Practices Look to GPOs Even as Reimbursement Cuts Loom

Tony Berberabe, MPH @OncBiz_Wiz
Published: Friday, May 16, 2014
Bruce Gould, MD, medical director at Northwest Georgia Oncology Centers in Marietta, Georgia

Bruce Gould, MD

Community oncology practices are at a crossroads despite the maturity of the marketplace. Running an efficient oncology practice is getting tougher and tougher, said Bruce Gould, MD, medical director at Northwest Georgia Oncology Centers in Marietta, Georgia.

“We deal with declining reimbursement— especially from Medicare and Medicaid. Practices just got a 30% haircut off of drug margins last year because of the sequestration cuts. There are continuous cuts, from 1 to 2% in the Medicare evaluation and management codes for physician services and chemotherapy administration codes,” said Gould.

Traditionally, oncology practices subscribed to the buy-and-bill model of drug delivery. Practices purchase the infusion-based or injectable therapies from drug wholesalers or group purchasing organizations (GPOs) that they administer to patients, rather than having these expensive medications dispensed through a retail or specialty pharmacy.

The practices store the medications as inventory onsite, administering directly to patients as needed. Practices then bill Medicare or private insurers, or collect copayments or coinsurance from patients. In the short term, it keeps the practice afloat and a steady stream of revenue flowing in. One study suggests that nearly 80% of an oncology practice’s revenue comes from the buying and billing of drugs.1

However, the model does open the practice up to a certain amount of financial risk because inventoried medications can expire or too much medication can be purchased without being administered. The practice could end up with a stockroom full of worthless medication. Inadequate reimbursement from both public and private insurers is also a distinct possibility.

Enter GPOs

That’s where group purchasing organizations come in. More than drug distributors, GPOs can help practices “remain financially healthy by providing tools and technologies that optimize financial performance and maximize practice efficiency,” says Jeff Lovesy, vice president of Physician Office Sales for Cardinal Health Specialty Solutions. These tools include practice analytics, reimbursement, inventory management, and financial analysis.

One core benefit of a good GPO is its ability to offer value through pricing, according to Barry Fortner, PhD, president, ION Solutions, an AmerisourceBergen company.

Many factors contribute to a GPO’s ability to secure this value, including size of its membership, longevity in the market, and historical performance.

“The value of a GPO goes far beyond the pharmaceutical contracts offered by including additional services such as educational opportunities, nondrug vendor partnerships that offer value, convenient access for services and technologies, and the creation of a unified community of practitioners,” continued Fortner.

In addition, GPOs can help practices remain independent by providing “better pricing on drug purchasing and information about drug rebates. This leads to lower cost of goods and improved operating margins for the practice,” says Gould.

The expertise provided by the GPO can improve practice efficiencies so that “the practice can have more money to keep within the practice to help with the bottom line,” he adds. Gould points out that GPOs, while often obtaining better prices on oncology agents, can be the only source to purchase certain medications.

He readily admits that 5 or 6 years ago, like most oncology practices, “We focused on our IV business. As long as it was making a few bucks and paying for itself, we were satisfied.”

Growing Involvement

GPOs have grown in importance to community oncology practices, with two-thirds of practices having a relationship with both a primary and secondary GPO, according to an August 2013 survey2 by Kantar Health, an evidence-based decision support partner to pharmaceutical, biotechnology, device, and diagnostic companies (see Figure 1: Community Oncology Practice Distributor/GPO Affiliation).

Meadow Green, a consultant in the Commercial Strategies Group of Kantar Health, says that according to the survey, “The number 1 reason for choosing a GPO is contract pricing and purchasing programs. That’s what is driving practices to develop relationships with these entities” (see Figure 2: Important Services Provided by GPOs).

“In the current reimbursement environment,” claims Fortner, “being involved with a GPO is essential.” He says that “It is difficult to imagine a practice not being a member of a GPO.”

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