As policy makers in Washington strive to provide healthcare insurance for all, a new study has found that one way to bring down the cost of care is by using group purchasing organizations (GPOs). Twenty eight hospital systems representing 429 hospitals were recently surveyed on their commitment to purchasing from GPO contracts and assessment of value. From that, the study estimates that GPOs save the U.S. healthcare industry $38 billion annually.
"GPOs support President Obama's efforts to provide high quality, affordable healthcare for all," Curtis Rooney, president, Health Industry Group Purchasing Association (HIGPA; Washington) said during a news conference about the study results. "There's more that GPOs can do and we want to work with the president – $36 billion is a real eye opening number and we want policy makers to be aware that, through the power of aggregated purchasing volume and negotiated discounts, we're the unsung hero of healthcare reform."
The report, funded by HIGPA and written by Eugene Schneller, principal Health Care Sector Advances (Tempe, Arizona) and professor at the Arizona State University School of Health Management and Policy (Tempe) outlined the following savings as part of the $36 billion in projected direct price savings:
• $6.8 billion for hospital pharmaceuticals;
• $8.5 billion for medical/surgical purchases;
• $1.9 billion in attributed savings in the $10.4 billion cardiology implant marketplace (either directly or indirectly by providing members with GPO purchased goods or reference pricing from directly engaging the marketplace); and
• $840 million in attributed savings in the $7 billion orthopedic implant marketplace (either directly or indirectly by providing members with GPO reference pricing for directly engaging the market).
Additional savings that arise from the work of GPOs include more than $1.8 billion in reduced hospital purchasing costs by eliminating the need for hospitals to comprehensively carry out strategic sourcing, contracting and other key GPO activities for inpatient pharmacy, general medical products, orthopedic products, other clinical products and housekeeping products.
The savings and efforts to promote more use of GPOs is good news for the nation's efforts to contain costs. But what's the impact on medical device makers if all products are ultimately discounted? When asked if mass products discounts could impact med-tech companies' abilities to continue to develop innovative products, Schneller told Medical Device Daily that, "The more we are able to understand the value of devices, we'll see a push to identify the best products in the industry. GPOs drive members to the best products. The small hospital really can't do the kind of value analysis that a GPO can do."
Another news conference participant, Alan Yordy, president and CEO, Peacehealth Hospital (Bellingham, Washington), said: "The contract we have with our GPO produces significant, demonstrable savings for our hospital. GPO-produced efficiencies could not be more important for our hospital, especially during this time of economic necessity. Dollars saved allow us to devote our scarce resources directly to patient care; it also enables us to hire more doctors and nurses."
Yordy added that Peacehealth, with revenues of more than $1 billion, has experienced savings of $35 million to $50 million a year by participating in a GPO. "Two years ago our supply chain costs represented about 16.5% of total operating expenses. This year it's 15.6% and we have a goal of bringing that down to 14%. Of total operating expenses, this represents additional savings of $20 million now."
"The GPO helps us to connect with other healthcare providers across the country," Yordy said. "Several years ago we combined with three other Catholic systems to focus on high cost items. That connection represented a 10% savings for things like stents. Another group came together and we doubled our supply spend from $200 million to $400 million and the group that joined our group experienced an immediate 15% savings on cardiac implants alone."
There are huge potential additional savings, said Schneller, if more organizations made use of GPOs. According to the report, more than half of U.S. hospitals and systems use GPO pricing as the benchmark for starting their own negotiations for physician preference items, which are the most expensive devices that they purchase.
The report, titled "The Value of Group Purchasing 2009: Meeting the Needs for Strategic Savings," highlights the fact that 54% of hospitals had negative total margins during 1Q09, including 80% of hospitals with 500 or more beds, according to data from the Healthcare Financial Management Association (Westchester, Illinois). Eight in 10 hospitals report declines in non-operating revenue since the economic recession began last summer, and seven in 10 report fewer days cash on hand. The need to find cost savings continues to grow.
Todd Ebert, president/CEO of the GPO Amerinet (St. Louis), pointed out that GPOs also have a strong effect on patient safety and quality.
"All of the GPOs have programs and services that address patient safety and quality," Ebert said. "The work Schneller has done places a dollar value to the work that we do. But there are savings beyond pricing. The entire contracting process, material sourcing, supplier validation, etc. all cost $2 billion annually in additional staff savings. Right now with the current economic conditions, there isn't a healthcare provider who isn't looking to reduce costs. GPOs allow our customers to keep costs down and improve patient care."