Should Your Practice Join a GPO?

You don’t have to be in practice very long to realize that medical inventory represents a serious cost. Yet, unlike rent and staffing, supply costs are something that you can address without a major impact on your operation.  

You can comparison shop. You can take advantage of deals. You can negotiate with vendors. Many practices turn to a Group Purchasing Organization to reduce prices, but that’s a decision that requires some thought.  

The concept behind a GPO is relatively simple: companies band together to increase their buying power, using economies of scale to lower prices. Members often join for free, though some GPOs charge a membership fee. The GPO itself is often paid by vendors, who give them an administrative fee.

GPOs have been in operation for more than 100 years. Though there are many different types and each operates a bit differently, they are ubiquitous in healthcare. Most hospitals, for example, use at least one GPO. They function like a middleman, negotiating with vendors and offering members a reduced price on supplies.

Whether that works for your practice is a question that requires some homework. A GPO may offer cost savings, but that could come with a lack of transparency, meaning it can be hard to tell whether you could do better shopping on your own. The bottom line is that you should understand the pros and cons before you sign on.

What You Need to Know About a GPO

GPOs have many supporters because they often lower costs for members. One estimate found that organizations save between 10% and 18% over what they would pay if they negotiated with individual vendors, according to a study funded by the Healthcare Supply Chain Association, which represents purchasing organizations. GPOs work for many large healthcare organizations, where they often play a major role in procurement.  

How much money a private practice might save depends on the size of the practice, supply needs, spending habits and many other variables. Every practice will be different.

Buying through a GPO is different from shopping with vendors. For starters, you are no longer comparison shopping and negotiating because that becomes the GPO’s role. While that may be convenient, it leaves you with less information about the marketplace. There is no guarantee that you are getting the lowest price on any given product. Some experts liken it to big-box shopping. Walking in, you know many products are cheaper, but probably not all of them.

Realizing cost savings through a GPO may also require changing some brands and products, because there’s no guarantee that the GPO’s offerings match exactly what you currently buy. In some cases, this may not matter. In others, it may be more important.

Some practices also say that service at a GPO is also different from that of individual vendors. Many vendors are eager to please because they want your business. You form relationships over time that can be mutually beneficial. Many GPOs are large organizations that can sometimes be less personal. In some practices, this may not matter. But if you are getting first-class service from your current vendors, it may be a change.

The truth is that GPOs are widely used, but they are not universally popular. For example, an FTI Consulting survey of supply chain personnel at healthcare organizations in 2021 showed that 68% were either satisfied or extremely satisfied with their GPO. That means that 32%—almost one in three—were not. GPOs have also come under scrutiny for supply chain shortages. Late last year, several patient and consumer advocacy groups, including Public Citizen and Physicians Against Drug Shortages, asked the Federal Trade Commission to investigate the role that GPOs played in supply shortfalls during the pandemic.

Evaluating a GPO—and Alternatives

If you do decide to see what a GPO can do, take steps to educate yourself:

  • Compare GPOs. Don’t just sign with a GPO used by your hospital. Talk to several. Every GPO operates a bit differently, so it pays to shop around.
  • Ask Lots of Questions. Make sure you understand exactly what the GPO is offering, which suppliers it uses for the products that matter to you, how it chooses suppliers (as well as how often they change), and what exactly you will be required to do. A GPO committed to transparency will provide solid answers to every question you have.
  • Bid Some Products. Before you make a decision, take a handful of products that are important to your practice and run a test. Price them at a GPO and then challenge vendors to beat those numbers. That will give you an indicator of how you might fare with and without a GPO. Just make sure you compare apples to apples.  

In the end, every practice must come to its own conclusions about whether a GPO is the way to go. But it is worth noting that there are alternatives.

By comparison shopping; using a business card with cash back rewards and other discounts; and taking advantage of deals, many practices can realize substantial savings on the exact products they want. Nitra cardholders, for example, get up to 3% cash back, access to exclusive vendor discounts—even a price match guarantee at the Nitra Marketplace.

While a GPO could offer savings, do some homework first. Look at the offerings. Comparison shop for products you know well. Ask other practices about their experiences. When it comes to saving money on supplies, a little work can go a long way.