Why GPOs Are Only Part of the Cost Savings Formula for Healthcare Organizations

In today’s challenging healthcare financial environment, healthcare providers are under tremendous pressure to reduce costs without compromising patient access and quality of care. Traditionally, healthcare providers have been able to achieve significant cost reductions by leveraging Group Purchasing Organizations (GPOs) to negotiate national and regional contracts for commonly used healthcare products.

However, while GPOs are effective at securing savings for direct spend categories, their model is less effective for indirect expenditures in areas such as corporate services, distribution and logistics, facilities, fixed assets, furniture and equipment (FFE), information technology, and marketing. In fact, we’ve discovered that GPOs can only address between 12% – 25% of non-clinical expenditures.

This is where LogicSource’s indirect sourcing and procurement model comes in. Non-clinical spending can consume up to 25% of net patient revenue. This spending category is vital for smooth hospital operations and represents a tremendous opportunity for profit improvement. Effective and sustainable non-clinical procurement requires a deep understanding of the market, the ability to foresee future trends, and the skills to negotiate terms that are favorable to the healthcare organization.

That’s why these organizations must find new ways to optimize their non-clinical procurement, especially in a time of rising costs and tightening margins. When expenditures in these categories are undermanaged, millions of dollars of savings are left on the table. We’ve identified four actionable steps that can help organizations get on the right path to unlock new cost savings opportunities for their operations:

• Capitalize on non-healthcare benchmarks and rates Non-clinical expenditures for health systems are often considerably higher than rates paid by peers in other industries such as retail and manufacturing. Organizations can significantly benefit from collaborating with a partner who looks at spending and benchmarks for non-clinical categories across multiple industries. This is especially important for those non-clinical products and services that are often better sourced locally.
• Leverage partnerships with expertsWhen it comes to getting the best deals and rates on non-clinical spending, organizations should engage with subject matter experts to help negotiate these deals. These advisors bring with them a vast pool of industry and category-specific knowledge that will help to craft contracts with rates and terms that are not only the best within healthcare but the best for that service.
• Establish complete visibility into non-clinical spendingA lack of visibility into indirect spending brings a level of risk that can no longer be tolerated. Organizations should demand and expect visibility on where and how every dollar is spent. The right partner can provide technology that offers real-time insights into spending data, benchmarks against cross-industry data, and access to a diverse and proven supplier network.
• Ensure ongoing engagement with the marketplace Securing the best rates and deals for non-clinical spending is never a one-time deal. Opportunities for efficiency change every day, so it’s essential to have a partner who is in the market for these categories every day. They will work continually to ensure pricing and service are optimal and that the partnership delivers to the fullest.

A robust and sustainable strategic partnership can deliver more opportunities for deep cost savings instead of relying on GPOs. That’s why healthcare systems must have a dedicated technology and implementation partner working on their behalf to drive savings on non-clinical spending, improve supply chain resilience, and execute on behalf of the health system to ensure savings goals are met. With this operational plan in place, resources can be prioritized for high-impact initiatives such as those focused on delivering care.

The LogicSource Difference

LogicSource’s unique approach to sourcing and procurement complements existing GPO relationships while delivering untapped value in the healthcare industry’s challenging financial environment. Unlike GPOs, we focus on sourcing and procurement for non-clinical categories using precise taxonomy to deliver robust sourcing and procurement intelligence. As a result, our contracts reflect the best terms that match the customer’s purchasing circumstances rather than requiring customers to use a predetermined set of manufacturers. Also, GPOs typically re-bid contracts annually or less often, which may not reflect post-pandemic pricing volatility. In contrast, our sourcing intelligence functions in near real-time, providing customers with up-to-date updates for its procurement activities.

We don’t charge administrative fees to manufacturers or a percentage of savings to our customers. This means that customers gain the full advantage of the prices negotiated for the spend under the contract.

By sourcing locally and conducting sourcing events continuously, we ensure our customers have access to the most up-to-date sourcing intelligence and procurement activities. With our unique approach, healthcare organizations can achieve additional cost savings and operational efficiencies without sacrificing quality patient care.

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