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PART 2: Fragmentation report on medical supply industry (Group Purchasing Organizations - GPOs).
Thank you for your question about the fragmentation report on medical supply industry Group Purchasing Organizations (GPOs). The best sources I used to answer your question are Ibis World and Supply Chain Association. The short answer is that, although I was unable to find a detailed fragmentation report on the GPO industry, my research showed that there are 657 GPOs in the industry and that the 5 biggest players account for 58.2% of total revenue (top 2 alone account for 52.8% of the total industry revenue). Although the industry is highly consolidated, smaller players focusing on a specific geographical location or niche are beginning to gain popularity despite the increasing consolidation trend in the industry. Below, you will find a deep dive into this answer.
METHODOLOGY AND DEEP DIVE
I researched corporate websites, industry reports and publications, as well as market analysis in order to gain an insight into the fragmentation in the industry. I also looked at the financials of the key players. I focused exclusively on GPOs, as directed. I started by looking at the industry in general, then focused on how much power the big players in the industry wield in comparison to the minor players. I have tried to answer all the questions you raised where possible, and have included additional information you may find relevant.
HOW MANY COMPANIES ARE THERE IN THE INDUSTRY?
According to Supply Chain Association, there are over 600 GPOs in the US. Ibis World reports that there are 657 GPOs in its research into the GPOs in the US. So it's safe to conclude that there are 657 companies in this industry.
HOW MUCH OF THE INDUSTRY IS OWNED BY SMALLER SHOPS?
After an extensive search, I couldn't find information on the market share of the smaller GPO businesses. However, based on my estimation detailed in the next section, 652 GPO businesses (excluding the top 5) account for 41.8% (100% - 58.2% (share of top 5 explained in the next section)) of the total revenue in the industry.
The Ibis World research may provide more information about the market fragments but payment is required before the full research report can be accessed. According to the Ibis World research, it's increasingly difficult for small players to gain a foothold in the industry because the big players have up to $50 billion in purchasing power. It also mentions that small GPOs and new entrants in the industry often contracts some of their purchases to the big players.
Experts also agree that only "a handful of national GPOs control the vast majority of the market." In fact, the largest GPO Vizient has a $100 billion spending power and serves more than 50% of the US acute care providers. It also serves more than 20% of the US ambulatory services. In addition, the second largest player Premier has more than $50 billion annual spend volume, and serves 76% of the US community hospitals, among others.
With the top 2 being as dominant nationally as the above statistics show, one can conclude that the smaller companies have little industry market share individually.
PERCENTAGE OF ANNUAL REVENUE CAPTURED BY THE TOP 5-10 COMPANIES
I couldn't find the exact data for this; however, I was able to estimate the revenue for the top 5 companies based on estimated annual revenue published. I found the 5 biggest companies based on rankings on Becker's Hospital Review 2015 and 2017 GPOs rankings. The figure below is only an estimate as I couldn't find exact revenue for Vizient, a company resulting from a merger of previous big players in the market. I have used the revenue estimate for the different companies that now make up Vizient and revenue estimates for the other top 4 GPOs I found.
-Vizient revenue = (I couldn't find revenue information for Vizient. However, Vizient is a merger of VHA-UHC Alliance, and Medassets). VHA-UHC Alliance 2015 revenue before the merger is reported as $737.889 million, while that of Medassets was $720.2 million in 2014 (I am using 2014 financials because Medasset was acquired in November 2015 so its fourth quarter financials of 2015 was not published. However, the company recorded modest gains in the first three quarters of 2015 compared to 2014). The total is $1.46 billion ($737.889 + $720.2 million).
- Total revenue of top 5 = $2.91 billion
According to Ibis World, the total GPO industry revenue is $5 billion. This means that the top 5 companies control 58.2% ($2.91 billion/$5 billion x 100%) of total market share. Also, it means that just the top 2 companies account for 52.4% (($1.46+1.16 billion)/$5 billion x 100%) of total industry revenue.
In terms of spending power, the top 4 GPO companies have a spending power of over $189 billion dollars. However, I couldn't find information on the total spending power of the whole industry so I can't estimate the percentage spending power of the top 4 company as a share of the entire industry.
OTHER RELEVANT INFORMATION
The industry is generally viewed by experts as being highly consolidated, and the merger of VHA-UHC and Medassets finalized in 2015, which were two of the biggest players independently, shows that this is a trend that is likely to continue. However, this article argues that regional and niche GPOs are gaining popularity because providers are hungry for options in an increasingly consolidated market. The argument is that some providers are looking for GPOs with expertise in their particular region or sector, while niches such as those focused on green products are also gaining popularity. It seems providers are also yearning for better customer service and relationship because they feel they are just another number in large GPO networks.
CONCLUSION
To wrap it up, although I couldn't find detailed market fragmentation data or report on Group Purchasing Organizations, my research revealed that the top 2 companies account for 52.4% of all revenue, while the top 5 account for 58.2% of the total revenue. My research shows that the industry is highly consolidated. However, smaller GPOs serving niches and regional markets are beginning to gain popularity.
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