Navigating Product Conversions with GPOs & Auditrax

Since 1910, when the first GPO (group purchasing organization) was created, the way hospitals select and purchase products experienced a cost-saving shift. Hospitals could now form a network with a GPO to receive better negotiated contracts for the products they were previously purchasing direct. Today, with over 600 active GPOs across the United States, 97% of hospitals rely on at least one of these organizations, and the costs savings they offer, to stay profitable.

Some GPOs have a vast product offering and serve all the needs of the hospital while others specialize in a specific category of products. For example, MedAssets offers a full gamut of healthcare products and is considered to be one of the largest GPOs with over 4,500 hospitals.

When a hospital engages in a membership with a GPO for the first time or when a hospital transfers  to a new GPO, thousands of product conversions take place. Though both GPOs may offer the same type of product, such as a patient gown, is it more than likely that variety exists in brands, pricing, quality and even colors. This process can be time intensive and intrusive to the hospital staff due to the vast number of product conversions required to be compliant with a new GPO.

“At Auditrax we try to give as many possible options of same color and type with slight variances, listing out the price of each as well as the quantity you purchase by. For example we would offer a velcro closure green economy size gown that is cheaper than the original, a green back closure double tie that is near the price point, as well as any of the other contract compliant options. Our goal is always to provide the staff with a better product at a better value.” – Sarah, Senior Consulting Manager

Since 2012, Auditrax has worked in navigating hospitals through GPO transitions and product conversions through four key steps.  

Step One
Identifying the current product.
What is the primary function of the product? What is the cost of the product?

Step Two
Evaluating the needs of hospitals regarding the use of product.
Who uses this product? How often is the product used?

Step Three
Reporting alternative products that are available on contract.
How could the product be better? What samples would be helpful to have?

Step Four
Communicating with additional vendors on contract that offer slight variations in price or quality.
What is the cost difference? What other vendors offer this product?

 

PO Terms and Conditions

Almost all companies are using Purchase Order Terms & Conditions with vendors that dictate the “rules of the game” for procurement transactions and the subsequent payment for those goods or services. Many are standardized and include acceptance & agreement, shipment, force majeure, price, warranty, governing law, etc. but are written solely with legal protection in mind.

Some companies take even further control of the procure to pay relationship by issuing supplier manuals and additional documents that further establish policies and procedures for doing business.

But did you know that the PO Terms and Conditions is the front-line and most effective method of controlling material costs in an organization?  PO Terms and Conditions can still satisfy their intended purpose of providing protection from and settling legal disputes between a company and its suppliers while also dictating cost saving methods that can save companies millions.

One of the major issues identified after working with clients over 20 years is that the freight terms are too vague to properly define both ownership and responsibility for payments. This allows the vendor to interpret this language on their own and make decisions that could be hurtful to the purchasing company and go against the intentions of the PO Terms.

When a PO Terms document doesn’t provide proper protection, there is the opportunity for recoveries and improvement of the document to prevent future errors. For companies with extensive PO terms with well defined responsibilities, there is an even greater opportunity for an audit of the vendors’ compliance to these terms. Companies spend a tremendous amount of time and money refining these documents to protect themselves, only for vendors to ignore the rules contained within.

Auditrax is leading the charge in using the PO Terms and Conditions to help its clients reduce material costs and hold vendors accountable. As part of a procurement recovery audit, Auditrax will examine the document with a cost savings focus before the audit and also following the audit to see how errors could have been prevented using this document. All this comes without a charge or hourly rate, just the ability to work with your company to recover erroneous payments made in the past 4 years.

Protect yourself today and ensure that vendors are following the rules as agreed upon to help lower your material costs and increase profitability.