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Understanding the GPO Partnership Agreement

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GPO Partnership Agreement

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The GPO Partnership Agreement Should Clarify the Responsibilities and Engagement Rules Between the GPO and Its Members

When it comes to the GPO Partnership Agreement always utilize experienced GPO law firms and lawyers to mitigate risks for the GPO via a properly drafted GPO Partnership Agreement, there is simply too much at risk that can be avoided

For a brief understanding of a typical GPO Partnership Agreement, we have outlined below some of the common provisions included in general GPO Partnership Agreements, provisions that are useful in most GPO Partnership Agreements and for most types of GPOs. Remember, when it comes to typical business agreements between two parties, seeking legal advice is prudent, when you take into consideration the fact that GPO Partnership Agreements are executed among the GPO parent and many parties, having a law firm or lawyer that specializes in representing GPO’s and crafting GPO friendly GPO Partnership Agreements is critical for risk mitigation. It’s also extremely useful for the GPO members as the GPO Partnership Agreement also provides information on the rules of engagement to the signing members and having a clear, well-defined path to engage leads to more productive and headache free GPO and member interactions. Clarity is good for everyone involved and the GPO Partnership Agreement provides just that!

GPO Partnership Agreements

Group purchasing organizations (GPOs) come in all shapes and sizes and serve a wide variety of industries. One thing they have in common is that the relationship they have those to who use their services to achieve more favorable purchasing terms needs to be carefully documented through an agreement with each one of them. Such agreements themselves may go by various names, but here they will be referred to as GPO Partnership Agreements. Simply put, the GPO Partnership Agreement should describe the services provided by the GPO to its members or participants, specify how it will be compensated for its services and set forth what is expected of the members who enjoy the GPO’s services.

GPO Partnership Agreements – A Representative Sampling of Provisions Found in GPO Partnership Agreements

The points below describe a representative sampling of provisions that are often found in GPO Partnership Agreements, whether they be focused upon health care provider members or whether they serve other types of constituencies. Once again, the information provided below is not intended to be all inclusive, but rather is provided only for purposes of illustration. They are also not listed in any certain order of importance as it pertains to the GPO Partnership Agreement. GPO Partnership Agreements Often Contain the Following Provisions
  • The GPO Partnership Agreement provides the description and scope of purchasing program services to be provided by the GPO to it’s partnership.
  • The GPO Partnership Agreement contains provisions relative to the use and handling of data provided to and/or derived from the involvement of Suppliers and Members with the GPO’s purchasing programs.
  • The GPO Partnership Agreement specifies the dues or fees to be paid by the GPO Members.
  • The GPO Partnership Agreement provides the disclaimer of warranties of products and services provided through GPO to the member and limitation of liability provision
  • The GPO Partnership Agreement requires the GPO member to maintain public liability insurance of at least a certain amount and to name the GPO as an additional insured.
  • The GPO Partnership Agreement requires the GPO Member to indemnify and hold the GPO harmless from damages arising out of the GPO Member’s participation in the GPO and other specified causes.
  • The GPO Partnership Agreement provides the statement of criteria to be maintained on an ongoing basis to remain a Member of the GPO. Examples could require that the Member be creditworthy, be prompt in the payment of all debts owed to the GPO or its suppliers, that it be in the business upon which the GPO is focused, to list a few.
  • GPO Partnership Agreements set the expectations or duties to be performed by Member for the benefit of GPO. Examples could include a specified degree of support of the GPO’s purchasing programs, attendance at meetings, and participation on committees. (the latter two examples would be more typically found in a buying group or GPO owned its members.)
  • GPO Partnership Agreements define whether Member is permitted to join other GPOs. A GPO would not typically permit participation in other groups which closely compete with it.
  • GPO Partnership Agreements define whether the Member may have a separate purchasing arrangement with a supplier for products already covered by a purchasing program of the GPO. Click here for more details.
  • GPO Partnership Agreements set forth the grounds for terminating a Member’s participation in the GPO.
  • GPO Partnership Agreements set forth the remedies of the GPO against a Member or members for violating terms of GPO Partnership Agreement, or other defaults.
  • The GPO Partnership Agreement includes a provision for how long the GPO Partnership Agreement will be in effect, if not indefinitely, any automatic renewal provisions or providing for type of notice required to voluntarily terminate the Agreement.
  • The GPO Partnership Agreement stipulates what the rights of the GPO and the Member are upon termination of Agreement. For example, the GPO should be entitled to receive a release of liability from the Member upon termination.
  • GPO Partnership Agreements typically include a confidentiality provision to protect the proprietary information of the GPO with which the Member is entrusted.
  • Any GPO Partnership Agreement should include a provision that the Partnership Agreement is non-assignable.
  • GPO Partnership Agreements also contain the usual contractual provisions at the end, such as those pertaining to notices, governing law, dispute resolution, the remedy specific performance being available, etc.

