Reform prompts GPOs to reconsider services, business model
With health reform, GPOs face many challenges and changes, but step one might be pinning down a definition
Singer-songwriter Bob Dylan has always been regarded as a bit of a prophet. But no one could have guessed in 1964 when he wrote “you better start swimmin’ or you’ll sink like a stone/for the times they are a-changin’ ” that 45 years later those lyrics would become a sage warning for U.S. healthcare businesses.
Multinational drug companies, independent hospitals, insurers and other organizations along the healthcare continuum are sorting out how they will be affected by reform and what they will look like after the winds of change have passed through. Healthcare group purchasing organizations are no exception, so in conjunction with its annual GPO industry survey, Modern Healthcare decided it was a good time to consider how the group purchasing industry is navigating the early days of healthcare reform.
Executives at small and large GPOs say they are taking long, hard looks at their business models. They are asking what changes in focus and services need to be made to help their provider members prosper under a new system.
“I think the GPOs that don’t morph are going to be looked at askance,” says Nicholas Sears, chief medical officer for the Alpharetta, Ga.-based GPO MedAssets. “The old GPO model I don’t think will be around in 10 years.”
To be certain, the old model—where GPOs did little beyond negotiating lowest possible pricing on supplies and services purchased by their members—has long been considered antiquated. GPOs still earn most of their revenue on contracting services—roughly 60%, according to Huron Consulting Managing Director Sean Angert—but the vast majority, if not all GPOs, offer a roster of additional services meant to help hospitals lower costs, improve quality and transform their care- delivery systems. Those services include everything from staffing and workflow analytics to evaluating the clinical and cost effectiveness of medical products, benchmarking quality of care and managing hospitals’ outsourced purchasing services.
Still, healthcare industry analysts say they expect continued and significant changes to GPOs’ business models over the next several years as health reform legislation is implemented.
“I see GPOs sharing more of the risk” for achieving savings, says Paul Keckley, executive director of the Deloitte Center for Health Solutions. Keckley says tightening reimbursement will force providers and GPOs to develop creative compensation arrangements, particularly for services other than contracting. As a result, instead of receiving flat fees for executing quality-improvement and cost-saving programs for their members, GPOs are likely to be compensated based on the success of those programs. That could mean, for example, that a GPO would share a portion of the savings achieved through a clinical-product waste-reduction program instead of receiving a flat fee for their services.
Keckley also expects some GPOs to move into offering purchasing services for business lines that aren’t considered part of conventional medical care. “I expect discussions about tiptoeing into areas like dispensing, optometry, wellness centers and medical fitness centers,” he says. “There are things outside of healthcare reform’s reach, where GPOs can become purchasers (for) or even operators of these kinds of facilities.”
Lee Perlman, president of GNYHA Ventures, the GPO for the Greater New York Hospital Association, agrees, saying he sees the role of GPOs broadening under healthcare reform. “Certainly we—and I know my competition as well—are looking at things in a much more expansive way,” he says. “I believe very strongly that when you look at what’s going to happen in the future, it’s important to have services beyond the acute-care world. We need to empower hospitals to provide services beyond discharge,” Perlman adds. He notes that his GPO is looking to extend its services into home-care monitoring and other post-discharge markets.
Keckley expects some GPOs to push the boundaries of their services even further by acting as negotiators of financing terms on their provider members’ capital equipment purchases or possibly becoming the financier of such purchases. “I don’t think they’ve settled yet on exactly what they think the new normal will be for them,” Keckley says of GPOs’ future.
But the idea of creating a new normal may be a leap for an industry where, as supplychain experts say, “If you’ve seen one GPO, you’ve seen one GPO.”
Beyond contacting services, the menu of programs and consulting services offered by GPOs to their members varies widely. Where, for example, one GPO places extensive resources into the development of clinical quality programs, another is heavily invested in revenue-cycle management and still another in clinical-labor-management programs. As a
Sears: “GPOs that don’t morph are going to be looked at askance.”
Keckley: “I see GPOs sharing more of the risk.”