Group purchasing: Save money by aligning with other physicians

Doctors specialize in treating patients, not negotiating prices and ordering products. But when supply costs aren’t monitored, practices can suffer. It pays to ­periodically revisit the purchasing process to ensure your practice isn’t paying more than necessary. That means the practice should be looking at its current group purchasing organization (GPO) or physician buying group (PBG), or joining the best one for the practice.

Medical supply costs vary widely based on how much a practice buys, and the typical items they stock. Internal medicine practices offering few vaccines or specialty pharmaceuticals, and with no office lab, typically spend less than $10,000 per physician per year on medical supplies, says Zachary Sikes, president of Purchase Clinic, a GPO.

Savings can be significant when buying through a GPO or PBG. For example, Jay Shorr, founder and managing partner of Shorr Solutions, a medical practice consulting firm in Coral Springs, Fla.,  estimates savings of 5 percent to 25 percent depending on practice volume and items purchased when using a GPO. Practices buying vaccines or operating in-house labs with point-of-care testing will see higher savings, while those just buying commoditized medical/surgical supplies will save less.

“The more bulk you buy, the bigger your discount is going to be,” Shorr says. ­“Negotiating power is always in ­volume.”

Group purchasing ­organizations

GPOs are the most common way to save money on medical and other office supplies. “Almost all GPOs offer just about everything involved in a medical practice, including office supplies, capital equipment, and purchased services,” says Sikes.

GPOs are membership organizations, typically with no fee. They aggregate sales to negotiate better manufacturer prices. They’re government regulated, and the vendor pays 1 to 3 percent fees to the GPO for items purchased.

The GPO concept got its start serving hospitals, and the largest ones now have divisions serving physician practices and other nonacute settings, as well.

One way GPOs differentiate themselves is using a general or committed model. A committed model means the physician commits to purchasing a specific percentage of annual supplies from the GPO. In return, they get lower pricing, but have more limited ­purchase choices, like one brand of bandages instead of five, or one brand of meningitis vaccines.

The committed GPOs use clinician boards to determine what items to carry. “They’re making choices among the top brands and manufacturers in the country,” Sikes says. A general GPO contracts with many suppliers, offering customers more choice, but often at higher cost. Sikes says that internal medicine physicians save 11 percent on average annually when switching from a general to a committed GPO.
Even though volume orders affect pricing, small practices should consider joining a GPO, says Shorr, and the easiest way is to talk to the distributor about it.

Physician buying groups

PBGs emerged about the same time that GPOs started offering services to smaller practices, around 20 years ago, says Brian Greenberg, MD, a physician in Tarzana, Calif., and founder and president of Medical Practice Purchasing Group (MPPG).

Most PBGs started and continue to run primarily as vaccine purchasing groups, and that’s still where the main value lies.

“We ran into situations in the 1990s and earlier part of this century where there were more vaccines and more expensive vaccines, and the reimbursement really plummeted,” he says. The vaccine profits started disappearing during that time, he says, and groups like his began negotiating discounted contracts with vaccine manufacturers, based on loyalty and volume.

While both GPOs and PBGs offer vaccine discounts, Greenberg says that vaccine prices are better with PBGs because of the commitment model and volume ordered. While PBGs are less popular with internal medicine physicians than GPOs, internists who buy a lot of vaccines may benefit from PBG participation. Vaccines can be a large practice expense. For Greenberg, vaccines account for as much as 30 percent of his  own practice costs. 

As office manager for an independent, single-physician internal medicine practice in Torrance, Calif., Marla Munro says that using a PBG cuts their costs significantly. They buy a range of pharmaceuticals, from flu to travel vaccines, plus testosterone injections for patients. She used to pay $65 per testosterone vial, and through the PBG the practice is paying around $30. Using the PBG has become “absolutely necessary for our viability,” Munro says.

Those using a committed PBG program must buy their vaccines from vendors in the program, though, or the PBG risks losing its deeper discounts.  Greenberg says that vaccine companies verify the doses and brands of vaccines purchased by physicians through  market research reports.

Physicians ordering vaccines or other supplies directly from vendor won’t notice a change, other than price, as the physician’s membership number is automatically associated with the account. Many PBGs also offer other services, like discounted medical/surgical supplies, phone service, business insurance, and savings on medical malpractice insurance.

Tips for saving money and finding a GPO

A Medical Group Management Association survey shows that 25 percent of its members were not aware of what  GPO or GPOs they belonged to, and 33 percent were unsure if they were saving money through the GPOs. Practices can find out GPO memberships by asking the distributor. Then ask if there are other money-saving options.

“There’s competition out there. See what other options are for aggregation groups for purchasing,” Austin says. Reach out to peers about their experiences and the breadth of their GPO contracts.

Don’t base GPO choice on what your hospital uses.

“The needs of a physician office are very different from a hospital. Therefore, partnering with a GPO who has the right contract portfolio, both in terms of supplier/product mix, pricing and solutions is important when making decisions,” says Jessica Cooley, vice president of strategy implementation and account management at Provista, Vizient’s nonacute provider GPO. “Some GPOs may have threshold for size or volume based on their focus. Practice size should not matter if the GPO has expertise in the physician practice space with solutions that are scaled to meet their unique needs.”

Revisit pricing every year or two and compare distributors and GPOs. Practices can belong to multiple GPOs, so long as one of them is not a committed GPO in which the practice would have a contractural obligation to purchase from them. Put the top 10 to 20 items the practice purchases out for bid.

“Let your vendors do the work of pricing it if they want your business,” says Shorr. Even if the staff does the purchasing, the physician may want to also review prices.

Munro says she whenever she makes purchases, she quickly compares prices through her PGB vendors and outside vendors online to make sure she’s getting the best price.

If you’re using a general GPO model, find out if a committed model would still provide you with the supplies you want, but save additional money. “If so, a smaller physician practice may be able to standardize to one supplier for some items and get lower pricing,” says Cooley.
While periodic reviews are important, those just buying office and general medical supplies shouldn’t spend a lot of time on pricing. Find the best distributor and make sure you’re enrolled in a GPO, says Rob Austin, MBA, director of healthcare consulting for Navigant. More research time is necessary if the office orders a lot of pharmaceuticals, implants or specialty physician items.

“Pharmaceuticals are expensive. It can make sense to spend more attention on it,” Austin says.

Lastly, consider if your distributor is performing additional services like stocking and ordering supplies. The typical office manager is overworked, and may be willing to pay more for the additional help. Evaluate if the help is worth the additional cost, and if ordering online would be a better option.