by
Brendon Nafziger, DOTmed News Associate Editor | March 01, 2011
From the March 2011 issue of HealthCare Business News magazine
But opponents view it differently. In essence, they see a conflict of interest: why provide the best price when it seems to be in your interest to get the highest price?
“If you made more money based on the revenue, where is the incentive to become more efficient, if efficiency is defined as lower costs?” asks Prakash Sethi, an economist with Baruch College in New York, and author of the 2009 book “GPOs: An undisclosed scandal in the U.S. “
And observers also worry that a lot of power and influence is concentrated among a few key organizations. While the number of GPOs is famously controversial, with estimates at about 600, most are small players. According to the Government Accountability Office, the six largest national GPOs accounted for about 90 percent of all hospital purchases nationwide in 2007. The industry lobby HIGPA, on its Website, says the nine companies that make up the organization were 80 percent of market.
Of course, how GPOs pay for their operations, and how few of them control the market, wouldn’t really matter if they save hospitals and, by extension, the whole health care system money. And this leads to the main question, one debated in dueling studies, GAO reports, congressional inquiries and the verdicts of lawsuits. And the answer, it turns out, depends on whom you ask.
Yes, GPOs save the health care system money
GPO proponents are quick to point out that the bulk of investigations have been in their favor and that they have often been vindicated in court. A federal court decision last summer where a hospital sued the device manufacturer C.R. Bard over sole-sourcing contracts – the practice whereby GPOs source products through one producer – ruled in favor of Bard, saying that hospitals ultimately had freedom to buy outside the contract, and that the evidence suggests they save about 16 percent on their products by using GPOs.
And a report prepared for HIGPA by Eugene Schneller, a professor and supply chain expert at Arizona State University, directly surveyed hospitals and found big savings. In Schneller’s 2009 survey of 429 hospitals, he estimated annual savings from GPOs at around $36 billion, with between 10 and 18 percent price discounts on products.
And proponents also point out their popularity with hospitals. In fact, their chief complaint with GPOs is that they don’t work with them enough, according to Schneller’s report. He found that hospitals were happiest with GPOs when they used more of them, and almost 90 percent of hospitals wanted GPOs to have deeper contract penetration in most markets.
