Group Purchasing Organizations Research Articles

Paradox of GPO size and a hospital’s relative power for purchasing efficiency and the moderating role of system membership

PurposeExtant research documents the cost benefits of group purchasing organizations (GPOs) to member hospitals, but understudies concerns about the market dominance of a few large GPOs and the relatively weakened buyer power of hospitals in the US healthcare product supply chain. To fill the gap in the literature, this study investigates whether GPO size and a hospital’s relative power to its GPO affect the hospital’s supply expenses, and whether and how system membership moderates the power–performance link.Design/methodology/approachFor this study, we collect the panel data from various secondary sources on GPO–hospital dyads, which include the seven largest GPOs and their 2,590 unique acute care hospital members in 51 states over the period of 2009–2017. To address the endogeneity issue associated with simultaneity, we establish a one-year time lag between dependent and independent variables and analyzed the 15,527 hospital-year observations using the time-series regression with fixed-effect.FindingsWe find that a hospital’s relative power to its GPO is the most critical factor to reduce its supply cost while GPO size has no effects. We also find that a nonsystem hospital achieves greater cost savings by leveraging its relative power to its GPO while a system hospital gains no benefits.Originality/valueTo the best of our knowledge, this study is the first to address the paradox of GPO size and a hospital’s relative power and the moderating role of system membership for the hospital’s purchasing efficiency using a large nation-wide dataset of US hospitals–GPO dyads.

Role of supply chain intermediaries in steering hospital product choice: Group Purchasing Organizations and biosimilars.

Over 95% of hospitals in the United States use pooling alliances, known as Group Purchasing Organizations (GPOs), to purchase medications, devices, and supplies. While GPOs create savings for hospitals through lowered prices and reduced administrative burden, critics allege that these supply chain intermediaries reduce competition, particularly if GPOs concentrate purchasing from larger, dominant manufacturers. Using a mixed-methods design, we studied whether GPOs influence hospital purchasing behavior and explored the contracting mechanisms used by GPOs. Focusing on 4 high-cost biologic molecules that face competition from generic-like biosimilars between 2015 and 2019, we found that biosimilar uptake was 16%-23% higher among Traditional Medicare patients in hospitals associated with 2 of the 3 top GPOs as compared with smaller GPOs. The increase in biosimilar use was driven by single biosimilar brands that varied by GPO. Based on qualitative interviews, these 2 GPOs used more aggressive contracting strategies to steer member hospitals to specific biosimilar brands. To date, the use of GPOs and these aggressive contracting strategies appear to have increased biosimilar use, suggesting savings for payers and patients. However, single-source GPO contracting could inhibit competition or create shortages in the long term. Transparency on GPO practices and pricing strategies is needed for further GPO evaluations.

Antecedents of changes in an organization's affiliation with group purchasing organization(s)

This paper focuses on the membership aspect of collaborative purchasing by examining the factors related to an organization's decision to change its affiliation with group purchasing organizations (GPOs), the most commonly practiced organizational form of collaborative purchasing. Specifically, this paper empirically investigates the relationships among environmental conditions (i.e., market competition), organizational conditions (i.e., analytics advantage and collaborative linkage), and GPO change, building on strategic change and resource perspectives. Our results reveal that environmental and organizational conditions relate to the change in GPO membership and interactively affect its propensity. This study brings the membership aspect of collaborative purchasing to the forefront as a strategic decision area in the context of strategic purchasing. Given the lack of empirical research addressing GPO membership change, this study enhances our understanding of the nature of the membership aspect of collaborative purchasing. This paper also offers insights into strategic procurement decisions, as manifested in the change in GPO memberships.

