NOT ALL GPOS ARE THE SAME
Three Questions to Ask a GPO before Joining
Group Purchasing Organizations are an excellent way for companies to save money, time and confusion.
When an organization or company joins a GPO, they gain access to that GPO’s contract portfolio. Whenever they buy a product covered under one of the GPO’s contracts (i.e., “on program”), they enjoy the savings and services that contract offers.
GPOs use the combined volume of their membership to negotiate contracts with manufacturers and distributors for products that essentially all organizations need to operate. These products can include everything from dietary, housekeeping, maintenance, office supplies, specialized equipment, personal protective equipment (PPE), physical therapy services—everything.
The GPO takes a lot of the guesswork out of the equation by having already vetted their vendor-partners for you. You should be able to trust that the products and services you are buying will be top quality.
If you are considering joining a GPO or changing GPOs, here are a few questions you should ask:
1. How does the GPO service its members?
When you join a GPO, how will they assist you in using their contracts and services to the fullest potential? This boils down to analytics, communication and relationships.
Does the GPO offer analytic tools to assist you in finding “on program” products within their contract portfolio? Are those tools web-based and user-friendly so that you can pull reporting at your convenience? If you have access to online tools that will help you overlay your spend with “on program” items, then you will be better equipped to maximize the value of your GPO contract.
What kinds of communications does the GPO offer, and at what frequency? When there are changes to contracts or new contracts are added to the portfolio, how are you going to find out? Will the GPO push important, relevant information out to you?
Most, if not all, GPOs employ some type of field sales force. Will that person be available and responsive to answer questions or solve problems?
Some GPOs make it a priority to connect with each of their customers periodically throughout the year, to help maintain a stronger, personal relationship. Still others host their own events, like regional lunches, webinars or trade shows, to give their customers a chance to meet with vendors, GPO staff and other members.
Always ask how the GPO you are considering will work with you in helping you stay informed of all they have to offer.
2. How does the GPO make money?
All GPOs must generate revenue in order to operate. They typically do this in one of two ways—either through administrative fees or membership dues.
Some GPOs are not paid directly by their customers. They make their money based on the products their customers buy through their contracts. This money is then paid to the GPO from the vendors, and is commonly referred to as an “administrative fee.”
Administrative fees can range from a fraction of a percent to 3% or even more. The customer often does not know exactly how much they are “paying” for the GPO’s services, as the administrative fees are built directly into their overall product spend.
Conversely, other GPOs will charge annual membership dues. This fixed membership fee is often based on the amount of product the customer bought the previous year, and the dues are usually capped. (The first year of dues for new customers are typically based on projected spending.) This is a transparent fee structure and the GPO will often be able to demonstrate invoice savings to cover the membership dues in their analysis prior to joining.
Whether the GPO uses an administrative fee or a dues model to generate its revenue, it is important to ask about, understand, and quantify the true cost of their services to your organization.
3. What other services are available beyond reduced costs through the contracts?
The heart and soul of any GPO is its contract portfolio and the reduced costs available through it. The broader the scope of products covered, the stronger the GPO. Be sure to ask what other services the GPO offers its customers. What sets it apart from the rest?
For example, you’ll find some GPOs will conduct an audit, at your request, to validate the savings you are experiencing through their contracts.
Still other GPOs conduct their own audits, usually quarterly, to ensure their contracted vendors/manufacturers are charging what they are supposed to. If they find any discrepancy, they work with the vendor to not only correct the error, but provide the customer a refund on what they overspent.
Be sure to ask a potential GPO what online resources are available to you. Can you access your account online? Can you generate your own spending reports? Can you determine through their website which products you buy the most, from which manufacturers, and how those compare with other customers in your field? Are there any additional costs to access those offerings? Some GPOs offer everything described above at no additional cost.
A great GPO will follow the trends in a specific industry and develop tools to help its customers address those trends.
In the end, when selecting a GPO, you want to make sure you are partnering with one that will help your organization best meet its financial goals, help you use your membership as effectively as possible, and will ultimately serve you and help your organization succeed as never before.