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Published: March 26, 2024

Can I Negotiate with My GPO?

The premise of using a Group Purchasing Organization (GPO) is cost savings. But as we discussed in part 2 of this series, that promise isn’t always fulfilled. This idea leaves many people asking, “Can I negotiate with my GPO? And if so, should I even try?”. 

A common myth that long-term care communities believe is that you cannot negotiate with your GPO. But at Healthcare Margin Specialists, we do it every day. We aren’t a GPO, but we can work with them to reduce your operating costs. We almost always find cost savings opportunities for organizations – even when they’re using a GPO.

We believe in helping you to be an informed and educated consumer – which is why we’ve written a series on GPOs. The truth is, negotiating with GPOs can be a complicated process that demands careful consideration and strategic planning. This third article* is intended to dive into negotiating with a GPO – is it even possible and is it worth it to help you think differently about procurement for your organization.

*This is part 3 of a series. For the rest of the articles, see the end of this post.

Understanding GPOs: A Brief Overview

GPOs can be found in a variety of sectors, including healthcare, manufacturing, and hospitality. Their stated purpose is to secure cost-effective deals by (a) consolidating the purchasing power of member organizations, and (b) engaging in negotiations with suppliers. The ultimate objective is to simplify procurement procedures and provide member organizations with access to discounted goods and services.

For a deeper explanation on the types of GPOs and their origin, see “How Do GPOs Work?

The Potential for Negotiation

In general, GPO agreements typically feature pre-negotiated contracts that use standardized pricing. However, that doesn’t take negotiation off the table. Some areas like additional services, customization, or accommodating unique requirements may have more obvious room for negotiation.

But the biggest barrier to negotiations is simply not trying. At HMS, we can almost always secure savings for individual long-term care communities when we are negotiating with their specific spending. That’s why it's essential for organizations to recognize and strategically approach these opportunities.

Challenges in Negotiating with GPOs

Remember, GPOs are not always known for transparency of pricing and there can be many “hidden” costs in their pricing structure. See Will Working With a GPO Save Me Money?” for more information.

The negotiation landscape with GPOs is not without its challenges. GPOs, in their pursuit of cost savings for members, often establish standardized pricing through negotiations with suppliers. This results in individual member organizations having limited flexibility to negotiate on these established terms. In fact, the negotiation may not even happen with the GPO directly, but rather with the supplier*.

*That is discussed below in alternatives to negotiating with a GPO – using in-house procurement or a partner like HMS.

For many organizations, they also do not have the time and resources to devote to negotiating. Since the pandemic, staffing has become harder, margins have gotten tighter, and devoting internal resources to a project can be difficult to justify. Especially when a long-term care community could have thousands or hundreds of thousands of line items to be negotiated – it quickly feels like a fishing expedition with a questionable ROI.

Specific Tactics for Negotiation

Negotiations can be very costly from a human capacity perspective, and depending on the size of your organization, the investment could be equivalent to the savings you can secure. However, for organizations who have the time and resources to devote to negotiating, here are some tactics that have helped organizations be successful. 

Leveraging Data and Market Insights

Organizations can enhance their negotiation position by leveraging comprehensive data on market trends, supplier landscapes, and pricing structures. By presenting well-researched insights, they can articulate the rationale behind their negotiation requests, demonstrating a clear understanding of market dynamics. This is one of the most time-intensive strategies, but if the data works in your favor, one of the most effective.

Building Strategic Alliances

Collaborating with other member organizations within the GPO can amplify negotiation efforts. By forming alliances, organizations can collectively advocate for customized terms or additional services that cater to the specific needs of the group. This collaborative approach can strengthen their negotiation position. However, this approach requires knowing other organizations within the GPO, and might be harder for smaller, independent organizations.

Performance-Based Agreements

Introducing performance-based metrics into negotiations can be a strategic tactic. By tying certain incentives or adjustments to supplier contracts based on performance metrics, organizations ensure that their interests align with the quality and efficiency standards they aim to uphold. This tactic is the most tenuous because organizations won’t have guaranteed savings negotiated, only potential savings.

