What Are Group Purchasing Organizations (GPO's)?

Healthcare GPO

Examples - PDM Healthcare Premier, MedAssets, Veira Medical Group, Amerinet, HealthTrust, GroupSource, MediGroup, Provista, Novation, Innovatix, HPS, HPSI, GNYHA Services, and Care Purchasing Services.

A healthcare group purchasing organization (GPOs) assists in promoting quality healthcare relief and assists diverse providers in effectively managing expenses. A GPO aggregates the purchasing volume of its members for various goods and services and develops contracts with suppliers through which members may buy at group price and terms if they choose to. GPOs typically provide contracted discounts on medical supplies, nutrition, pharmacy and laboratory. Some of the large GPOs have expanded contract portfolios to also offer discounts on office supplies and non-medical related services.

Several large healthcare GPOs are totally owned by non-profit hospitals and health systems, which in effect pool their sourcing and contracting in a cooperative or other corporate form. The larger scale of their pooled volume attracts pricing and terms more favorable than a single buyer can attract alone. The GPO owners achieve cost-savings on the goods they choose to buy through group contracts, and also receive distributions back from GPO earnings if operating revenues exceed expenses. GPO members that are not owners benefit from savings made possible by group contracts but typically do not share in GPO distributions of earnings. GPOs submit that their services allow for improved operating margins for healthcare providers, and that members enjoy value added benefits like clinical support, benchmarking data, supply chain support and comprehensive portfolios of products and services to address specific needs. 

It is important to note, that GPOs may collect an "Administrative" fee up to 3.0% of all sales volumes from the vendors that they negotiate a contract from, upon selling products to their member hospitals. While it behooves GPOs to negotiate lower prices for their members, the lower the price they negotiate means also lower revenues that they receive. As a result, more health care industry GPOs are collecting 'bonus' payments from suppliers, which amount to kickbacks for the GPO. Additionally, some health care industry GPOs are signing single source contracts resulting in members of the GPO overpaying for supplies and sometimes, not being able to get access to superior products.  However, privately owned GPOs that are not affiliated with a medical facility, such as a hospital, aim to beat market prices in order to win new members.

Wikipedia.org Defines ~ Group Purchasing Organizations

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