SPECIAL FOCUS Resilience parries with relevance

How, why will GPOs continue to resonate as new competitors emerge? by Rick Dana Barlow

or the third time in as many decades group purchasing organizations face yet another potential threat that arguably imperils their long-term future. The first time occurred during the healthcare reform years of the mid-to- late 1990s when investor-owned hospital chains bulked up and exerted their market influence, not-for-profit hospitals gelled into integrated delivery networks promot- ing more localized control over purchasing power and suppliers acquired, merged or partnered with information technology companies to use data management as leverage in the supply chain. The second time emerged on the heels of the previous one during the short-lived dot-com bubble that promised big bucks quickly through greedy yet gullible ven- ture capitalists and strove to upend the traditional purchasing and contracting process. The plethora of healthcare busi- ness-to-business online exchanges (more than 90 at the peak of dot-com popularity in 2000) claimed to offer lower pricing, direct ordering and information technol- ogy capabilities to simplify data collection, a decade or so before data analytics and data science emerged as buzzwords. Only a fraction of that original count remains in operation with GHX, the undisputed industry and market share leader among healthcare organizations. The third time seems to be surfacing now as a prominent global online exchange maneuvers its way into the healthcare in- dustry and marketplace, offering attractive pricing, access to advanced logistics via consolidated service centers and third- party distribution expertise and consumer- oriented, user-friendly ordering. And unless you’ve been off-planet during the last quarter-century or so, you likely have ordered at least one item through their service or had one given to you as a gift. (Yes, it’s Amazon.) Granted, healthcare group purchasing services consistently have been around since 1910 so it stands to reason that GPOs will weather the current competitive storm brewing. But not without changes. The question is how, how many and why?


Basically, if a consumer-minded, customer-service-oriented global online marketplace in the process of branching out into brick-and-mortar retail ven- tures can offer an easy-to-use, familiar and simple ordering interface, along with perceived lower pricing without a group/volume-buying/committed contract and include reliable deliver- ies via third-party logistics companies, how can or will GPOs compete? What service value can they offer healthcare organizations that a “virtual” retailer/ supply chain organization can’t? Clinical expertise? Data management? Strategic consulting? Workforce management? Do these amount to enough competi- tive differentiation to fuel demand by healthcare organizations? Healthcare Purchasing News reached out

to six of the largest GPOs in the nation, as well as its top trade group, to gauge their impressions of market dynamics and how they’re prepping for the future. One declined to respond for competitive reasons. The two largest (by annual pur- chasing volume and number of members) and three others shared keen insights on capabilities and competitive issues.

Multi-layered customer centricity At core: Healthcare GPOs make it a point to understand their customers thoroughly — and beyond supply chain demands and needs, according to GPO executives. “[It] needs to start with the customer,” emphasized David Hargraves, Senior Vice President, Supply Chain at Premier Inc., Charlotte, NC. “Healthcare systems and providers are a unique customer. Decision making is more difficult and pro- tracted because it involves clinical and scientific judg- ment and alignment with frontline clinicians. “We already provide a convenient platform to purchase supplies,” Hargraves continued. “That is actually the easy part. What is hard is the upstream and downstream

David Hargraves 10 March 2018 • HEALTHCARE PURCHASING NEWS •

work needed within healthcare supply chain. This includes delivering best in- dustry pricing supported by predictive aggregated demand and supply, demon- strated product value and clinical efficacy using value analysis, easy e-commerce enabled purchasing, long-term contract- ing, standardization and compliance, pri- ority access to important products, clinical support, the ability to assist with product recalls or product shortages, and robust cost, utilization, and outcomes analytics to determine highest-value products and predict supply.” By delivering on these services, Premier strives to make “healthcare supply chain teams better, smarter, efficient and effec- tive,” according to Hargraves. “Our big competitive advantage involves a sophis- ticated selection process which relies on clinical and contracting expertise that has built credibility with members and sup- pliers over the past decade,” he indicated. “The supplies on contract are clinically- proven and carefully selected by Premier members for Premier members.” Premier’s model works for a highly regulated supplier community, too, Hargraves insisted. “We provide sup- pliers significant value that is returned in lower prices by reducing their selling costs, aggregating and allowing more predictive demand forecasting, provid- ing them with rigorous analytics and a dedicated supplier engagement team, and helping with standardization and compli- ance around their products,” he said. Dwelling on past accomplishments

no longer cuts it, according to Pete Al- len, Executive Vice President, Sourcing Operations, Vizient Inc., Irving, TX.

“Long gone are the days when a GPO could show up and solve a health sys- tem’s challenges with no more than a portfolio of contracts, best pricing and leading terms and conditions,” Allen noted. “Likewise, gone are the days when our focus was solely on sourcing. Vizient has become a full-service healthcare per-

Pete Allen

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