Archives For supply chain

th-20What healthcare business has nearly a billion dollars in revenue, sales growing at double-digit rates, and an EBITDA margin of 40%? If I didn’t tell you, you might have guessed that it is a young Biotech company with an important new drug. On the other hand, some might have guessed it was a hot new MedTech company with a proprietary product that treats an important unmet medical need. If you guessed either of these, you are wrong. This is, in fact, the profile of a group purchasing organization (GPO) – Premier to be specific (1).

I’ve written in the past about the death of the GPO business model. If you haven’t seen the previous articles, you can read them here. My basic point in these articles is that the traditional aggregator role of GPOs is on the decline.

If you look at the two U.S. publicly traded GPOs, Premier and MedAssets, it’s clear that the old aggregator business model is dead. Premier reported slight growth in admin fees for the 2014 fiscal year due to new members and movement into alternate care (2). MedAssets reported a slight decline in admin fees for the most recent quarter (3).

Instead of the old model of aggregating members’ buying to gain leverage with suppliers, some GPOs are evolving themselves into a diverse business with new services and tools to help providers deal with a world of continuous cost pressures, accountable care, and value-based purchasing.

Premier provides a nice case study. Administrative fees now account for less than half of revenue. Product revenues, this includes specialty pharma/PBM and direct sourcing of commodity products, is up 47% year-over-year. Other services revenue is up 13% year-over year (4).

For many suppliers, GPOs are often seen as both partners and adversaries. The decline of the aggregator role may make some suppliers breathe a sigh of relief. However, GPOs evolution into data, outsourced purchasing, and perhaps private label brands for commodity items may present even more challenges in the future for unprepared suppliers.

If you enjoyed this article, please take 5 seconds and share it with your social network.


See Premier, Inc. Reports Fiscal 2014 Fourth-Quarter and Full-Year Results. August 25, 2014.
See MedAssets 10Q Form for quarter ended June 30, 2014.
See Premier, Inc. Reports Fiscal 2014 Fourth-Quarter and Full-Year Results. August 25, 2014.