Many long-term care facilities – including many of our clients – use Group Purchasing Organizations (GPOs) to control costs. While GPOs are very popular choices, they are not the only tool in the toolbox when it comes to optimizing an organization’s margins.
Often when we are speaking with an organization for the first time, they will quickly tell us, “we already have a GPO, thanks anyway.” Sometimes we get another word in before they hang up, but not always. It’s unfortunate because many of these same organizations could save more money if they used more of the tools out there – namely, a gain share model.
We use a gain sharing model at Healthcare Margin Specialists (HMS), which provides organizations a variety of benefits. As we detail below, there are 4 ways that a gain share model differs from a GPO and can provide benefits to long-term care and senior care organizations.
1. How We Get Paid
Your GPO starts making money with your first purchase. Plain and simple, they don’t need to do much to start getting paid. They get a percentage of sales, which means they are incentivized for you to spend money.
This is the main reason you’ll never save as much as you could by working only with a GPO: The more you spend, the more the GPO makes. Even if they can get help you save in some areas, they are ultimately rewarded when you spend more.
What if, instead, you had a partner who was motivated and rewarded when your expenses are reduced?
HMS only gets paid when you save money. Our gain share model incentives your savings. This means we have to beat the prices you pay with your GPO to earn even a penny. It is in our best interest to seek your best interest – saving you money.
2. Access to Suppliers
GPOs are typically contracted with specific suppliers. Some GPOs even have “sole-source” contracts meaning you don’t have any choice in your supplier for a specific category. While this can mean cost savings, there are trade-offs of choice and flexibility that your facility may desire.
At HMS, we work with you to create a short list of suppliers to compete for your business. That means you can include your current suppliers and those you’d prefer to use. In the end, you pick who you want to work with.
You can even choose an option that doesn’t save you money (and thus we don’t get paid). Seriously.
3. How We Measure Savings
GPOs define savings as a percentage off their list price, not a percentage of what you are currently paying. Since they do not provide baseline savings it can be confusing to compare.
With HMS, we go through a comprehensive process to determine your baseline spend. (Don’t worry, that’s on our to do list, not yours). We define savings as a reduction in costs from that baseline.
By comparing savings to your current expenditures, you know how things stack up. Knowing that you saved 35% off list price isn’t as helpful to your budget optimizations as knowing that you saved $5,000 from your baseline.
4. What Expenses We Cover
The most common categories that your GPOs will cover are supplies – medical, office, and janitorial. Sometimes they also cover pharmacy or food.
At HMS, we can look at all those areas, plus more. For instance, we can help you save big on grounds maintenance, waste removal, and therapy. We examine your recurring expenses in 8 key areas and go to work to reduce them.
Through our work together, we’ll help you to know if you’re overpaying and we’ll work with you to get the greatest cost savings with your vendors and suppliers.
The gain sharing model is different from a GPO, but that doesn’t mean we are always looking to replace your GPO. In fact, just about every client we’ve had used at least one GPO and we were still able to help them save a great deal of money.
In pharmacy alone, it’s not unusual to get 30% in savings (based off your current actual expenditures, remember!) through our proven data and processes.
Ready to know more?
We’d love to tell you more about the beauty of a gain sharing model. Schedule a call with founder and CEO Chris Carroll to discuss how we can help you save – whether you work with a GPO or not.
