Group purchasing organizations (GPOs) are a significant factor in containing costs relevant to supplies and services purchased by health care providers. This article will define the basic characteristics of a GPO and identify the value of a health care organization’s—in particular, OSF HealthCare’s—relationship with AmeriNet, one of the nation’s largest GPOs.
A GPO is a business which provides to their members a portfolio of pre-negotiated, competitive pricing agreements with vendors of all types of products and services necessary for the delivery of health care. GPOs provide three essential functions for health care providers:
- Aggregate buying power to obtain volume discounts from manufacturers and distributors.
- Facilitate and enhance comprehensive product comparison analysis using clinical input, thereby allowing providers to purchase products that best fit their individual needs.
- Streamline and standardize the purchasing process, thereby reducing the inefficiencies inherent in today’s health care system and offering valuable cost avoidance savings to providers.
In 1973, OSF Healthcare System established and operated a GPO. In 1994, OSF collaborated with AmeriNet, becoming a National Affiliate of AmeriNet. At this time, and due to the redundancies and replication of processes, OSF elected to disengage from the processes of contract development, except for those high-cost products where there’s valid physician preference. We decided to focus our energies on appropriate product utilization, as well as system product standardization, when determined to be suitable.
A recent study was released by the Health Industry Group Purchasing Association (HIGPA) indicating GPOs will save hospitals up to $33.7 billion in 2002. Health care providers reported they save 10 to 15 percent by channeling their purchases through GPOs. OSF’s participation with the AmeriNet agreements affords access to hundreds of essential contracts, which OSF would find necessary to develop and implement under the self-operations model.
In forming the relationship with AmeriNet, OSF negotiated equal voting rights with the three shareholders—AmeriNet Central, Intermountain Health Care, Vector, and AmeriNet—for contract development. AmeriNet’s most significant revenue stream is generated through the collection of contract administrative fees (CAFs) from the contracted suppliers.
In 1989, the Department of Health and Human Services released the initial Safe Harbor Regulations, and one of the sections addressed GPOs and CAFs. GPOs are allowed to collect CAFs from the suppliers, and, provided the CAFs don’t exceed 3 percent of the membership’s purchases, this money isn’t normally considered an additional discount. From this activity, OSF has an extremely aggressive revenue sharing provision with AmeriNet and returned $1.2 million in CAFs to the OSF Enterprise in FY 2001.
Another value provided by AmeriNet is its keen sense of market awareness, particularly in situations regarding cost erosion. Upon identifying a cost reduction opportunity, AmeriNet coordinates and implements the new pricing for OSF, particularly when product conversion isn’t necessary.
AmeriNet has a professional sales and marketing staff, which does an excellent job in servicing more than 150 affiliate hospitals with which OSF has maintained membership rights. These facilities pay annual membership dues to OSF to access the AmeriNet portfolio of contracts. The primary advantage of the affiliates maintaining membership through OSF is that OSF has a more aggressive revenue sharing program than that offered by AmeriNet.
AmeriNet has provided to the GPO industry a leadership role regarding business ethics, and the company respects the Ethical and Religious Directives for Catholic Health Facilities to which OSF won’t be at variance. There’s a multitude of other services AmeriNet provides to OSF and the OSF affiliates, and they’re constantly in research of more economical processes by which we may enhance our supply chain management. IBI