Second generation contracts easier to renew - group purchasing organizations - column

Second generation contracts easier to renew

National accounts managers will find that their second and third generation contracts with group purchasing organizations will give the incumbent much greater strength when they come up for renewal. Some contracts will be open ended and the incumbent will, in most cases, have the upper hand.

It will become increasingly more difficult to gain entry into these groups and vendors may be shut out of these hospitals for a long time, maybe forever.

An important concept that will allow the larger groups and alliances flexibility in their hold on their national market is the opportunity to offer regional contracts. This is now being arranged by VHA Supply Company as well as other groups. This should bring higher compliance and new opportunities for second tier vendors who are unable to obtain national contracts with larger groups because of existing commitments or because they are not a market share leader.

It will be difficult for the groups to work with the smaller player in the market if there are already contractual agreements set up. However, if the technology is significantly different than currently made available to the group through its contracts, there may be opportunities available for the smaller player.

The extent of technological innovation required for a group to pursue a new vendor over the incumbent is in question. Both the groups and the hospitals ust carefully evaluate whether new technology will be cost effective and really necessary in light of the cost pressures the whole healthcare industry is facing.

Standardization

The focus in the 1990s will be on cost and on standardization. This will affect the material manager as his role will decrease in the overall group selection and turn more to inventory management control.

Hospitals will need to 'practice' materials management rather than just pursue the lowest price through the negotiation of the contract. The savings will be achieved through logistical support, inventory management programs and standardization. This is where the hospitals need help. Pricing for many goods and services has bottomed out and, as a result, savings will need to come from these other areas in the future.

Groups are demanding more of their hospitals, and vice-versa. Thus, many groups are saying that their hospitals must participate in the contracts or there will be penalties, such as at American Healthcare Systems and Premier Hospitals Alliance. The concept of the vendors, hospital and the groups working together is like a marriage. If they don't, the marriage will not work. On the other hand, the hospitals are demanding more services, ideas and problem solvingniques from the groups to justify their role. Traditionally these functions have been undertaken by the large hospital associations; the groups are now beginning to fill these roles.

Top-down decision making

The group must work with the top executives of their hospitals to gain a commitment to the contract more than they have in the past. In other words, it will be a "top-down" relationship at the hospital level. In the past it has been a "bottom-up" relationship which resulted in only partial success for many groups.

Staffing at the hospital will become more problematic and the hospital members will look to the groups too help them solve some of these problems This will be achieved by bringing services or products on contract that will help make hospitals more productive and staff efficient.

Downsizing of hospitals will continue with hospitals pursuing the product line management concept; 100- to 150-bed institutions will exclusively do intensive care activity with the rest of the activity moved to the outpatient department or the alternate care market. This will change the direction of many groups that have traditionally concentrated on the acute care market, requiring them to look elsewhere for growth.

Working with GPOs

What do you need to do to work with these changes in the group purchasing arena? 1. Create high level communications, going beyond national accounts managers, involving the highest levels of your organization. Make sure communications and responsibilities are clear between national accounts and sales/marketing to avoid sales representatives working against their national account contracts.

2. Develop profiles of each of the individual groups and target specific programs for each of the groups to make the contract work. Custom target and focus your group contract and don't spread your national accounts program too thin.

3. There is support for third players in the market, particularly to create a competitive environment. Look for those groups that can create an opportunity for your products and services.

4. Develop a planning strategy on how to work with the groups, and determine-which groups you can work with most effectively. Build a relationship.

5. Have well thought out programs before approaching the group, figure the implications of working with the group and obtain the buy-off from corporate before approaching the group.

COPYRIGHT 1990 J.B. Lippincott Company
COPYRIGHT 2004 Gale Group