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Hospitals Blast Report that GPOs Drive up Healthcare Costs

Jeff Elliott, for HealthLeaders Media, December 27, 2010

The smoldering dispute between the Medical Device Manufacturers Association and group purchasing organizations sparked to life recently  when 14 VHA member hospitals sent a letter to MDMA Chairman Eamonn Hobbs disputing reports that group purchasing organizations such as VHA are in fact driving up costs rather than lowering them as intended.

The letter, which was also sent to several members of Congress including Sens. Patrick Leahy, Charles Grassley, Max Bacus and Orrin Hatch, was largely in response to report issued by economists Robert E. Litan of the Kauffman Foundation and Hal J. Singer with Navigant Economics.

The study, underwritten by MDMA, concluded that even though GPOs are now entering "multisource" contracts—the result of Congressional pressure to create more competitive rates—compensation practices have incentivized GPOs "to maintain some monopoly pricing."

The conclusions are the result of an analysis of more than 8,000 medical device aftermarket transactions in which the winning GPO price—determined by an auction held by the GPO that grants suppliers the right to provide their products to member hospitals—was put up for bids from other suppliers after the initial auction.

"The transactions data suggest that, when exposed to competition in the aftermarket, hospitals were able to achieve average savings of approximately 10 to 14 percent across the entire database (2001 through 2010)," the authors said in the report. Additionally it claims that in more than half of the aftermarket auctions, device makers were persuaded to lower their prices by an average of 7 percent.

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