8 Tactics for Negotiation with GPOs (Group Purchasing Organizations)

As a medical supplier, understanding how GPOs strategize and negotiate rates and discounts is essential to selling products and services while still making a good profit. Learning some of the top tactics for negotiation with GPOs can help you navigate agreements and contracts with more confidence and ease.

Key Takeaways:

• A group purchasing organization is an entity that connects different buyers interested in similar products and services.
• As more members join a GPO, that GPO’s purchasing power increases, allowing it to negotiate rates with suppliers to get better pricing for members.
• Common GPO tactics include communicating openly with group members and suppliers, creating a balanced tension, taking a value-based approach, and making upfront commitments.
• By partnering with GPOs, suppliers can gain access to new clients and spend less time and money on sales and promotions.

What is a Group Purchasing Organization (GPO)?

A group purchasing organization is an entity that connects different buyers interested in similar products and services. GPOs can get better prices on medical equipment, for example, for members of the group than individuals may find on their own.

A GPO can contract for massive amounts of supplies and negotiate discounts with suppliers for its members. As a result, group members can earn significant savings by ordering supplies through a GPO contract rather than working directly with suppliers.

There are two primary types of GPOs.

• Vertical: A vertical GPO works with members in a specific industry. For example, GPOs specializing in healthcare can supply things like lab equipment and other medical supplies for hospitals and doctors’ offices.
• Horizontal: A horizontal GPO may serve businesses in various industries by supplying items and services that all members need, like uniforms, office supplies, and IT support.

How a GPO Works

A GPO doesn’t directly purchase or sell supplies and services. Instead, they act as a “middleman” to create and manage contracts between suppliers and end-users. They negotiate prices and discounts with suppliers for their group members. As more members join a GPO, that GPO’s purchasing power increases, allowing it to negotiate prices with suppliers that are better should the hospital deal directly.

GPOs and group members aren’t the only players benefiting from this business model. Suppliers may also benefit when GPOs bring them large groups of buyers at once. Suppliers can spend less time and money on sales and promotion to gain new clients and don’t have to worry as much about competition.

Negotiation with GPOs: 8 Tactics for Suppliers to Understand

Here are some tips and tactics to help medical suppliers better prepare for negotiating with GPOS.

1. Expected Savings 

Expect GPOs to reduce the cost of healthcare supplies and equipment by 10%-18% through negotiation with suppliers, and by regulating the buying process. 

2. Open Communication and Transparency

Focus on relationship building when negotiating with a GPO. Being transparent and communicating openly can help you form connections that can lead to new opportunities. The goal is to develop a strategic partnership that benefits both parties.

Be open about what you hope to achieve through this partnership and why. Ask questions that help you eliminate unknowns and avoid making assumptions. You can expect the GPO to do the same.

3. Taking a Value-Based Approach

GPOs may take a value-based approach to learn the needs of their suppliers and members (end-users). This method involves relationship building based on mutual trust and respect. To retain group members, GPOs must treat them well and provide what they need. 

They’ll want to understand your target markets and how you define success to form a long-term partnership with you. 

4. Being Prepared

A GPO will come prepared to negotiate, so suppliers should, too. Understanding your objectives and values (and theirs) beforehand will help you deal with your GPO more successfully. Do your research so you know their strengths, weaknesses, and needs.

Always stick to your guiding principles. Also, know your starting point and end goal. Make sure you know at what point you would be willing to walk away without a deal.

5. Understanding Different Strategies

Have a Plan A, but also have a backup Plan B ready to fire if it fails. Two common tactics include principled negotiation and conflict negotiation.

• Principled negotiation: The four main elements of principled negotiation are 1) separating the person from the problem, 2) focusing on interests over positions, 3) inventing options for mutual gain, and 4) using objective criteria. Focus on achieving a positive mutual outcome.
• Conflict negotiation: This strategy focuses on resolving a dispute by providing for each party’s needs and addressing their interests. If negotiation is successful, it should conclude with a mutually satisfying outcome.

6. Making an Upfront Commitment

By making a commitment upfront and factoring in inflation, GPOs can form solid connections with suppliers and build long-term partnerships. If a GPO doesn’t commit to delivering, don’t make the deal. In return, they will expect you to demonstrate the same level of unshakeable commitment.

7. Creating a Balanced Tension Between Suppliers and End Users

GPOs can help their suppliers and end-users by creating a balanced tension between them. GPOs act as facilitators that must benefit both parties simultaneously.

8. Negotiating Price Based on Established Relationships

GPOs will base their prices on established vendor relationships. That means they may not always secure the best prices available. It’s vital for suppliers to benchmark their pricing against other pricing options in their region and negotiate better rates when given the opportunity. 

Again, coming prepared with reliable benchmarks will give suppliers more power in the agreement-making process.

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