharmacies and independent medical oncologists. It now offers purchasing options for all segments of long-term care, says Innovatix President & CEO John Sganga.
“What has happened is that as the marketplace goes beyond acute care and other care options, we're seeing an explosion of facilities that need GPOs to become more cost effective,” he says. “From an efficiency standpoint, long-term care is 10 to 12 years behind acute care. They need to get the efficiencies of group purchasing contracts.”
Innovatix's purchasing volume is around $4 billion, which Sganga says, is “small to some, large to others.”
He expects that total to double over the next four years—a remarkable projection, given the minimal participation of long-term care providers in the GPO pool in recent years.
Sganga explains how the long-term care membership took off: “They challenged me about why they couldn't get the same pricing as acute care even if some of them were as big as hospitals,” Spanga says. “That is when I saw there is a whole untapped world of purchasing, that there were many providers who were desperate for value. So we took the acute care model and brought it to the non-acute care world.”
Volume discounts on purchasing, while a core benefit, is not the only service GPOs provide. In order to help their members stay viable and profitable, GPOs are taking on other responsibilities, such as consulting, education and technology expertise.
Offering IT capabilities to long-term care organizations is critical, Chandler says, because “technology will take on a much larger role as the industry evolves and will become a key part of facility operations as the baby boomers arrive.”
Peters also acknowledges the impact boomers will have, saying that as long-term care organizations expand their service offerings beyond custodial care, their needs for support will continue to expand and widen.
“This building boom has created a need for architecture and building services beyond conventional medical supplies and pharmaceuticals,” Peters says. “VHA's capital asset management program can help providers along this expansion, from budgeting, planning and design through construction and into operation.
“Other benefits LTC facilities can derive from GPOs are recruiting and staff retention programs. We can also help employees with benefits that cost the facility nothing, such as access to cell phone services, rental cars, moving companies and other vendors.”
In working with MedAssets on members' behalf, Sikes concludes, “contract savings is a very, very important part of our program, but not the only part.”
AAHSA is “equally focused on the training, communication and service that helps members refine business processes to continually improve their cost structure and put more money back into their missions,” according to Sikes.
A ‘very big' GPO deal
Atlanta-based MedAssets' acquisition of Dallas-based Broadlane is a “very big” development in the group purchasing marketplace, at least one industry analyst emphasized recently.
Under the terms of the purchase agreement, MedAssets will pay approximately $850 million in cash for The Broadlane Group, with $725 million due at closing and $125 million due in January 2012. To fund the transaction, MedAssets obtained financing from J.P. Morgan and Barclays Capital. Broadlane serves more than 1,100 acute care hospitals and 50,000 non-acute care facilities across the United States, and MedAssets has more than 3,300 hospitals and 40,000 non-acute healthcare providers. Together, the two would have a reported combined net revenue of $508.9 million. They announced the transaction Sept. 14.
“This is very big,” says Pam Poshefko, consulting manager for Chadds Ford, PA-based IMA Consulting. “It now produces an entity that has a full-range solution. It makes them a major player in the market, putting them on the same footing with the other big players.”
The impending marriage—which will carry the MedAssets moniker—has strong synergies, representatives from both organizations say.
John Bardis, MedAssets president and CEO, says Broadlane represents “an outstanding strategic fit” with his organization. Patrick Ryan, Broadlane chairman and CEO, calls the transaction “an exceptional opportunity to bring together two very strong enterprises and deliver end-to-end cost management capabilities.”
In looking at the combined organization's potential impact, Poshefko says the new entity will “benefit the clients of both because they are strong in different areas. Combined, they make a much more broad and viable alternative to other GPOs.”
MedAssets has focused on custom contracting, supply chain consulting and revenue cycle management while Broadlane has a strong e-commerce component and functions as a transaction management company.
“Together, they can get high compliance with a technology solution that will help members manage their transactions to ensure they get the correct pricing for all their contracts,” Poshefko says. “It's a nice blend that makes them much stronger than they are separately.”