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How GPOs Help Hospitals Reduce Costs and Improve Efficiency

Updated: May 24

Hospitals and health systems face tremendous pressure to reduce expenses in order to remain financially viable. With tight margins and limited resources, there is an urgent need to optimize spending. One proven strategy gaining momentum is participation in Group Purchasing Organizations (GPOs). GPOs leverage collective buying power to secure discounted pricing on supplies and services. By tapping into specially negotiated GPO contracts, hospitals can trim expenditures and redirect those savings to enhance patient care.

A GPO functions as an intermediary between suppliers and buyers. It negotiates discounted rates based on the aggregated demand of all members. Hospitals pay an administrative fee to access these lower contract prices. While each hospital places its own purchasing orders directly with vendors, the GPO has done the legwork of sourcing agreements with favorable terms. This saves hospital supply chain leaders significant time and effort. It also shifts the cost negotiating burden from each individual facility to the scale and expertise of the GPO.

The benefits of utilizing GPO contracts are substantial for hospital financial executives and supply chain managers:

Cost Savings - GPO pricing agreements yield average savings of 5-15% off market rates. For a hospital spending millions on supplies, this discount level frees up significant dollars to reallocate towards clinical investments.

Access to Market Intelligence - GPOs research markets, track contract utilization trends, and vet supplier partners. This data assists hospital decision makers with procurement planning and strategy.

Streamlined Processes - Ordering from pre-vetted GPO contracts bypasses time-consuming individual Requests For Proposals (RFPs) and negotiations that facilities would otherwise have to manage independently.

Enhanced Supplier Terms - GPO agreements often feature unique negotiated terms around payment timing, right of return, and rebates based on volume or growth that individual hospitals struggle to unilaterally achieve.

Reduced Administrative Costs – GPOs provide centralized infrastructure, staff, and administrative support that allows hospitals to operate more efficient purchasing departments.

In addition to hard-dollar savings, GPO contracts deliver several soft benefits:

Expert Guidance – GPOs employ category managers and clinical specialists who provide unbiased expertise to help health systems optimize spending and product selection across every supply type – from commodities to physician preferences.

Data Analytics – By aggregating purchasing data across thousands of locations, GPOs can spot trends and savings opportunities tailored to each member’s unique utilization patterns. This intelligence strengthens a hospital’s overall supply chain strategy.

Access to New Technologies & Suppliers – GPOs use member feedback and technology scouting to continuously evaluate innovations and vet additional supplier partners for contract consideration. This exposes hospitals to improved supply options and terms.

Contract Compliance Monitoring – GPOs regularly audit vendor contract adherence and address non-compliance events or performance issues on behalf of members. This protects hospitals from potential overcharges or terms violations.

GPO participation also creates operational efficiencies for hospital supply chain leaders in areas like vendor credentialing, oversight, and supplier diversity program tracking. By tapping into centralized GPO resources, health systems can right-size department staffing to focus more on strategic clinical collaboration rather than transactional tactics. Supply chain leaders are freed to devote higher-value time to initiatives like physician engagement, product evaluation, demand management, and data-driven decision-making.

By leveraging GPO membership to reduce supply expenses, hospitals gain flexibility to devote more resources towards advancing care quality and the patient experience. The collective scale and contracting expertise of a GPO empowers individual hospitals to enhance financial performance. While no two health systems are identical, most find that participation in one or more GPOs plays an integral role in balancing cost management with clinical investments. As healthcare finance leaders navigate strained budgets, GPOs deliver savings and efficiency gains that can be redirected from the back office to the bedside.

Contact us today to learn more about how we can help you reduce expenses and improve efficiency.

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