The GPO Partnership Agreement – It’s Critical to Obtain Proficient Legal Advice When Creating Such a Foundational Agreement Such as the GPO Partnership Agreement, Including any Revision to a Standing GPO Partnership Agreement

The GPO Partnership Agreement is critical documentation of the GPO’s relationship with its members. Every group has its own unique objectives and requirements. The GPO Partnership Agreement should clearly delineate the objectives, rights, duties, and expectations of the parties, so that there can be no misunderstanding. We at Ray Law Firm, PLLC are well qualified, having done so for many GPO’s of all sizes and locations, to assist GPOs in this important task, whether it be in existence for years, in the process of formation, or are simply a gleam in their founder’s eye. When it comes to drafting and executing a GPO Partnership Agreement, count on the Ray Law Firm, PLLC to deliver reasonable, protective GPO Agreements with Clarity for all parties involved.

GPO Partnership Agreements – Key Components of the GPO Agreement With Respect to Healthcare GPO’s

When it comes to GPO agreements and healthcare, there are some nuances that make them different than GPO Agreements for other types of GPO’s. The GPO Partnership Agreements for healthcare GPOs must comply with the Safe Harbor Regulations to avoid possible exposure under the Anti-kickback Statute (AKS) (See 42 U.S. Code § 1320a–7b).  The Safe Harbor Regulations may be found at https://www.ecfr.gov/current/title-42/chapter-V/subchapter-B/part-1001/subpart-C/section-1001.952 and are cited as 42 C.F.R. § 1001.952(j).  The AKS only applies to GPOs that serve healthcare providers who receive federally funded healthcare payments such as Medicaid or Medicare.  For more information regarding the nature of healthcare GPOs and compliance with the Safe Harbor Regulations, please go to GPO Antitrust Update for 2023 and GPO Safe Harbor .  Accordingly, their GPO Partnership Agreements must check a number of boxes to comply with the Safe Harbor Regulations.  Partnership Agreements for GPOs that are not healthcare related are relieved of that burden.  Let’s focus upon the types of provisions that should be included in healthcare-related GPO Agreements

GPO Partnership Agreements - Partnership Agreements Provisions Specific to Healthcare Related GPOs

Under the Safe Harbor Regulations, the GPO Partnership Agreement must be entered into in writing with all of its members.  In addition, it must provide for either or of the following: (i) That participating vendors who sell to the GPO’s members will pay a fee to the GPO not to exceed 3% of the purchase price of the goods provided to the members of the GPO; or (ii) If the fee paid by the vendor to the GPO is not 3% or less, then the amount to be paid by the vendor must be disclosed, or if not known, the maximum amount to be received by the vendor must be disclosed in the GPO Agreement.  Such amount can either be stated as a fixed amount or as a percentage of the purchases made from the vendor by the members of the group under the agreement between the vendor and the GPO.  In addition, the GPO must disclose to each healthcare provider member in writing at least once a year, and to the Department of Health and Human Services, when requested to do so, the amount received from each vendor with respect to purchases made by on behalf of such member. The definition of a group purchasing organization under the Safe Harbor Regulations is worth noting here as it in and of itself can be seen as a requirement.  The definition is given as follows: 

“the term group purchasing organization (GPO) means an entity authorized to act as a purchasing agent for a group of individuals or entities who are furnishing services for which payment may be made in whole or in part under Medicare or a State health care program, and who are neither wholly-owned by the GPO nor subsidiaries of a parent corporation that wholly owns the GPO (either directly or through another wholly-owned entity).”

Therefore, another requirement is that the GPO must serve as a negotiating agent for a collection of unrelated healthcare providers.  If they were all affiliates of each other, then they would not fit within the Safe Harbor Regulations.  

