From the March 2011 issue of HealthCare Business News magazine


But increasingly, the federal government has also turned a suspicious eye toward the multibillion dollar industry. The Senate launched two preliminary investigations, in 2002 and 2009. And last year, Sen. Herb Kohl (D-Wisc.), chair of the Senate Finance Committee, hinted he would haul GPO executives before Congress for questioning. And the office of Charles Grassley, an Idaho Republican, budget hawk and famed fraud buster, prepared a 15-page report last fall that concluded “empirical data [were] lacking” to support GPO claims that they save the public money.

True, those congressional hearings were scrapped – a Senate aide told DOTmed News it was, supposedly, because the fall elections threw out space on the calendar. But GPOs aren’t out from under federal scrutiny yet. DOTmed News has learned from well-placed sources that the Federal Trade Commission is planning a major investigation this year into whether GPOs violate antitrust practices.


Even if the feds’ efforts vindicate the GPOs, as the organizations and some economists expect, or simply peter out, as critics fear, there are other forces at work. The pressures of health care reform, the rise of technologies enabling larger hospitals to more easily manage vendor negotiations directly, and even competition among the GPOs leading them to diversify their services – all these could make the GPOs of the future different from the ones we have now.

“My opinion is,” Moore says on the phone from Oregon, “in 10 years, I don’t see the GPOs there in the same form.”

Strength in numbers
The industry claims GPOs go back in one form or another almost a century, and the idea is simple: strength in numbers. Hospitals might not be able to drive much of a bargain with a supplier on their own, but grouped with a bunch of other hospitals, they can enjoy the benefits of lower prices thanks to much higher volumes.

At first, GPOs were largely paid for by membership dues from the hospitals, but in 1986, a change took place: Congress gave GPOs safe harbor exemptions from the Anti-Kickback Statute. This law let GPOs pocket administrative fees from vendors, to the tune of 3 percent of the volume contracted. It’s estimated that GPOs net at least half their revenue through these payments. And here’s where the controversy starts.

GPOs say the payments are necessary to run large organizations dedicated to the complicated business of tracking and negotiating prices from different vendors, and that smaller hospitals couldn’t afford to get involved if they had to pay hefty membership dues.

March 2011 Magazine

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