The Home Depot approach to office purchases
GPOs are another route to supply savings
When you shop for supplies for your own household, are you likely to pay full retail or seek out discount prices through chains like Home Depot or Sam's Warehouse? If like most Americans, you're a bargain hunter at heart, the group purchasing organization (GPO) concept is right up your alley.
Kathy Vance, administrator at Medical Plaza Consultants, a Kansas City, KS, internal medicine practice, is one of a growing army of practice leaders who sees purchasing cooperatives and GPOs as a way to reduce overheads and take the fuss out of ordering supplies.
Savings of several hundred dollars
Vance didn't think anyone could do much better than she had done in negotiating discounts, but in the three years she has used the GPO Integrated Logistics Systems (ILS) based in Kansas City, MO, she has realized savings of about several hundred dollars per month.
"They originally started out just doing obstetrics, but as soon as they branched out, I signed up with them," says Vance. "I didn't think we would save much - and it varies by contract - but I know we are more than covering the cost."
Just as chains like Home Depot get price concessions from wholesalers by buying in large bulk, GPOs pass along savings to physician practices with their ability to purchase in large quantities.
Vance's biggest savings is in printing costs - about 30% of her former expenses. And even in medical supplies - using the same vendor she had before and with which she had negotiated previously as low as she could - she saves at least 10%. This amount more than covers the 6% of purchasing fee she pays to ILS as part of her agreement with the GPO.
Andy Zutter, administrator of the Jackson County Head and Neck Group in Independence, MO, says that he regularly saves $250 to $300 per month on supplies and has seen costs drop by as much as $700 in one month. Like Vance, he sees the biggest savings in printing and stationery costs.
Even better, says Zutter, is the warehousing services he also gets. He saves more money by ordering larger quantities, but rather than find the space to store them at his office, the vendor ILS has chosen will warehouse the goods and deliver them when they are needed.
Discounts aren't limited to medical and office supplies. Zutter's ENT practice has also scored savings on some big equipment because there are other practices like his which may also have a need. And the GPO will call a multitude of suppliers around the country to get the best rate. Most practices, says Zutter, will call three or five local vendors and take the best price from among them.
Vance says even though her practice is involved in several IPAs,which also provide group purchasing benefits (see guest column on IPAs, p. 74.), she found that the GPO tends to have better prices. "They are national or at least cover a broader region than most IPAs," explains Vance.
But she has not abdicated her responsibility totally. Vance still shops both for the best price. For instance, one IPA and ILS both have contracts for X-ray supplies. But Vance herself negotiated an even better rate with another vendor. "I stayed with my vendor, but I will move when one of the other groups gets a better rate," she says.
Vance says you can't let down your guard and assume that the GPO is always getting the best rate. "You have to shop periodically and make sure you are still getting the best deal. And if you aren't, you have to find out why."
Investigate your GPO
Ross Conner, chief executive officer of ILS, says practices interested in joining forces with a GPO should try to find one that already works with other group practices. "Most work with hospitals, which is very different," he says. "Hospitals already have accounting departments that do invoice auditing. They have centralized purchasing departments that handle reports on what is being used." A good practice-centered GPO will realize those differences, says Conner, and offer the auditing and reporting extras to its clients.
Conner also says hospital GPOs are more likely to offer only one kind of each product, rather than a choice. "They may have a good contract for casting tape with a company like 3M, but that's all. If you want another brand, you have to pay close to regular retail price."
Vance and Zutter say there are other questions you should ask the GPO:
· Make sure there are other members who are in your specialty so that you can realize savings on all of the items you regularly use but that other practices may not - like casting tape at an orthopedic practice, says Zutter.
· Ask how long the GPO has been in business, advises Vance. "People get very attached to their laundry service or their paper vendors," she says. "You don't want to go through the trauma of changing vendors and then see the GPO go out of business."
· Ask for customer satisfaction data from them, says Zutter. "And ask the GPO why they chose that vendor," he adds. "The worst thing is to switch companies and then not get the service you expect. That's not worth any amount of savings."
Ask about special services
Indeed, added value services often make up for smaller discounts that a practice might otherwise expect. For instance, the vendor for Zutter's medical supplies has set up an inventory management system. One of that company's staff comes to the office, checks on supplies, and makes sure they don't run out.
· Ask the GPO what reporting mechanisms they have, says Vance, and how quickly they learn your practice. ILS regularly looks at Vance's purchases and suggests changes that can provide bigger savings. Zutter says another added value service he would look for is how much inventory management they take off your shoulders.
A good GPO will provide you with a cost analysis before you sign up, says Zutter. They will look at what you use, what you spend, and how much you can save. "With that kind of data, it's pretty easy to convince the physicians they should pay the membership fees."
· Gary Stanton, MBA, Chief Executive Officer, Kansas City Women's Clinic, Kansas City, KS. Telephone: (913) 894-8700.
· David Astles, Executive Vice President, OB/GYN Management, Dayton, OH. Telephone: (937) 275-8906.
· Andy Zutter, Administrator, Jackson County Head and Neck Group, Independence, MO. Telephone: (816) 478-4200.
· Kathy Vance, Administrator, Medical Plaza Consultants, Kansas City, MO. Telephone: (816) 753-4312.
· Ross Conner, MA, CEO, Integrated Logistics Systems, Kansas City, KS. Telephone: (913) 385-5554.
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