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Tips on Joining a GPO

July 1, 2004
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Interview with Mark Tellier, Tellier & Associates, LLC
INTERVIEW WITH MARK TELLIER, TELLIER & ASSOCIATES, LLC

Tips on joining a GPO Long-term care is coming into its own in the $34 billion-a-year healthcare group purchasing business-but facilities are still missing out on new opportunities as they attempt to come to grips with group purchasing organizations (GPOs), whether national or regional. So says Mark Tellier, an Arizona-based consultant who has helped start three LTC-oriented GPOs, including the brand-new American Purchasing Group. Tellier notes that there are significant advantages to GPO membership, but they don't come without careful and ongoing attention to important business factors. Confining his remarks principally to the more regionally oriented GPOs that facilities are creating, such as the Covenant Health Network that he founded in 1999, Tellier elaborated on his message in a recent interview with Nursing Homes/Long Term Care Management Editor-in-Chief Richard L. Peck.

Peck: What is one of the first things LTC organizations should consider in evaluating GPO participation?

Tellier: They should be aware that healthcare GPOs have, by and large, focused principally on hospitals throughout the years, and those contracts are not necessarily the best for long-term care. It's only been relatively recently that LTC has been recognized as the special niche operation that it is, with its own purchasing needs and concepts of "value-added." Any GPO worth doing business with should be able to show that it is specifically targeting the LTC segment.

Peck: For LTC facilities, which would be the most attractive type of GPO-the one offering multiple vendors for particular product categories, or the one featuring few or even sole-source vendors for products?

Tellier: You really have to look carefully at this. At first glance it might appear that the GPO offering multiple vendors would have an advantage because competition among those vendors would likely drive down the negotiated prices. The fact is, however, that companies can and do offer excellent deep discounts in order to be listed as an exclusive or sole-source vendor. Facilities have to compare the prices being offered with their own historical purchasing experience and go for the best deal-both in price and product quality-whatever the vendor arrangements might be. And, importantly, they should perform this review every couple of years, at least. Prices change, vendors change strategies, contracts change-and suddenly that "bargain" isn't so cost-effective anymore. By the same token, the GPO has to avoid developing too close a relationship with particular vendors. The GPO should constantly be renegotiating contracts for the best deals on behalf of its clients. Any doubts you, as a client, have about that should raise a red flag.

Peck: Talking about vendor relationships, what are some other concerns that LTC organizations might want to review?

Tellier: Not everyone realizes that GPOs are "safe harbors" under Medicare fraud-and-abuse rules and federal antikickback law. Vendors can pay GPOs a fee to have their products purchased at a discount without being subject to antikickback prosecution. But there are important exceptions. For example, vendors and owners of a GPO must maintain an arm's length relationship, and "related parties" issues cannot exist. In other words, GPOs cannot be owned, either directly or indirectly, by their member healthcare facilities. At the same time, member facilities should expect regular reports on the amount of GPO revenue that has been generated by their purchases through the GPO. Not everyone gets these reports, but they should. The bottom line is that GPO financial transactions should be transparent and within the law at all times. Those that fall short place all their clients at risk.

Peck: Since the U.S. Senate hearings into GPO practices in 2002, there have been some changes in GPO-client relationships, haven't there?

Tellier: I can only speak authoritatively about the smaller, regional GPOs, but right now I personally consider it unethical to mandate a level of customer participation, or purchasing commitment. I believe GPO participation should be based on member choice. Mandated commitments smacked of antitrust violations in those hearings, so purchasing commitments these days are viewed more as guidance than as requirements. Incentives can be used to encourage those commitments and, as a matter of business practicality, the GPO and its vendors have a right to expect certain levels of volume to make the contracts work. But, as it stands now, level of participation is, or should be, voluntary.

It would be a good idea for facilities considering starting or signing on with a regional GPO to check its compliance with the new Code of Conduct Principles published by the Health Industry Group Purchasing Association, or HIGPA, at www.higpa.org/pressroom/2002/7-29HIGPACode.pdf.

Peck: You mentioned facilities wanting to start their own GPOs. What is the basic thing facilities must do in order to make this work?

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