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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

October 9, 2002

IS YOUR GPO GETTING IT RIGHT MOST OF THE TIME OR ARE THERE EVEN BIGGER SAVINGS OPPORTUNITIES IF YOU GO IT ALONE?

“ There is an Emerging Trend in Healthcare to “Go It alone” on  the Top 20% of Commodity Purchases Because of Regional Differences and Sellers Pursuit of Greater Marketshare.  But Is This Trend Self-Defeating?

Robert T. Yokl, President, The HCP Group, Ltd.

I’m now frequently asked the question, “ are there bigger savings opportunities for my healthcare organization if we decide to go it alone vs. continuing to support my GPO?”  I then follow up with the question, “ are you looking for short term savings or long term results?”  There is always a silence after I ask this question, because I have now framed this question as a strategic decision, not simply a choice.  Now let’s look at the implications of this strategic decision.

Historically GPOs Have Created Competition and Depressed Prices

Prior to the advent of national and regional GPOs in the 1940s, healthcare organizations were paying list prices for most of their purchases or were given a few discount points if they were really shrewd buyers on their commodities and capital equipment purchases. It was a sellers market and they new it!   All through 1950s, 60s and 70s manufacturers and distributors fought against the rising GPO’s influence on their profitability by refusing to participate with GPOs bids and contracts or, if they lost a bid, they would try to win back lost customers with sweet deals to try to break this threat to their market dominance.  GPOs were always fighting to gain their customer’s credibility, trust and cooperation during this period of transition from a seller-dominated to a customer-centered market-place. This battle changed direction in the 1980s and 90s when larger and professionally managed national and regional GPOs flexed their muscles and a buyer’s market emerged for all healthcare organizations.  Now healthcare organizations called the shots, not the sellers!

History Repeats Itself For Those Who Will Listen To The Signs

The history of GPOs has always been a tug of war between buyers and sellers for increased marketshare and the profitability of both parties involved in the struggle for dominance.  In this new chapter called, “Go It Alone” manufacturers and distributors are continuing this struggle by bucking the GPO trend by signing regional and national contracts for top tier clinical preference products (cardiovascular, orthopedic, endoscopic, endomechanicals, pacemakers, etc.) and other profitable product lines by giving marginally improved pricing to those healthcare organizations who love to be “lone rangers” in this battle for dominance.  Sellers know this is a battle, because they are trying to rewrite history, whereas, healthcare buyers are forgetting their history lessons and will eventually pay the penalty -- with less competition in the marketplace and higher prices to follow -- if this “Go It Alone” trend grabs hold in the marketplace.

GPOs Are The Best Friend You Can Have To Promote Competition

To reverse this GPO busting tactic by manufacturers and distributors, forward looking IDN’s, healthcare systems and large medical centers are partnering with their GPOs to customize their high clinical preference product offerings to meet their unique requirements. In doing this they are generating even greater savings for their healthcare organizations than generic GPO contracts that aren’t flexible or creative enough to meet their clinical or operational needs.

GPOs now realize that one size doesn’t fit all of their member’s needs, wants and desires and are quickly responding to this new challenge.  I see this new battle as the next phase in the evolution of GPOs, which I call the “Collaborative Model”, which believe it or not, actually started in the 1950s when regional GPOs collaborated with the customers on constructing contract specifications and bids to their exact requirements, which some-how got lost in the mystification and complexity of the GPOs long and successful history.  So, history really does repeats itself for those who listen to the signs!

 Copyright © 2002 The HCP Group, Ltd.

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply/Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Supply/Value Chain”.