How Group Purchasing Can Boost Practice Revenue

This article appears in the January 2013 issue of Managed Care Contracting & Reimbursement Advisor.

Physician practices don't typically devote much time to purchasing and inventory management because, after all, it's a doctor's office and not a warehouse. But some focus on purchasing and inventory can pay off with reduced costs big enough to affect your bottom line, says Dena Kitchens, senior director of physician services with Provista, a consulting company based in Irving, Texas.

One of the first options to consider is buying supplies and equipment through a group purchasing organization (GPO), which can give you more buying power than going it alone, Kitchens says. Her company offers a GPO to physician practices.

"A GPO can offer you significant savings in the supply chain when it comes to med-surg, pharmacy, or anything else that a physician's office purchases," Kitchens says. "Virtually anything that a physician practice would need to purchase, a GPO is going to have on contract already."

Some practices are already using a GPO but might not know it, she says. Sometimes a distributor will direct the practice's med-surg purchases through a GPO to provide a better price, but then the practice is not taking advantage of other potential savings from the GPO.

Those potential benefits include purchasing capital equipment such as exam room tables, waiting room furniture and office furniture, and even medical equipment such as imaging machines and ultrasounds.

"Capital equipment savings can be up to 50% through a GPO," Kitchens says. "There's a lot of opportunity for savings, especially for those physicians who are looking to offer more imaging and other services so they can remain in their practices and stay out of the hospital."

Many physician practices do not realize they are eligible to participate in a GPO, says Marty Heath, FACHE, director of product marketing at Provista. Practices will sometimes join together to make group purchases of specific items such as vaccines, but Heath says they would be better off joining a typical GPO.

"They're doing all the work of creating a structure to negotiate these contracts, when they could get those same sorts of discounts on vaccines and so many other things by just joining a GPO," Heath says.

Savings can be as high as 15% when using a GPO, Heath says. Special promotions often offer savings of 50% and sometimes even 70% off the retail price of capital purchases such as furniture, he says.

In addition, GPOs sometimes offer pharmaceutical savings of 15% or more, Heath says.

"Reducing your overhead to the supply chain creates a dollar-for-dollar impact on the bottom line," Heath says. "When a practice is not profitable enough, the first solution that comes to mind is increasing revenue. But when you include the variable costs of increased business, the bottom-line impact is smaller than if you cut your costs. Every dollar you take out of your supply chain is a dollar of profit."

Joining a GPO is not the only step in minimizing purchase costs, however. Standardizing purchases also will go a long way toward saving money, Kitchens says. If the practice has multiple physicians or locations, each one should agree on the supplies to be used to minimize buying separate supplies for one physician or location.

"Standardizing the supplies for any category is going to yield significant savings because you will be able to leverage the volume to get a better price point," Kitchens explains. "Buying a smaller amount of five different suture kits won't give you that leverage, whereas buying a much larger amount of the same suture kit will make you a power buyer."

To get involved with a GPO, a physician practice can send a request for proposal to several GPOs. An alternative is to invite the organizations to visit your practice and evaluate how they might save you money, Kitchens suggests.

In addition to Provista, there are many other group purchasing options. One is Physicians' Alliance of America (PAA), a nonprofit GPO based in Norcross, Ga., founded in 1992 by a handful of physicians worried about the rising costs of operating a practice.

In addition to lower purchasing costs, PAA promises networking opportunities. Becoming a member of a GPO allows you access to the organization's list of product and service providers, PAA says, and forming relationships with these vendors will give you an opportunity to attend events and other informal networking gatherings they provide.

A good GPO will prescreen and vet vendors, which lowers the risk of working with substandard companies. PAA advises looking for a GPO that offers free membership.

GPOs also can offer savings to practice employees. The GPO offered through Provista, for instance, offers practice employees discounts of up to 25% on cell phones.

"That's a significant savings that just comes as part of the GPO participation," Kitchens says. "It can build employee loyalty and help with staff retention."

This article appears in the January 2013 issue of Managed Care Contracting & Reimbursement Advisor.