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Members of purchasing groups bought $15.4 billion in goods and services last year, according to the 62 respondents to Modern Healthcare's 1992 purchasing survey. Members of 37 groups that reported volume for both 1990 and 1991 bought $14.3 billion in goods and services, a 25% jump. Some of the biggest gains were reported by groups that focused on increased contract use rather than new members.
Factors that should be considered when a pharmaceutical group purchasing program is being evaluated are discussed and presented in checklist format. The ability to purchase at maximum effectiveness is critical in today's healthcare environment. There are a number of group purchasing programs in which pharmacists participate, and this business is in a state of flux. Cost savings is the most obvious factor to determine in evaluating a program, but group purchasing is a service business and there are numerous additional considerations. A list of questions that may be used as a checklist for rating one group purchasing program against another is provided. Pharmacy departments should consider the type of group purchasing program, its interactions with suppliers, services offered, input of participants, and costs when evaluating pharmaceutical group purchasing programs.
As integrated delivery networks mature, many are questioning whether purchasing groups are as relevant as they used to be. Sure, the groups promise purchasing muscle, but many systems already have enough buying heft to extract concessions from suppliers. And many systems can afford to hire their own purchasing experts or get what they need from consultants. As a results, the purchasing group isn't the automatic decision it once was.
The various types and operational methods of purchasing groups are described, and evaluation of groups is discussed. Since group purchasing is increasing in popularity as a method of controlling drug costs, community and hospital pharmacy managers may need to evaluate various groups to determine the appropriateness of their services. Groups are categorized as independent, system based, or alliance or association based. Instead of "purchasing," some groups develop contracts for hospitals, which then purchase directly from the vendor. Aside from this basic difference between groups that purchase and groups that contract, comparisons among groups are difficult because of the wide variation in sizes and services. Competition developing from diversification among groups has led to "super groups," formed from local and regional groups. In evaluating groups, advantages and disadvantages germane to accomplishing the member's objectives must be considered. To ensure a group's success, members must be committed and support the group's philosophies; hospital pharmacists must help to establish a strong formulary system. To select vendors, groups should develop formal qualification and selection criteria and should not base a decision solely on price. The method of solicitation (bidding or negotiating), as well as the role of the prime vendor, should be studied. Legal implications of group purchasing, especially in the areas of administrative fees and drug diversion, must also be considered. The most advantageous group for each organization will include members with common missions and will be able to implement strategies for future success.
Ways that purchasing groups assess pharmaceutical vendors and products are discussed. The size of the purchasing group affects the process of screening vendors, with small groups tending to accommodate familiar vendors and large groups protecting themselves from an excessive number of prospective suppliers. Large groups usually have more resources to conduct in-depth screening. It may be necessary to organize subgroups to deal with the various aspects of the selection process; one subgroup might solicit and organize data relative to vendor selection. The sequencing of the selection process is critical: Product pricing should be considered after the vendor has cleared the quality and bioequivalence screens. Factors to consider when choosing a vendor are discussed. Because of the vast amount of information that is generated by the group's screening process, the group should develop tools to categorize and evaluate the data, including vendor quality profiles and bioequivalence screens. Some groups have established a probationary period before making a commitment to volume buying so that the group and the vendor can assess the other's value. A defined evaluation process informs the purchasing group's various publics--members, vendors, and competitors--of the group's quality assurance standards, thereby facilitating the vendor-selection process.
Use of a prime vendor by a drug-purchasing group representing 17 community hospitals is described and evaluated for cost effectiveness. The group was formed in 1981 by 15 hospitals in Minnesota and one each in Wisconsin and Iowa. The group solicited bids to select one drug wholesaler (distribution center). Drug-product manufacturers submitted bids to the group, and contracts were awarded to low bidders who agreed to use the distribution center. All 17 hospitals were evaluated for differences in inventory value and inventory turnover before (1980) and after (1982) initiation of the prime-vendor system; hospitals in the group were paired with control hospitals to eliminate environmental bias. A detailed analysis of inventory and operating costs was conducted in one of the hospitals. The hospitals in the purchasing group reduced drug inventory value by 30.1%, increased inventory turns by 55.3%, and purchased 72.8% of all their pharmaceuticals (based on dollar value) through the distribution center. The group obtained a distribution center service fee reduction of 39.2%. Hospitals in this group showed greater decreases in inventory value and increases in inventory turnover than the controls. The detailed analysis at a single hospital showed that cost savings included direct savings on inventory investment and order handling and indirect savings from elimination of inventory carrying costs and costs of processing checks and purchase orders. Operating costs were reduced by group purchasing of drug products from a prime vendor. Inventory control and purchasing practices improved.
