What is the Role of GPOs in the Healthcare Supply Chain Sector




The debate over how to stem the growing expenses of healthcare has assumed a central role in the public policy conversation. Because group healthcare buying organizations like GPOs play an integral role in the medical supply chain.


Let us look at the 5 things about GPOs and the role that they play in the healthcare supply chain.


1. GPOs Source and Negotiate Prices: 


GPOs help and negotiate expenses for drugs, medical devices, and different services and products on behalf of healthcare providers, which include hospitals, nursing homes, ambulatory care facilities, doctor practices, and home health agencies. GPOs have also increasingly sought to differentiate themselves through offering a range of additional services to healthcare providers-for example, data analytics-that may further lower expenses or enhance the operation.


2. GPOs Help in Saving Money:


GPOs lessen expenses primarily through mechanisms like decrease transaction expenses and lower charges through joint negotiation.


3. GPOs Function in a Vigorously Competitive Procurement Market


The marketplace for procurement services presented through GPOs is fragmented, with at least 5 national GPOs, many smaller players that function at the regional or local level, as well as some company self-supply with supplementary GPO services. The current rise of regional GPOs has further enhanced competition, while also suggesting relatively low barriers to entry or expansion through GPOs, as well as relatively low switching charges between GPOs enjoyed by healthcare providers.


4. GPO Vendor Funding Model is Consistent with Competition and Savings:


Most GPOs are funded by vendor-paid administrative charges calculated as a percentage of the sales made pursuant to GPO contracts. The funding model based on vendor charges contributes to better healthcare charges and should be altered. Vendor funding, a practice common in different industries, is likely to be more efficient than alternative models. Ultimately, we've seen nothing that alters the financial conclusion that the present-day vendor funding model for GPOs likely reduces healthcare charges by reducing transaction charges incurred during procurement.


5. Changing the Current GPO Vendor:


As healthcare fees continue to rise, institutions like GPOs that compete to enhance efficiency and decrease supply chain fees are particularly important. The GPO vendor funding model, authorized by Congress more than 3 decades ago, likely contributes to these reduced fees. Altering that vendor funding model structure could likely result in increased fees, decreasing savings for healthcare providers and patients. We find no empirical or economic basis to change the existing version.

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