Understanding the 'Alphabet Soup' of Group Purchasing
By THOMAS L. HICKEY
Podcast Host, Med Tech Gurus
A few months ago, David Finley of Excelerant Consulting joined me on my podcast Med Tech Gurus and shared valuable insights that can help clear up some of the fog that shrouds group purchasing. Dave recently joined Excelerant after serving as Vice President of Strategic Supplier Engagement at Premier and is a highly respected professional in our industry.
He and I agreed that many high-level medical device executives, surprisingly, don’t fully understand group purchasing or the subtleties and nuances between the various types of Group Purchasing Organizations [GPO].
So, let’s break it down to fundamentals …
What exactly is group purchasing?
Basically, there are three parties involved in the group purchasing process – medical facilities [members], medical device companies [suppliers] and the GPO which serves as the “go-between”. The goal of the GPO is to aggregate volume, enhance purchasing power and negotiate more attractive pricing from suppliers for its members. However, this is only the beginning.
So, tell me more about GPOs and what services and benefits they offer …
This is where it gets a little tricky because not all GPOs are alike. They each have their own characteristics, ways of conducting business, and reasons for being.
As mentioned above, the core mission for all GPOs is to gain volume and commitments from members and use that purchasing volume to leverage better pricing from suppliers. [For additional details, view my recent blog entitled Not All GPOs are Alike … and Here’s What a Med Tech Company Needs to Know.
During the podcast, David listed the various types of GPOs:
National GPO
Regional GPO
Provider-Owned GPO, and …
Voluntary GPO
How do GPOs work?
What becomes evident in discussions with medical device executives, especially small- and medium-sized suppliers, is that most do not know how GPOs make product decisions.
Typically, a GPO will have various committees made up of representatives from their membership. These committees focus on specific areas critical to the day-to-day operation of a hospital [i.e., medical-surgical, foodservice, laboratory, pharmacy, purchasing services, etc.] By bringing in specialists from the various functions, the GPO can make more informed decisions regarding products and outcomes, and also make balanced decisions that benefit all members of that particular GPO.
How the GPO serves its members …
To serve its membership, the GPO provides the committees support and input in areas that could potentially affect pricing, including:
Economic factors impacting the industry
Data analysis, particularly as it relates to outcomes
Field representation to assist with contract compliance, as well as member-specific data and analytics
Ultimately, the committee decides whether or not the GPO will award a supplier contract or agreement. There are many considerations that inform, guide and influence the committee’s decision, including customer service, product quality, outcome data and, of course, pricing. [And it’s worth noting that the lowest bidder isn’t always the supplier awarded.]
How the GPO serves suppliers …
In exchange for price concessions and sharing data, the supplier enjoys many benefits from the GPO. Access is a big one. By having the agreement, a supplier gains unique and valuable insights into the GPO membership. If the supplier manages the agreement well, they will be treated as a partner, receive feedback, and have the opportunity to showcase their technology in a far more effective manner.
The supplier also receives guidance from the GPO field force as to what its members are looking for. Like GPOs, no two hospitals are alike so there may only be certain products or services that a member needs, based on the community they serve.
Speed-to-market is another significant benefit for suppliers. Opening the door to new technologies and services is one of the key reasons to have the agreement. The C-Suite and other department heads are much more likely to consider a new technology that has already been vetted by their GPO. This is especially true for smaller companies where executives are incredibly busy. Knowing the GPO has done its due diligence, assigned a “stamp of approval” and awarded the supplier an agreement makes their jobs easier when determining the voracity of the company behind the technology.
Be proactive!
Perhaps the biggest mistake that occurs after being awarded a GPO agreement is lack of follow-up by the supplier. Oftentimes, the attitude is, “We’ve got an agreement in place so I’ll just kick back and wait for the orders to come flooding in!”
Uh-uh. Doesn’t work that way.
Once the agreement is secured, the supplier needs to work with hospital department heads and GPO field representatives to cultivate selling opportunities for the supplier’s field sales and clinical support teams. In many cases, the awarding of the agreement is just the first step.
As an executive, you should put together a well-thought-out, strategic plan for simultaneously rolling out the agreement and your product. Consult with the Portfolio Manager at the GPO because they often know the best way to effectively and successfully conduct a rollout, and they will coordinate with you. Remember, they want you to succeed as much as you do.
When should a company start talking with a GPO?
In the podcast, Dave went on to explain that it’s never too early in the development of a company, or product, to engage with a GPO. Share with them the great news of your emerging technology and ask for their feedback. However, don’t be surprised if the GPO doesn’t jump at it right away. They may have questions and they may request specific outcome data. It would benefit your company to supply as much thorough information as possible.
Listen to their feedback then refine your plan, if necessary. The GPO isn’t asking for this information simply to watch you jump through hoops. Most, if not all, GPOs have Innovative Technology agreements and they’re likely trying to figure out if your technology is ready to come under agreement using this process. This is why Dave recommends executives with promising, early-stage technology contact the GPOs early and often.
Click here to listen to the full podcast episode The Alphabet Soup of National Accounts Dave Finley
And remember, if you need experienced, professional guidance when developing your go-to-market plan and launching your game-changing technology, Excelerant Consulting should be your go-to resource. Contact them today [info@excelerantconsulting.com].
#Medicaldevice #Medicalproductlaunch #entrepreneur
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Thomas L. Hickey is a Partner at Excelerant Consulting, specializing in sales and distribution development. Thomas is also host of Med Tech Gurus, a podcast focused on Medical Entrepreneurship and Marketing [available on Apple Podcasts and other platforms]. He holds a master’s degree in Health Economics from Eastern Michigan University. Contact him at thickey@excelerantconsulting.com or call (313) 919-2638.