TRENDS IN YOUR INBOX: GPOs play a critical role for independent veterinarians
When Kent Julius, DVM, was looking for a group purchasing organization (GPO) eight years ago, he knew how much corporate veterinary practices were saving on goods and services in comparison to individual and smaller practices.
He also knew if he was going to compete, he’d have to find a way to get closer to those corporate savings.
Julius estimates that a typical, $1 million per year, one-veterinarian practice pays 20–23% in cost of goods sold while corporate entities pay about 14%. “With other expenses, that’s about $100,000 we’re paying that the big boys get to keep,” said Julius, who owns Legacy Veterinary Hospital in Frisco, Texas, and Leonard Animal Clinic in Leonard, Texas.
Julius said he looked at several GPOs and chose Veterinary Growth Partners, as it best matched his needs and vendors with which he was currently working. He said he’s saved an average of $10,000 per year purchasing off the GPO’s vendor list.
The History of GPOs in Healthcare
GPOs are not new. In fact, in the human medical world, they have been around for more than a century. The Healthcare Supply Chain Association (HSCA) is a trade association that represents 16 GPOs in human healthcare. They define a GPO as “an entity that helps healthcare providers realize savings and efficiencies by aggregating purchasing volume and using that leverage to negotiate discounts with manufacturers, distributors, and other vendors.”
Typically, a GPO charges a fee to join, and then the member can enjoy discounts on products and services from the vendors with whom the GPO has entered into partnerships.
The HSCA traces the first GPO to 1910 in New York City, when a group of hospitals got together to negotiate a deal on laundry services. The idea did not take off right away, though. According to HSCA, there were only 10 GPOs in 1962, but that number grew to 40 by 1974 and tripled between 1974 and 1977.
HSCA reports there are now hundreds of healthcare GPOs, affiliates, and cooperatives in the US born of the need for hospitals to save money in response to lower reimbursements from government and private insurance.
The idea of GPOs has expanded into many other industries as more corporations dominate the business world. It’s unclear when the first GPO began in veterinary medicine, although the oldest one among the current GPOs is the Veterinary Hospital Association (VHA), which formed in 1985. “They were looking to pool resources and negotiate for better pricing,” said Jeff Benson, executive director of VHA.
Veterinary GPOs vary widely in terms of business models, the number of suppliers, and the benefits each one offers. All the GPOs contacted for this article allow practices to be a member of more than one. Christine Panek, MBA, AAHA Advantage business manager, said some may begin restricting the number of times per year a member may change a vendor to the GPO discount to prevent “hopping” from one discount to another.
Rich Morris, chief executive officer for another GPO, The Veterinary Cooperative, said that while GPOs have no restrictions on the number of GPOs you can be affiliated with, vendors may have issues. “If you’re joining more than one GPO to get the benefits of every single vendor, it’s going to be impossible; they’re not going to allow that many overlaps.”
The following is a breakdown of the various veterinary purchasing groups, a sampling of suppliers (when available), costs, and benefits, according to the GPO. They’re presented in alphabetical order.
AAHA Advantage was created in April 2017 as a member benefit for AAHA-accredited practices. “AAHA Advantage is a nonprofit group, so we return all of the savings back to our members,” said Panek. “We wanted to provide a better option to our members for pricing.”
AAHA Advantage offers group purchasing in both the form of upfront discounts and in quarterly rebates. “When a practice signs up, we notify our vendors, and they can order directly from the manufacturer or from their own distributors,” said Panek.
For rebates, vendors issue them directly to the practice or, more typically, send rebates to AAHA Advantage, which will then distribute checks. AAHA Advantage vendors also offer growth rebates, which reward practices on year-over-year growth.
Panek said one of the unique benefits of AAHA Advantage is the dashboard, which allows a practice to sign onto the AAHA website and see exactly how much it is due in rebates for the quarter. The dashboard currently only shows the rebates issued by AAHA but will soon include rebates given directly to practices by vendors and will list growth goals for each practice.
Number of members: 668
Cost to join: $300 per year, which is deducted from each quarterly check at $75 each, so nothing is paid out of pocket
Vendor sampling: Boehringer Ingelheim, Elanco, Hills, Merck, Zoetis
Cost savings: An average of $15,000 per year (based on Q2 2017 savings annualized)
Other benefits: Will begin offering CE courses through VetFolio in 2019
Purchasing Services, Inc. (PSI)
PSI was founded in 1998 by the Florida Veterinary Medical Association to assist Florida veterinarians. According to Patrick McCarthy (the new president of PSI), Richard Wilkes, DVM, then split PSI off into its own entity. Nearly two years ago, PSI received an investment from Henry Schein, Inc., and Wilkes retired this past April.
PSI is now a national organization. “We have nearly a billion dollars of buying power for the collective,” said McCarthy. To join PSI, a prospective member must be an independent, noncorporate-owned veterinarian. “We are really committed to helping the independents,” said McCarthy. Once a credit application is approved by the vendors, members can start ordering from the list.
PSI also offers vendor rebates based on either purchases or growth goals for practices. The rebates are issued quarterly on a PSI-branded debit card.
One thing McCarthy said makes PSI unique is it assigns each member one of 24 area managers who are knowledgeable in practice management. Those area managers not only inform the practices on what’s happening with vendors but also consult with the practices on best business practices to help improve profitability. That may include presenting workshops onsite. “We really consider our area manager an employee of the practices they serve,” said McCarthy.
