Performance Playbook for GPO Value Spend Performance Solutions Struggling to Maximize Your GPO Relationship? We have a Playbook for that. Successful self-contracting efforts have led many organizations to question the future role of the GPO, an intermediary that has historically provided price insurance across a broad portfolio of spend. With the industry increasingly under the “value” microscope, many CXOs are applying this lens to GPOs, pushing on the true costs of the relationship. As a result, organizations are asking three key questions to critically assess the role and structure of their GPO partnership: What categories of spend is a GPO best equipped to manage? What tactics are available to hold a GPO accountable for delivering the best price? What models are available to tie GPO payments to documented value received? Refine Your Game Plan to Optimize ROI & Measure GPO Performance With forecasts indicating that hospital margin costs must be reduced by 17% by 2021 to breakeven, executives are re-evaluating traditional cost growth levers to maximize potential savings, including spend channeled through GPOs. There is demonstrated power in group purchasing, but given the nature of the model, GPOs are not able to affect price and drive savings in all spend categories equally. Hospitals cannot afford to assume that savings are tapped out in this area. Get set with your own Performance Playbook for GPO Value, a new strategy to take control of the GPO conversation. Performance Playbook for GPO Value Step 1: Define Your Strategy In light of organizational priorities, assets, and market alternatives, what should you ask of a GPO? Step 2: Specify Accountability What are the right metrics with which to measure GPO performance? Step 3: Negotiate For Value How do you regain control of contract terms, add transparency on both sides, and capitalize on competitive market dynamics? Improving GPO Service and Savings Disruption in the GPO Marketplace Provides Opportunity for Cost Reduction Market consolidation opens the door for providers to evaluate GPO relationships and determine what partnership mix drives the best value. Large gains can be achieved by: clearly defining a performance- based contract pinpointing initiatives ideal for large GPO savings shifting other spend areas for targeted cost reduction best achieved through other sourcing strategies, and driving a competitive process among market leaders to ensure the best rates. Saved by an academic medical center over 29 months $8.2M Saved by a large community system over 18 months $9.1M

Health System Optimizes New, Transparent GPO Contract Case Study Highlights Profiles in Impact Establish Transparency in the GPO Relationship Very few hospitals are maximizing spend channeled through the GPO. See how member hospitals are utilizing our best practices to strategically deliver significantly enhanced value and added transparency to the GPO relationship. Progressive Organization Attains Control in GPO Relationship, Increase Savings Organization: 320-bed academic medical center Challenge: Member skeptical of GPO value; dissatisfied with service. Incumbent GPO’s own price benchmark placed member in the bottom half of regional peers. Action: Analyzed terms of incumbent contract while driving competition through a RFP with two alternate suppliers. Negotiated with incumbent for increased guaranteed savings, penalties for missing savings targets, and future flexibility to reassess contract. Impact: $8.2M savings over 29 months; $200K increase in administrative fee shareback; onsite implementation resources added. Health System Optimizes New, Transparent GPO Contract Organization: Large community health system with 400-beds Challenge: Member questioned lack of quoted savings by incumbent. Complex contract limited ability to monitor actual savings and strategically cut costs. Urgent change needed, but faced termination penalty. Action: Negotiated no-penalty early termination exit strategy from the incumbent and oversaw competitive RFP process. Expanded scope of past GPO relationship, and developed a mutually accountable agreement to deliver bottom-line savings. Impact: $9.1M in guaranteed savings over 18 months; eliminated $1.5M early termination penalty. New contract includes 50% of GPO fees at-risk, 100% administrative fee shareback, additional staff, analytics tools, plus hospital CEO arbitrates all savings disputes. Retaining Control and Exit Strategy Hospital approves all GPO savings GPO compensates for all savings shortfall Hospital maintains exit option throughout term Holding GPO Accountable for Savings Guarantees Previous GPO contract did not reference any specific savings New GPO proposed structure focused on volume of suggested savings, no firm commitment Advisory Board secured $9.1M guaranteed savings in a mutually accountable GPO agreement Guaranteed (Incumbent) Savings Over 29 Months $8.2M Guaranteed Savings Over 18 Months $9.1M Ready to Optimize Your GPO Relationship? Contact: 202-266-5928 HoyC@advisory.com Connor Hoy Manager ©2015 The Advisory Board Company • advisory.com