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Group Purchasing Organizations: What To Consider

Tue, 08/18/2009 - 7:23am
Amanda McGowan, Editor
Recently, the New York Times reported lawmakers are questioning the inner workings of group purchasing associations (GPOs) as they look to widen health care coverage while keeping costs down. GPOs are commonly used among hospitals and other health care facilities for their purchasing needs. GPOs do not purchase equipment or products but rather negotiate contracts with medical device manufacturers on the hospitals behalf to grant them discounted prices on the equipment the facility needs.

Recently, the New York Times reported lawmakers are questioning the inner workings of group purchasing organizations (GPOs) as they look to widen health care coverage and keep costs down.

The senators questioning these organizatons are worried that GPO practices may actually be inflating health costs for taxpayers because of how much the government reimburses hospitals through Medicare. The article reports that Senators sent letters to seven of the largest GPOs this month asking for information on their business practices—how they are paid, the services they perform, and how they are affected when hospitals purchase on their own rather than through a group contract. Finally, the lawmakers asked for copies of contacts, something that, according to the article, is not normally made public.

With an estimated 96 to 98 percent of hospitals utilizing a GPO for at least some of its purchasing needs, here's a look at the ups and downs of GPOS and what they offer to a healthcare facility, as well as what they may cost now and in the future as this investigation unfolds.

Positive GPO Considerations:

  • Significant cost savings. According to a study conducted in April 2009 by Dr. Eugene S. Schneller, a principal at Health Care Sector Advances, Inc. and professor at the Arizona State University School of Health Management and Policy, of over 420 hospitals and three million hospital admissions, GPOs reportedly save over $36 billion in annual health care and related costs in the United States.
  • Negotiations are done by the “middle man.” Purchasing through a GPO, the organization negotiates with vendors to get discounted prices and ensures the hospital pays this amount, allowing the hospital to focus on other aspects of the budget and patient care rather than negotiating with vendors.
  • Availability. There are over 600 group purchasing organizations in the United States, with an estimated two to four being used per facility. These GPOs range in size and function, offering hospitals a range of organizations from which to choose.

Additional GPO Considerations:

  • Not knowing how exactly GPOs work. As GPOs vary greatly in size and function, the details of the negotiated contracts with manufacturers are largely unknown. The NY Times article reports that accurate tracking of the “savings” achieved by GPOs may not be possible.
  • Status of GPOs in the future is uncertain. With lawmakers investigating how exactly these GPOs work, and the uncertain future of the healthcare system, the way GPOs run and their relationship with hospitals could change in the future. Hospitals that have depended on these organizations for key purchasing decisions may be forced to look elsewhere, or take negotiating and buying directly from vendors into their own hands.
  • Patient safety. The main concern of a GPO, unlike a hospital, may not be patient safety. As the NY Times reports, GPOs are looking for the vendor that will give them the best contract. Quality or safety of a product may not be the top priority. Hospitals most certainly need to take this into consideration when choosing a GPO, as a discounted surgical device or piece of capital equipment is certainly not worth putting a patient at risk.

How does your facility utilize a group purchasing organization? Tell me about it at amanda.mcgowan@advantagemedia.com

Sources:
www.higpa.org
http://gpossavemoney.org/
The New York Times

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