Negotiating at Contract Renewals

You have the most leverage with your GPO during the contract renewal phase, making it a strategic window for negotiations. Organizations can use this opportunity to revisit and adjust terms based on evolving needs, market changes, or shifts in supplier dynamics. Negotiating during renewals allows organizations to fine-tune agreements without disrupting ongoing operations.

Exploring Multiple GPO Options

Don’t forget about the option to explore different GPOs. This is much easier for smaller long-term care communities than those who are affiliated with a larger parent company. Many organizations don’t even know when or how the relationship with their GPO started. This is a great way to re-evaluate if you’re in a good position or not. Just remember to consider whether any GPO is the right answer for you in this process. See part 1 and part 2 of this series for more information. 

Are There Alternatives to Negotiating with My GPO?

If the suggested tactics on how to negotiate with your GPO make your head spin, or feel completely unrealistic for you, there’s good news. Below we offer a few alternatives to working with a GPO, because – despite the common rhetoric – you don’t have to use a GPO at all.

In-House Procurement

Organizations can opt for in-house procurement, working directly with suppliers to source goods and services without intermediary GPO involvement. As the Vice President - Supply Chain at Duke University and Health System, Jane Pleasants (now at SMI) famously did not use a GPO at all. She developed a robust portfolio of self-contracts, instead. This approach requires building and managing direct relationships with suppliers, and can maximize autonomy in pricing and terms.

Working directly with suppliers can also help mitigate issues caused by GPO shortages. Many organizations experienced this during the pandemic, but shortages have been documented – even intentional shortages because of low profit margin

Consortium Purchasing

Like working with a GPO, this option takes advantage of collective purchasing power, but it is member-owned and member-driven. Instead of negotiating with suppliers individually, consortium purchasing involves collaborating with peer organizations to pool resources, share insights, and collectively address procurement challenges. This collaborative effort strengthens the overall bargaining position of participating organizations.

Work with Healthcare Margin Specialists

Here at HMS, we offer the best of both worlds as an alternative to GPOs and self-procurement. We review and negotiate your facility’s recurring expenses in 8 key areas to lower costs, increase your purchasing power, monitor continued savings, and improve your margins. We're not a GPO, but we can work with yours.

We specialize in working with continuing care retirement communities, skilled nursing centers, rehabilitation centers, home health companies, and the like to identify cost savings, secure agreements, and optimize margins - all while protecting quality.

Instead of going directly to your GPO, we work directly with the suppliers. We have found over and over again that if we send a supplier covered by a GPO contract a bid, there is room for negotiation. We work with the supplier and they determine what they think they can charge and still pay the GPO their fee.

When we present the cost savings, your long-term care community can choose who to work with. We never force you to switch suppliers, we simply offer you the savings information.

Conclusion

Can you negotiate with your GPO – and should you? Seeking the answer to that question might be more complicated than you think.

At HMS, one of the ways we try to simplify the process for you is through a gain-sharing partnership. We only make money when you save money. We’re so focused on your success that we actually like to refer to our model as a “success-sharing model.”

Our model is the opposite of the GPO model, where the more you spend, the more they make. At HMS, our model is gain-share so we are motivated to save you the maximum amount. But at the end of the day, it’s your decision which vendors to work with.

When we partner with you, we’ll ensure you’re not paying more than you should. With over 30 years in financial analysis and healthcare-related contract negotiations, we bring the strategic counsel and hands-on experience needed to help you thrive.

Ready to see how much you can save – with or without a GPO? Schedule a FREE Revenue and Margin Assessment Call with our team or email us at [email protected].

This article is 3 in a 3-part series on GPOs. Please check out the other articles below.

Part 1 - How Do GPOs Work?

Part 2 - Will Working with a GPO Save Me Money?

WE ONLY MAKE MONEY WHEN YOU SAVE MONEY
HMS works with long-term senior care organizations to review and negotiate expenses to lower costs, increase purchasing power, monitor continued savings, and improve margins. The result? Peace of mind and more cash on hand to invest in your residents.
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