The promulgation of group purchasing organizations into the healthcare sector in India

PurposeThe promulgation of group purchasing organizations (GPOs) into the healthcare (HC) sector is an invaluable procurement strategy to manage the suppliers effectively. This study aims to identify and prioritize the factors of integrating GPOs into the HC sector on the perspectives of the developing countries such as India.Design/methodology/approachThe factors are identified from current literature exploration, experts’ support and experience surveys. The factors are scrutinized and shortlisted using the Delphi technique and analysed further using the best-worst model method.FindingsThe findings of the study highlight the cost reduction, fair distribution of savings and healthcare supply chain (HCSC) data standardization among others to be the most prioritized drivers. The consulting services provided by GPOs including training and development as a result of high competitiveness in the HC market has been prioritized the least.Practical implicationsThe study bears some important implications for decision and policymakers. The managers should consider factors, namely, cost reduction, fair distribution of savings and HCSC data standardization on a priority basis that acts as motivation for the HC providers to join the GPOs.Originality/valueThe study provides valuable insights for HC providers to participate in the GPOs for cost savings and enhance the performances.

Response to Physicians Against Drug Shortages (PADS): End Chronic Shortages & Skyrocketing Prices of Generic Drugs, Devices & Supplies, Repeal the 1987 Medicare Anti-Kickback “Safe Harbor” for Hospital Group Purchasing Organizations (GPOs)

Response to Physicians Against Drug Shortages (PADS): End Chronic Shortages & Skyrocketing Prices of Generic Drugs, Devices & Supplies, Repeal the 1987 Medicare Anti-Kickback “Safe Harbor” for Hospital Group Purchasing Organizations (GPOs)

Physicians Against Drug Shortages (PADS): End Chronic Shortages & Skyrocketing Prices of Generic Drugs, Devices & Supplies, Repeal the 1987 Medicare Anti-Kickback “Safe Harbor” for Hospital Group Purchasing Organizations (GPOs)

Physicians Against Drug Shortages (PADS): End Chronic Shortages & Skyrocketing Prices of Generic Drugs, Devices & Supplies, Repeal the 1987 Medicare Anti-Kickback “Safe Harbor” for Hospital Group Purchasing Organizations (GPOs)

Multi-level decision making for chain stores including GPOs (group purchasing organizations)

This paper extends the application of GPOs (group purchasing organizations) to the chain store industry. We consider a supply chain consisting of several suppliers, a GPO, and several retailers. The GPO plays the role of a coordinator (or head of the retail chain stores) in the procurement affairs of the retailers. In the defined problem, we simultaneously focus on the decision-making of the GPO and all the retailers. Accordingly, a multi-level mathematical programming model is presented that determines the decisions of the GPO that are related to pricing policy and dealing with the suppliers, and the decisions of the retailers that are relevant to using the GPO services and contracting with the suppliers. To solve the developed model, a new solution procedure is established that surpasses the existing methods in the literature, with the help of which interesting results are obtained and managerial analyses are performed. Besides, the prevalent challenges about the functioning of the GPO and its efficiencies are examined and definitive responses are provided to critics of GPOs.

Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland

The paper aims to investigate the effects of the COVID-19 pandemic on working capital management policies among Polish small and medium-sized enterprises operating in Group Purchasing Organizations (GPOs). The results show that the firms adopted a moderate–conservative strategy for their working capital management. Moreover, the evidence confirms that the COVID-19 pandemic crisis did not change Working Capital Management (WCM) strategies significantly. The companies that have high financial security as a result of the high ratio of Liquidity, Quick, and cash conversion cycle (CCC) have tried to attract more new customers in the market by increasing the due date of accounts receivable so they can improve their sales performance, and also reduce the liabilities turnover to be able to work with more suppliers in the market. Moreover, among the various WCM strategies, the companies with a higher CCC ratio, along with those whose bulk of current assets consisted of accounts receivable and short-term investments, managed to have higher sales returns. Finally, our outcomes indicate that the firms operating in large cities have lower sales returns, meaning even Polish small and medium-sized enterprises’ ability within GPOs with the aid of the central unit can also get high return on sales (ROS) results.

