FOR IMMEDIATE RELEASE
Contact:
Mark Leahey
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HOSPITAL SUPPLY “SAVINGS” FROM GPOs REMAIN ELUSIVE
Hospital Industry Analyst’s Report Urges New Standards for Measurement
To Ensure that GPOs Justify Safe Harbor from Anti-kickback Statute
Washington, D.C., February 2, 2005 - Despite claims by hospital Group Purchasing Organizations (GPOs) that they save hospitals money on the purchase of supplies and equipment, compelling evidence will be generated only through new industry standards for measuring actual cost savings, according to a report by hospital industry supply chain strategist Lynn Everard.
The report, Defining and Measuring Product-Based Cost Savings in the Health Care Supply Chain, asserts that absent a "clear cut definition of what constitutes a product cost savings, hospitals will remain vulnerable to unsubstantiated claims of savings while their costs of doing business rise unabated."
GPOs operate under a unique and controversial exemption from a federal anti-kickback statute granted by Congress as a means of holding the line on hospital supply prices. The exemption allows GPOs to legally collect fees from suppliers to whom they award contracts for hospital supplies. But as supply prices continue to rise, the report says, the value of the exemption – known as a "safe harbor"– has been called into question. The Senate Judiciary Subcommittee on Antitrust has been so concerned about GPO business practices that it has conducted three hearings into the matter since 2002.
"In almost any other industry, the practice protected by the safe harbor would be considered illegal or at least unethical," the report states. "While the fees may be legal, their full impact on the GPOs’ business dealings with manufacturers may never be known – yet their effect on the health care supply chain is all too apparent." The report urged the hospital supply industry to commission a pricing study to "trend the pricing of not less than 1000 medical technologies and commodity line items over a period of not less than 10 years" to establish the impact of GPOs on actual prices to hospitals.
When is a "Savings" Not a Savings?: New Definition is Proposed
The report’s author, Lynn Everard, conducted a survey of hospital purchasing officers in an attempt to ascertain cost savings achieved for the hospitals by GPO contracts. "An overwhelming 94 percent of respondents believe that their GPO saves them money," Everard reports. "Yet only 29% said they actually knew how much money their GPO had saved them – and 80 percent of those said they knew how much, because their GPO told them."
As a first step in resolving the pricing situation, the report proposes that the hospital supply industry adopt a definition for "product cost savings." The proposed definition includes such considerations as pricing, length of time a price is in effect, terms of purchasing contracts, the role of list prices in determining cost savings, and a statement of "value."
"In creating the safe harbor the Federal Government intervened in the affairs of commerce related to the health care supply chain," Everard said in the report’s conclusion. "Should valid analysis determine that GPOs do not produce the cost savings and value they purport, the Federal Government should act to remove their previous interference, to restore the competitive market forces that result in lower prices and increased innovation."
MDMA has long asserted that the contracting practices of certain GPOs have had the unintended but inevitable effect of locking innovative products out of the hospital marketplace. Mark Leahey, MDMA executive director, said: "This report demonstrates that transparent business behavior is more likely to allow fair pricing and enhance competition in the hospital supply industry. Only by continuing to open up the market, and the practices of certain large GPOs, to public scrutiny, will health care professionals and the patients they serve gain access to innovative medical technologies that can save lives, at a cost that hospitals can afford."
Click here to view a copy of the report.
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The Medical Device Manufacturers Association (MDMA) seeks to improve the quality of patient care by encouraging the development of new medical technology and fostering the availability of innovative products in the marketplace. A national trade association based in Washington, D.C., MDMA represents thousands of innovators and entrepreneurs in the medical device community, including over 200 dues-paying members who develop and manufacture medical devices, diagnostic products, and health care information systems.