Thanks to Prof S. Prakash Sethi*, I was honored to speak to his executive MBA class at Baruch College of Business at CUNY in New York City. The topic was “Management of Supply Chain in the US Healthcare Industry, Challenges and the role of Group Purchasing Organizations.”

My audience was an experienced group of people who came from providers to payers to suppliers, and the discussion centered on the following topics:

Overall healthcare spend and its effectiveness

US spends the highest amount of $ in the world, more than the national GDPs of many countries in Europe combined or more than the GDP of the second fastest growing country in the world!! But in terms of effectiveness we are ranked 11th place!

Outsize role of middlemen known as Group Purchasing Organizations

More than 50% of total healthcare spend passes through GPOs, with 98% of hospitals contracted with one or more of national and local GPOs. This part of the discussion raised these questions: Can the nation save $45B per year by repelling the safe harbor granted to the GPO’s? Can this savings be passed onto the common man? Are various powerful forces converging to create a tangible threat to this model? The purchasing consolidation model was great when it was created; has it lived its course? Has the safe harbor protection provided to GPOs has been abused in any way?

Over reliance on GPOs for negotiating and contracting

The audience brought up very interesting questions like: If hospitals were to move away from GPOs, how would they directly contract with suppliers? How long does it take them to develop internal talent? Do they bring in consultants? What happens to administrative costs? Will M&A empower hospitals to get better negotiating power? Why are GPOs interested in taking control of spend beyond medical, surgical, and consumables?

We also discussed competitive forces that can disrupt this model. Interesting one is that, based on industry grapevine, Amazon is in advanced discussions with the FDA to enter the healthcare market in a big way. They have already taken the first step towards addressing this area via Amazon business services. Will suppliers be able to resist the volumes that Amazon can push towards them? How do GPOs compete in that scenario?

As I began my long drive home to New Jersey, I couldn’t help wondering if just a handful of the students questioned the “status quo,” namely, the healthcare supply chain’s relationship with the GPOs, how would it really impact healthcare delivery in the US. Would we have more people getting the quality healthcare that they deserve? Would it empower hospitals to do more? Can it help some hospitals from closing?

I don’t claim to have all the answers. But the questions alone bring up a world of fascinating possibilities.

* Prof Sethi is a very well-known author and has been educating students, industry and policy makers on this particular subject for a number of years. You can find his book on this subject at http://www.amazon.com/Group-Purchasing-Organizations-Undisclosed-Healthcare/dp/0230607675/ref=sr_1_7?ie=UTF8&qid=1423690220&sr=8-7&keywords=Prakash+Sethi