Hospital alliances and group purchasing organizations don't plan to stand still while mergers and acquisitions transform their traditional hospital members into integrated healthcare systems. Included are some survival strategies of the 10 largest groups responding to Modern Healthcare's 1995 group purchasing survey.
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Purchasing groups and alliance purchasing programs accounted for $11.1 billion in goods and services bought by hospitals last year, according to MODERN HEALTHCARE's 1991 group purchasing survey. Trends included the folding of additional hospital departments into central purchasing and increased targeting of alternate-site markets. The responses also documented significant growth and realignment in the industry.
As Providers and suppliers in the U.S. health care market place have adopted a mindset more attuned to today's economic realities, they've made cost cutting a top priority-and to help them achieve that, they have turned to GPOs and the prospects they offer for control of supply costs through bulk buying. Will the purchasing world cross international boundaries and get even smaller? What benefits can be expected from group purchasing organisations developing an international network? Can the International Hospital Federation play a role?
Purchasing-group characteristics that influence pharmaceutical-vendor pricing are discussed. A questionnaire about pricing practices and a self-addressed stamped envelope were mailed to bid managers of vendors in November 1985. The bid managers' attitudes toward the effect of various characteristics of purchasing groups on prices was determined by calculating the mean response to each of a group of four questions about pricing practices. Of the 269 questionnaires distributed, 161 (59.8%) were returned. Of these, 115 were usable. Three vendor groups were established from demographic information: Pharmaceutical Manufacturers Association members (44.3%), generic manufacturers (13.9%), and wholesalers (41.7%). Bid managers agreed that the following characteristics would influence lower prices: single group membership, market conditions, group size, adherence to contracts, and volume commitment; they disagreed that the time of year during which bid solicitations are conducted would affect prices. Further studies are needed to correlate actual pricing practices and the opinions of vendors regarding factors influencing pricing.
As hospitals seek horizontal and vertical linkages to enhance their chances for survival, they are frequently join group purchasing organizations. Prior to joining any of these organizations, the hospital should carefully evaluate bow the linkage will benefit the organization not just on the basis of price, so this author contends. In this article, the author reviews the various selection criteria that should be reviewed.
To gain a competitive edge, group purchasing organizations and alliances realigned themselves and jockeyed for position in the market. They also emphasized member compliance with purchase volume commitments to gain or maintain leverage with vendors. And they responded to demand for more service contract agreements in addition to the traditional discounted-goods contracts.
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In the past, group purchasing organizations sought to sign up as many hospitals as possible. The purchasing power of these organizations is often quite impressive. However, unless these groups enhance market share for the manufacturers, they cannot expect significant price breaks. The quality, compliance, of the group is, therefore, as important as the membership numbers. The author details quality assessment criteria for members of group purchasing organizations and recommends their review by both members and non-members alike. This assessment focusing on both internal and external factors will indicate the hospital's value to a purchasing group and, by extension, the material manager's benefit to the hospital.
The relationship of drug price and purchasing group size was evaluated. Thirty drug line items were studied in 26 private hospital purchasing groups of various sizes. Prices were analyzed relative to purchasing group size, age, and location. Drug prices were negatively correlated to group size in a linear relationship. Prices were significantly lower in groups representing greater than 10,000 beds. No significant relationship was found between group age or location and drug prices. The theory that increasing purchasing group size will result in better contract prices was supported.
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The prices paid for routine medical supply items by six hospital group-purchasing systems and a control group of 24 nonaffiliated hospitals were compared to determine the effects of group purchasing. Each of the six group-purchasing systems obtained lower prices for supply items used in the study, ranging from 12 to 26 percent average savings. The enforcement of written contracts among the plan's members and the percentage of plan member participation appeared to explain effectiveness. Size of the plan and volume of purchases did not influence the percentage of saving realized among the groups.