Group purchasing organizations in long-term care
A New York-based pharmacy journalist, the author contributes frequently to Drug Topics.
Should you belong to more than one group purchasing organization (GPO)?
The answer is: It depends. Many long-term care (LTC) facilities do join more than one GPO, often seeking a large national organization for buying clout and another smaller one for specialized needs. Sometimes the motive for participation in two or more GPOs is to cherry-pick the best deals from each, though manufacturers as well as GPOs frown on the practice.
Others say the best advice for consultant pharmacists who have a purchasing role is to stick with one GPO that fulfills both objectives: negotiating the lowest contract prices on a market basket of products in addition to providing specialized services required by pharmacists who do a lot more than push pills.
The payoff in remaining loyal to a single GPO, they contend, is more efficient use of time and greater availability for clinical activities. Why get yourself or your staff bogged down in comparison shopping, they say, when a good GPO will be able to negotiate the best contractual prices over a range of products?
Moreover, said David McDonough, director of communications for the Health Industry Group Purchasing Association (HIGPA), "with some GPOs, the more you use them and the more compliant you are with the terms of the contract, the greater the discounts." A study conducted by the Congressional Budget Office found that hospitals that purchased products through group contracts saved $19 billion in 1999, according to HIGPA.
The amount saved by LTC facilities was not given, but it is certainly far less; first because that health-care segment is smaller and second because the penetration into LTC by buying groups has not been as significantbut it is growing.
Getting the best price through a GPO is especially important at a time when operating costs, including salaries, continue to rise and when it's difficult to raise your own prices for products and services to match the increases. The only area in which some margin elasticity may be possible is the cost of goods. And that's where a GPO comes in.
"In the pharmacy industry, what we see is about 70% of our selling price being controlled by payers. We only have certain avenues to improve the bottom line, and the biggest of those is purchasing," said Mike Traylor, Pharm.D., director of pharmacy at the Pharmacy Corner, a provider of long-term pharmaceutical care in Princeton, Ky.
"The buying group can help keep the cost of goods down," Traylor said. "It can also make the ordering process more efficient, and it can increase the availability of products. Those are probably the key things that I see buying groups doing."
"I've been a pharmacist for 15 years," said Traylor, "and I remember the days before GPOs were popular. They have helped keep the pricing down for products because they can group a lot of buying power together."
Chris Davies, R.Ph., v.p. of geriatrics at Holland Health Services, a dedicated LTC pharmacy in Mount Vernon, Wash., said that the savings from belonging to a buying group have been "significant." Davies did a price comparison for pharmaceuticals purchased from his wholesaler for his two retail pharmacies and those acquired through his buying group for the LTC portion of the company, which is kept strictly separate. He found the savings from the buying group varied from month to month, but averaged about 1.5 %.
"When you think about it, that doesn't sound very high," he said. "We're still a growing company, and we're doing about $150,000 a month in sales, but that 1.5% adds $2,250 to my bottom line every month. When you're crunched for margins, that makes a difference."
It's also important that pharmacists can count on getting the contract price offered through the GPO without any hassles about manufacturer charge-backs. Davies said he recently switched to a new primary buying groupInnovatixbecause "I got a little frustrated with the charge-backs."
Most large health-care providers and many smaller ones as well belong to more than one GPOthe average is 2.6, according to HIGPAbut belonging to a single GPO can accomplish other things to help improve productivity and clinical effectiveness for LTC pharmacy providers.
"When you belong to a single organization," said Jan Allen, R.Ph., v.p. of education and clinical services at GeriMed, Wetumpka, Ala., "it's easier for reports to be generated, to follow through on market share programs, to follow purchasing patterns, to monitor correct pricing from the wholesaler and to help the customer stay within a formulary that's going to be advantageous both clinically and financially. "GeriMed is a GPO that services the needs of closed-door, LTC pharmacies covering about 1-million beds.
For all the vaunted advantages of GPOs, a surprisingly small number of consultant pharmacists responding to a Drug Topics survey last year said they actually belonged to one for their LTC patients (17 pharmacists out of 60 who responded). Why that is the case is difficult to tell. Perhaps it is because there are so many small LTC pharmacies, and a lot of GPOs pay more attention to the larger players whose buying influence can move market share, which results in a more effective cost savings.
But companies like GeriMed and Innovatix, another GPO that targets the alternate care marketplace, specialize in the LTC arena. Innovatix, a New York City company, provides products and services for LTC pharmacies that cover more than 1,000 nursing homes and approximately 750,000 beds nationally.
John P. Sganga, Innovatix's president and CEO, is a firm believer in the value of belonging to a single GPO. "Three or four years ago, I think it was OK to belong to more than one organization," he said, but times have changed. "There's been enormous pressure on these providerson these consultant pharmaciststo really reduce costs. I think it is just not cost-effective to have one or two individuals working two buying groups and doing your own contracting."
Sganga added: "Whether you're looking for a pharmaceutical [product] or a dishwasher, if you spend enough time, someone's always going to get a better price. The balance is how much time you're going to spend doing it. I think those two FTEs (full-time equivalents) can be better utilized elsewhere, and I think that buying groups are emerging as a way to reduce costs."
He suggested that another way purchasing organizations are beginning to increase the buying efficiency of LTC pharmacies is through the use of e-commerce Web sites, which offer fast access to the latest contract prices along with other services. "We have a traditional buying-group business," said Sganga, "but our Web site is slowly picking up and doing fairly well, probably better than any of us expected."
The Pharmacy Corner's Traylor said the Web site helps his company "keep up with our pricing. When a price changes, it's very easy to get that information, whereas we didn't have access to that in the past." Traylor said he likes the daily "e-bargains" that Innovatix displays on its Web site. The e-bargains are short-dated or overstocked items that manufacturers offer at special prices. "When it's something we can use, it's usually a good price," he said.
"Also with group purchasing you're more guaranteed that your product is going to be in stock because the GPO has a better idea of what you're going to be using," said Traylor. "When you place an order, the number of shortages are minimal. That helps because when you don't have a product, it can take up a lot of your time to find it."
Bruce Buckley. GPOs in long-term care: Safety in numbers?.