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Hospitals Blast Report that GPOs Drive up Healthcare Costs

By 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.

Hospitals that sent the most recent letter, including Allina Hospitals & Clinics in Minneapolis, Baptist Memorial Health Care Corp. of Memphis, Tenn., and St. Louis' BJC HealthCare, refuted study results, calling MDMA's position "unbelievable."

"Our decades of experience negotiating with manufacturers tell us that it is implausible to think device manufacturers would voluntarily reduce prices for any sustained period of time if GPOs were funded directly by hospitals, as your report suggests," reads the letter. "Contrary to your report's assertion, changing the current GPO funding mechanism would mean additional costs for hospitals and other health care organizations, thus driving healthcare expenditures even higher. Neither the healthcare community nor the country as a whole can afford the type of disruption and increased cost that your organization is advocating."

The long-standing dispute has boiled over at different times over the years, with each side appealing to Congress and the general public in support of their activities. MDMA has long been seeking a repeal of safe harbor provisions granted to GPOs in the1986 Social Security Act effectively making it illegal for GPOs to collect money from vendors.

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