So why is ease of online
purchasing important for
healthcare facilities trying to
streamline supply chains?
The numbers tell the story.
accounts for nearly
18 percent of the U.S. GDP
and is expected to grow at
an annual rate of 5. 8 percent
through 2020. Declining
reimbursements and further
implementation of the Affordable Care Act are leaving
hospitals with few prospects
for increasing revenue.
Studies show that 30 percent
of hospitals today are already
unprofitable. Cutting costs is
crucial for survival.
Supply chain costs are the
second largest and fastest
growing operational expense
for hospitals today, yet many
administrators are not choosing
to focus on how to properly take costs out of the supply
chain. Instead, they rely on group purchasing organization
(GPO) contracts. The Healthcare Supply Chain Association (HSCA) estimates that between 96 and 98 percent
of hospitals belong to at least one GPO organization,
with 72 percent of all purchases going through GPO
But are these GPO contracts good for a facility’s fiscal
health or are they killing the bottom line?
Too many hospital purchasing offices have basically
become complacent, turning all supplier qualification and
price negotiation over to GPOs. In doing so, a simple and
critical question is often going unanswered. Do GPOs
really offer the best pricing?
According to a Government Accountability Office
(GAO) report, GPOs collect administrative fees from
vendors that range between one and three percent of
negotiated contracts. This suggests that GPOs favor
larger vendors with more market share and higher pricing
because of the potential for higher administrative fees,
which GPOs use to cover operations costs. Some GPOs
also redistribute a portion of these fees in the form of
rebates in exchange for compliance.
Several GPOs are involved with lawsuits scrutinizing
antitrust issues. In 2009, a congressional inquiry looked
into the “opaque and unfair” buying processes of seven
Again, it comes back to a central question: “Is my GPO
really providing me with the best price?”
Hospitals can be participants in growing B2B e-commerce.