Why GPOs are part of the PPS toolkit - 1999 Buyers Guide - group purchasing organization; prospective payment systems

Nursing Homes, July, 1999 by Barbara Conte

The Balanced Budget Act of 1997 has struck, and now the lives of residents in long-term care facilities, as well as those of us who serve the long-term care market, are seeing the impact of significant financial change. But, remember back in the 1980s, when hospital DRGs were perceived as the scourge of the healthcare industry? As it turned out, those facilities that understood the cost-reduction process and the benefits of tighter controls survived. They continue to do so today in the face of managed care, mergers, emerging health systems, etc. In the long-term care industry, those facilities that can understand the necessity of a cost-reduction program and work with the system as it exists will stand a pretty good chance of surviving PPS. It seems unlikely, though, that individual facilities will be able to generate enough savings on their own to keep afloat.

That's where I come in. My business is group purchasing. I've been doing this for almost 19 years now, and things have changed a lot since 1980. Back when I started there were a lot of regional group purchasing organizations offering free membership to all types of healthcare facilities - mostly to hospitals. In the mid-1980s, so-called "super-groups" began forming, and the company I work for, AmeriNet, was one of them. It was formed by several regional group purchasing organizations coming together to address a common problem - in effect, "We are spending a good deal of our time 'manufacturing' (negotiating) contracts and trying to sell and market them, as well. Why not create a company to do the negotiating, and we will concentrate on the sales and marketing of those agreements? Thus, in 1986, AmeriNet was born.

Today, AmeriNet is the largest membership-based group purchasing organization (GPO) in the country with over 9,000 members, including nearly 1,000 nursing homes. How does this relate to PPS? Basically, a GPO of this type provides a way for a facility to reduce operating costs by using the combined purchasing power of 9,000 fellow members. With contracts for food, medical supplies, incontinence care supplies, office supplies and more, AmeriNet uses the dual-source philosophy - i.e., writing agreements with the market leaders rather than with a single source, thus offering members both savings and product choice.

The AmeriNet member receives information detailing the manufacturers and distributors that have contracts with AmeriNet. Reviewing this information helps you make decisions: Which company do you want to use for wound care? What company do you want to use for incontinence care? What about your medical supply distributor? How about your office supplies? AmeriNet contracts with at least two major manufacturers/suppliers for each of these areas and in some areas, such as wound care and incontinence care, as many as four major manufacturers.

Contract pricing is dependent upon the manufacturer and the anniversary date of the contract (e.g., prices effective August 1 make that the anniversary date of the contract). Members receive monthly contract updates from AmeriNet, either on CD-ROM or on paper - e.g., information on new contracts with suppliers (manufacturers) not previously involved in the program; price changes, either up or down; additions/deletions on contracts; new products added or deleted; contract ending dates or cancellation notices resulting from many factors, including nonuse by members. Orders are placed directly with the suppliers and invoices are paid directly as well. If savings don't result from this procedure, the member is free to use the supplier of choice; they may review contracts to make purchasing decisions based on the various cost-reduction opportunities available among the contracts.

We do offer a committed program, AmeriNet Elite, for those members who desire the added benefits of a sole-source program, i.e., enhanced savings on price in exchange for a high level of commitment to a single contract supplier. Cost benefits range from 3 to 15% over the regular contract pricing available to members; these savings depend on the products purchased by the facility and are spelled out prior to the facility's decision to participate in Elite. Membership in Elite requires participation in a minimum of eight single-source contracts.

All of this is a natural fit with the new incentives of PPS. No longer will you be able to buy goods and services from any and all corners. Costs and value-added services need to be watched closely to determine the actual cost and benefit of doing business with suppliers. This applies to purchasing organizations as well, many of which are eager to assist you in your cost-reduction program. Look carefully at all of the services that are available from the organization, of which bottom-line pricing is an important one, but only one. Look into the dues and other obligations attendant to membership. They should be far outweighed by the cost-saving and other opportunities available.

Barbara Conte is operations director, Non-Acute Care, for AmeriNet. For further information, (800) 3882638, (314) 542-1946 or write AmeriNet at 2060 Craigshire Rd., St. Louis, MO 63146.