GPO Partnership Agreements for Healthcare GPO’s - Let’s Consider Some of the Specific Provisions in a GPO Partnership Agreement for Healthcare GPO’s

With that general background in mind, now let’s consider some of the specific provisions that are wise to include in a healthcare-related GPO Partnership Agreement.  This list below is not intended to be all inclusive, but rather to demonstrate several provisions that are unique to healthcare GPOs.  They are also not listed in any particular order of importance with regard to healthcare related GPO Partnership Agreements.

  • GPO Partnership Agreements include a provision disclosing the percentage of purchase volume or the amount of fees the GPO will receive from the suppliers who participate in the GPO programs.
  • GPO Partnership Agreements include a provision requiring the GPO to report on an annual basis the amount it received from each Supplier with respect to purchases made by or on behalf of Member to the member and to the Secretary of the United States Department of Health and Human Services upon his or her request.
  • Both the GPO and the member will make its books and records open to each other for audit insofar as they pertain to such party’s participation in the purchasing programs offered by the GPO.
  • GPO Partnership Agreements include an agreement by Member to comply with the Safe Harbor Provisions.
  • GPO Partnership Agreements stipulates an obligation of Member to remain licensed under state law to provide its healthcare services and certified to participate in the Medicare and Medicaid programs.
  • GPO Partnership Agreements include a provision for disclosing the GPO’s affiliates who may either be suppliers or members of the GPO
  • That neither party is excluded or disbarred from participating in any Federal Healthcare Program (as defined under 42 U.S.C. § 1320a 7b(f), has not been convicted of a criminal offense related to healthcare services, or is under investigation for such.
  • Agreement by Member that every purchase of a product subject to the requirements of § 340B of the Public Health Services Act made by Member through any contract with a supplier contract provided by the GPO shall be for Member’s ultimate consumption or “Own Use,” and not for resale.
  • Similarly, Members should be required to agree not to sell any such 340B type product purchased through the GPO to any wholesaler, distributor, or other entity.

Attitudes of GPOs toward the ability of their members to cut separate, more favorable deals, or deals which build upon and enhance the deals made by the GPO vary widely, from GPO to GPO.

In the healthcare industry, side deals which completely circumvent the GPO are usually prohibited in the Partnership Agreement. This is understandable, because the GPO derives its revenues from the purchasing volume the group places with that supplier. If the purchases are made outside of the GPO’s program, it loses that revenue. On the other hand, if the GPO is primarily or exclusively supported by the Partnership dues or payments, then it may not object to such side arrangements. The economic reality is that the larger members of a GPO can often command more favorable terms than the smaller members can. The GPO does not want to lose the volume of the larger members. So, many GPOs will countenance or look the other way as to side arrangements that provide the larger members better terms than what is being offered to the Group as a whole. Such terms might be an extra rebate, extra discount off the pricing given to the group or a more favorable prompt payment discount.

Reviews

Specialized Distributors, Inc.

I am the president of Specialized Distributors, Inc. My partner and I formed SDI to serve as a buying and marketing group for automotive engine parts distributors. We are based in Pinellas Park, Florida, which is near St. Petersburg. Since 1989, our group has grown to include 71 members.

When we first got started, buying groups were a relatively new concept in our industry. The attorney I used in St. Petersburg for other business matters did not feel comfortable in representing our group. He was not aware of anyone in St. Petersburg who had experience in representing buying and marketing groups.

We found out about Harry Ray through our contacts with Auto Value Associates, Inc. He came highly recommended to us and justifiably so. Harry brought exactly the type of expertise and knowledge we were looking for in a lawyer. His representation of other buying groups gave him a good familiarity with the problems and issues we were facing.

He was able to offer suggestions that he had found worked well with other groups, not just with respect to legal issues, but with regard to practical business points as well.

Harry is easy to work with and is very down to earth. That may be what makes him such a good negotiator. We have put his negotiations skills to the test on more than one occasion and have been very pleased with his performance.

Harry has represented SDI from its inception and has given us guidance and insight into legal matters ever since. I highly recommend him to any purchasing or marketing group in any industry, whether they are already established, or just in the beginning stages of formation.

I would welcome the opportunity to discuss Harry’s services further with any interested party at any time.

Sincerely,

James K. Allen

President

Christian Outlet Group

The Christian Outlet Group, Inc., would like to take this opportunity to acknowledge the outstanding service and professional contribution that Mr. Harry Ray has rendered to our buying group as our legal counsel.

When our buying group was organized in early 1995 the group consisted of the original seven founding directors. In the past eighteen months we have added an additional 25 members and expect membership to exceed 40 by early 1997. Mr. Ray has been an essential part of this growth as he advised and guided the group in the establishment of our corporate charter with the state of Texas.

