Don’t Break the Piggy Bank: Maximize Savings Opportunities through GPOs
By David Harral, Senior Consultant, KESTGO
In today’s highly competitive healthcare landscape, hospitals and health systems are understandably looking for any opportunity to lower costs.
Group Purchasing Organizations are one of many tools health systems can utilize to lower procurement costs and overall expenses. The entities received a boost in 1986 with an endorsement from the U.S. Congress, recognizing GPOs as a powerful resource to create competition and lower costs in the medical supply market. In the decades since, GPOs have become big business in the healthcare industry with more than 70 percent of medical supplies being procured through their contracts, creating large savings opportunities for hospitals and health systems.
A 2018 cost savings analysis prepared for the Healthcare Supply Chain Association found GPOs save the healthcare industry an estimated $34.1 billion each year, a majority seen in hospitals and senior care facilities. The study found a large portion of annual savings related to supplies with GPOs cutting costs for supply purchasing by as much as 13 percent or more. Those savings can up add quickly when one considers supply costs make up about 15 percent of hospital expenses on average, according to a 2019 hospital supply study, while some surgery-intensive hospitals can spend as much 30 or 40 percent on supplies.