5 Ways to Make Your GPO Work for You

By: Jim Knatz

Published: 10/10/2007

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Here's how to reduce supply costs even further.


Although some surgical facilities truly minimize supply costs by working effectively with group purchasing organizations (GPOs), not all get the most out of their GPOs. In fact, even if you already belong to a GPO, you may be able to save from 3 to 5 percent more on supply costs simply by taking a few proactive steps. Here are five ways you can make your GPO work harder for you.

Don't Pay GPO Fees

Although most GPOs no longer charge membership or service fees to surgical facilities, some still do. As the experience of Ruth G. May, RN, CASC, the director of ambulatory surgical services with Indian Wells Valley Surgery Center in Ridgecrest, Calif., shows, you shouldn't be paying a membership fee at all, no matter how small your surgical facility. "Recently, we were paying a $375 monthly fee to belong to our GPO," explains Ms. May. "But when I discovered that my colleagues at other ASCs weren't paying fees, I renegotiated."

Ms. May moved her GPO purchasing program from a "general" one, in which she was not committed to buy any specific items, to a "select" one, in which she agreed to purchase certain supplies through her GPO. Fortunately, this was an easy transition. "I pulled up my historic buying and geared the new agreement to these patterns. I didn't have to change anything, because we were buying most of these supplies through the GPO anyway," she says. "Don't pay a fee."

- Dianne Taylor

1. Take Stock of Your Purchasing Practices
On average, surgical facilities order only 35 percent of their supplies through their GPOs. This is because many incorrectly assume the items they order are already under GPO contract, or that there is a valid reason why the items are not under contract. To avoid paying more than necessary, I recommend taking stock of your purchasing practices. To do so, first identify your "alpha" items - those high-end and/or high-volume items you spend most of your money on.

Then, find out which of these items are not under GPO contract, and ask your GPO liaison to assess the contractual status of these supplies. That is, find out if the GPO has a contract available for these products and, if not, identify comparable products that are available on contract. Although product conversions require time and effort, including product evaluations and surgeon buy-in, you can save significantly by staying open to this possibility. Fortunately, GPOs tend to award contracts to market leaders, which typically offer quality products. In sum, it behooves you to know what contracts are available and use them to the best of your ability.

2. Stay on Top of Your Tier
Since GPO pricing is often tied directly to volume incentive tiers - that is, the more you spend, the higher your tier and the lower your individual supply costs - it makes sense to keep track of your position. For example, if your caseload has increased or your case mix has improved, you may qualify for a higher tier and, thus, deeper price cuts. Unfortunately, tier adjustments do not occur automatically, and most facilities do not monitor their positions. The good news is that tier monitoring shouldn't cost you much time or effort, as your GPO liaison can and should do the legwork for you. However, it is up to you to manage your liaison and ensure that he stays on top of your tier.

3. Understand Your Patronage Dividend
GPOs save you money in two primary ways: discounted product pricing and annual patronage dividends. Unfortunately, even though the patronage dividend can comprise an important part of the overall savings, many managers do not understand how it works - or even that it exists at all.

Essentially, a patronage dividend is an annual rebate that the GPO pays to its members. Since GPOs negotiate contracts but do not purchase products directly, they generate operating revenue by charging administrative fees to their suppliers. Every year, GPOs rebate a portion of these administrative fees back to you, and the amount depends on your total annual purchases.

To ensure that your facility is receiving the proper patronage dividend, ask your liaison to demonstrate how the GPO calculated your rebate. The liaison should be able to itemize your purchases and clearly show how the GPO applied these purchases to your rebate. This way, you can ensure that all your purchases are accounted for.

4. Bundle When Possible
GPOs may increase product discounts if you purchase several products in a single product line. And although this practice of "bundling" is going by the wayside for a number of reasons, it still exists to a limited extent, and I recommend asking your liaison if you qualify for any bundling discounts. Take advantage of them when possible.

Keep An Eye On Your Contracts

Despite ordering her high-end and high-volume supplies through her GPO, Christine Therrien, RN, administrator of the Battle Creek, Mich.-based Brookside Surgery Center, had a hunch that her supply costs were too high. So, she decided to create a spreadsheet that compared all of her GPO contract prices with the prices she was actually paying for everything from drapes to lap chole trays. Although the process was laborious, it was telling. Ms. Therrien discovered that, even though she was ordering her products through a GPO, she was paying upwards of 50 percent or more than she should have been for many items.

What went wrong? Ms. Therrien's supply distributor inadvertently signed her up with the wrong GPO, and she was ordering products that this particular GPO did not have on contract. "I was ordering supplies because I needed them, and the mound of paperwork was overwhelming," she says. Ms. Therrien now advises taking the time to get to know your own contract prices so you have a basis from which to deal with your GPO liaison. "Now, my rep provides me with a monthly listing of the contract price and the actual price I pay for every supply I buy through the GPO," she says. "But you need to get a handle on your own numbers first, so you can trust the figures. Knowledge is power."

- Dianne Taylor

5. Use Your "Value-added" Benefits
Many GPO contracts offer "value-addeds," and it is important to know what these services are so you can take advantage of them. Different GPO contracts offer different value-added benefits. For example, some GPO contracts offer conversion assistance (the supplier purchases existing stock to be converted). Many agreements also provide some form of product education, such as staff in-servicing. Work with your GPO liaison to understand what is available to you.

Knowledge is purchasing power
Although the direct involvement of the surgery manager in supply purchasing varies widely depending on the particular setting, he or she is an important part of the GPO purchasing team. The surgery manager is an essential link in the supply chain, and the more you know about your GPO, the more power you have to bring supply costs down.

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