What to expect from a group purchasing organization: is your GPO delivering the goods?

[Pharmacy Technology Resource, LLC]

The Balanced Budget Act of 1997 replaced the retrospective payment
system with per resident, per day reimbursement, dramatically changing
the purchasing and reimbursement process in the long-term care world.
In response, Life Care Services, Inc. (LCS), a long-term care
development and management organization in Des Moines, Iowa, formed a
national vendor contract division in 1999. The purpose of that
division, Care Purchasing Services, Inc., was to negotiate vendor
contract discounts for pharmacy, therapy, and medical supplies--the
three biggest sources of Medicare outgoing dollars. The organization
soon began negotiating contracts for food, office supplies, and
carpet. For example, LCS spent more than $1 million on coffee a year
but did not have a national coffee contract. We met with several
coffee distributors and selected a corporate-approved vendor that
offered great pricing and excellent service. The new coffee program
now saves LCS communities more than 10%, or $100,000 a year.

Independently operated facility administrators began asking if they
could access Care Purchasing Services' vendor pricing. Life Care
Services saw the benefit of sharing corporate contracts with non-LCS
clients. Since purchasing is a volume game--i.e., the more goods or
services purchased from vendors, the lower the price--allowing other
facilities to use our contracts would help them with better pricing
and LCS with increased volume. Today, the group purchasing
organization (GPO) Care Purchasing Services has more than 3,000
clients and offers products and services ranging from advertising to
wound care products.

Not all long-term care facilities and GPOs are created equal.
Facilities should ask the following questions to determine if their
GPO meets their needs:

Does your GPO charge a membership fee or require you to purchase from
a certain number of vendors? GPOs may charge a fee to cover
administrative costs incurred. Savings realized by purchasing through
a GPO must be able to cover any membership fees. Since Care Purchasing
Services is looking for volume to help negotiate pricing, we do not
charge a membership fee to clients or require a certain amount of
participation.

What type of support do you want or expect from your GPO? GPOs may
offer very aggressive pricing but little support. A facility that
wants the lowest price for incontinence briefs, for example, can
contract with a GPO that has the best price for briefs, but it may
never hear from or see the GPO. Other facilities want the added
services of nurses who do evaluations, sizing, and clinical in-
services. If you want education, in-services, or benchmarking, you
need to make sure the GPO offers these benefits.

Will your GPO go to bat for you if you're having problems with
accounts payable? Care Purchasing Services will call the vendor
partner on behalf of a facility that is having trouble paying some
bills. For example, if one of our member clients is having difficulty
paying its pharmacy bill, we'll call the pharmacy and negotiate a
payment plan on behalf of the client. Not all GPOs will perform this
service.

Will your GPO help solve your vendor problems? The GPO representative
can resolve issues, such as chronically late deliveries, incorrect
invoices, and poor service, so that the facility won't have to worry
about them. This is an advantage of GPOs that offer consulting
services.

Does your GPO help to combat fraud? Department heads can be tempted by
gifts and kickbacks from vendors. For example: A facility may need a
new rooftop air-conditioning unit that costs $75,000, and the plant
operations manager will be responsible for obtaining quotes. A vendor
might approach the manager and say, "I'm going to give you a quote for
$75,000, but the unit really only costs $50,000. You and I can split
the $25,000 margin." By using a GPO that has contracts for air-
conditioning units and can supply pricing to the facility, the
department head is less likely to be tempted to participate in this
type of behavior. The GPO is an impartial entity to provide price
quotes.

Department heads can also become too comfortable with specific
vendors. Vendors that have conducted business with a facility for 20
years know the likelihood of the facility doing business with them in
the future is pretty good. But the vendors' pricing can start creeping
up if no one is watching the store. The facility is probably not
getting the most aggressive price if a vendor knows that no one is
monitoring prices. A facility should have a mandate to solicit bids
for products and services.

