Premier’s GPO Contracts Are a Powerful Tool in the Fight Against Inflation

Key takeaways:

• Inflation is a particularly challenging problem in healthcare because healthcare providers operate on fixed reimbursement, with no ability to shift costs to either payers or consumers.
• Premier is doing everything possible to keep inflation at bay via firm, fixed pricing for group purchasing organization (GPO) contracts, helping our members save on thousands of products and services.
• Premier continues to pursue strategies in five key areas to drive savings and offset rising costs.

For more on this topic:

• The situation in Ukraine is contributing to rising costs and global disruption – read our new Supply Chain Report on impacts of the war.

On March 10 the U.S. Department of Labor reported the fourth straight month of record high inflation, driven by continued labor and supply chain challenges, as well as the war in Ukraine.

While inflation affects all industries, the problem is particularly challenging in healthcare. This is because healthcare providers operate on fixed reimbursement, with no ability to shift costs to either payers or consumers. For instance, Medicare/Medicaid payments, which make up about 60 percent of most hospitals’ payer mix, are only updated once per year. In the meantime, providers must absorb the added costs out of existing budgets, which are already strained as a result of lost elective procedure revenue, and record high outlays to attract and retain labor.

Given these realities, Premier is doing everything possible to keep inflation at bay via firm, fixed pricing for GPO contracts. With one of the strongest contract portfolios in the industry, including third-party purchased services contacts, we help our members save on thousands of products and services.

To prove the power of the Premier GPO to control total costs and inflation, Premier analyzed the historic difference in pricing between Premier contracts and off-contract spend. Since the pandemic began in Q1 of 2020, Premier’s contract portfolio has observed a 1.5 percent inflationary increase, whereas off-contract spend increased by 5.2 percent over the same time period – a differential of nearly 3X (as measured with actual dollars spent over the course of Q1 2020 compared to Q1 2022).

Weighted Average Percent Change in Each Price for Same Product Versus Calendar Q4 2019

Note: Prices indicated are historic, and not indicative of future pricing. CPI included for illustrative purposes, and includes all items in U.S. city average, all urban consumers, not seasonally adjusted.

Premier continues to pursue strategies that drive savings and offset rising costs.

Inflation is being driven by a number of factors, including increased costs of raw materials; lockdowns and labor shortages; port closures and product backlogs; and increased transportation costs, particularly fuel as a result of the ongoing conflict in Ukraine.

• To help members manage inflation, Premier has developed MedSurg and ASCEND® Inflationary Calculators, which can assist with budgeting and strategic planning. Similarly, pharmaceutical inflation figures are derived from Premier’s Drug Budget Tool, which analyzes both on-contract and non-contract items.
• Premier’s Conductiv subsidiary is working to help members achieve savings in purchased services, where data suggests providers invest more than one-third of their total non-labor expense budget. Using Conductiv to streamline contract negotiations, benchmark service providers and manage spend, Conductive customers have reported cumulative savings of more than $800 million.
• To overcome expensive overseas shipping and transportation costs, Premier has worked with our members to make investments in and/or long-term purchasing commitments with U.S. manufacturers, including Prestige Ameritech for N95 respirators and face masks, DeRoyal Industries for surgical gowns, Honeywell for nitrile exam gloves and Exela Pharma Sciences for pharmaceuticals, including some critical shortage drugs. Through these initiatives, Premier members can diversify their supply sources at a price point that is competitive with overseas manufacturing – effectively avoiding price increases that foreign suppliers have forced others to accept. In addition, these suppliers have increased their production to protect Premier members from shortages that continue to plague the market.
• Premier continues to create innovative solutions that can extend and improve the efficiency of scarce labor resources with labor benchmarking tools to identify bottlenecks; consulting services to optimize workflows; clinical decision support to automate administrative tasks such as documentation and coding and prior authorizations; and back office technologies that can automate and optimize healthcare purchasing.
• Providers across the nation are leveraging PINC AI™ technology to analyze total supply spend, transform accounts payable processes and find savings opportunities all in one place. Powered by artificial intelligence (AI) and machine learning, these tools are equipping providers with a real-time view into usage and spend, allow for the ability to set and manage specific savings targets, and are enabling cost savings opportunities.

With the dynamic economic environment, Premier will continue to arm our members with the information, tools and support needed to tackle cost imperatives.

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