by
Brendon Nafziger, DOTmed News Associate Editor | March 01, 2011
From the March 2011 issue of HealthCare Business News magazine
No, GPOs don’t save you as much as they could
But for others, the answer is unequivocal. “The reality is, nothing in life is free, and while the hospitals may not pay for these GPOs directly, they’re paying [for them in] inflated prices,” Mark B. Leahy, president and CEO of the Medical Device Manufacturers Association, a medical device lobby that has funded studies examining GPOs, tells DOTmed News.
An economist who conducted one of those studies, Hal Singer, now a partner with consulting firm Navigant Economics, says many of the studies demonstrating value for GPOs have a fundamental flaw. They always start off asking the wrong question, he says.
“The GPO proponents are good at misfocusing or misdirecting the argument [about] whether they generate savings. Of course they generate savings relative to a world in which there are no GPOs,” Singer says. “The interesting question is whether the GPOs could do a better job than they do today if they were financed differently.”
It comes down, in part, to the agency problem or principal-agent problem, which Singer says has bedeviled economists for decades. “How do you incentivize an agent to operate in your best interests?” he asks. “If you’re letting him be paid by some third-party for the transaction, that means he’s beholden to the third-party, and not to you.”
In the report prepared for MDMA and released last fall, Singer and his colleague Robert E. Litan were able to address some of these issues through what Singer calls a “natural experiment.”
That “experiment” involved the 10-year-old company MEMdata LLC., a service that works with hospitals trying to buy capital equipment. In essence, MEMdata requests that hospitals provide information on the products or services they’re looking to buy and quoted offers they receive; the service then attracts vendors and has them bid to compete against the earlier offers in so-called aftermarket auctions. In these auctions, GPO-contract vendors often bid with contract prices against other vendors.
“When [hospitals] go to purchase something, they simply forward a copy of their quotation to us, so we know how it’s priced and how it’s configured,” explains Bob Yancy, CEO of MEMdata, based in College Station, Texas. “We analyze based on that; we benchmark that quotation against what we have in our database. Once we have ascertained what the price point of the incumbent’s quotation is, we issue an e-RfP to the entire applicable market. There’s an average of 4.2 manufactures in every capital equipment category. MEMdata issues an e-RfP to those 4.2 manufacturers, we assemble those into a report, post it into an online account, and the customers are free to pick and choose who they want to go with.”
