Unbiased Benchmarking, Skilled Negotiation Outperform GPO Discounts

Healthcare organizations should not assume a GPO-negotiated contract delivers the best price.

Group Purchasing Organizations (GPOs) provide an important service for hospitals and health systems. History tells us the volume-based purchasing that GPOs offer does indeed garner discounted pricing.

However, hospitals and health systems should not assume a GPO-negotiated contract delivers the best price. At TractManager, we have repeatedly shown that failing to validate GPO pricing means health systems and hospitals are leaving real money on the table. That’s why it’s so important that healthcare organizations benchmark GPO pricing against what is possible in their region and negotiate for deeper discounts when they see the opportunity to do so.

GPOs are neither independent nor unbiased

In brief, hospitals and health systems can often do better than the prices GPOs negotiate because GPOs are neither fully independent nor unbiased. They negotiate prices based on established vendor relationships. Their business model relies on their making money from every contract—whether or not they have secured the best price. And because they are typically paid a percentage of the cost of goods bought through the contract, they are incentivized to drive up spend.

Doing business that way inevitably cuts into the advantages of volume-based purchasing. Far too often, it blinds GPOs to opportunities for securing additional savings for their hospital and health system clients. This plays out in contracts for both outsourced services and for capital equipment.

Understand that GPOs are most helpful when negotiating large, one-size-fits-all contracts with one national supplier, typically for capital equipment or medical supplies. Conversely, GPOs are at a considerable disadvantage when negotiating professional services contracts for which prices vary considerably from one region or locale to the next. GPOs are just not nimble enough to customize their contracts to regional needs.

Moreover, even for capital equipment, a GPO’s discounted contract pricing is usually just the guaranteed starting point. Further negotiation can drive down prices more.

We have proof. Our quote transparency tools, which benchmark GPO pricing against what vendors are offering in a region, have shown time and again that there are better deals to be had than those that GPOs negotiate.

Use your negotiating power

It’s also important to understand that if you arm yourself with reliable benchmarking information and deep negotiating expertise, you have more power than you realize. You don’t need to rely solely on your GPO.

RELATED WHITE PAPER: Top 10 Contract Negotiation Strategies For Healthcare Providers

As indicated above, TractManager’s quote transparency tools deliver reliable, regional benchmarking so you can identify and compare pricing differences in your area, for your specific needs, over time. Our unbiased analyses include component-level and service contract details and pricing recommendations. In addition to our subscription platform solution, we offer deeply experienced service contract negotiation experts whose demonstrated ability to deliver savings can augment your teams’ capacity with at-risk and gain-share models.

Ours is a simple win-win proposition. We’ve earned our reputation by saving hospitals and health systems money without undermining their organizational missions to deliver the safest and highest-quality care possible. We can do the same for you. TractManager is focused on helping you reduce the cost of care while delivering better outcomes. Check out this 5-minute video and learn how you can cut your collective spend in half.

Author:

Eric Slimp

Purchased Services Director

Eric Slimp joined TractManager’s MD Buyline division in 2013, left in October 2017, and rejoined the company in June 2018.

 

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TractManager is focused on helping you reduce the cost of care while delivering better outcomes. This 5-minute video could help you cut your collective spend in half. Watch it to see three real-life case studies.

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