Number of members: 4,300
Cost to join: $50 per month ($600 per year)
Vendor sampling: Henry Schein Animal Health, Allied Veterinary Laboratories, Calico Financial, Ultima Dental Systems, Merck
Cost savings: 10-35%
Other benefits: Free business consultation and workshops from area managers, annual business symposium that includes continuing education
The Veterinary Club
Also known as TVC, The Veterinary Club was founded in 2010 in partnership with Amerinet (now Intalere), a large GPO in the human healthcare world. According to Bryan Benitz, managing partner of The Veterinary Club, the primary goal at that time was to help practices that focused on equine care. However, it has expanded to also include small animal practices as well.
The Veterinary Club works with Intalere, which has representatives negotiating for the best deals, said Benitz. Once a member joins, they are provided a member ID, and the practice must sign up with each vendor partner individually. “Five minutes spent linking to one of our vendors is a lot better than not saving,” said Benitz.
Members receive discounts with contracted vendors as well as rebates. Those checks are issued quarterly by Intalere. “The prices practices are getting are typically much smaller than what others in this industry are providing because Intalere is negotiating the best prices in the human healthcare industry, which is much larger than the veterinary industry,” said Benitz.
There is no obligation to use the vendors once a practice signs up, and there are no minimum purchase requirements.
Number of members: More than 3,000 practices
Cost to join: Free. Benitz said the vendors pay an administration fee of no more than 2% of the negotiated savings
Vendor sampling: Declined to provide; a sampling of vendor industries include telecommunication, pharmaceuticals, laboratory, office equipment, diagnostic imaging, and others.
Cost savings: Up to 50%
Other benefits: Not applicable
The Veterinary Cooperative
CEO Rich Morris said that this GPO, which was formed in 2012, is actually a true cooperative rather than a traditional GPO business model, which means profits are given back to the members. “We are owned by our members,” said Morris.
When members sign up for The Veterinary Cooperative (TVC), they have 30 days to review the programs to ensure they are right for the practice. “Over 80% of the practices that sign up for TVC end up joining,” said Morris.
Morris said members sign a nondisclosure agreement regarding the vendors who participate in the program. “We don’t like talking about averages, but a typical $1 million per year clinic who is trying to be a good cooperative member will typically save at least $10,000 per year.”
Morris said the main tenant of TVC is transparency, and the only “holdback” of a discount is applied to operating expenses. Any money that is not used for operating expenses goes toward a profit rebate, which is distributed at the end of the year. The holdback depends on the vendor but never exceeds 2% (and sometimes is 0%). One half of the members participated in the profit rebate last year and received $2,000 each. “It’s based on participation, not how big you are,” said Morris.
Number of members: More than 3,000
Cost to join: Morris said it varies from $100–$1,000 depending on specials
Vendor sampling: Declined to provide specifics but said a sampling of vendor industries includes finance, office supplies, pharmaceuticals, diagnostics, and major equipment
Cost savings: 2–50% depending on participation
Other benefits: Revenue-enhancing programs with pet food and other companies, continuing education, TVC University, live webinars, conferences, online forum
Veterinary Hospital Association
The Veterinary Hospital Association was founded in 1985, primarily focusing on assisting practices in Minnesota. The organization is national, but most members are still concentrated in the upper Midwestern states of Minnesota, South Dakota, North Dakota, and Wisconsin.
The Veterinary Hospital Association is also different in that members can either use their own vendor contacts and distributors or call VHA, which has a warehouse stocked with merchandise it delivers locally or dropships to its members.
VHA also produces monthly reports to let members know where they stand with regard to quarterly rebates and how much they’ve saved in discounts. Additionally, VHA returns part of the profits in the form of rebates to its members. “We bring the best parts of a [cooperative], association, buying group, distributor, and business partner together under one roof,” said Benson.
Number of members: 420
Cost to join: $150 per year
Vendor sampling: Boehringer Ingelheim, Ceva, Vetoquinol, Dalco
Cost savings: Benson said it varies widely depending on the vendor. Members did receive an average of $1,400 as an annual rebate in 2017, which is based on use of the program
Other benefits: Business consulting services and practice management (for reasonable fees), continuing education, cremation, and associate-to-owner partnership program
The following groups declined to participate in this story or did not respond to messages. The information provided is from their websites.
Veterinary Growth Partners
Number of members: 1,750
Cost to join: Unknown
Cost savings: An average of $26,500 per year for every $1 million in sales
Vendor sampling: Zoetis, Terumo, Antech Diagnostics, Alicam, Royal Canin
Other benefits: Continuing education, marketing tools, practice management tools
Veterinary Study Groups (Veterinary Management Groups)
Number of members: 1,000
Cost to join: Unknown
Cost savings: Unknown
Vendor sampling: Not applicable
Other benefits: Conferences
Number of members: Unknown
Cost to join: Unknown
Cost savings: Unknown
Vendor sampling: Vet One, Midmark, Veteos, Elanco, Securos
Other benefits: Networking summit, analytics dashboard, marketing tools, pricing strategies, access to industry resources
Choosing the Right GPO for Your Practice
Due to the increase in the number of corporate veterinary practices, it’s becoming even more evident small practices need purchasing power. “The only independents that will survive are those that join GPOs,” said Morris. “Go to a group and look at the website. Join the ones that work best for you. Join one you believe in.”
Kerri Fivecoat-Campbell is a freelance writer living in a tiny house in the Ozark Mountains with her husband and three rescue dogs. She is the author of Living Large in Our Little House: Thriving in 480 Square Feet with Six Dogs, a Husband, and One Remote (Readers Digest Books).