Hospitals and other medical facilities use GPOs to get better prices on supplies.
Group purchasing associations, often referred to as group purchasing organizations, aim to get businesses better prices on supplies and merchandise by pooling their purchase orders. This gives GPOs greater purchasing power and the ability to negotiate more favorable purchasing contracts than individual members could get on their own. The concept exists in several industries, including food retailing. Associated Grocers, for example is a network of independent grocery stores and small, regional supermarket chains that helps smaller operators compete with the large national chains. However, GPOs are best known in the health-care industry where medical facilities use them extensively, with some controversy.
Bargaining Power
Medical supply and equipment manufacturers are usually willing to give discounts and favorable terms in exchange for guaranteed sales. That's why they give discounts in exchange for contracts involving exclusivity, volume and long periods of preferred provider status. While large hospital systems may have the buying power to negotiate their own discounts and terms, independent hospitals and small medical facility systems often face higher prices that make it difficult for them to get good deals. Purchasing associations and organizations were founded to help level the playing field and get all participating facilities --- large and small --- the best prices possible.
Dominance
According to the Health Industry Group Purchasing Association (HIGPA), 98 percent of hospitals use GPOs to make purchases. In 2003, the Federal Trade Commission found that the top seven GPOs accounted for 85 percent of all medical facility supply buying. This means that a few companies control the buying power of the entire health-care industry, which has sparked concern among consumers and regulators.
Questions and Concerns
The Federal Trade Commission, the Government Accounting Office and Congress have investigated health-care GPOs for price-fixing and working against consumers' best interests. They are concerned that GPOs lack incentive to really get the best prices as their revenues are based in part on percentages of total sales. The higher the sales price, the more GPOs collect, which runs contrary to the concept of getting the best pricing. Many GPOs also charge administrative fees to vendors who become part of their network of contracts. The FTC regards this practice as a form of "kickback," which raises concerns about whether or not GPOs are fully representing the interests of health-care facilities and, therefore, health-care consumers.
Sufficient Change?
HIGPA has led member GPOs in a movement to establish ethical standards. Most GPOs have developed their own documents on ethics. The FTC reports that despite adoption of GPO statements dedicating themselves to the interests of consumers, there remains reason to believe that GPOs are price-fixing and keeping prices artificially inflated, which increases health-care costs.
Tags: best prices, better prices, better prices supplies, buying power, Federal Trade, Federal Trade Commission