Inventory Management in SMEs Operating in Polish Group Purchasing Organizations during the COVID-19 Pandemic

The COVID-19 virus has hit the economy around the world. In Poland, SMEs have the greatest problems with doing business. Border blockades and the quarantine for enterprises in virtually all industries throughout Poland greatly complicated the supply systems and the inventory management process. Up to now, SMEs have acted in group purchasing organizations to improve their competitive position. This form of activity also positively affects their financial security. Therefore, in this paper, the inventory management among this group of companies during the COVID-19 pandemic was analyzed. The purpose of the paper was to show how inventory management strategies changed during the COVID-19 pandemic in SMEs operating in industry GPOs. The analysis was carried out on a group of 88 Polish commercial enterprises operating in purchasing groups. The research period covered the years 2017–2019 and March–June 2020. The research showed a change in inventory management strategy in SMEs during the pandemic time of COVID-19. For the first four months, managers of enterprises tried to pursue a conservative policy and to accumulate stocks in the event of a shortage of supplies. This article also presents the form of security that was applied for SMEs operating in group purchasing organizations (GPOs) to avoid forced downtime caused by the COVID-19 pandemic.

Impacts of distributors and group purchasing organizations on hospital efficiency and profitability: a bilateral data envelopment analysis model

AbstractTotal health care expenses have risen significantly in the United States. There are many factors and variables that can impact hospital operating efficiencies. Among them, engaging a distributor or group purchasing organization (GPO) is one method to influence efficiency throughout the entire supply chain. This research investigates the impact of distributors and GPOs on hospital efficiency and profitability. The data from the 2015 American Hospital Association (AHA) Annual Hospital Survey of which 6251 hospitals participated are used. These hospitals were separated by those who purchased supplies through a distributor and those who did not. Likewise, the same was performed for those hospitals that used GPO and those that did not. This study employs DEA‐Solver software to develop four types of bilateral DEA models. The results of the DEA model use a ranking variable (rank sum) to rank the variables within the two groups (distributor and no distributor) to determine if there is a significant difference between distributor and nondistributor. The same is performed for GPO and non‐GPO. We examined the impact of the several control variables on hospital efficiency for distributors and GPOs. Results indicate that the control variables (region, education, profit/nonprofit, government/nongovernment, and system/nonsystem) made a significant difference for hospitals that used a distributor and a GPO. Lessons and implications are discussed for future research issues, such as quality of patient care and a frontier production function.

Automating Procurement Contracts in the Healthcare Supply Chain Using Blockchain Smart Contracts

Effectively managing the healthcare supply chain (HCSC) process is crucial for healthcare providers not only during pandemics such as COVID-19 but also in their normal operations. Despite significant advances in new technologies and treatment options providers still suffer from poor procurement, ordering, forecasting, and distribution practices. Group Purchasing Organizations (GPOs) are an important stakeholder in HCSC and benefit providers with cost savings, volume discounts, and vendor selection. However, the current GPO contract process is time-consuming and lacks efficiency. Hence, our proposed solution integrates blockchain technology and decentralized storage to promote transparency, streamlines communication with stakeholders, and minimize the procurement timeline while avoiding pricing discrepancies and inaccuracies. Our solution connects all the stakeholders such as manufacturer, GPO, distributor, and provider using Ethereum network. In this paper, we propose a blockchain solution using smart contracts to automate the GPO contract process. We propose a generic framework for contracting process in the HCSC with detailed algorithms depicting various interactions among HCSC stakeholders. The smart contract code was developed and tested using Remix IDE and the code is publicly shared via Github. We discuss various security risks and present detailed cost analysis of various transactions incurred by the stakeholders. Our analysis demonstrates that the proposed blockchain-based solution is economically feasible as only a minimal transaction fee is expended by the stakeholders in the distributed network.

Issues of financial liquidity of small and medium-sized trading companies: a case study from Poland

Most often, the victims of financial crises are small and medium-sized enterprises. Very often, even short-term payment gridlocks can lead to their bankruptcy. All over the world, managers of such enterprises are trying to introduce solutions that will improve their financial security. Branch group purchasing organizations (GPOs) are a very popular method to improve the financial security and financial situation of small and medium enterprises. They are multi-stakeholder organizations using the effect of scale. It allows them to reduce costs, increase sales and gives many opportunities to build a policy of managing liquidity. The purpose of the article is to present the impact of branch GPOs on the financial liquidity of small and medium-sized enterprises. The research was conducted on a group of 96 Polish small and medium-sized commercial enterprises operating in the construction industry. The study showed that the analyzed units do not have problems with financial liquidity, due to the use of a strong scale effect.

