Group Dynamics
Group Dynamics: Without a Playoff System, How to Score GPOs?
February 04, 2010
by David Baker, Director of National Accounts
This report originally appeared in the February 2010 issue of DOTmed Business News
Addressed in this issue are the noble efforts of DOTmed to certify and score both buyers and sellers to better inform the medical marketplace. As DOTmed forums encourage more discussion, equipment players will increasingly know the value of certification, a 5-star rating, or the dread of the DOTmed "blacklist."
But as the used medical equipment market attempts to evolve to the stage of, say, the time-tested used automobile market, it may still be some time before DOTmed scoring devices reach the universal prestige of JDPower, for example, or the US News & World Report's annual rankings of hospitals.
But the journey of a thousand miles begins with a single step.
And what about group purchasing organizations (GPOs); how do we score them? Currently, GPOs aggregate their sales data, garnered from their contracted vendors, and then publish the data in hopes their annual reports will convey solid growth and promise. The temptation to exaggerate is intense.
Contracted sales volume is most commonly employed to rank GPOs by size, although again, such numbers can be inflated if not carefully sculpted. Distributor volume added to a manufacturer's volume through that distributor, for example, could lead to duplication - distorting the total sales figures.
A second measurement for GPOs is membership totals, which can include a doctor's office that spent nothing last year on that GPO's contracts. Even when a provider leaves a GPO for another, its name will often remain on the original GPO roster as a secondary member. The average hospital is a member of 2.4 GPOs, a fact that guarantees double counting and suggests that "membership total" can be a specious metric.
A Modest Proposal
In the spirit of transparency and consumerism, I will offer a few suggestions for some additional GPO metrics.
Percentage of contract renewals to the incumbent supplier: It is undeniable that an incumbent supplier of product, having a solid base of business within a GPO membership, can present a dilemma to a GPO when a contract is up for renewal. For many products, and for hospital personnel and GPO salespeople, the "switching costs" of product conversions mitigate the probability for too much contract "churning." And for a $20-million contract to be supplanted by one with an existing non-contracted base of, say, $10 million, suggests the GPO will for a time experience a 50 percent drop in administrative fee revenue (assuming the administrative fee is the same percentage), hence, the unspoken argument for continuity. This stasis is most abhorred by smaller suppliers feeling they cannot dislodge an incumbent competitor nor break into a GPO's portfolio. Sole source agreements deserve special attention to the "renewal percentage" metric, which if too high, suggests the GPO is not encouraging competition...or is simply lazy.
Real Savings: This is probably quixotic, since the definition of savings is so distorted that this metric is often useless. Even cost studies that compare a market basket of current products are prone to much mischief. For example, those that saved the most last year might have earned that distinction by being spendthrifts the year before....or they call any discount from list price a "savings." The definition is simply too slippery.
Membership commitment percentage: Instead of some membership total, more relevant might be the number (or percentage) of members that fully participate, members that use a single GPO for, say, 50 percent of the member's total spending. This would separate loyal, committed members from the casual.
A vendor's perspective
Certainly a prospective vendor would provide additional price reductions to gain access to membership that was proven highly committed, and so too might they love to see how much marketing GPOs do for their contracts. Further, knowing the growth rates of recent contract awards could attest to the effectiveness of GPO marketing.
The competition among GPOs is intense, and their offerings include many different services, but adoption of one over another should not be a political consideration, but one based on facts. This proposal is by no means complete, and we would enjoy hearing other considerations for better measurements of GPOs. To share your thoughts, contact me at dbaker@dotmed.com.
Addressed in this issue are the noble efforts of DOTmed to certify and score both buyers and sellers to better inform the medical marketplace. As DOTmed forums encourage more discussion, equipment players will increasingly know the value of certification, a 5-star rating, or the dread of the DOTmed "blacklist."
But as the used medical equipment market attempts to evolve to the stage of, say, the time-tested used automobile market, it may still be some time before DOTmed scoring devices reach the universal prestige of JDPower, for example, or the US News & World Report's annual rankings of hospitals.
But the journey of a thousand miles begins with a single step.
And what about group purchasing organizations (GPOs); how do we score them? Currently, GPOs aggregate their sales data, garnered from their contracted vendors, and then publish the data in hopes their annual reports will convey solid growth and promise. The temptation to exaggerate is intense.
Contracted sales volume is most commonly employed to rank GPOs by size, although again, such numbers can be inflated if not carefully sculpted. Distributor volume added to a manufacturer's volume through that distributor, for example, could lead to duplication - distorting the total sales figures.
A second measurement for GPOs is membership totals, which can include a doctor's office that spent nothing last year on that GPO's contracts. Even when a provider leaves a GPO for another, its name will often remain on the original GPO roster as a secondary member. The average hospital is a member of 2.4 GPOs, a fact that guarantees double counting and suggests that "membership total" can be a specious metric.
A Modest Proposal
In the spirit of transparency and consumerism, I will offer a few suggestions for some additional GPO metrics.
Percentage of contract renewals to the incumbent supplier: It is undeniable that an incumbent supplier of product, having a solid base of business within a GPO membership, can present a dilemma to a GPO when a contract is up for renewal. For many products, and for hospital personnel and GPO salespeople, the "switching costs" of product conversions mitigate the probability for too much contract "churning." And for a $20-million contract to be supplanted by one with an existing non-contracted base of, say, $10 million, suggests the GPO will for a time experience a 50 percent drop in administrative fee revenue (assuming the administrative fee is the same percentage), hence, the unspoken argument for continuity. This stasis is most abhorred by smaller suppliers feeling they cannot dislodge an incumbent competitor nor break into a GPO's portfolio. Sole source agreements deserve special attention to the "renewal percentage" metric, which if too high, suggests the GPO is not encouraging competition...or is simply lazy.
Real Savings: This is probably quixotic, since the definition of savings is so distorted that this metric is often useless. Even cost studies that compare a market basket of current products are prone to much mischief. For example, those that saved the most last year might have earned that distinction by being spendthrifts the year before....or they call any discount from list price a "savings." The definition is simply too slippery.
Membership commitment percentage: Instead of some membership total, more relevant might be the number (or percentage) of members that fully participate, members that use a single GPO for, say, 50 percent of the member's total spending. This would separate loyal, committed members from the casual.
A vendor's perspective
Certainly a prospective vendor would provide additional price reductions to gain access to membership that was proven highly committed, and so too might they love to see how much marketing GPOs do for their contracts. Further, knowing the growth rates of recent contract awards could attest to the effectiveness of GPO marketing.
The competition among GPOs is intense, and their offerings include many different services, but adoption of one over another should not be a political consideration, but one based on facts. This proposal is by no means complete, and we would enjoy hearing other considerations for better measurements of GPOs. To share your thoughts, contact me at dbaker@dotmed.com.