Whether you’ve never heard of them or they’ve been part of your pharmacy for years, two things stand out about group purchasing organizations (GPOs).
First, membership in a GPO can be a huge advantage for pharmacies. They can use their combined buying power to negotiate better product prices and gain significant savings. That’s on top of a GPO’s many other benefits (which I’ll discuss below).
Second, and unfortunately, pharmacies often miss out on the full potential of their GPO. They still face challenges such as consistent compliance with negotiated prices and missing additional savings opportunities.
This article will cover how to cultivate transparency, visibility and accountability with your GPO. These approaches will enable you to harness every available opportunity. First, I’ll discuss how GPO membership can help your pharmacy and how to select the right one for you.
Benefits of a GPO
A GPO’s primary role is to negotiate product prices with manufacturers, wholesalers and vendors on behalf of pharmacies. Members can find particularly great deals on brand-name items. For generics, wholesalers may already provide their best price. But it’s still worth investigating the GPO’s options. We’ll discuss how below.
In addition to better product prices, GPOs also offer incentives like market share rebates: if your pharmacy moves significant amounts of a specific product, you receive reimbursement. As you add more market share for that item, you enter a higher “tier” of the rebate program and increase reimbursement amounts. Market share rebates also show the volume of products you move, which lets you negotiate better prices. In addition to market share rebates, GPOs offer flat rebate incentives for products (that are typically paid quarterly).
Other GPO benefits include negotiated rates through an insurance carrier’s PBM (pharmacy benefit Managers), discounts for services and products such as medical supplies and software for submitting orders. These additional benefits are some of the other factors to consider when selecting your GPO.
Finding the Right GPO
GPO contracts are typically based on a pharmacy’s class of trade (retail, long term care, acute, etc.). Some “combo shops” may offer multiple contracts. A pharmacy’s bargaining potential varies according to its influence in deciding on products. For example, a retail pharmacy must dispense what is prescribed for the patient. But an acute care pharmacy (such as a hospital) may compare the effectiveness and side effects of different agents to determine products. The acute care pharmacy has more control, so it can negotiate pricing more aggressively.
Unfortunately, if you’re comparing GPOs, there’s no way to explore the full range of benefits or potential challenges without becoming a member. Some GPOs will provide modeling for prospective members to show the possible advantage. Ensure you understand the available programs, contract terms, and additional incentives.
Once you find a GPO that fits your pharmacy, work closely with them to onboard your team and orient them to that GPO’s processes and benefits. Aside from the GPO, aim to incorporate additional tactics and solutions to make the most of your new relationship. I’ll share some of them here.
As discussed, a GPO’s primary advantage is enabling pharmacies to find the best pricing opportunities. But they may also check if you overpaid for a product and then help you work to address the issue. For example, if you purchased a drug at $50 when you had a contracted price of $40, the GPO would report that issue to you and then help you recoup the difference through the wholesaler.
However, your GPO’s timing for reporting pricing discrepancies can be a challenge. They may release information only once a week or several days after the transaction. GPOs, like any organization, can also encounter unexpected delays. Even with the GPO’s eventual help, you’ll still have paid more than you should. That’s before you have to put in the work to get that money back.
Instead of waiting for your GPO to alert you to a missed savings opportunity after the fact, find a purchasing solution that incorporates contract and rebate information directly from your GPO as well as any of your wholesalers or secondaries. There is software to pull all of this data together and let you compare prices before purchasing from a single interface. With these tools, you can check the price in real time when you make a purchase and avoid overpaying in the first place.
This integrated purchasing solution should also factor in rebates upfront. You’ll be able to track every transaction, the attached rebates, and the aggregated expected dollar amount. You’ll also see a product's dead net unit price: its actual cost accounting for reimbursement through rebates. You might not otherwise realize the value of that rebate until you receive it (which could be as much as 90 days later). Integrating all of your purchasing data allows you to consider those additional savings when you're still comparing products.
Finally, to further maximize pricing transparency with your GPO, ensure you’re truly aware every time the GPO has a better deal than the source. In many cases, pharmacies have an existing contract with a wholesaler that still gives them the best price on products. But sometimes, the GPO will have the better price (for example, at the item level).