Strategic decisions to join group purchasing organizations

Group purchasing organizations (GPOs) aim to aggregate the purchasing requirements of many buyers and utilize economies of scale to save costs and obtain quantity discounts from suppliers. This paper extends the application of GPOs to the chain stores industry. A new retailer is going to enter the market and faces decisions on joining chain stores (as a GPO) or independently working with a supplier, product pricing, and serving different segments of the market (i.e., informed and uninformed customers). When joining the GPO, a membership fee must be paid to the GPO. The supplier offers a quantity discount schedule that depends on the contract administration fee paid to the GPO. Using nonlinear programming, the optimal decision-making policy is established in a closed-form format. The results show that all decisions are significantly affected by the proportion of informed customers in the market. Accordingly, when the proportion of the informed customers is less than a threshold, not joining the GPO is a great choice for the retailer. When this proportion is growing, the retailer is advised to join the GPO as soon as possible. Our findings indicate that, in the presence of rapid growth of information technologies which leads to an increase in people’s awareness of the market, GPOs play a strategic role in the chain stores industry nowadays. We demonstrate that GPOs not only provide many benefits for customers and retailers but also other players in the group purchasing chain would also profit.

Prospects for development of group purchasing organizations (GPOs) in China within the context of national centralized drug procurement.

Healthcare group purchasing organizations (GPOs) are considered to play an integral role in the healthcare supply chain by keeping prices low and helping all members of the healthcare system achieve their objectives. China has been exploring GPOs in the field of drug procurement since 2015, and there are currently three GPO models in Shanghai, Shenzhen, and Guangzhou. Although the three models operate differently and they have each been examined, they have all achieved certain results and demonstrated the ability to control drug expenditures. In 2018, the National Healthcare Security Administration implemented a national centralized drug procurement policy, also known as the 4 + 7 procurement policy ("4+7 Policy"). This policy context has also led to changes in the strategy for development of GPOs in China. GPOs need to explore strategies that do not overlap with the scope of 4 + 7 procurement, and they need to develop dynamic and personalized procurement plans that are more in line with first-line clinical practices to have a synergistic effect in combination with the "4+7 Policy." In the future, GPOs will grow rapidly in China. The number of GPOs need to be increased to prevent monopolies, and GPOs need to expand their diversified value-added services to perform more tasks in terms of supply chain management and data analysis.

Employer and Plan Sponsor Views on Pharmacy Reimbursement.

No funding was received for the writing of this commentary. Stull is employed by Employers Health, which is an employer-founded and employer-led group-purchasing organization with a focus on managing contracts for self-funded plan sponsors with PBMs. It also hosts educational conferences and events for which it receives sponsorships from a variety of health benefit suppliers, including pharmaceutical manufacturers, insurance carriers, PBMs and others. Gupton has nothing to disclose.

The influence of the central warehouse on the functioning of Polish small and medium-sized enterprises operating in group purchasing organizations

Growing competition in the market forces primarily small and medium enterprises (SMEs) to implement certain mechanisms that will allow them to build an advantage over the competition. Most often, SMEs try to work together as part of multi-stakeholder organizations and organize themselves into group purchasing organizations (GPOs) with the central warehouse to improve the financial state of enterprises. The article aims to assess and analyze the impact of the central warehouse on the performance of Polish SMEs operating in group purchasing organizations. The research group comprised of 172 trading enterprises operating in Polish group purchasing organizations. The investigated companies were divided into two groups. In the first group, there were companies operating within GPOs, which have a central warehouse. In the second group, there were companies in which central unit does not have a central warehouse. The analysis and research showed that the central warehouse has a positive impact on financial security of small and medium enterprises operating in group purchasing organizations. The use of central warehouse optimizes the most costly current assets component – inventories. This is confirmed by better results of inventory turnover ratios in days, reduced share of inventories in the structure of current assets, and optimization of financial liquidity ratios.

Examining the financial and quality performance effects of group purchasing organizations.

