GPO versus IDN: what’s the best strategy?
April 17, 2018
GPOs have been around for over 30 years but have continued to consolidate down to four nationals: HealthTrust Purchasing Group, Intalere, (fka Amerinet), Premier and Vizient (the combination of Novation and MedAssets).
More recently, IDNs have joined the conversation. Before we dive into the strategy, let’s make sure we have the definitions straight.
Ten years ago, the acronym “IDN” was just being created: we heard IHN, (integrated health network) IDS (Integrated delivery system) and MHS (Multi-hospital system). Although we have settled on IDN, (integrated delivery network) it’s technically not applicable to organizations that act as a GPO and span many states, for example: ROi, Yankee Alliance, Capstone and Acurity, fka Greater New York Hospital Association. These are often called RPCs (Regional Purchasing Coalitions or Regional Aggregation Groups.)
A true IDN is a healthcare system in a geographical area that consolidates its service lines in order to better negotiate with insurance companies for the full range of services. As a by-product of the consolidation, they feel they can consolidate and commit purchases to one or fewer suppliers in order to lower their costs. Versus a GPO, a key point is that IDNs purchase product directly from the manufacturer or distributor and do not collect administrative fees; they are saving money for their organization. A system like Tenet, for example has many IDNs in different states but corporate purchasing is centralized in Dallas. The bottom line is to decide whether you are dealing with a GPO or an IDN.
The decision of whether to work with GPO’s, IDNs, RPCs, regional GPOs, independent IDNs with consolidated service centers, is complex; especially when you realize that GPOs are driven by the large IDNs that may also be shareholders or have a vested interest in supporting the GPO via fee sharing. Sorting through these dynamics is critical to save time and effort in building relationships. While services can provide membership lists of parent/child relationships, understanding who is on the committee driving the decisions within any of these organizations is a goal for every National Account Executive.
The decision to follow a GPO/IDN strategy is a function of two things: the company and the product/service. In this article, we’ll focus on your company. A future article will focus on product differentiation.
A smaller company or diversity company may find great value in getting a contract with a GPO in order to build awareness even if they are not being blocked without a GPO contract. The value to a supplier is to confirm to the membership that their product or service and company has been vetted by the GPO and that the pricing will generally be better than a facility can achieve on their own.
National GPOs will expect US sales coverage, distribution channels, ability to supply/service nationally, and most importantly willingness to accept their terms and conditions. These can be daunting, as they tend to be very one-sided. Exceptions can be made but one has to weigh the cost versus value in make that decision. Deciding which GPOs will support your efforts is key. The good news is that members have encouraged their GPO‘s to entertain smaller, innovative and diversity companies. However, as most of you are aware, a GPO contract does not mean a spike in orders. That’s when the selling begins. With 1000- 2000 contracts by the major GPO‘s, the marketing of your agreement will fall on your shoulders. Having said that, with a sound strategy, I believe there is value for companies who want to build awareness and growth through a GPO. If the company goal is to grow and be acquired at some point, GPO contracts are a valuable bargaining chip.
All of the major GPO‘s have an innovative technology event annually. While there are differences in how one defines innovation, this is a relatively inexpensive way to build awareness with key committee and decision-makers within a GPO most of whom represent key IDNs and hospitals within their membership. Innovative technology will be a focus in a future article on Products/services relative to the GPO/IDN strategy.
IDN only Strategy?
Regarding an IDN strategy, many companies feel that since the major GPO‘s do not purchase product directly they are better served calling directly on the IDN’s. However, most of the IDN’s have a relationship with their GPO and sometimes a shareholder or partner relationship, which will drive high compliance and create a barrier to entry for competitors. One strategy to follow with IDNs that purchase directly is to find those that are willing to contract independently for their system. Identifying whether they are a shareholder or partnered with their GPO or have a more distant affiliate relationship is one way to distinguish different systems. Also, those with Consolidated Service Centers tend to contract “more creatively.”
Comparing acute care GPO membership lists is an interesting exercise as the number is more that double the AHA estimate of about 5500 acute care hospitals. Obviously they can belong to more than one GPO but GPOs are providing the best value to their most committed members. While most GPOs have committed customers, the following is a generalized version of contract compliance by membership.
Although the lines are blurred, the more compliant and committed groups are toward the top, the more subscription based, voluntary groups toward the bottom. However, every one will have pockets of strong commitment. Within each group, there are various types of affiliations that will influence where they stand in support of the group.
Top Down Bottom up Strategy
It goes without saying that calling on corporate offices without some base of business or significant interest from Physicians within member hospitals will be a difficult task. As one veteran VP of supply chain told me many years ago, “my constituency dictates my agenda.” A top down bottom up approach is best. Work the hospitals, get demand, and nurture relationships with corporate offices. Identify where you have an existing base, then elevate that success to the corporate IDN, and identify other IDNs within the targeted GPO to approach. Then approach the GPO 18 months in advance of the RFP for your category and tell your story. Developing relationships at the GPO level without a contract is difficult until you are part of the club and attend their functions. In a previous article, I discussed how to develop relationships with members who can champion your cause in events like the IDN Summit and Health Connect Partners for example.
Clearly, a combined strategy of both GPO and IDN contracting, depending on your company’s capabilities, is the best strategy over time. Identifying the nuances between GPO, IDN, affiliate, Lease/owned/managed, parent/child relationships has become a business unto itself. There are sources available to provide this information as you develop your national account strategy. One source is Sales Data Generator.
All of the organizations I’ve mentioned, although they may not purchase product directly, should be considered customers. If they can influence the purchaser or end user (who may be on their committees), building a relationship with them makes sense, especially if you want to develop a long-term trusted relationship in the industry that will pay dividends for years to come.