The Evolution of Group Purchasing Organizations


Somewhere in the United States, there may be a retail or specialty pharmacy that is not part of a group purchasing organization (GPO). If there is such a pharmacy, it is very hard to find.

Somewhere in the United States, there may be a retail or specialty pharmacy that is not part of a group purchasing organization (GPO). If there is such a pharmacy, it is very hard to find.

The rise in the importance of GPOs is a big change from even 30 years ago, before being part of a GPO became the necessity it is now. An independent pharmacy or a small chain no longer has the time, manpower, or experience to do what even a small or regional GPO can do.

How a GPO Works

At its simplest, a GPO allows independent pharmacies and small pharmacy chains (and hospitals and other healthcare providers and other industries, for that matter) to buy goods and services at better prices than are usually available to them. It does this by leveraging the combined buying power of its member pharmacies and negotiating discounts with manufacturers, wholesalers, and other vendors. Because of the economies of scale, the little pharmacy gets to act like a big pharmacy chain.

According to the Healthcare Supply Chain Association (HSCA), GPOs in healthcare date back to 1910, when hospitals in New York formed the first one, the Hospital Bureau of New York. However, there was little growth in the number of healthcare GPOs for decades. The number of GPOs grew because of the advent of Medicare and Medicaid and reached about 40 in 1974. More stimulus came in 1986, when Congress passed the GPO Safe Harbor Law, which granted healthcare GPOs protection from statutes that punished practices that could be considered to be kickbacks.

There are now more than 600 organizations in the United States that participate in some form of group purchasing in healthcare, with about 30 being true GPOs that negotiate large contracts for their members, according to HSCA, and the rest may offer members access to the contracts of larger groups or negotiate with regional vendors for some services.

Joshua PirestaniThe key to the power of GPOs lies in increasing the strength of an individual pharmacy’s buying power, said Joshua Pirestani, president of American Pharmacy Purchasing Alliance (APPA) in Cerritos, CA. “There is an estimated 22,814 independently owned pharmacies,” he said in an email interview. “If independent pharmacies cooperate together, greater negotiation power will be achieved, their volumes and revenues will increase and a group purchasing power will be achieved from wholesalers,” said Pirestani.

The administration costs of GPOs are covered by the fees paid by vendors to finance the services that the GPOs offer their members, according to the HSCA. These fees are generally based on the purchase price that members pay for a product purchased through the GPO’s contracts. Some GPOs charge a fee to pharmacies for membership, but with many, membership is free, said Pirestani.

The GPO and the product manufacturer negotiate for a product and then develop a contract that covers many issues in the sale of that product, with price being one of them, said Todd Ebert, RPh, president and CEO of HSCA in Washington. HSCA includes pharmacy GPOs in its membership. A GPO may often have a contract with the distributor, so that the pharmacy gets a preferential manufacturer-negotiated price, he said. In many cases, the GPO may work with only one distributor, “which is another value point for the pharmacy,” he said.


Independent Pharmacy Buying Group (IPBG), located in Media, PA, has about 35 contracts, said Carlos Rios, RPh, secretary treasurer of the GPO. IPBG works with more than 160 pharmacies in seven states, he said. “We have contracts with primarily single-source major wholesalers for our members. We have found that we have gotten the best deals by being single source.”

IPBG uses AmerisourceBergen for wholesale pharmaceuticals. “We negotiated a very good contract,” he said. The size of a GPO allows it to get more attention from a wholesaler, he added. Instead of dealing with a salesperson for the wholesaler, you are dealing someone a couple of levels up or even the president, he said.

A major part of what a pharmacy GPO does lies with negotiating the price of prescription drugs, especially the prices of generic drugs. GPOs have become more important because generic drugs have become so much more extensive a part of the pharmacy business, said Danny Cottrell, RPh, of Medical Center Pharmacy in Brewton, AL. He is the majority owner in two pharmacies and part owner in sixteen others, which use APCI as their main GPO.

“Without them to do some negotiations for you on generic prices you would just be twisting in the wind,” Cottrell said. “I don’t see how a guy can be open without being in one.”

Cottrell also has partnerships with about fifty other pharmacies, he said. “So we do have some negotiating ability, but we still can’t do better generic-wise than a good group purchasing organization.”

Being a member of a well-run large buying group is imperative, said Larry Braden, owner of Lacey Drug Company in Acworth, GA. Such an organization gives a pharmacy significant office support and expertise in marketplace pricing, he said. His three pharmacies use Compliant Pharmacy Alliance as their GPO. “As an independent pharmacy, I know I have a very skilled and determined group of people at my back,” he said.

“APPA offers effective, efficient and transparent strategies to help members conform to healthcare reforms and systems,” added Pirestani.

