Group purchasing saves healthcare supply chains up to 18% of costs

Dive Brief:

Healthcare group purchasing organizations (GPOs) negotiate lower prices and transaction costs for healthcare providers and patients, according to a new economic analysis conducted by former FTC chairman Jon Leibowitz.
The analysis found GPOs help provide more procurement options and increase competition in the healthcare marketplace. In fact, according to the study GPOs generated 10-18% in cost savings for healthcare supply chains annually.
The study also determined that changing the funding mechanism for healthcare GPOs — which is vendor funding — could increase healthcare costs, and warns Congress against changing the funding mechanism for healthcare GPOs.

Dive Insight:

Lets cast aside for now the political difficulties of healthcare legislation and medical insurance in the United States, as well as the emotions around sickness and health, and discuss how to make the delivery of healthcare more streamlined, cost effective, and patient centric. We need to address the healthcare industry like any other large and fragmented one such as the automotive industry in order to have a chance at success in driving down costs and improving service.

We can look at success in a number of ways. Lean and continuous improvement has found it’s way into healthcare. Organizations like the Greater Boston Manufacturing Partnership offer leading edge programing on lean healthcare that is making an impact on Boston area medical centers and practices. A focus on supply chain management, either as a cost reduction mechanism or for better inventory management, has also taken hold. For example, medical device manufacturers are supplying items needed for specific patient procedures, like specialized heart stents, in a just in time basis in partnership with key suppliers and global logistics networks.

Group purchasing, while valuable in consolidating spend and driving down purchase costs, has its inherent difficulties but is worth the effort. Coordinating materials across a diverse medical center is hard enough, but trying to consolidate and coordinate that effort across many organizations with competing priorities, maverick spend, and suppliers who may appreciate the days of a margin enhancing fragmented spend is hard work. In some organizations, the contracting unit responsible for group purchasing is disconnected from the procurement organizations that release the orders and the medical staff calling for materials. Supplier coordination and performance is really life and death.

Yet things are beginning to reflect a lean-based approach to healthcare, or at least a stronger focus on continuous improvement and a focus at the "business" of healthcare. A visit to most any large medical center these days begins with valet parking, a branded coffee kiosk in the lobby, a big screen TV with ER wait times, vendor managed inventory at point of use, RFID chips on equipment for tracking and deployment, ubiquitous barcodes on anything patient related and a concierge directing people throughout the typical hospital maze.

While these actions may make for a better patient experience, its primary focus is efficiency and throughput, measures that are common in most factories and service centers.