GPO Evolution and Progress, 1997-2007

“Leading GPOs offered their members online access to their contracts, including qualifying for optimal price tiers. This made it easier to purchase products and services offered by the GPO, so contract compliance improved. GPOs employed customer service representatives to promote their contracts in hospitals and health systems.  In some case, they provided full-time, on-site support.”

– Jack Anderson, President, Material Resources Inc.,
and former hospital supply chain and GPO executive

“GPOs were starting to talk about quality and clinical outcomes, but now that has evolved into the clinical database with over a decade member-driven quality input that transparently measures quality, clinical outcomes, cost – where members can see each other’s data by name. Simply unheard of.”

– Rand Ballard, Chief Customer Officer, Vizient Inc.

“During this era, data became king. The ‘dot-com’ phenomena rattled the industry considerably for a short time in the early 2000s with boasts of GPO disintermediation and obsolescence. The supplier community was nervous about how to respond to the emerging presence of yet another influence in the product market. Some GPOs dove head-first into the dot-com world, while others took more of a wait-and-see approach. When MediBuy ultimately faded from existence, and the dot-com boom went bust, this potential market changer ended as well. But as a result of the exposure of the potential for electronic commerce to become a major factor in future healthcare product transactions, all of the major GPO players instituted significant investments in developing electronic contract catalogs, transactional efficiencies and analytical data capabilities.

“MedAssets emerged as a new major GPO player and captured a large share of the hospital market in a relatively short amount of time through its extremely effective sales and marketing efforts, and its emphasis as a systems and solutions provider rather than a GPO. As a result of MedAssets’ success in moving hospital systems and large hospitals away from their previous GPO relationships, all the major GPOs expanded their service offerings to include more data analytics, consultative services, customized individual member contracting support and regional affiliate collaboration.”

– Robert “Bud” Bowen, retired CEO, Amerinet Inc.,
and former long-term care supply chain, GPO and distributor executive

“Pharmaceutical wholesalers and med/surg primary vendors start developing their source products lines in competition to GPOs, which creates a major dent to GPOs’ future direction and revenue. This was partly due to their imposition on healthcare facilities of very strict demands for compliance to their sole-source program and their manipulation of rebates and pricing based upon compliance ratio.”

– Ash Chawla, R.Ph., Chairman & CEO, PDM Healthcare

“Price still counts. GPOs enhance and develop more customer input groups as decision-ownership equates to support. GPOs enhance data systems by using new computer technology to move from CD or microfiche to a robust and complete internet-driven system that provides timely, quick and easy access to contract information for a good-use experience. GPOs grow by moving from just hospitals to the non-acute care market, including surgery centers and clinics.”

– Todd Ebert, R.Ph., President and CEO,
Healthcare Supply Chain Association (HSCA) and former GPO executive

“GPOs were challenged to offer more service offerings outside of contracting because hospital mergers created the formation of multi-hospital systems and IDNs that allowed them to achieve more competitive pricing for high-dollar commodity products and surgical preference items. This situation created an environment that had some of the larger health systems and IDNs questioning the overall value of GPOs. Long-standing traditional GPOs faced substantial competition due to governmental investigation into Safe Harbor regulations and the formation of Broadlane and MedAssets. These market disruptions resulted in traditional GPOs losing legacy members and the need to create broader service offerings. The consolidation of major GPOs begins. GPOs continued to create additional service offerings – many non-supply related – to maintain a competitive edge to persuade larger health systems and IDNs to partner.”

– Greg Firestone, Chief Customer Officer,
Resource Optimization & Implementation (ROi)

“This decade was defined by a focus on data/analytics, the focus on ethics/integrity, increased aggregation, and by the rise of importance of supply chain within hospitals. The critical nature of data/analytics really began in this late 1990s era, mirroring the rise of the internet and ‘dot-com’ culture across the nation. Healthcare systems began to look for ways to harness data in central locations for easier access and began to turn to online portals for connectivity and purchasing. Novation was a pioneer then with the emergence of Marketplace@Novation (now Vizient’s MarketplaceProcure), one of the forerunners in the supply chain online portal space. While data volume has only grown by leaps and bounds since then and health care still struggles to get their arms around it in meaningful ways, the emphasis on data/analytics has grown significantly and drives many business decisions in health care today.

“This period was also marked by an increased focus on strengthening the industry’s ethics and integrity measures. In the face of increased scrutiny, the GPO industry adopted an industry-wide code of business standards to reinforce and enhance ethical and high integrity standards. We also formed HGPII, the Healthcare Group Purchasing Industry Initiative, designed specifically to focus on advancing ethics, integrity and transparency in the industry. The intense focus on integrity/ethics continues today, with Vizient (and its legacy companies) receiving multiple ethics awards, including consecutive inclusions in the World’s Most Ethical Companies list, as well as diversity and environmental steward awards.

“In addition, this decade was marked by increased volume aggregation. For example, Premier was formed through a merger of Premier, AmHS and Sunhealth. And of course, Novation was formed in 1998 by bringing together the purchasing volume of VHA and University HealthSystem Consortium. Finally, this decade saw the emergence of the supply chain executive within hospitals. Previously, this role was often held by a materials manager who had a small office in the basement. During this time period, the budget impact of supply chain began to become apparent to hospital leaders and the focus on strategic supply chain efforts grew. Today, most health systems have a supply chain leader in the executive suite and incorporate sophisticated supply chain strategies into their business plans.”

– Jody Hatcher, President, Sourcing and Collaboration Services, Vizient Inc.

