Group purchasing organizations (GPOs) and consortiums have been a powerful force in controlling healthcare organizations’ labor and non-labor costs for decades. Yet, no one seems to question if these cooperatives really have saved what they have claimed to save. However, this “trust level” is changing as many healthcare organizations have been challenging their GPOs and consortiums’ savings projections because of these three reasons:
1. Things change and people change. With few exceptions, a supply savings is calculated over a 12-month prior period, which doesn’t represent the future state of the supply savings. Whereas, the product could be defective, poorly in-serviced, or its volume decreased (or increased) over the future 12-months that would cause the savings projection to be wrong. We see this occurring 26% to 46% of the time!
2. GPO savings projections are too often flawed. We have reviewed dozens of GPO savings projection reports for our clients over the years, only to find that 38% to 66% of the time their projections are either flawed, overblown, or data is distorted. For instance, units of measures, statistics, or assumptions are wrong, thus causing their savings projections to be understated or overstated.
3. Reduce your losses caused by faulty savings projections. How many times have you been promised or guaranteed by your GPO that you would save X% with their contract, and then never took the time or effort to verify that the projected savings happened? For instance, we documented how a client of ours signed a new three-year exam glove contract with a projected savings of $30,000 per year or $90,000 over the lifecycle of the contract. However, after the first year they measured their contract savings to date and discovered that they only realized $12,000 in savings. After an extensive investigation on why this had happened, the hospital changed their glove dispenser boxes which were wasteful, thereby saving a total of $74,000 in the remaining two years of their contract. Without this audit, our client would have only saved $36,000 over the three-year term of their contract which was projected to save them $90,000.
In summary, projected, promised, and even guaranteed savings from your GPOs and consortiums need to be validated, on a quarterly basis, to ensure your initial savings projections are being realized. If your savings are not being realized, you need to have a mid-course correction on your GPO and consortium contracts to improve its outcomes. Otherwise, your GPO and consortium projected, promised, and guaranteed savings will never hit your healthcare organization’s bottom line.
P.S. (Limited Offer) Learn more about demanding accountability from your GPOs and consortiums with “The Ultimate Closed-Loop: Savings Validation Guidebook.” Just e-mail me at [email protected] requesting your e-book copy.
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