The bottom line for your bottom line is that you need a way to make sure you’re getting the best price every time. You can compare prices manually, but sifting through multiple catalogs and drug classes across different windows is a lot of work—and there’s still no guarantee you’ll find the best option amidst all the numbers and codes.
But with the wholesaler and GPO’s pricing loaded into a single system, you can quickly generate reports showing how much you might save by picking the GPO over the source. This information allows you to better understand your wholesaler contract and the potential comparative value from your GPO. Otherwise, you might be leaving money on the table.
Now that you’ve integrated all of your pricing data for easy comparison, make sure you’re maximizing the value of those savings and how they impact your purchasing decisions.
For example, when it comes to market share rebates, you need to sell specific amounts of products to raise your reimbursement rates. That usually means waiting for the GPO to show you how you’re trending and your options for different tiers of drugs.
But you don’t have to leave it up to the GPO. Find a solution that integrates your market share data and visualizes how you’re trending, your current percentages for different products, the status of tiers and your potential benefits at higher levels. For example, on a 60% percent threshold, you might get a 10% rebate, and an 80% threshold might yield a 20% rebate, but what if your pharmacy is at 50% or 90%? How will your rebate quantify in terms of dollars to you?
With the right software, you’ll easily view your current rebate tier and potential reimbursements if you hit other tiers. You can see if you’re hitting the threshold for different tiers and whether it’s worth driving to a particular product. If you have multiple pharmacies on the same contract in your organization, you can also roll up the data graphically to see the whole picture.
Market share rebate programs only work if you’re driving compliance, which can be difficult if multiple team members make purchases at different times in a busy pharmacy. Don’t rely on verbal reminders, emails or sticky notes on terminals. Find a tool to program purchasing overrides that drive to certain items. At the time of purchase, if a team member selects another option, the system will automatically substitute the correct item. These overrides ensure you’re driving compliance and make things much easier for your staff!
Besides accurately calculating your GPO's value, ensure you’re effectively tracking and, if needed, following up on what you’ve earned through your GPO.
Let’s look at rebates as an example of the power of greater accountability for your GPO. All too often, pharmacies take their rebate process as a given: they have a contract with a GPO (or wholesaler or another vendor) and assume they’ll receive the correct rebates on time. But everyone makes mistakes, documentation gets lost, processes get delayed, and you could overlook significant losses.
A system to centrally track rebates for your GPO and all vendors allows you to see rebate sources and the status of individual transactions. You can also confirm receipt of accurate reimbursements. Running a report at any point in time to see what rebates are due is more efficient than any manual process. And it’s far better than simply leaving it to a matter of trust.
For another example, think about accounts payable integration (another feature of best-in-class purchasing solutions). At the purchasing stage, centrally managing all of your GPO transactions allows you to confirm receipt of the correct products at the agreed-upon prices. And when you submit a purchase, the system receives an acknowledgment from the wholesaler, checks the price and flags any discrepancies.
Then, when you’re actually invoiced, the software will compare the electronic invoice against the GPO in real time and report any discrepancies between the invoice price and the terms of your contract. While GPOs eventually provide similar data, software that links processes and data in real time shows you the issue up front, which lets you address it immediately. The right solution will also provide reports to share with your GPO or wholesaler and get the issue resolved.
Making a Great Relationship Even Better
As you can see, GPOs provide a range of benefits to pharmacies. But there are still ways to build on these already advantageous programs.
In a competitive industry, you want to maximize every available relationship. Find solutions and partners that provide better insights into your GPO and empower you to manage contracts better. You’ll reduce costs, enhance your operations and strengthen your team. And that leads to improved service for your patients.
Learn More About Maximizing Your GPO Relationship
If you are interested in learning how SureCost can help your pharmacy save more, work smarter and stay compliant, book a meeting today with one of our experts.
If you are interested in learning more about tips to fully leverage your GPO, schedule a complimentary strategy session with me to learn how your pharmacy can work smarter.