GAO Report Casts Healthcare GPOs in Favorable Light

The trade group representing the healthcare industry's group purchasing organizations says their efforts to improve transparency, accountability, and fair product discounting has been validated by a federal government report released this week.

The Government Accountability Office report interviewed GPOs, hospitals, and device vendors, and determined that hospitals increasingly rely on GPOs as the primary means to help keep the costs of medical products and services in check.

"With so many votes of confidence affirming the value of GPOs, and 98% of all hospitals reliant on GPO low-cost contract pricing, the market has spoken loudly and the facts are clear," said Curtis Rooney, president of the Health Industry Group Purchasing Association. "The GAO confirmed what the 8th Circuit Court of Appeals, U.S. Department of Justice, the Federal Trade Commission, and virtually all of the 5,000-plus American hospitals have already found—GPOs reduce costs for hospitals."

The GAO report was instigated at the request of Congress, which had raised concerns about GPOs engaging in anticompetitive practices such as collecting excessively high administrative fees. For the report, the GAO interviewed the six largest healthcare GPOs, which made a combined $108.7 billion in hospital purchasing in 2007. The GPOs were not identified by name in the report. 

According to the GPOs, the average contract administrative fees paid by vendors in 2008, weighted by purchasing volume, ranged from 1.22% to 2.25% of customer purchases. The GPOs in GAO's review reported that they have revised their codes of conduct and established the voluntary Healthcare Group Purchasing Industry Initiative association to promote best practices and public accountability.

Rooney said the GAO report "clearly demonstrates" GPOs commitment to transparency, even as they secure significant savings for the hospitals and healthcare systems they serve. "GAO and academic research have documented the significant cost savings and the wide range of valuable services that GPOs provide to hospitals, which is why virtually all American hospitals voluntarily contract with GPOs," he said.

The GAO study determined that:

•    90% of hospitals voluntarily contract with GPOs, and these hospitals use an average of two to four GPOs per hospital;
•  All GPOs evaluate technologies that could benefit patients, and can rapidly introduce these technologies in the marketplace;
•  GPOs respond to hospitals and long-term care providers by adding services to improve quality, safety and economy;
•  All GPOs offer a range of services to hospitals, including individualized contracting, product evaluation such as clinical evaluation and standardization, and assessment of new technologies;
•  GPOs distinguish themselves in a competitive marketplace by offering additional services designed to meet the needs of hospitals, including e-commerce and benchmarking services, patient safety services, clinical resource guides, and supply chain services to help manage in-house pharmacies;
•  GPOs provide many of these additional services at no cost to hospitals through collection of nominal administrative fees received from vendors under GPO contract;
•  3 of 5 device vendors interviewed indicated that they are now paying lower administrative fees, and that fees are more consistent and predictable as a result of transparency initiatives voluntarily undertaken by GPOs. The average weighted contract administrative fee for the GPOs interviewed ranged from 1.22% to 2.25%;
• Multi-sourcing device contracts may be less cost-effective than anticipated, as some medical device suppliers have increased device prices in response;
• All GPOs reported that their codes of conduct impacted their contracting practices, innovative product selection, administrative fees, conflict of interest policies, transparency and accountability of GPO practices;
• Voluntary initiatives undertaken by GPOs include establishing and revising codes of conduct, creating ethics hotlines for employees, hiring compliance officers, and convening Best Practices Forums, where Congressional staff is invited to monitor progress.