Does your GPO specialize in the products and services that you
typically buy? For example, do you typically purchase the same
products that a hospital would use? If so, there are several GPOs that
are geared toward the acute care industry. Facilities may also be
willing to pay a little more for products and services to get better
customer service and consultation; others may just want the lowest
price. Some GPOs will negotiate both manufacturer and distribution
agreements, allowing you to use the distributor of your choice.

Does your GPO confirm that you have the best price? Many of our
products and services are capital-related (higher-priced items). For
example: Ordering office chairs might be on the to-do list of an
office manager who may not be cognizant of the budget. The manager
should get a quote through the GPO to confirm the facility is getting
an aggressive price or to see if the GPO can save the facility money.

Does your GPO regularly audit your pricing? Care Purchasing Services
randomly audits clients' invoices to ensure that they are accessing
our corporate pricing. A facility should select some of its higher-
dollar vendors and fax its invoices to the GPO from time to time to
ensure that it is receiving the proper price; 20 % of prices are
typically incorrect. When prices increase, the local vendor
salesperson might not realize that the client is part of the GPO. If
your GPO doesn't audit those invoices, the 20% could compound every
year.

Does your GPO cover the cost of paying invoices and negotiating with
vendors? A facility's dietary manager may have peaches on an upcoming
menu. The facility wants to find the best price for those peaches, so
the manager calls three or four peach distributors to find the lowest
price. But the facility doesn't factor in how much time it took the
dietary manager to call the different distributors. Paying multiple
vendor invoices also has a cost. A facility can "cherry-pick," but
they incur administrative costs--which can be more than $30 per
transaction--to interact with several different vendors. Using a
quality GPO for most of your purchasing needs can eliminate
unnecessary administrative costs.

Does your GPO offer both national and regional vendors? A GPO-
contracted manufacturer that doesn't deliver a product to a specific
region or area doesn't benefit the chain client. Ask your GPO if it is
willing to negotiate a regional contract on your behalf if your volume
justifies it. Keep in mind that the GPO will expect a commitment from
the chain or group to negotiate a regional vendor agreement.

Does your GPO endorse vendors that offer online purchasing? The trend
in purchasing in the long-term care industry is online purchasing
options. Online purchasing allows chains to mandate that facilities
purchase items on formularies, thus saving the organization money. The
chain does lose some flexibility using formularies but can save money
if the process is properly managed.

Is your GPO willing to go the extra mile? When Hurricane Katrina
struck in 2005, Care Purchasing Services worked with distributors in
Houston to get medications, medical supplies, and food to our New
Orleans-area clients. With no way of communicating with vendors and
with New Orleans distributors under water, facilities couldn't order
medications, medical supplies, and food for residents. Care Purchasing
Services coordinated with local authorities to allow essential supply
trucks with police escorts into the highly restricted area. Equally
important was our ability to work with our pharmacy provider to
coordinate the delivery of vital medications throughout the city's
recovery period.

Does your GPO offer ancillary or value-added services? These are
programs in which facility staff can access corporate contracts. For
example: A Care Purchasing Services client facility employee can buy a
new General Electric refrigerator at the national GPO discount price,
and it will be delivered to the employee's home. Value-added offerings
of this type from Care Purchasing Services include computers,
appliances, paint, and wireless service purchases. Care Purchasing
Services offers "employee-based" programs as a human resources benefit
to assist with employee retention.

To be successful in today's long-term care business climate, a client
should utilize a GPO that can be a "true business partner," a GPO that
will work with you and for you, tailoring programs for your
organization's needs and assisting you to achieve short-and long-term
strategic goals.

Kevin Meyer is Vice-President of Operations for Care Purchasing
Services, Inc., a wholly owned subsidiary of Life Care Services, LLC.
For more information on Life Care Services, phone (515) 875-4500 or
visit www.lcsnet.com. For more information on Care Purchasing
Services, phone (800) 543-3491 or visit www.carepurchasing.com. To
send your comments to the author and editors, please e-mail
meye...@nursinghomesmagazine.com.

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