by
Brendon Nafziger, DOTmed News Associate Editor | March 01, 2011
From the March 2011 issue of HealthCare Business News magazine
GPO advocates say many studies finding against GPOs don’t take into account the big picture. For instance, a 2002 pilot study by the GAO looked at hospitals in one city buying pacemakers and safety needles. It found GPO prices were often higher than prices paid when hospitals negotiated directly with the suppliers.
But critics of the study pointed out that it was limited to a single city. And the more important criticisms were that the study misunderstood how hospitals use contract prices: they don’t always take them as the final price, but rather as a starting-point for future negotiations.
The analysis also failed to take into account significant potential savings provided by GPOs in personnel costs. At the time of the GPO study, it was estimated that it would cost a hospital $155,000 a year to pay for staff to do what a GPO does. And in Schneller’s more recent report, he estimated that by using GPOs, hospitals saw $1.8 billion in savings on personnel costs, with possibly more than $2 billion in savings if whole health systems were taken into account. GPOs are, in effect, he said, “buffering hospitals from the need to comprehensively carry out strategic sourcing, contracting and other key GPO activities for inpatient pharmacy, general medical products, orthopedic products, other clinical products and housekeeping products.”
These findings are echoed by managers of some smaller hospitals, who reckon they would lose money if forced to bring the GPO functions in-house. Bradley LeBaron, the CEO of Uintah Basin Medical Center, a 49-bed hospital with a 90-bed long-term care center in deeply rural Roosevelt, Utah, said he likely couldn’t afford to pay employees to take on a GPO’s role.
“I don’t know that I could hire enough people to do all that minutiae in regards to all that negotiations to have it ever pay back,” LeBaron tells DOTmed News.
This is also part of the larger argument for GPOs – that too many of the criticisms center on the price of goods rather than the global costs associated with buying and maintaining those goods. As most buyers know, the price of a car is not just what you pay to get the keys in-hand so you can drive off the lot. It’s the service, insurance and other costs that must be factored in when looking at the lifetime expense.
When it comes to purchasing, many GPO contracts reflect “lifespan” costs, such as warranties and replacing out-of-date goods, advocates maintain.
“We tend to look at price, not total cost of ownership,” Schneller tells DOTmed News. “In those GPO contracts are things like returns and what happens if a product becomes obsolete.”
