Group Purchasing Organizations, or GPOs, are groups that join the buying needs of many healthcare providers. This helps them get better prices and terms from suppliers of medical supplies, drugs, and equipment. When many buyers join together, they have more power to bargain. This often results in lower costs than if each provider tried to buy on their own.
In the United States, about 90% of hospitals use a GPO. Contracts made through GPOs cover around 70% of hospital purchases, not including labor costs. By buying together, hospitals save money without lowering the quality of care. This makes GPOs useful for managers who must control budgets while still giving good care.
Many studies show that GPOs save money. One study found that if a GPO is bigger, hospitals spend less on supplies. For example, hospitals saved about 2.7% on supply costs per patient discharge. On average, this means nearly $48 saved per discharge, adding up to about $720,000 each year.
If a hospital joins a larger GPO, savings can be even bigger. Cost drops can reach 4.8%, cutting around $85 per discharge. This might save over $1.2 million yearly for one hospital. These savings happen without lowering care quality or turning away patients.
Researchers Haizhen Lin and Yanhao Wang found hospitals can keep good care even as supply costs go down because of GPOs. For leaders who manage tight budgets, these savings show why using GPOs is practical.
GPOs also affect how much drugs cost in healthcare. Generic drugs make up nearly 90% of prescriptions in the U.S., but they only use about 17.5% of total drug spending. Even with this small spending share, generic drugs saved the system almost $3 trillion in the past ten years.
GPOs help by negotiating bulk buying contracts. This makes generics easier to get and cheaper for providers.
Still, problems exist. The number of places making generic drugs is shrinking. New generic drugs are also slow to enter the market. This raises the risk of shortages that can interrupt care.
The Association for Accessible Medicines says that few buyers, including GPOs and wholesalers, control much of the market. This affects how easily generic drugs can be found and priced. Because of this, the U.S. Department of Health and Human Services and the Federal Trade Commission are looking into how much power GPOs and wholesalers have. They want to find ways to keep drugs affordable and available.
Wholesalers deliver about 92% of U.S. prescription drugs. Three big companies—AmerisourceBergen, Cardinal Health, and McKesson—dominate this business. They work with GPOs to agree on drug prices. But since they get fees from drug suppliers, some worry that this system might not always lower costs for hospitals and patients.
Drugs for special uses, like cancer treatments or rare diseases, are harder to buy. Some GPOs have special programs to help with these medicines. For example, McKesson’s Onmark® program uses group buying to get better prices and manage supplies for these drugs. Medical groups working with difficult treatments can benefit by joining GPOs that understand specialty drugs.
GPOs are mainly known for saving money, but they also make buying medical supplies easier. Getting supplies in healthcare is complex. Providers have to deal with many suppliers, keep track of inventory, follow rules, and make sure products arrive on time.
GPOs act as middlemen. They help reduce the work needed to handle these tasks. Many GPOs give members data and reports that assist in making better buying choices.
Hospitals working with GPOs saw benefits during the COVID-19 pandemic. Some GPOs worked with the CDC and FDA to manage shortages of important items like masks and gloves. They were able to watch demand, track limited supplies, and organize deliveries. This helped ease supply problems when they were most needed.
Hospitals and clinics are now moving toward value-based care. This means they get paid based on how well patients do and the quality of care provided. GPOs are changing how they work to fit these goals.
A recent study looked at how GPO buying fits with value-based care. It found that having a central group make decisions can lead to better drug quality and higher satisfaction than if each hospital decides by itself.
Contracts that share costs and offer discounts for buying more are important tools. But if providers pay too much for keeping quality high, they might lose money. So, contracts need to be fair and support long-term success in care and costs.
Top GPOs work with groups like Integrated Delivery Networks and Accountable Care Organizations. Together, they set common rules for buying and care. This teamwork can improve patient results, like fewer hospital returns for chronic diseases. It also helps keep quality good while lowering costs.
Artificial intelligence (AI) and automation are changing healthcare buying and supply chains. For hospital managers and IT staff, using AI tools in buying helps improve many parts of the process.
AI can forecast how much will be needed, manage supplies, place orders automatically, and watch supplier performance. By looking at past use, seasons, and delivery data, AI can predict needs better. This cuts waste and stops running out of supplies. It also helps control costs and keeps care ready.
Some GPOs are using AI to analyze buying data. This helps them negotiate better prices and find trends. AI also helps manage contracts by alerting staff about renewals, discounts, or rules. This lets workers spend time on other important tasks.
Automation tools with AI can handle routine work, like approving orders and talking with vendors. This reduces mistakes and speeds up buying. It saves money and helps patients get care faster, especially in busy places.
AI is also useful outside of buying. For example, Simbo AI offers SimboConnect, a phone automation tool that helps healthcare offices manage appointments and questions. This lowers the work for staff and improves patient experience.
Medical practice managers and owners should think about a GPO’s size, experience in special areas, and use of technology like AI before joining. Bigger GPOs usually get better cost savings because they have more power to negotiate. However, it is also important to check contract details. Make sure fees from suppliers are clear and that pricing is fair.
Some GPOs offer data and AI tools that improve buying choices and help meet value-based care rules. IT staff should make sure the practice’s technology works well with these tools to get the most benefits.
Shortages of generic drugs can cause care problems. Practices should work with GPOs that actively try to fix supply issues.
It is also important to stay updated on government rules and investigations about drug pricing. This helps practice leaders adjust buying plans ahead of time.
Knowing how GPOs work in healthcare buying and drug pricing is important for U.S. medical providers. Using GPOs and AI tools can help reduce costs, simplify buying, and support better patient care results.
GPOs assist healthcare providers in procuring medical supplies and drugs by leveraging collective purchasing power, which can lead to lower costs and improved access to essential medications.
The HHS and FTC issued a request for information to address drug shortages and the impact of GPOs and drug wholesalers, aiming to uncover root causes and potential solutions.
Challenges include decreasing generic prices, concentrated purchasing by drug purchasers, slow adoption of new generics, and declining manufacturing sites, which heightens the risk of drug shortages.
The use of generic drugs has saved the U.S. healthcare system nearly $3 trillion over the last ten years, highlighting their importance in keeping healthcare costs down.
The report reflects the tremendous savings attributed to generics and biosimilars, emphasizing their critical role in improving patient access to affordable medications.
AAM is a trade association representing generic and biosimilar manufacturers, advocating for affordable access to medicines and addressing challenges in the pharmaceutical industry.
Increased concentration among healthcare GPOs and drug wholesalers may influence drug pricing and availability, potentially leading to higher costs or reduced access to generics.
2024 marks the 40th anniversary of the Drug Price Competition and Patent Restoration Act of 1984 (Hatch-Waxman Act), which enabled generic drug competition.
GPOs can affect the sustainability of generic drug competition by influencing pricing, availability, and the overall market dynamics within the pharmaceutical industry.
AAM is collaborating with HHS and FTC to highlight sustainability challenges in the generic industry and identify effective solutions to mitigate drug shortages.
Simbo is using AI agents to automate all phone related workflows. Connect now to know more.
Schedule AI Agents Demo Now© Since 2019, Simbo AI.
