Group purchasing reduces annual health care costs by more than $36 billion

The strategy could help ophthalmology practices weather the current recession.

Group purchasing organizations help cut U.S. health care costs by more than $36 billion annually, according to a report.

A group purchasing organization (GPO) helps health care providers reduce costs and increase efficiencies by negotiating prices with manufacturers, distributors and other vendors, according to the Health Industry Group Purchasing Association, a trade association that represents 17 GPOs.

The report, released in April by Eugene S. Schneller, PhD, principal of Health Care Sector Advances in collaboration with Mathematica Policy Research, summarized a survey of eight hospital systems representing 429 hospitals.

Estimated savings were in hospital pharmaceuticals, medical and non-physician purchases, cardiology and orthopedic implants, and nonclinical products such as computers and office products. Savings also included $1.8 billion for human resource functions aided by GPOs, such as sourcing and contracting, the study said.

Another report, by David E. Goldenberg, PhD, and Roland “Guy” King, FSA, MAAA, of Locus Systems, showed the potentially large impact of GPOs on total U.S. health care spending. According to the Centers for Medicare and Medicaid Services’ National Health Expenditure Account, the potential health care GPO marketplace penetration for hospitals and nursing homes in 2008 ranged from $263 billion to $293 billion, or about 11% or 12% of total national health care expenditures, the report said.

GPOs saved the U.S. health care system between $29 billion and $64 billion overall in 2008. The same year, GPOs saved public health care programs between $16 billion and $36 billion, including $17 billion in Medicare, the Locus report said.

Mitigating economic downturn

John B. Pinto, president of J. Pinto & Associates, an ophthalmic practice management consulting firm, and OSN Practice Management Section Editor, said group purchasing is one strategy for ophthalmology practices to weather the current recession.

“Even in harder-hit communities, our surgeons have been able to mitigate mild downturns in patient demand with new efforts at outreach and by widening their span of services, especially in custom IOLs and optical dimensions,” Mr. Pinto said in an interview with Ocular Surgery News.

Practices will exercise a certain degree of fiscal prudence, even as the economy recovers, he said.

“Absent any abrupt, and at this point unexpected, adverse shift in Medicare fees, I believe the path ahead will be a slow realization by ophthalmic America that the sky is not falling and that it’s safe to get back in the game,” he said. “That said, I think that most surgeons and their purchasing managers will continue to steer to the side of value, dependability and durability across the entire range of equipment and supplies.”

Capital equipment costs are generally a small part of an average practice’s costs and are generally impervious to swings in the national economy, Mr. Pinto said.

“At the end of the day, capital equipment, when amortized, is a comparatively small fraction of annual operating costs, so one would not expect that much elasticity in demand with ups and downs in the macro-economy.”

Flexible purchasing and customer service

Cheryl Hensley, purchasing manager for the Oregon Eye Surgery Center in Eugene, said her practice has a flexible purchasing arrangement that does not have purchasing quotas.

“We do group purchasing differently here at the surgery center in that we have a contract with a company,” Ms. Hensley said. “We’re not obligated to purchase a certain amount throughout the year. … It’s not the same as other group purchasing contracts and programs that are out there.”

The Oregon Eye Surgery Center has participated in the purchasing arrangement for about 5 years.

“I believe that we’re in an excellent program,” Ms. Hensley said. “I’m sure it could get better. I’m still learning a lot about this program.”

Time spent researching equipment costs pays off, Ms. Hensley said.

“We’re constantly looking for the best price,” she said. “That sometimes costs us a little bit more time, but once we get that research done and we’re getting the best price, I think it’s worth it in the long run.”

The Oregon Eye Surgery Center purchases equipment mainly for cataract and retinal surgery, choosing name-brand equipment and generic copies according to surgeon preference, Ms. Hensley said.

Vendors are generally well-trained in the clinical use of instruments and repair instruments in a timely manner, Ms. Hensley said.

GPOs are not effective in providing surgeon-preferred specialty instruments for ocular, orthopedic, cardiovascular and other surgical specialties, and in repairing specialty surgical instruments, according to Millennium Surgical, an instrument supply company.

In a document posted on its Web site, Millennium suggested that practices have at least two suppliers on hand and seek independent firms to repair supposedly non-repairable instruments. – by Matt Hasson

References:

• Goldenberg DE, King R. A 2008 update of cost savings and a marketplace analysis of the health care group purchasing industry. GPOs Save Money Web site. http://www.gpossavemoney.org or http://www.higpa.org/assets/1/workflow_staging/AssetManager/226.pdf. Published July 2009. Accessed Oct. 6, 2009.
• Health Industry Group Purchasing Association Web site. http://www.higpa.org. Accessed Sept. 18, 2009.
• Millennium Surgical Instruments Web site. http://www.millenniumsurgical.com. Accessed Oct. 6, 2009.
• Schneller E. The value of group purchasing – 2009: meeting the needs for strategic savings. GPOs Save Money Web site. http://www.gpossavemoney.org or http://www.higpa.org/assets/1/workflow_staging/AssetManager/235.pdf. Published April 2009. Accessed Oct. 6, 2009.

• Cheryl Hensley can be reached at Oregon Eye Surgery Center, 1550 Oak St., Suite 8, Eugene, OR 97401; 541-349-5199; fax: 541-349-5107; e-mail: cherylh@oesc.cc.
• John B. Pinto can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.