A Common Mistake Hospitals Make in Their Saving Efforts

Michael Bohon, CPSM, C.P.M., CMRP, Managing Director of HealthCare Solutions Bureau

Decisions, Decisions

You, as the supply chain leader for your hospital organization, have been tasked with reducing the expenses under your control dramatically. Where to start? We’re not talking about 2 – 3%. The C-suite is looking for big numbers. The pressure is on.

At a meeting with your team the idea of doing a GPO (Group Purchasing Organization) assessment has been raised. After all, you have not considered this option in a number of years, but how do you pull off this complex venture? You consider the options. You can bring in some consultants to handle the process for you or you can DIY (Do It Yourself). Of course, you will first consider the second option for following reasons:

  • You have all the data.
  • You are familiar with your current GPO.
  • Your organization will not be anxious to approve the expense of hiring outsiders.

The downsides of this plan are:

  • You may have never done this before.
  • The process takes a considerable amount of time, one thing your staff does not possess.
  • You are unaware of how to accurately and objectively complete a “market basket” study that compares the available pricing of numerous GPOs.
  • The GPO world has recently changed significantly and what you were used to may not be the case anymore. 
  • You may end up with a decision that is not in your best interests.

War Stories

I could provide an endless supply of DIY stories that ended badly. Instead, I will provide just a few.

In the first case, two hospital systems were in the process of merging their seven hospitals. They decided to complete a comparative study of their separate GPOs to consolidate to one. They decided such an effort would not be that difficult and they had good people who would be able to handle it. Ten weeks later, the team that had been assigned the task of the analysis was still in a state of chaos with documents and spreadsheets flying through the air at the large meeting at which a final decision was to be made. Yes, the two systems had brought all their key executives and management to a meeting on neutral territory. After a number of delays, the two CEOs turned to the supply chain analysts and asked for their final determination. With no final resolution of the question in hand, they simply said, “It’s a toss-up!” I was the Purchasing Manager for one of the systems and knew that statement was not necessarily the real case, but it was an answer and one was needed immediately. The executives made their decision and patted each other on the back. One year later the merger came apart and one hospital immediately returned to their original GPO.

In the second case, twelve hospitals in a relatively small region had a loosely-based alliance. They were generally dissatisfied with their current GPO relationship and approached me to discuss my conducting a study to provide data and information for a decision. After a lengthy discussion, they announced they were going to do it themselves. They apparently thought that they had gleaned enough information that they didn’t need outside help. Six months later I contacted them and heard their story. They had split into two factions; those favoring the incumbent and those focused on a relationship with a new GPO. The battle between them became very contentious, especially after one side accused the other of doctoring the numbers to make their choice look better. The last I heard of them they went in different directions and I can find no mention of what was their former alliance on the Internet.

 I will forgo the details of all the hospital systems that have come to third-party consultants saying, “We thought we could do it ourselves, but what a mess! Can you help us by doing what we should have let you do in the first place?”

Get the idea?

Bigger Is Not Necessarily Better

In case you have not experienced this fact, let me share with you that all third-party consultant groups are not equal. I am sure you are shocked at this revelation. One of the most common misconceptions is that the bigger they are, the better they are. Not true! In the case of the big-name groups, GPO assessments may only be a very (!) small part of their business and they use people who have a varying amount of experience in this area. They also often have a greater focus on billable hours rather than the outcome of the work.

There are a few consulting groups who have a strong background in this type of work and have been able to provide accurate and objective findings that enable their client to make the best decision for their future. When seeking third party help you should ask them for at least three references and inquire as to the results of the projects. Also, make certain that you are aware of, understand, and agree with their methodology.

Another Way of Doing It

It is a generally known and accepted fact that 60 to 70% (or more) of the hospitals that go through a GPO assessment process inevitably stay with their incumbent GPO. The most common reason given is that it was just easier that way. So, what was the purpose and why the expense if that was the probable outcome?

Another possibility is a “GPO Optimization” option. This process allows a third party to mediate your relationship with your current GPO to determine if additional benefits and savings can be achieved. If handled correctly, this method can produce good results at a fraction of the cost and minimize the effect on your organization and staff’s workload. Most consultant groups do not offer this alternative as it limits their billable hours.

Final Thought

Think before you leap into the deep morass of a GPO assessment project.