Group Purchasing Organizations (GPOs) offer enormous benefits to the healthcare industry by providing efficiency and cost reduction to healthcare providers. However, the group purchasing market in the United States is extremely competitive. For pharmaceutical drugs, for example, hundreds of GPOs compete with each other as well as self-procurement options (not through a GPO) that still account for 25% of hospital drug spending.

Within the GPO market, 35% of purchase volume is dedicated to pharmaceuticals, thus efficiency in the pharma contracting and pricing process is a high priority for GPOs. Yet, the process is still plagued by manual effort, contract misalignment, and errors. Multiple leading hospital networks, working with Chronicled, claim to find pricing errors from wholesalers on a daily basis in their current procurement process. This is a problem with minimal opportunities for improvement under the current industry process.

Multiple leading hospital networks, working with Chronicled, claim to find pricing errors from wholesalers on a daily basis…

A Problematic Process

In the current process, GPOs negotiate pricing contracts with manufacturers on behalf of their members (hospitals, clinics, pharmacies). Manufacturers then communicate those contract terms to wholesalers specifying which customers can receive which products at what prices. Wholesalers submit payment requests to manufacturers for the difference between their wholesale acquisition cost (ex. $100) and the discounted contract price (ex. $60), in the form of a chargeback claim (ex. $40 : $100 — $60), where manufacturers can then approve or dispute the offered price.

GPO membership rosters are always changing, as is the greater customer ecosystem, which means manufacturers have a constant challenge of reconciling GPO roster updates and maintaining customer eligibility lists for each contract. That manual process in addition to contract misalignment between manufacturers and wholesalers causes pricing errors and customer service issues that nobody wants.

In the competitive GPO landscape, ensuring customers receive the pricing promised to them in the GPO’s contract is critical. All GPOs operate within this same industry-wide process today which means any improvements that can reduce pricing/chargeback errors could offer a massive competitive advantage for a forward-thinking GPO.

A new paradigm for pharmaceutical contracting and chargebacks

The Contracts & Chargebacks solution on the blockchain-based MediLedger Network launched in 2020 to completely change how rosters, contracts, and chargebacks are managed between trading partners. The most important change is the ability to, through blockchain, communicate and enforce business rules between trading partners. Here is what the contracting and chargebacks process looks like running on the MediLedger Network:

1. GPOs that have joined the MediLedger Network have a manufacturer’s eligibility rules programmed into their MediLedger Node, enabling them to pre-validate their roster’s against those rules and integrated industry identifiers like HINs and DEAs.
2. With predictable rosters, Manufacturers can then begin to automate parts of their contract eligibility process, so GPO members are actually confirmed in contracts prior to purchase.
3. As manufacturers update contracts they are also validated ensuring wholesalers can immediately load pricing and customer updates into their system.
4. On an invoice, wholesalers ALWAYS have the correct price to offer each customer and chargebacks can be approved instantaneously.

In addition to better service and pricing accuracy for members, GPOs can also automate and solve many internal inefficiencies that exist today in their business model:

Visibility

Once a contract is finalized between a GPO and a Manufacturer, GPOs are left in the dark on customer eligibility, until they hear about a problem from the customer. This creates an enormous amount of manual work following up with trading partners to resolve the issue.

Through MediLedger, contract updates from a manufacturer are shared in real-time with wholesalers AND GPOs. This means that GPOs can resolve errors before they occur.

Member Reconciliation

GPOs determine member purchase volume by reconciling sales and chargeback data against member data. Sales and chargeback data are never fully aligned which means reconciliation is time-consuming and can result in “Unknown Members” as customer identifiers (HIN, DEA) change over time.

Through MediLedger, customer identifiers like HIN, DEA, and 340B are integrated and updated for all participants at the same time. That means that as data is shared clear customer identity can be maintained, eliminating confusion and reconciliation time.

Unresolved and Unapproved Chargebacks

GPO revenue in part comes from admin fees paid by manufacturers on approved sales. If a manufacturer does not approve a sale they don’t pay admin fees, which means disputes between manufacturers and wholesalers directly impact a GPOs business.

Through MediLedger, chargeback disputes are eliminated and GPOs have real-time insight into both sales and chargeback data. That means purchase volume and admin fees can be easily calculated and predicted, improving forecasting and financial operations for the GPO.

Conclusion

As a blockchain-powered network for the life sciences industry, the MediLedger Network continually strives to develop solutions that aid GPOs and their partners/customers. Learn more about participation here and come join the future of pharma, today!

1 — https://www.ftc.gov/system/files/documents/public_comments/2017/12/00222-142618.pdf

2-https://smallbusiness.chron.com/categories-expenses-revenues-hospital-business-set ting-4882.html

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