“This period saw the rise of e-commerce solutions, and the partnering of GPOs with e-commerce providers. The industry also saw the rise of EDI transactions through organizations such as GHX. The leading GPOs were able to capture significantly more data and drove the need for a more uniform data structure. Hospitals experienced great ease in accessing and exporting contract price files that could be imported into their MMIS. They were also enabled to capture utilization data for each of their contracts with a goal to maximize price tiers. Another trend that emerged during this period was GPO acceptance of member-negotiated contracts for specialty suppliers in return for continued collection of GPO administration fees under the national contracts. This flexibility allowed for lower than national pricing tiers in return for the higher commitment levels of members to locally negotiated contracts.”

– Doug Heywood, Managing Partner, Ron Denton & Associates LLC,
and former hospital supply chain executive

“In the face of growing GPO market influence, Code of Conduct concerns threaten the revenue model of the industry as activist suppliers induce Senate Judiciary Committee hearings challenging Safe Harbor provisions by alleging that antitrust and physician choice constraints are created by exclusive and bundled GPO contracts. The industry adopts a code of conduct and transparency policy that proscribes certain behaviors and assure open access to contract portfolios. The manufacturer perspective of the Code of Conduct issue relating to medical devices was based on the theory that sole-source GPO contracts impeded physician choice for a product that best served the care of their patients or inhibited the adoption of new technologies. It was not focused so much on transparency to pricing, but on the transparency to contracting process.  The GPO industry response was to exclude PPI (Physician Preference Items) from sole-source contracting and compliance programs and adopt policies that encouraged the evaluation of new and beneficial technologies.

“GPOs diversify to broaden their portfolio to include more consultative services, technology solutions and revenue cycle products, and expand their market scope to include non-acute and other sectors. MedAssets and Broadlane first threaten to disintermediate GPOs, and after the dot-com bubble bursts, the first large-scale GPO IPO occurs with MedAssets. GPOs also begin to adopt private-label or branded product programs that offer members steeper discounts and provide better margins to the GPO. GPOs begin to focus more on supply chain and expense management as well as clinical performance. GPOs begin to share back with their members greater percentages of their administrative fee revenue as they are now big businesses.”

– Al LoBiondo, Managing Principal, MedGap Solutions LLC, and President, A.J. LoBiondo Associates LLC, and a former hospital supply chain and group purchasing executive

“Studies in the early years of the 21^st century that pointed to wide variations in quality and outcomes by procedure, provider and geography caused a shift in provider focus away from cost management alone. This led to the industry’s first pay-for-performance and value-based purchasing initiatives. GPOs helped providers begin to look at clinical variation and work on strategies to standardize the purchase of clinical products and services to improve quality and lower costs.”

– Christopher O’Connor, President, Nexera Inc. and GNYHA Services

“Y2K, 9/11, Hurricanes Katrina and Rita, all provided GPOs with the opportunity to be of greater service to their members, reaching beyond the traditional gauze, sponges and bandages, into more programming in purchased services, logistics, etc. Further, post-9/11, HHS provided funding for first responders to expand their capabilities for emergency response and use GPO contracts to maximize the value of those dollars.”

– Mike Reid, Vice President of Construction, Capital and Facility Contracting, Intalere, and unofficial, but widely acknowledged, resident historian within Intalere

“National GPO and local hospital associations started to partner with each other. GPO’s did not routinely sell consulting services to help hospitals determine where there were cost savings opportunities. They provided them at no charge. GPOs began to get into the supply chain outsourcing business.”

– Glenn Sherman, former hospital supply chain and group purchasing executive

“Size, represented by purchasing volume, became more significant. At the same time however, the Senate began investigating GPOs, and some of the sole-source contracting of the biggest GPOs became a much more “multi-source” concept. Although HealthTrust stuck to its committed, more sole-source model, Premier and Novation moved away. Some might argue that this idea of having four or five contracts for products eroded good pricing, despite the larger volume.  The GPOs expanded their contracting portfolio greatly, including virtually anything they could get on contract. This led to suggestions that some GPOs were ‘doing it for the fees,’ versus what might be right for their members. More consolidation occurred when Consorta was merged into HealthTrust.”

– John Strong, Principal, John Strong LLC,
and a former hospital supply chain and group purchasing executive

“While some GPOs bought market share by going public or acquiring others, HealthTrust earned share through our unique value proposition. Our committed model, which was largely viewed by the market as a for-profit model, proved to be relevant for the not-for-profit healthcare sector as well. This successful evolution underscored our advantage and served as an accelerator for us to attract other not-for-profit members.

“From the outset, we established standards of ethics shaping the foundation upon which we have based our everyday conduct at HealthTrust. From our founding in 1999, we have understood that a commitment to fairness, honesty and integrity was paramount when negotiating on behalf of multiple clients. In addition to honoring our charter, we have consistently maintained that it is important as an industry to stay the course on the spirit of safe harbor. We’ve seen exceptions that give us pause and are troubled when we see other industry participants sponsor activities that can erode the trust that our members place in us, i.e., programs such as private label practices.”

– Doug Swanson, HealthTrust’s Senior Vice President, Sales and Marketing

Story 1: GPO Inc. demonstrates heavy, but precious mettle

Storty 2: Looking back to where GPO Inc. may be heading

Sidebars:
GPO Evolution and Progress, 2007-2017
GPO Evolution and Progress, 1997-2007
GPO Evolution and Progress, 1987-1997
GPO Evolution and Progress, 1977-1987