Hospitals frequently enter into group purchasing organizations (GPOs) to manage supply costs, yet there is mixed evidence regarding the benefit for hospitals to participate in a GPO. However, the role of GPOs on hospital operations has expanded into dimensions of quality that have not been previously examined. The aim of this study was to examine the effect of hospital participation in a GPO, as well as GPO network characteristics, on both financial and quality performance outcomes. Data from multiple secondary sources regarding hospital and GPO characteristics were used to create an unbalanced panel of hospitals from 2012 to 2015. This data set was then aggregated to the GPO network level to address questions related to network characteristics, including concentration, bed size, geographic scope, and focus. We evaluated three hospital-level outcomes: supply expense, clinical processes of care score, and patient experience score. The mean of each outcome among all hospitals in a GPO in a given year was used for analyses at the network level. We used fixed and random effect models to assess the effect of hospital characteristics and network characteristics on three measures of financial and quality performance. We found no difference between GPO and non-GPO hospitals for any of the outcomes. However, analyses at the network level revealed network characteristics, including concentration, size, and scope, that affected both supply expense and patient experience scores, but not clinical processes of care. These results indicate that GPO participation may be motivated for reasons beyond cost and quality performance impacts. Hospitals and GPOs should consider network characteristics, such as the concentration and geographical dispersion of the GPO network. Alternatively, GPOs may seek to develop homogeneously sized networks dispersed locally in order to best deliver both financial and quality benefits to their members.

Supply Chains in Healthcare Organizations: Lessons Learned from Recent Shortages

This paper examines the need for better management of supply chains in healthcare facilities. Recent shortages have highlighted the need for better supply chain systems. The reasons for the shortages are false scarcity, natural disasters, medical lawsuits, production process problems, and group purchasing organizations (GPO). These problems have occurred with increasing frequency. There are three possible solutions available to handle the shortages. First, better use of supply chain management, including multiple suppliers and safety stock. Second, there needs to be better cooperation between suppliers, consumers, and government entities. Finally, healthcare facilities should develop teams of individuals responsible for monitoring critical areas and developing contingency plans.

Breaking the chain: GPO changes and hospital supply cost efficiency

The use of group purchasing organizations (GPOs) as a supply chain intermediary is a long-standing and strategic approach to enhancing supply cost efficiency in U.S. hospitals. As a consequence, a hospital's decision to reconfigure its GPO network can have critical ramifications for the hospital's supply cost performance. In this study, we conceptualize possible GPO changes as structural and relational and investigate the impact of GPO changes on supply cost efficiency. To this end, we employ archival, panel data from multiple sources that track the performance of 2,391 U.S. hospitals between 2009 and 2014. Our findings indicate that, whereas hospitals that make a structural GPO change experience a decrease in supply cost efficiency, hospitals that enact a relational change are shown to experience improvements in supply cost efficiency. Our findings have important theoretical and managerial implications for supply chain management and hospital administrators.

Who’s Afraid of Strategic Behavior? Mechanisms for Group Purchasing

We study mechanisms to manage group purchasing among a set of buyers of a given product with a concave purchase cost function. The buyers are cost‐sensitive and willing to buy a range of product quantities at different prices. We investigate two types of mechanisms that can be used by a group purchasing organization (GPO): (a) ordering mechanisms where the buyers, without divulging private information, choose their order quantities and pay for them according to a given cost‐sharing rule or a fixed price; and (b) bidding mechanisms where the buyers announce their valuations for different quantities and the GPO determines their purchase quantities and cost‐shares according to pre‐announced schemes. Under the choice of appropriate cost‐sharing rules, we introduce a sequential joint ordering mechanism and a family of ordering strategies under which some buyers’ strategic deviations never worsen other buyers. We propose a class of bidding mechanisms with some desirable properties and show that a Nash equilibrium bid schedule always exists wherein all buyers’ profits are at least as high as those under truthful bidding. In our proposed mechanisms, some buyers’ strategic deviation from truthful bidding can only make the others better off. Thus, buyers need not worry about strategic behavior of their counterparts. We compare the performances of the system under different mechanisms and show the superiority of our proposed bidding mechanism. We show that the profits generated by our proposed bidding mechanisms under the proportional cost‐sharing rule are never dominated by the maximum profits of the first‐best fixed price.