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Is your GPO contract expiring? Use the opportunity to unlock the next wave of cost savings with advanced analytics capabilities

An expiring group purchasing organization (GPO) contract is an opportune time for healthcare organizations to explore advancing analytics capabilities within procurement. In our previous piece, Is your GPO contract expiring? Now’s the time to rethink your supply chain strategy, we noted the need for an analytics component when realigning the GPO relationship. Here, we dive deeper into establishing that analytics capability within your organization. As organizations begin the GPO contract renewal process they are sure to hear about the analytics capabilities. However, in our experience, GPOs remain too narrowly focused on spend data analytics. 

Go beyond the finances

GPOs, by their nature, focus on achieving the lowest price point for specific goods or services. Most offer their members detailed cost analysis capabilities. However, GPOs fall short on clinical outcome data, the Holy Grail to significantly lowering healthcare costs while improving healthcare outcomes. We recommend healthcare providers look beyond the GPO for advanced analytics capabilities. While the results of cognitive analytics remain at their infancy, expectations for this type of analytics to drive savings are well above the traditional 2%-4% that spend data analysis provides.

Review and refresh the procurement operating model

The first step is to review and refresh the current operating model in light of the decisions on the role of analytics and the future role of the GPO. There is no one size fits all approach. However, the following points should be considered against a typical 4-layer procurement operating model.  

  • Separate strategy vs execution. Many procurement organizations are overwhelmed with day-to-day execution functions. Leading outcome focused organizations will ensure a focus on strategy, bringing category and clinical subject matter experts (SMEs) to advise on specific categories and direct the priorities for procurement execution
  • Building analytics capabilities internally in order to retain intellectual property, with the GPO or in other forms of partnership
  • Balancing the role of procurement channels, either through GPO, local purchasing organizations or direct purchasing, particularly where other environmental and community goals are taken into account.
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Determine the appropriate analytics delivery model

As with most business decisions today, healthcare providers must decide between building the analytics capabilities in-house orlooking to a third party provider or other form of partnership. The first step for procurement leaders is to understand their organization’s current data governance and strategy capabilities. For organizations that lack one or both, these must be established prior to launching a procurement analytics function, irrespective of the selected approach. We see five potential models for provider organizations to explore:

In-house model

Ideal for the organization with an established analytics function internally, that has strong data governance and strategy and is unwilling or hesitant to grant access to its sanitized clinical outcome data. In-house functions generally enable a faster speed to market, build useful cross-functional in-house analytics skills, and provide more protections for organizations’ intellectual property. However, they can be more expensive than outsourced models and require not only a commitment to building and maintaining the capability in a tight labor market, but also the procurement or development of the analytics tools. Organizations choosing the in-house model without the right level of commitment to analytics risk their function becoming quickly outdated given the rapid changes in technology. Finally, an in-house function limits an organization’s ability to benefit from the aggregation of data that a third party can offer, with the implication that relative scale of operations is an important consideration.

Out-sourced model

Most suitable for the smaller organization lacking a mature analytics function that is also willing to grant access to their sanitized clinical outcome data. In this scenario, they are willing to share their intellectual property to gain commercial benefit, and realize their skills deficit is best served through outsourcing. An out-sourced solution offers benefits such as lower costs, access to big data and analytics talent, aggregation of data across providers and the ability to access data that has been aggregated across multiple providers.

Hybrid model

Where there is a blend of payer and GPO resources across the various direct and indirect procurement categories, based on where the relative strengths exist. In this model, the healthcare organization maintains greater control and strategically leverages in-house skills where they exist across key categories. At the same time they use GPO resources for commoditized areas or areas where the GPO has category expertise or access to clinical outcome data that is richer than the healthcare provider. In this scenario, the intellectual property may be retained by the healthcare organization or shared under a limited license with the GPO, subject to the ongoing nature of the relationship

Joint Venture (JV) model

Where one or more providers agree to share clinical outcome data amongst themselves, and either develop or partner for analytics capabilities as part of that JV. The aim is to build scale and traction in the market while retaining control of clinical outcome data and building analytics capabilities. This scenario can either be driven by the healthcare organization in partnership with other likeminded healthcare organization, or may be driven by the GPO across its customer base. The benefits are the ability to set up a separate legal entity which would jointly benefit all participants based on success of the JV in the market. However, as with all JVs, the complexity is the level of investment of intellectual property and seed financing for it to be a success in the market

Co-marketing model

Where a successful relationship exists with a GPO and leverages the analytics capabilities of the GPO, but stops short of forming a JV. The opportunity is to jointly market the benefits and build a broader base of collaboration with other providers as partners, but retain an option to go separate ways. Under this model, some sharing of intellectual property is necessary in order to improve models of savings based on outcome data, as well as attracting additional healthcare organizations as participants.

The wealth of clinical data is a key driver for increased savings and improved outcomes and will therefore be the main driver in selecting between the various models. Whichever model is adopted, establishing an analytics function within procurement is critical for any provider organization to drive down its cost structure while improving outcomes. Traditional GPO’s remain focused on spend data analytics. However, the real opportunity to drive savings is from the combination of clinical and financial data that is both structured and unstructured. As a result, we recommend provider organizations first establish a procurement data governance strategy, assess market offerings and determine an in-house, out-sourced or hybrid solution to building their analytics capability.

To speak to one of our experts about advanced analytics in healthcare, get in touch today.

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