by Nashville Health Care Council | Aug 11, 2014
Deborah S. Long, CPM, CPIM, vice president of procurement, contracts and supply chain management, W Squared 

Physician practices have historically had a difficult time negotiating favorable purchasing agreements. Most of the Group Purchasing Organizations (GPOs) in health care are designed to serve hospitals, not practices. When small- to medium-size practices work with a GPO, they quickly discover (to their dismay) that roughly 90% of the items they need aren’t even under contract. That’s a huge obstacle to getting the best terms on pricing, quality and delivery.

The only alternative is for a practice to handle procurement itself, which usually yields mediocre results. The task is often turned over to an office manager or clinician who has little or no experience in negotiating purchasing deals.

Fortunately, there’s a new type of purchasing organization better able to meet the unique needs of physician practices: the Aggregated Procurement Partner (APP).

A savvy APP can help practices dramatically lower procurement costs and improve cash flow.

Unlike traditional GPOs, APPs make wide-ranging business decisions on behalf of their clients. They help implement procurement platforms and internal controls that are beyond the scope of the conventional GPO arrangement. In this role, they can “aggregate” all the SKUs needed in a medical practice – everything from gauze and diagnostic equipment to mirrors and waiting room chairs. The APP works closely with the practice to establish a formulary that can be managed by exception. This gives the procurement team the ability to stop a purchase, negotiate (or renegotiate it), then put it back into the formulary.

The next step is supplier selection. The primary criteria are once again cost, quality and delivery, augmented by flexibility. In many cases, it’s possible to find a single med/surg supplier capable of meeting the desired performance metrics. Finding a solo source can often reduce med/surg spending by 15% or more.

Greater Control Over Inventory and Pricing

APPs know how to find suppliers and distributors whose core competencies align well with the physician practice model. It takes a delicate balancing act to avoid having too much inventory on hand. Some suppliers will consign and manage inventories, which is helpful in controlling expenses in high-dollar categories like pharmaceuticals. Some distributors have the flexibility to deliver products multiple times per week – even daily if needed – to ensure that the practice gets restocked cost-effectively.

Practices can also benefit from an APP’s expertise in negotiating quantity discounts, rebates, shipping discounts, and well-crafted warranties. For example, a well-designed flu vaccine purchasing program can be structured with rebates that can lower total spending by 5% or more.

The purchasing choices for physician practices used to be bleak: either let an office manager handle the duty or piggyback off the efforts of a hospital-focused GPO. But now they can get help from APPs who understand the physician practice space – and can negotiate procurement contracts that offer far greater control over cost, quality and delivery.