Group purchasing organizations cost their member hospitals billions more than they should be paying for medical supplies, according to a new study funded by the Washington, D.C.-based Medical Device Manufacturers Assn.,
The study suggests that hospitals and the federal government could save $37.5 billion a year if they changed the way GPOs are compensated.
The organizations buy medical supplies in bulk for member hospitals and health systems. The study‘s (PDF) authors wrote that eliminating conflicts of interest and submitting to free market competition in the healthcare supply chain could force down prices.
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GPOs say their mission is to secure the cheapest options on medical devices for hospitals, but the MDMA study suggests that they opt to sell products based on which companies pay them a fee, rather than searching for the best prices. The GPOs subsequently sell the products to hospitals via “sole source” contracts; because insurance companies cover the costs, the higher prices go unnoticed by the customers.
Brookings Institution senior fellow Robert Litan and Navigant Economics managing director Hal Singer found that hospitals that avoid GPOs by purchasing devices in the aftermarket saved 10 percent on costs. The study analyzed 8,100 hospital transactions from 2001 to 2010. The authors also published a summation of their study in the Harvard Business Review blog, The Conversation.
“GPOs can and should have an important role to play in helping control U.S. healthcare costs. But the way they make money is at cross-purposes with their mission to be aggressive negotiators for their clients,” Singer said. “Under the current GPO compensation structure, GPOs are compensated not by their member hospitals but instead by medical suppliers. GPOs therefore are incentivized to protect deals with incumbent device makers, to the detriment of their member hospitals. Hospitals want to hold down the costs of medical equipment. By aligning the GPOs’ incentives with their clients’ incentives, GPOs would do an even better job at a time when holding costs down is vitally important,” Singer said in a prepared statement.
The U.S. Government Accountability Office published a report on the ethics of GPOs in August that noted improvements to the GPO system over the last decade.
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The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.
