Physicians explore group purchasing as a way to cut costs

As a way to generate more revenue and encourage membership growth, the Metropolitan Medical Society of Greater Kansas City recently established a for-profit subsidiary designed to provide additional practice management services to physicians.

The company, Metro Med Inc., plans to provide a full range of services in time, but organizers are hoping to make a big splash by focusing on one way to make a universal financial impact: group purchasing agreements.

"The company's been up for 10 days, and we've already received plenty of phone calls," Sukumar Ethirajan, MD, an oncologist in Overland Park, Kan., and president of the medical society, said in mid-January. "The early interest is significant because doctors don't usually jump on board that fast."

With the economics of practicing medicine continuing to tilt against physicians, more doctors are looking for ways to achieve greater efficiency through cutting their own costs. Rather than combing through sales papers for deals on office supplies and spending hours trying to negotiate a price on a piece of medical equipment, some doctors have rediscovered the group purchasing concept.

By banding together, physicians can build purchasing power, which can lead to volume discounts on products. The larger purchasing body also might qualify for other vendor perks, such as training sessions for equipment or telephone support.

Meanwhile, attorneys say the idea generally is legally upstanding because theoretically, individual practices can achieve greater efficiencies through group purchasing, which will benefit the patient.

Although group purchasing has been a part of the modus operandi for hospitals for decades, the concept has been spotty among physicians, many of whom don't have the time or motivation to organize.

Physicians don't have to worry about that issue as much anymore, however, because groups are organizing for them. From for-profit companies that specialize in negotiating deals to the associations that provide group purchasing as a benefit to members, there are plenty of opportunities for doctors to save money.

For example, the American Academy of Family Physicians recently started negotiating discounts with software and technology vendors in hopes of making electronic medical record systems more affordable to individual practices. The AMA also has a list of vendors with which it negotiates special prices for members on equipment, medical supplies and other items.

"These companies have agreed to discount their products and services to academy members," said David Kibbe, MD, director of the AAFP's Center for Information Technology. "Our message to vendors is if you want to sell to 50% of physicians, you have to lower your prices. The interest among family physicians has increased significantly."

With fewer expensive pieces of equipment and drugs to purchase than do some specialists, primary care physicians generally have been slower to gravitate to group purchasing organizations. Others, such as oncologists or radiologists, have participated for years.

Alan S. Weinstein, MD, a hematologist-oncologist in Mt. Holly, N.J., is medical director and board chair of the Oncology Physician Network, a group purchasing organization made up of cancer physicians in Pennsylvania and New Jersey. The group started as an IPA last decade but has morphed into this new nonprofit business, which also sponsors educational sessions for members, funded in part by the operations of the group purchasing organization.

Dr. Weinstein said his practice enjoys a six-figure savings annually on drugs purchased through the network.

"[Group purchasing organizations] have to have something to purchase," Dr. Weinstein said. "If you're just buying staples and paper, that's one level. We're talking about moving multi-millions of dollars in drugs."

Still, physicians can purchase even the most mundane items through group purchasing, and they don't need to save hundreds of thousands of dollars to make it worthwhile. Even finding ways to trim small amounts from the practice's overhead can help lead to more efficiency in the office, which will lead to better patient care, Dr. Ethirajan said.

Group buyer beware

There are various organizations, including medical societies, willing to negotiate for physicians. But organizations differ in how they're set up; some simply negotiate for members, while others require a purchase guarantee from the doctors. In rare cases, a business will purchase the items and resell them to members.

"As physicians are looking around, they should understand the motivation of the organization," said Chris Schaefer, a senior consultant with Sokolov, Sokolov, Burgess, a health care consulting firm based in Scottsdale, Ariz. "Is it in it to make money for itself, or save money for its members?"

Schaefer said vendors also might agree to discounts, but the principles of normal retail shopping still might hold true: one vendor's sale price still might be higher than another's regular price.

Physicians also can't get too discount-hungry, either, attorneys said. If a group attains market power, where it begins to make a significant number of purchases of a certain item, it can be questioned for antitrust violations, they warn.

"It's hard to imagine a group of doctors having market power, but if you're in a rural area, you probably have more of a chance to run afoul of the law" because the number of physicians in the market would be lower, said Allan Hillman, an antitrust attorney with Neuberger, Quinn, Gielen, Rubin & Gibber, P.A., a law firm based in Baltimore.

As with any arrangement, it's best to consult with an attorney before joining an organization or starting a new one to make sure there are no legal questions, Schaefer said.

"Before you sign, you need to have someone look at it," he said. "You need to understand what you're obligated to do."