Group Purchasing Organizations bring together buying power from many healthcare providers like hospitals, clinics, and medical offices. This helps them get better prices and contract deals from manufacturers and suppliers. By joining forces, smaller places can get discounts usually only available to bigger organizations.
GPOs mainly negotiate contracts, manage relationships with suppliers, and help with purchasing tasks to make the process easier.
Some of the largest GPOs in the U.S. include Novation ($37.8 billion), Premier ($36.0 billion), MedAssets/Broadlane ($35.0 billion), HealthTrust Purchasing Group ($17.0 billion), and Amerinet ($7.2 billion). These groups handle a big part of the healthcare supply chain.
Still, GPOs face problems. Hospital systems are joining together and becoming bigger, so they have more power to make deals directly with manufacturers instead of using GPOs. For example, Medtronic, a big maker of medical devices, ended five contracts with Novation worth $2 billion a year. This shows how manufacturers want to work directly with buyers, which could make GPOs less important.
Pharmacy Benefit Managers (PBMs) manage prescription drug benefits for insurance companies, employers, and government programs. They first started in the 1960s to help lower drug costs. Now, PBMs handle almost 80% of all prescriptions given in the U.S. They do more than just negotiate prices; they also decide which drugs are covered, set payment rates, and control patient access to medicines.
PBMs earn money in several ways: they charge fees to insurers, get rebates from drug makers, and use a method called spread pricing. Spread pricing means PBMs charge insurers more than what they pay pharmacies, keeping the difference as profit.
For instance, the three biggest PBMs made $1.4 billion from spread pricing on 51 generic specialty drugs over five years. PBM-owned pharmacies also kept nearly $1.6 billion extra on two cancer drugs in three years.
In 2023, drug makers paid PBMs around $334 billion in rebates. About 91% of that went to commercial insurers. But many worry that these deals are not clear and that patients might not see the savings. PBMs often use complicated drug lists (formularies) with many price levels that change what patients pay.
The market control by PBMs has caused many independent pharmacies, especially in rural and poor areas, to close. These places are known as “pharmacy deserts” and this limits access to medicines for some people.
Both GPOs and PBMs make deals on prices and contracts with drug makers and pharmacies. GPOs mainly work with healthcare providers and facilities, while PBMs work with insurers and manage patients’ drug benefits.
Because of this, both try to get discounts and rebates from the same drug makers, but for different reasons.
The power PBMs have in choosing which drugs are covered and how much they pay can make hospitals and clinics less dependent on GPOs.
Since PBMs control formularies and payment rates, they pressure drug makers and distributors. This reduces the control GPOs used to have.
Recently, some PBMs started their own Group Purchasing Organizations. Examples include:
Together, these PBM-owned GPOs cover about 75% of U.S. prescription drug users. This lets PBMs gather more power by combining negotiations under new groups. They can divide contracts by business areas, which helps them negotiate in a more focused way.
However, some people think this makes drug pricing more complex and less clear.
Some worry that these PBM-created GPOs might keep rebates instead of passing all savings to payers or patients, which could raise costs.
Having these groups located offshore raises questions about rules and taxes.
Some experts wonder if this helps or hurts the healthcare system overall.
Several things make people question how important GPOs are now in drug contracts and buying:
Some experts say GPOs might not be as useful as before since many tasks they did are now done by new technology or direct deals with manufacturers.
The history of pharmacy benefit managers also adds context to the current changes in GPO roles.
For administrators and owners of medical offices, these changes influence how they plan budgets, handle contracts, and run daily work.
Big hospital systems may negotiate directly and skip GPOs, but many smaller places still depend on GPOs for good pricing.
Knowing what PBMs do is important because their changes in drug lists and payment rules affect which drugs are available and how much patients pay.
When PBMs control much of the market, fewer choices might mean higher costs.
IT managers in healthcare must handle many contracts, formularies, and the need for clear data. Managing relationships with PBMs, GPOs, wholesalers, and manufacturers requires strong systems to collect and analyze drug pricing and rebate information.
Using automation and AI tools helps reduce administrative work and improves handling of these complex tasks.
Artificial intelligence and workflow automation are tools to help manage the complex roles of PBMs and GPOs.
Drug pricing and contracts involve many players and often unclear details. These technologies can help.
Contract Analysis and Negotiation Assistance: AI can read many contracts quickly to find bad terms, compare prices, and suggest ways to negotiate better deals. This matters when dealing with complicated contracts from PBM-created GPOs or direct manufacturer deals.
Real-Time Pricing Transparency: Automated systems with AI can give up-to-date pricing and track rebates. This helps medical offices make sure they get the discounts they agreed on and understand what rebates are kept or passed on.
Formulary Management and Patient Cost Estimation: AI helps pick the best drug lists by guessing which drugs will be used and offering cheaper alternatives without lowering care quality. It can also tell patients how much they might pay based on their drug benefits.
Workflow Integration: Automating tasks like approvals, billing, ordering, and inventory that used to need manual GPO help makes things faster and with fewer mistakes.
AI systems can remind administrators about contract renewals, rebate chances, and rules to follow so they can act on time.
Data Security and Compliance: Since contracts and patient info are sensitive, AI helps keep data safe and follow rules like HIPAA.
For healthcare IT managers, using AI and automation makes handling drug pricing and contracts easier and more accurate. This helps with money management and better care for patients.
Medtronic canceled five contracts for cardiovascular and orthopedic products with Novation, amounting to a total annual value of $2 billion, raising concerns about the future of GPOs.
GPOs pool purchase volumes from member hospitals to negotiate lower prices with manufacturers and wholesalers, providing administrative support and contract management.
GPOs face several threats, including hospital system consolidations allowing direct manufacturer negotiations, competition with wholesalers, adapting to new service demands from hospital-owned physician practices, and challenges from pharmacy benefit managers (PBMs).
Medtronic’s direct contracting approach questions the GPO business model, potentially prompting other manufacturers to reconsider their relationships with GPOs, thereby threatening the latter’s viability.
The top GPOs include Novation ($37.8B), Premier ($36.0B), MedAssets/Broadlane ($35.0B), HealthTrust Purchasing Group ($17.0B), and Amerinet ($7.2B).
Medtronic’s $2 billion in contracts represents approximately 5% of Novation’s total purchasing volume.
A weaker GPO industry could benefit wholesalers, such as Cardinal Health, by increasing their market power and allowing them to compete more effectively.
Hospital systems are consolidating, gaining leverage to negotiate directly with manufacturers, which could diminish the influence and relevance of GPOs.
With more than half of physician practices now hospital-owned, GPOs need to provide new services and contracting methods to cater to this changing landscape.
PBMs are targeting ‘buy-and-bill’ drug spending, potentially reducing the necessity for GPOs in drug pricing and contracting, which could further erode GPO influence.
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