Six GPOs accounted for nearly 90% of total GPO purchasing volume in 2007, according to a Government Accountability Office report from August 2010. The Health Industry Group Purchasing Association has reported that about 96% to 98% of hospitals in the U.S. use GPOs, as cited on the trade group's website. There are six GPOs that each managed at least $7 billion in annual purchasing volume for fiscal 2010, including Premier ($43 billion), Novation ($40.1 billion), HealthTrust Purchasing Group ($18.1 billion), GNYHA Services ($9 billion) and Amerinet ($7.2 billion).
MedAssets, which does not report annual purchasing volume, reported $45 billion in total management spend for fiscal 2010. The Alpharetta, Ga.-based GPO acquired the Broadlane Group, a rival GPO, in an $850 million deal announced last September.
Competition in the GPO market is based on a number of factors, according to MedAssets' annual 10-K securities filing. Some of the factors include the ability to deliver financial improvement and return on investment through the use of products and services; breadth, depth and quality of products and services; quality and reliability of services, including customer support; and price. In the same filing, MedAssets reported that it “primarily compete(s) with Amerinet, HealthTrust, Novation and Premier, Inc.”
“We're seeing a huge, huge appetite and desire to understand how best to manage spend, with the GPO being a component of that, and what are the other opportunities to not only recognize the immediate benefit but to use a platform—a delivery model—that allows them to sustain those gains longer term,” says Joe Greskoviak, president of spend and clinical resource management for MedAssets. “This is about sustainability.”
MedAssets began working with the Texas Purchasing Coalition, a coalition made up of 11 hospitals and health systems in Texas that previously contracted with Novation. The coalition's contract with MedAssets, in which the savings period began July 1, 2010, generated $43 million in savings in the first year. Its annual purchasing volume is approximately $800 million.
“There was no foregone conclusion that the TPC members would leave VHA,” says Geoff Brenner, president and CEO of the Texas Purchasing Coalition. Brenner noted that the value proposition proposed by MedAssets was more competitive than the proposals provided by the other GPOs.
“We were interested heavily in the economic impact; theirs was the most aggressive,” Brenner says. “They had, in our view, the best capabilities around physician preference items and analytics capabilities. Those two are really important and for our group, we felt like the greatest economic savings opportunity would come in the form of physician preference items.”
Physician preference items were a factor that played into Scottsdale Healthcare's decision to contract with Novation in 2009, according to Michael Hildebrandt, the health system's associate vice president of supply chain.
He says that PPIs account for “a huge part of our total spend” and VHA's physician gain-sharing program had particular appeal for the three-hospital system in Arizona. Scottsdale Healthcare, which had worked with Amerinet for about 20 years, evaluated GPOs in 2009 to address financial concerns that included a recent net operating loss as well as the addition of a new 60-bed hospital.
“We had a bit of an off-year financially,” Hildebrandt says. “We were saying: What are some of the things we can do to improve our financial performance?”
VHA not only provided a more aggressive cost savings guarantee proposal that promised $12.5 million in savings opportunities over a two-year period, Hildebrandt also identified the organization as a cultural fit for Scottsdale Healthcare, which currently uses VHA's benchmarking programs.
Roxborough Memorial Hospital in Philadelphia signed a contract in June with Amerinet, which had been serving as a “sub-GPO,” after working with the Broadlane Group for five years, according to Robert Souaid, CEO of Solis Healthcare, the owner of the 137-bed hospital. Souaid says the acquisition of Broadlane by MedAssets led to Roxborough's decision to evaluate GPOs.
He attributes Amerinet's customer service as a major factor in the decision to work with the St. Louis-based GPO.
As hospitals and health systems continue to face cost pressures, supply costs will remain under scrutiny. Huron's Angert says that he expects to see more independent delivery networks attempt to leverage their collective volume and become less reliant on GPOs. Yet, providers that are using the technology and tools available through their GPOs may find it difficult to transition to a new system, in the case of a GPO conversion.
Marchozzi says that the question used to be: What GPO is going to bring the best value in terms of dollars and cents?
“Now, it's more of a decision abut how that GPO fits into the larger strategic vision of where we want to drive the organization.”