One of the most common questions we receive is, what is a buying group, also know as a group purchasing organizations (GPO). This makes sense for our clients starting or buying their first pharmacy. But we get this question from our accounting clients and from seasoned pharmacy owners too.
As such we decided to write an article. Below we will cover how buying groups came about, what purpose they serve and how they benefit you. I am sure we have not covered every aspect but this should give you an understanding.
Buying groups or GPOs first appeared around 1910 in New York. However the number of buying groups barely grew until the 1970s and 1980s. Growth began because GPOs were excluded from Safe Harbour Laws. In addition, hospitals and independents needed outlets to negotiate better prices. As pressure on reimbursement grew independent pharmacies in particular did not have the time or knowledge to negotiate and the number of GPOs grew.
Today there are over 600 but only a few are a big influence in the independent pharmacy space. Examples would be
- Independent Pharmacy Cooperative (IPC) – https://www.ipcrx.com/
- Smart Fill – https://www.smart-fill.com/
- AAP – https://rxaap.com/.
The main function of a buying group is to negotiate lower prices on prescription drugs for its members. Essentially they take the collect volume of thousands of independent pharmacies and negotiate with the wholesalers (McKesson – www.mckesson.com, Cardinal Health – https://www.cardinalhealth.com/ and AmerisourceBergen – https://www.amerisourcebergen.com/) for better pricing. But they have also developed other functions over the years. Most GPOs are member owned non-profits and as such they will distribute rebates, hold the wholesaler accountable and provide other services to their members. Some of these services including consulting, software, other vendor discounts and more.
Hopefully this provides you some insight into a buying groups function. We would encourage you to spendsome time getting know the people at your buying group and the services offered. Doing so will help your business in many ways – I know it has helped ours!
2 Responses
If I am with Morris and Dickson, are there significant cost savings opportunities with buying groups? If so, who? Any information is appreciated.
Hi – without knowing more about your business it is difficult to say if a buying group would improve your drug pricing or not. The mix of generics, brands, specialty etc. will impact if a buying group is right for you and which buying group is right for you. It is best to contact a few groups and have them perform a market basket analysis. As a part of our accounting service we do collect this data and can help you review and analyze this but without the data it is difficult to advise. Please let us know if you would like to discuss.