GPOs Fail to Secure the Best Prices for Patients and Hospitals
Elimination of GPO protections could reduce health care costs up to $37.5 billion each year
WASHINGTON, DC – Hospitals spend more each year on medical devices and equipment that are purchased through Group Purchasing Organizations (GPOs) than they would if GPOs were properly incentivized according to a recent study commissioned by the Medical Device Manufacturers Association (MDMA). The study empirically shows that GPOs fail to deliver on their primary justification for allowing them to receive kickbacks from suppliers, and that they do not in fact reduce costs relative to a world in which GPOs are funded by hospitals.
“It is painfully clear that while hospitals and providers are trying to improve care and reduce costs for patients, the supplier-funded GPO model is costing the health care system billions,” said MDMA President and CEO Mark Leahey. “This study proves that GPOs not only fail to bend the cost curve for health care down, they are preventing hospitals and patients from getting the best products at the best prices.
“This study bolsters our argument that Congress must pass legislation that will restore the illegality of kickbacks between suppliers and GPOs,” added Leahey.
The study, “Do Group Purchasing Organizations Achieve the Best Prices for Member Hospitals? An Empirical Analysis of Aftermarket Transactions,” found that repealing the safe harbor statutes Congress passed in 1986 would reduce private U.S. health care expenditures by up to $25 billion each year. This would also reduce federal health care spending by approximately $11.5 billion annually. Aftermarket transactions show that GPO member hospitals and health care providers would save up to $37.5 billion based on 2010’s most recent data.
Other key findings of the study include:
- Hospitals saved an average of 10 percent between 2001 through 2010 when they purchased medical devices aftermarket, when GPOs supposedly negotiated the best price;
- In 2010, the savings for hospitals was up to 18 percent for aftermarket purchases.
This groundbreaking study follows a 2009 report that showed hospitals could save approximately $8 billion each year if the safe harbor provisions were removed for GPOs. GPOs were established to save hospitals money on the purchase of supplies and equipment. For decades hospitals funded these GPOs. However, with the creation of a safe harbor by Congress in 1986, the GPOs became reliant on suppliers for funding.
The Congressional exemption allows GPOs to legally collect fees from suppliers to whom they award contracts. Contractual arrangements that have evolved between GPOs and their hospital customers frequently exclude competitive medical technologies that could help patients and allow hospitals to reduce costs.
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