Group Purchasing Organizations might seem mundane, but they generate a little controversy, as our post on the General Accounting Office report a couple of weeks ago demonstrates. Now the Medical Device Manufacturers Association commissioned a study to examine the effect of the GPOs on hospital costs for devices. (MDMA Report) The authors concluded that hospitals spent 10-14% less when they bought devices directly and that private payers could save $25 billion and the federal government $11.5 annually by changing the process.
Historically, GPOs were paid by their hospital members and some of the anti-fraud, anti-kickback statutes precluded payment from vendors. Those prohibitions were lifted and now, as the GAO report detailed, most of their revenue comes from contract administration payments from vendors, payments which are largely percent of vendor revenue type pricing. As the MDMA report points out, this may limit the GPOs’ incentive to get the absolute best pricing and the economists who authored the report examined a large number of transactions to conclude that hospitals often could and did get better prices outside of the GPO contract.
There might be a little bias at work here. Medical device manufacturers instigated the complaints leading to the GAO investigation. They are concerned that the GPOs interfere with their ability to market to hospitals and their physician staffs and that their product selection processes may shut some manufacturers completely out of hospitals. So its unlikely they would have released a report suggesting that GPOs were beneficial. On the other hand, some of the GPOs’ policies suggest they may have a little conflict in getting the hospitals the best price. As the authors suggest, it might be worth going back to forbidding vendors from paying the GPOs ostensibly working on behalf of hospitals or other providers. Every little bit of cost savings can be helpful, although, as with claimed IT savings for providers, it is not clear the cost reductions will get passed on to payers.