In the 1980s and '90s, group purchasing organizations transformed the hospital supply industry by lowering costs through discounted contracting. Manufacturers of more sophisticated devices largely tried to avoid GPO contracting by relying on physician preference. Today, as cost pressures continue and consolidation among GPOs take hold, Vizient, the country’s largest GPO, is forging a new role to make the case for GPO relevance. A Q&A with SVP Bryan Grossman.
In the 1980s, as venture capital poured into medical devices in search of opportunities via new therapies for unmet clinical needs, a revolution of sorts emerged, one that would radically change the nature of the medtech industry. Companies big and small developed new tools for physicians and surgeons in the treatment of complex problems, such as angioplasty devices and orthopedic implants, radically changing the value proposition for device companies as they introduced what was arguably a whole new category of medical devices: high-tech physician-preferred products.
At just about the same time, a very different revolution was taking place for companies that for years had been producing the products more routinely used in a variety of medical and surgical procedures. Looking for ways to cut costs as healthcare cost containment pressures took hold, hospitals around the country began to form into groups or alliances, hoping to pool the volumes of purchases they made to gain leverage over suppliers when it came to the prices they pay for those products. Playing mostly in high-volume, low-tech product areas, like IV solutions and surgical accessories, hospitals groups or GPOs (group purchasing organizations) negotiated discount terms for member hospitals in product categories where, for the most part, physicians and surgeons didn’t—or shouldn’t—have valid reasons for preferring one product over a competitor, preferences that otherwise would have fractured the solidarity necessary to drive those discounts. (Technically, there are important differences depending on the nature of the group—investor-owned systems differ from hospital alliances, which differ in turn from pure group purchasing organizations, though for the purposes of this discussion, we will lump all under the umbrella of GPOs.)