Mr. Ray provided the expertise in the development of our membership agreement, the membership application, the antitrust guide and confidentiality statement. He has also prepared legal documents with regard to procurement and the registering of our trademark.

As the assistant secretary of our board of directors he accurately prepares the minutes of our board and general memberships meetings.

We have found Mr. Ray to be astute in legal matters pertaining to buying groups and very helpful as we work through the growth and expansion of our organization.

Very truly yours,

Robert G. Coleman

Director of Operations

Christian Outlet Group, Inc.

The Parable Group

Harry Ray has served our company as corporate attorney for a number of years. His service has been excellent and timely. He has become a friend who always has our best interest in mind.

The Parable Group is a privately held company that services 338 independent retail stores throughout North America, who have a combined annual volume of over $410,000,000. Our focus is on marketing services, such as catalogs and other printed pieces, radio/TV spot production and spot buys, and data collection and manipulation.

We began the company 10 years ago with only a very limited number of stores. As we grew, we recognized our need for written agreements and a more structured working relationship with our stores, and sought legal counsel. As we searched the West Coast we were unable to find anyone who understood our business.

Then I had the privilege of reading an article on buying groups written by Harry Ray. I immediately called him, and after a short conversation, we engaged his services. Patiently he helped us work through the process of membership agreements, contracts with vendors and numerous other projects. His work has always been exemplary.

We would highly recommend Harry to you for any marketing or buying group-related services.

Sincerely,

Steve Potratz

President

The Parable Group, Inc.

The School Place

It is a pleasure for me to recommend the legal services of Harry B. Ray and his firm with regard to buying and marketing groups. We have worked with Harry since December of 2008.

The School Place, LLC is a marketing group designed to assist retailers in the marketing of K-8 instructional materials, educational toys and games, arts and crafts and teaching supplies. Not knowing any attorney who specialized in buying/marketing group work, we found Harry through an internet search.

We involved Harry from the beginning. He worked with us in preparing all of the documents we needed to get the group up and running. He and his firm have also been helpful in getting our trademarks registered.

I found Harry and his firm to be very detailed, knowledgeable, thoughtful, proactive and easy to work with. A typical corporate attorney would not be able to provide the level of service that they provided due to Harry’s specialization and focus in buying and marketing group work.

If you would like to discuss our experience in using Harry and his firm further, please feel free to contact me.

Sincerely,

Jack Summersell

President

The School Place (251) 645-8800

Buying Group Services

Buying Group Services, started in 1995, is a Buying Group Management firm specializing in the formation and management of buying groups.

For over five years I have known Harry Ray. His insightful and original thinking has provided keen observations to critical issues our company has faced over these many years. He manages that delicate balance of providing guidance under the law and guidance of good business. He has a unique ability to explain the law to even those of us who are legally challenged.

In addition to his knowledge of the law, it is his ever-growing experience in the buying group industry that we benefit from the most. His controlled emotional mannerisms make him a great partner at the negotiating table; you don’t want to play poker with this man.

My personal contact with Harry has been enriching and I am continually impressed by the astuteness of his observations. Harry has much to offer in a wide spectrum of practical businesses; his knowledge of the law is just a bonus.

Sincerely,

William R. Mathisen 

Executive Vice President

HMI

WHOM IT MAY CONCERN

Subject: Legal Services Of Harry Ray

It is my pleasure to provide the following letter of reference regarding the work you and your firm have done for HMI Buying Group and Red Tray.

In the way of background, I started HMI in 1983 as a buying group for private practice optometrists. Virtually all of the legal work we received prior to our relationship with you was high quality, but of a generic nature. The thing we really like about working with you is your background with the special legal needs of buying groups and purchasing alliances.

As I look back on the work you’ve done for us over the last three years, it also includes preparing applications for members, contracts for vendors, antitrust advice, trademark law and our special situation with credit card processing.

You have been excellent about responding to us promptly when needed as well as a pleasure to work with on a personal basis. We like your down-to-earth approach and have been very pleased with the advice and counsel your firm has provided. In my opinion, your services have been both timely and cost-efficient.

In closing, I would highly recommend your services to any buying group needing legal advice, whether they are well-established or just getting started.

Feel free to use me and Shirleen Prescott as personal references.

Respectfully submitted,

Jerry Hayes, OD

Owner and President

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