It seems to us that 10 percent of the healthcare marketplace is changing their primary GPO at any given time, which isn’t a bad thing. What is concerning is that too many hospitals, systems, and IDNs change their primary GPO without realizing that there could be major pitfalls to consider with this decision. Here are five lessons learned by SVAH after helping or observing healthcare organizations change their primary GPO successfully:
1. Contract conversions could take 18 or more months: Too often, supply chain professionals believe that their new GPO contract conversion savings will occur almost overnight. The fact is, it could take 18 or more months to change over to new products, services, and technologies. During that time, only a fraction of your projected savings will materialize. Make sure you calculate your actual, not just projected savings in your management reports.
2. All GPO portfolios aren’t created equal: Every GPO has their strengths and weaknesses. For instance, some require you to accept their contract portfolio as is, meaning, there are not multiple contracts for the same commodities. You either buy into the whole enchilada, or you can’t do business with them. Make sure your customers can live with this decision before changing your primary GPO or you will have an insurrection on your hands.
3. There is hidden cost of conversion to a new GPO contract: For example, if you need to change your IV sets and solutions because of a sole source GPO contract, the cost of conversion (training, return of product, restocking units, etc.) can be costly. Make sure you know the cost of change before changing your primary GPO or you could be blindsided with these costs.
4. Your cost will go up, not down, as you implement new GPO contracts: We frequently observe that a new GPO contract utilization supply cost could go up as much as 26% because of misuse or misapplication of the product, service, or technology under contract. This isn’t an anomaly, but a result of any change you will make.
5. No mechanism to measure this change: Unless you validate every new GPO contract you implement, you have no way of knowing if the savings that were originally projected actually happened. These audits can only be accomplished by having a baseline standard to start your measurement process and then validate your actual savings along the way. To ignore this audit process is self-defeating, since you were promised savings when you made the decision to change your primary GPO.
To keep your primary GPO honest, you need to bid your GPO portfolio out, just like any other contract every five years. Subsequently, if you finally decide to change you GPO, remembering these five lessons will ensure that you are making the change for the right reasons.