Leveling the Playing Field
GPOs empower practitioners with collective buying power
Mustafa Shah-Khan, DDS
During the past 10 years, I have written about the changing climate of dentistry, its evolving impact on practices, and the preservation of the independent dental practitioner. Being the founder and chief executive officer of a large dental group purchasing organization (GPO), the first article that I wrote was about the nature and significance of GPOs. Therefore, it is kind of fitting that after a decade in this space, I was asked to again write about what a GPO is and why should we consider using them.
To provide some background, GPOs have been prevalent in medicine for a long time. These entities have operated with hospitals and hospital groups to exert pressure on manufacturers to lower the cost of equipment and supplies in order to reduce overhead and increase profitability. When developing Synergy Dental Partners, my partners and I determined that the best course of action in the dental space was not to use the manufacturer model but approach it from a distribution model. Instead of working with only one or two manufacturers, distributors provide access to tens of thousands of items. A distribution model provides our members with access to all of the brands that they normally use and allows them to procure those brands in a business-as-usual manner. Because virtually all offices order supplies through an online portal, it has made the access to and use of newer and smaller distributors no different than that of the "big three" distributors. This allows for greater price competition to enter into the marketplace.
What Is a GPO?
A GPO is a buying group in which practitioners pool their collective buying power to exert influence on manufacturers and distributors to negotiate cost-savings opportunities on goods and services. These range from consumable dental supplies to implants, dental lab services, insurance rates, and potentially even front- and back-office "nonclinical services." The key phrase here is "nonclinical services." Unlike dental support organizations (DSO) or corporate dental groups, GPOs take no ownership of or stake in a practice and, therefore, do not have any influence on a practice's clinical decisions or operations. A GPO is a tool that both practitioners and practice owners can use to level the playing field with the DSOs and corporate dental groups. The primary benefit of a GPO is that practitioners gain the negotiating power of several hundred to several thousand practices instead of negotiating as one or two doctors or offices. It is important to note that the largest GPOs tend to be significantly larger than the largest DSOs. Some GPOs may have as few as a couple hundred members, whereas the larger ones can have more than 3,500 practices from all across the country as members.
Dental GPOs are not all created equally. There are various types and structures. An examination of the top dental GPOs reveals the following three differing models:
1. No cost, no contract model. This model allows a dentist to use the negotiated agreements of the group without paying a monthly or annual fee to the group. There are no set buying commitments or contracts. The members have free choice and can come and go as they please. This model costs the doctor nothing and can only help the practice control costs.
2. Fee-based model. In this model, the GPO charges a monthly or annual fee to the member and requires a contract and a minimum time commitment of 1 to 2 years to use the negotiated agreements. Fees typically range from $200 to $1,000 per month.
3. Percentage-based model. These groups require practices to pay 1% to 2% of their gross annual revenue to use the agreements and can involve a contract of as long as 5 years. For a practice grossing $1,000,000 annually, this could mean a fee of $20,000 per year. If you factor in the time commitment, this model could cost a doctor $100,000 just to be a member.
Why Use a GPO?
The question of why one would want to use a GPO versus the traditional brick-and-mortar distributor always comes up. My response is that there is no absolute answer to this. The largest benefit is cost savings. GPOs typically partner with distribution channels that are more heavily based in telephone or online sales. These authorized distributors provide virtually all of the products that are available from brick-and-mortar distributors but do not carry the same level of overhead. With lower overhead, they are able to provide lower costs in exchange for the prospect of greater sales from the collective group.
An average practice spends 6% to 7% on dental supplies and 10% to 12% on laboratory fees. For a $1,000,000 practice, consumable supplies can cost $70,000 and laboratory fees can total $120,000 annually. If a GPO could save a practice 20% in both of these categories, the annual savings for the practice would equate to $38,000-an amount that could cover an employee's salary. Moreover, if a doctor were to save that amount each year for 10 years and invest it with a 6% return, the investment value would equate to $500,870 at the end of the 10-year period. Although some may tell you that saving on 6% to 7% or 10% to 12% of your overhead is inconsequential, ultimately, these savings can result in a significant amount of money to be put toward retirement or a child's college education funding.
We all understand that we need to be excellent clinicians in order to have a successful practice; however, we also have to be prudent chief operating officers and financial officers. The GPO is one tool that can help with that. The "Trends in Dentistry" cover story from the January 2019 issue of Inside Dentistry reported that among the dentists surveyed, 29% said that they participate in a GPO or buying group. In the article, Roger P. Levin, DDS, suggests that "GPOs will become standard." He goes on to predict that "Eventually, the question will simply be, ‘which buying group do you belong to?'" What once was thought of as a flash in the pan is turning into a very real force in our profession.
About the Author
Mustafa Shah-Khan, DDS, is the co-founder and chief executive officer of Synergy Dental Partners in Charlotte, North Carolina. He also maintains a private practice focused on general and cosmetic dentistry in Charlotte, North Carolina.