That assistance in getting the best price is vital today, said Braden. “In today’s marketplace, pharmacists no longer have the option to set their own prices,” he pointed out. “The marketplace has shifted, making it necessary for pharmacies to focus on the buying side of the equation because the selling side of the equation is determined by PBMs [pharmacy benefit managers],” said Braden.

Specialization, Consolidation, and Proliferation . . .

Many GPOs specialize in working with hospitals, long-term care facilities, or other large healthcare providers, many of which also provide ambulatory pharmacy services. For example, Premier Inc., located in Charlotte, NC, works with more than 3,700 hospitals and more than 130,000 other healthcare providers in the United States, according to Michael P. Wascovich, PharmD, MBA, Premier’s senior director for pharmacy services. “We have hundreds of pharmacies under the Premier umbrella that are in that outpatient and specialty space.” The organization also provides specialty pharmacy services to its hospital members, he added.


The number of GPOs that work with pharmacies currently is changing as some GPOs consolidate or merge with others. But while consolidation is occurring, there is also a proliferation of regional GPOs, HSCA’s Ebert said. Ebert was formerly president of Amerinet, a national GPO now known as Intalere.

“You are also seeing a number of GPOS that specialize in a specific category of products begin to appear,” he said. There are GPOs that specialize in vaccines, for example, he noted.

“There is some consolidation around GPOs, for sure, and I don’t see that changing,” Premier’s Wascovich said. He pointed out that consolidations have been happening in all of healthcare and that GPOs are no exception, but he doesn’t expect the trend to get to the point where there are only a handful of GPOs. “You want that competitive friction. You don't want them all to go by the wayside.”

. . . And Change

Todd EbertAlthough the central function of GPOs will always be to get the best prices for their members, they are evolving and adding other services, especially market research, data collection, and data analysis that benefits their member pharmacies. They are using the findings of these analyses to help inform their members about which products and services offer the best value. “You have to be very dedicated to looking at data and working with your customers to help them save dollars in utilization and efficiency of services,” Ebert said.

Although price is important, “it is not just price,” Ebert said. “There are a lot more relevant services that GPOs can provide.”  

"We spend a lot of time and we think about with our members, what else do they need?" Premier’s Wascovich noted. Saving its members money is a core part of what a GPO does, but that is not the future, he said. Educating and informing members about the best products or services is where GPOs are headed. “The future is how we are going to support our members as they enter this value-based payment world, this pay-for-performance.”

“It is not so much a purchasing issue as it is a data analytics issue,” he said. “We need solutions at our fingertips and applications that are near real-time to inform our healthcare members or partners.”

 “One of the biggest things that you have to pay attention to is the evolving needs of your customers,” Ebert said. “What you are seeing in this industry is that there a number of customers saying ‘Here is what we need,’” he said. The GPO then works with the member to come up with a solution for that need.


“I believe that if you can do things to make the professional’s life easier-make it easier to comply with new regulations-that is an added benefit,” IBPG’s Rios said. “That is just as important as price, which is number one.”

“My GPO has made quite an investment in data analysis for their PSAO [Pharmacy services administrative organizations] to be able to tell a store exactly ‘This is what you make on your Caremark prescriptions’ and they have got the data on both ends,” said Cottrell. “This is what you bought it for and this is what you got.” APCI also gives his pharmacies a big emphasis on service with front-end marketing for pharmacies, he added.  

The data analysis that a GPO can provide is a bonus, Braden added. “Properly done, it gives my three pharmacies the kinds of controls, management, audit, and leverage that a thousand-store chain would have,” he said. “This is the best of both worlds. I can continue to be an entrepreneur and can practice my profession in the way I choose rather than the way that a chain management might choose and meet the needs of our local medical community,” he said. “I have a buying group team working behind the purchase to give me to give the expertise and guidance and assistance equal to any large chain in the country.”

Braden noted that being in a GPO will be especially important in the future if inflation or hyperinflation, as seen in the 1970s, were to reoccur. “Pharmacies will not have the ability to raise their prices to compensate for the devaluation of the dollars that they bring into the pharmacy,” he said. The ability of pharmacies to raise their prices on their own has been usurped by PBMs. Rapidly rising prices for drugs are an inflationary pressure within the world of pharmacy, he noted. 

Savings By the Numbers

-98% of America’s 5,000 + hospitals use at least one GPO

-GPOs save the healthcare system between $25-$55 billion per year

-90% of hospitals are satisfied or very satisfied with their GPO

-GPOs save each hospital an average of 10%-18% compared to direct purchases

-From 2013-2022, GPOs will enable savings of $392-$864 billion to the healthcare system and $116-$229 billion to Medicare

Source: Healthcare Supply Chain Association (HSCA)



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