Group purchasing will grow, industry to consolidate - Decision Resources Inc. report

Health Industry Today, June, 1991

The percentage of hospital buying done through group purchasing will continue to grow and should reach approximately 55% by 1992, according to a report by Decision Resources Inc., Burlington, Mass.

But strong competition among group purchasing organizations and hospital alliances will reduce the total number of both types of purchasing groups over the next decade to an estimated 80 groups by the end of the 1990s from today's 160 groups, says Decision Resources.

Fewer purchasing groups will survive because the hospital market is maturing, says DRI. Purchasing power is being concentrated in the hands of fewer large hospitals that will support these organizations.

While more than half of the 6,500 acute care hospitals in the United States have fewer than 100 beds, more than 80% of all hospital purchases are made by the 3,000 larger acute care hospitals, according to the report.

Hospitals also are becoming more selective about the GPOs with which they affiliate. Although most hospitals now belong to multiple purchasing groups, they are increasingly contracting only with groups they believe offer good return and value-added services for their annual fee.

In 1987, the average hospital in the United States affiliated with three purchasing groups and by 1989, hospitals worked with an average of only two groups, the report said.

Because hospitals are consolidating their group purchasing relationships, purchasing groups will need to redefine their roles and strategies.

Some purchasing groups will target a particular type of hospital--teaching hospitals, religious institutions or specialty facilities. Others will concentrate on hospitals in a particular region. Limiting membership to hospitals in to one geographic area makes it easier for a group purchaser to maximize service, monitor contract compliance and establish a strong negotiating position with vendors, according to the report.

Purchasing groups providing expanded services to members and entering new specialty niches will be most successful. These services include:

* Consulting. The purchasing group either directly or through a contract with a consulting firm can offer hospital executives consulting expertise in areas such as operational improvement, productivity enhancement, financial analysis, strategic planning and executive recruiting.

* Enhanced communications. Better communication between vendors and hospitals via electronic data interchange will be a priority for competitive success in the 1990s.

* Better customer service. Companies will use professionally trained customer service representatives to respond to the needs of all levels of hospital management.

     Top five group purchasing organizations, U.S.
                     1989                   1990
           Number of   NUmber of   Number of   Number of
           hospitals     beds      hospitals     beds
AmHS         1,024      137,017      1,057      138,847
AmeriNet     1,308      181,366      3,090      234,000
MAGNET       1,280      151,510      1,400      253,000
MedEcon      1,146      142,000       N.A.      113,000
VHA            834      225,850        656      201,081
Source: Health Care Financing Administration