In an August 14 article the New York Times reported that three U.S Senators had announced plans to investigate hospital group purchasing organizations (GPOs). Given the tremendous importance of the current attempt to develop healthcare reform legislation, I wonder how the senators have found the time to reintroduce an inquiry on the exact same subject which was already investigated and cleared in 2002.
The Times reports, “Senate aides said they were still hearing reports of possible abuse, which intensified this summer as the Obama administration pushed for healthcare reform.” Very interesting. I wonder if this might be a result of the healthcare manufacturing and pharmaceutical industries’ concerns that legislation might result in even more pressure to reduce supply costs, “in exchange for certain assurances from the White House – assurances that have not been made public”..?
Given the statement in the article that savings in expenditures for hospital supplies are hard to verify because the “market’s opacity makes price comparisons nearly impossible,” let me try to bring some light to the subject by introducing common sense and fundamental business principles to the issues raised in the article.
- Savings in supply costs provided to hospitals as a result of negotiations by GPOs are significant. If that were not the case, why are supply companies lobbying so extensively against GPOs, concerned health reform will drive even further expense reduction efforts? There are many studies published by respected academic leaders that have documented the range of savings from GPO negotiated contracts. Volume purchasing does drive cost savings. Simply look at the success of large retailers like Walmart. While it may be difficult to identify what the price might have been absent the volume impact of GPOs, common sense and business experience clearly demonstrate significant savings do result.
- GPOs are concerned about therapeutic value and patient safety as well as price. During my career as a hospital CEO and member of a GPO, I participated in several of the expert panels convened by the GPO to evaluate specific products. Included in these panels were nationally recognized physicians whose clinical judgment was universally respected. Added to this, physicians on my medical staff had to be convinced the cost/quality decision resulted in the greatest overall value to their patients. To believe GPOs and hospital executives drive price without considering quality and patient safety is simply not true.
- I fail to see the relevance of the senators’ inquiry into “how [GPOs’] revenues are affected when an affiliated hospital buys supplies on its own, instead of using the group contract.” There are seven GPOs identified by name in the article. Each has its own strategic business model offering hospitals and health systems a variety of options on how its affiliates relate to the GPO. Volume commitment to a vendor is one of the key elements in determining contract price. Affiliates are expected to honor the contractual terms negotiated with a vendor. An affiliate has the option to move to another GPO if it finds the principles of a specific GPO too restrictive and wishes to purchase outside the GPO contracts.
- GPOs do provide “valuable programs to hospitals, beyond their basic contracting services.” Payments to GPOs support programs that advance patient quality and comparative clinical outcomes research. It is ironic that while the reporter feels this assertion might “backfire” on the GPOs as they are asked to document the factual basis for the GPOs’ position, an article in The Wall Street Journal only days later reported on a pilot Medicare project linking hospital payments to quality of care. In referring to the results over a four-year period, it quotes data provided by Premier, a GPO that has partnered with Medicare on the project. Perhaps the senators should expand their perspective as they move forward.
Our political representatives need to understand that sustaining and supporting legislation that results in a reduction in healthcare costs requires discipline and political courage to face the consistent opposition from the product vendors that are impacted. Congress has been unwilling or unable to even mandate competitive bidding for durable equipment provided by home health agencies. It is going to have to be more resilient in facing this challenge to the existence of GPOs.
Mike Stephens blogs regularly at Action for Better Healthcare.