GPOs or IDNs:
Which Horse to Bet on?
Suppliers are well-advised to take a focused approach.
Edition: April 2003 - Vol 11 Number 04
Author: John Pritchard
Many suppliers are asking themselves these questions: Are GPOs on their way out? And if so, should I be spending my company’s time, efforts and money attempting to contract directly with IDNs?
Unfortunately, there are no black-and-white answers. Still, understanding how these questions became so important should help suppliers formulate and execute a strategy that is best for their business.
At last September’s IDN Summit and Expo in Atlanta (co-sponsored by NCI and MDSI, publisher of Repertoire), a survey of the attendees brought to light why the contracting arena is doing this mating dance. Among the 300+ respondents, 55 percent were manufacturers, 20 percent were providers/IDNs, 9 percent were distributors and 7 percent were GPOs.
Angst Among Vendors
The attendees were asked to what extent they agreed with the following statement: Today’s environment of collaboration among supply chain stakeholders is producing sufficient results. Their responses brought to light why there is such angst among corporate and national accounts executives today:
• Strongly agree: 0 percent.
• Agree: 7 percent.
• Unsure: 15 percent.
• Disagree: 57 percent.
• Strongly disagree: 21 percent.
In other words, 78 percent of the respondents do not believe that the collaboration amongst supply chain stakeholders is producing sufficient results.
Even more surprising is that the response was congruent when broken down by type of respondents. The breakdown for those disagreeing and strongly disagreeing by stakeholder type was as follows:
• GPO: 75 percent
• Manufacturer: 78 percent
• Provider/IDN: 74 percent
The great news is that we have consensus that the stakeholders are not working together well. This absolutely screams OPPORTUNITY!
Next, the attendees were asked to respond to this statement: In general, GPO contracts meet the needs of IDNs. Seventy-one percent of GPO respondents agreed or strongly agreed, but only 38 percent of manufacturers agreed or strongly agreed.
IDNs/providers resoundingly responded that GPO contracts were not meeting their needs, with 66 percent disagreeing or strongly disagreeing with the statement.
Progressive suppliers have picked up on IDNs’ feelings of dissatisfaction with their GPOs, and have demonstrated their willingness and eagerness to contract directly with IDNs. But successful suppliers understand that they need to answer a few questions before switching gears from GPO contracting to IDN contracting. These questions include:
1. Is the IDN capable of delivering compliance to a direct or GPO contract?
2. Does the IDN have information systems that can aggregate and document demand and utilization?
3. Has the IDN committed to supply fulfillment through a GPO, direct or some hybrid?
Once these questions are answered, the supplier’s choice will be easier to make. No doubt, they will find that IDNs need to be treated individually. There are simply too many variables for corporate and national accounts teams to broadly decide whether to focus on IDNs or GPOs. But they should understand that information is available to better understand individual IDNs.
IDNs Not Compliant?
At the IDN Summit and Expo, attendees were asked to respond to this statement: Most IDNs are culturally aligned to deliver compliance. Here’s what they said:
• Strongly agree: 3 percent
• Agree: 18 percent
• Disagree: 50 percent
• Strongly disagree: 29 percent
In other words, 79 percent of the respondents did not believe the IDNs are culturally aligned to deliver compliance, either to a direct or GPO contract. That’s bad news for companies looking to exclusively contract with IDNs, because instead of chasing contracts with 20 or so GPOs, they would have to chase 1,000+ IDNs. Even then, they would still only find moderate compliance to their contracts. Now that sounds like a classic lose-lose.
Here’s how we could synopsize the survey results:
• The marketplace is not happy with the current collaboration.
• Two-thirds of the responding IDNs do not believe that GPOs are meeting their needs.
• Seventy-nine percent of all respondents believe that IDNs are not culturally aligned to deliver compliance.
Given these attitudes, it appears that suppliers would be well-served to accurately target IDNs in their marketplaces, rather than adopting a broad, cookie-cutter approach.
What is the best way to target IDNs to attain increased sales and market share? Most suppliers would agree that simply having a GPO contract or even a direct one does not necessarily translate into increased sales or increased revenue. Most regard contracts as simply a license to hunt. But as in hunting, it’s important to know where to focus one’s efforts.
Understanding the two following issues about IDNs will help suppliers find the best targets:
1. What is the IDN’s supply chain relationship with GPOs and its own hospitals?
2. Can the IDN deliver 80 percent compliance to a contract?
Degrees of Commitment
IDNs have a couple levels of relationships with GPOs. They can maintain a purchasing relationship with them or, at the other extreme, they can be a shareholder. Being a shareholder implies a higher level of commitment, because of the financial and strategic investment involved. That’s why contracting with an entity in which an IDN owns shares makes more sense financially, all things being equal.
The IDN that has a purchasing relationship with a GPO can access the GPO’s portfolio of contracts. Chances are, if an IDN is a shareholder of one GPO but has a purchasing relationship with another, it will more frequently use the contracts of the GPO in which it is a shareholder.
It’s not uncommon for IDNs that are shareholders of one GPO to have one or more purchasing relationships with other GPOs. Add to that a new twist: Has the IDN decided to perform all or some direct contracting? Doing one’s homework to understand what contracts and contract portfolios an IDN has access to will pay off with a decreased time to sale.
There are both strategic and tactical issues to review when determining if an IDN can deliver a satisfactory level of compliance. Strategic issues include a C-level commitment to supply chain initiatives. Is the materials management function staffed and empowered to achieve a measurable and concise mission, which others in the IDN clearly understand? Do clinicians participate in the materials management utilization committees and, hence, buy in to preferential items?
Whether an IDN can deliver compliance depends on a number of things. Does it have the information systems in place that can aggregate supply demand and utilization? Is it adequately staffed with materials management professionals, who can handle contracting? (This is especially important if the IDN is moving towards a self-contracting model.) Is the GPO/self-contracting strategy understood and adhered to by all the IDN’s facilities?
There is no doubt the marketplace is embracing the importance of the IDN in the utilization of supplies and services. But whether it’s right to contract directly with IDNs or drive compliance through current GPO contracts depends on the individual IDN. In other words, the key to attaining the most market share as quickly as possible lies in each IDN and its relationships with its GPO(s). It’s the supplier’s duty to understand both.
John Pritchard is the president of USLifeLine, an MDSI company. USLifeLine publishes The MAX, which profiles 1000+ IDNs, 5600+ hospitals and all GPOs. For more information, please call at 770/263-5262 or e-mail
him at firstname.lastname@example.org.