Testing the GPO waters: as competition for your business continues to increase, it may be tempting to abandon your group purchasing organization for a competitor. However, it's important to consider whether the savings presented can actually be realized

Healthcare Financial Management, June, 2004 by Martha A. Dula

Materials managers, many of whom are former purchasing agents, generally are not trained in the clinical parameters that must be addressed to reduce costs through formulary control and utilization management. Thus, materials managers may ignore opportunities for savings relating to clinical practice and focus solely on price using ineffective tools such as leveraging annual bids. This approach to price comparison consumes a lot of time and typically is not very successful in the long run.

Therefore, financial managers have to create financial incentives and disincentives to hold the materials manager accountable. They also should oversee purchasing activities periodically to accurately assess the materials manager's capability of taking out costs (rather than simply placing responsibilities for price increases on the vendor or GPO).

Some hospitals are now hiring from other industries, such as manufacturing, to improve the materials manager's focus on the total supply chain. The problem is that clinicians have even less confidence in someone with this background than they have with former purchasing agents.

When working with these people, financial managers should find ways to have them "partner" with clinicians by department or issue. For example, have an orthopedic specialist cochair the committee with the manager to assess and reduce costs around implants.

Terms of the Conversion

Once you can trust that a competing offer appears realistic and from a credible source, you should closely examine the terms associated with the proposed GPO conversion. To avoid common pitfalls during this review, see "Avoiding 17 GPO Pitfalls," page 74"

Measuring Savings, Ensuring Support

Once you have made the decision that a new GPO can save you money, you face two basic questions: How a re you going to measure these savings to ensure they are realized, and what support will the GPO provide to ensure the transition in services goes smoothly?

Measuring savings. Identifying savings over time can be a challenge. Prices generally increase more often than they decrease, patient mix changes, and volume fluctuates. Setting up benchmarks against which to measure the success of your GPO conversion is difficult and time-consuming.

Adjusting for price changes and fluctuations may be possible, but how are you going to get the data from the former GPO so that a year later you will be able to see if you are ahead or behind? Remember, contract rolls and contract changes or adjustments significantly influence a GPO's constant effort to level the playing field For its customers. Some providers tie staff jobs and/or paying the consultant's fee with achieving savings. However, there are numerous ways of displaying numbers to support return on investment, and you will not have the data to question objectively such assertions.

With these limitations in mind, financial managers should develop metrics that are meaningful to their particular circumstance, share them with the materials manager, and set goals according to those metrics. Just as important, financial managers then need to be data keepers. Do not ask the materials manager to keep metrics and give summary reports.