Group Purchasing Organizations
I need 2 different discussion posts for a healthcare financial management class. Please make sure they have a different analyzation and ideas. the deadline is 16-20 hours
Group Purchasing Organizations
Respond to the following question (minimum 200 words) and provide at least two responses to the initial posts of others.
Group purchasing organizations (GPOs) play an important role in the provision of health care services in the United States. As hospitals and other health care providers have come under pressure to reduce expenses, they have turned increasingly to GPOs to reduce the costs of the products and services they purchase. Today, virtually every hospital in the U.S. belongs to at least one GPO. More than seventy percent of all hospital purchases are made through GPO contracts, and GPOs contract for purchases with an annual value in the range of $150 billion. The fundamental purpose of a GPO is to allow its members to join together to leverage their purchasing strength in order to purchase goods and services at lower prices, which in turn should enable them to lower their costs and become more competitive in the provision of their own services. In its basic form, a GPO is a cooperative of buyers.
While the original intention of GPOs was to cut cost, many have been skeptical of the GPO’s value. Where it gets even more interesting is the “pay to play” methodology the GPO’s have encouraged and how they get away with it:
“…But to get around that Act, the GPOs convinced Congress in 1986 that federal health care expenditures could be reduced if medical suppliers paid the GPOs’ costs. This meant they were exempted from the general statutory ban on kickbacks where the government covers health care costs. As a result, since the early late 1980s, GPOs have been paid a percentage of the total outlays by their member hospitals to preferred medical suppliers on the GPO contracts. The higher the expenditures, the higher the GPO compensation.”
Do you think that GPOs are good or bad for the healthcare industry? Back up your opinion. Document and include links to your sources. If you have had personal experiences with GPOs, please describe that.
I need also 4 responses to an exciting posts I will post them under this
by Danielle –
Hospitals and health care providers rely on group purchasing organizations (GPOs) to provide assistance in managing the system of purchasing. GPOs are found to be beneficial because they aim to save member hospitals money on reducing the cost of medical supplies. GPOs do this by relieving hospitals of transaction costs associated with purchasing medical supplies independently. Further, GPOs are said to seek the best supplies and products at the lowest prices, through competitive bidding or auction. Studies have found that without GPOs, the total amount of expenditures for medical equipment would be substantially greater by billions of dollars a year.
Though GPOs are seemingly helpful and beneficial, there are areas in which improvement can be made. First, the studies regarding the benefits of GPOs were exclusively funded by the GPOs themselves. Thus, the studies lack, “sound empirical basis.” Secondly, GPOs are compensated based on the amount the hospital is paying. If the hospital pays less for supplies- which is the purpose of GPOs- the GPOs, in turn, receive less money. In other words, if hospitals are paying more, the GPOs are getting paid more. This is a critical issue and a clear conflict of interest. In addition to this conflict of interest, there are other critical issues with the current state of GPOs. Studies have found that hospitals would save nearly half a billion dollars a year if the GPOs safe harbor permission were removed. Further, studies that expose hospitals to competition on the aftermarket found that GPOs are failing to secure the best possible price.
Harvard Business Review stresses that changing the method of compensation for GPOs can reduce the issues presented, without threatening the existence of GPOs all together. If the method of compensation is not changed the inherent conflict will be ongoing, and hospitals will continue to overpay for medical supplies. As a result of these findings, I believe that GPOs have the potential to be very beneficial for the healthcare industry. However, I believe that the method of compensation must be changed to eliminate any bias that could occur.
The goal of Group Purchasing Organizations (GPOs) is to help decrease total expenditures for healthcare organizations in regard to purchasing costs. Healthcare Supply Chain Associated estimated that GPOs will reduce costs by over $860 billion dollars by 2020. Studies support that GPOs decrease healthcare spending costs by billions of dollars every year. GPOs do offset the transaction costs for their member hospitals which helps save money. The concept of GPOs sounds excellent, but it has been met with challenges.
One challenge is that the funding for these studies that showed this significant cost reduction was provided by GPOs. This is a conflict of interest since GPOs want to show that they are effective in cost reduction. Another issue that arises is that GPOs are exempted from the anti-kickback statute of the 1986 Social Security Act. This means that GPOs make more money when the member hospitals pay more. This is another obvious conflict of interest. The CEO of BeatMed, a medical supply company, goes as far as saying that $860 billion is an underestimate of how much money can be saved.
I believe that GPOs are essential and do save a substantial amount of money for healthcare, but changes need to be made. The major change is that GPOs should not be exempted from the anti-kickback statute. This would help decrease costs by billions of dollars annually. Also, more research needs to be done which is not funded by GPOs to assess the true benefit of GPOs and savings.
by Ashlie –
Group Purchasing Organizations (GPOs) is a group which helps to leverage purchasing power of a group of businesses and does so by negotiating purchasing prices and obtaining discounts for members of GPOs. I found this example to be the best way to explain the function of a GPO:
For perspective, imagine that 1,000 vendors each sell 10 products to each of 2,000 hospitals. If each vendor bargains separately with each hospital, there are 2 million negotiations to determine as many as 20 million prices. If the GPO negotiates one price for each product on behalf of its members, then the number of negotiations falls from 2 million to 1,000, and the number of prices negotiated falls from 20 million to 10,000.
GPOs work with hospitals, nursing facilities, etc. to negotiate prices on expenses such as durable medical equipment, supplies, and instrumentation. I also found it interesting that, with GPOs, there is indication that providers save about 10%-18% by using GPOs and that healthcare providers may even pass some of this savings to their patients. Healthcare facilities depend on these GPOs that they are negotiating for the best prices available. One concern is that these facilities are depending on GPOs to obtain the best prices which is something that may or may not be happening.
I think, knowing this information, GPOs are useful for healthcare facilities in order to manage spending. If GPOs are assisting hospitals in spending, they can ulitmatley pass savings to patients. As mentioned earlier, a concern of mine would be if the GPOs are actually negotiating the best price for the facilities. As discussed in an article by Harvard, healthcare facilities would likely bid for lower prices if vendors were prohibited from paying GPOs. However, I do believe that ultimatley GPOs are a benefit to healthcare facilities as they help to reduce costs to the hospital which can help in reducing costs to our patients. Do I think more research needs to be done when it comes to GPOs? Absolutley. I think we need to better understand GPOs to assure they truly are saving healthcare facilities the money we think they are.
As healthcare expenditures continue to grow, Group Purchasing Organizations have been created to keep the cost of medical products reasonable. While the costs for medical devices have been limited for hospitals and health care providers, GPOs may not have the best interest in mind for care providers. There are certainly benefits and drawbacks to GPOs.
Group Purchasing Organizations have been assumed to create higher than necessary administrative costs, contract with one vendor, product bundle, and limit access to technologies. A major portion of health care costs are administrative in nature, with GPOs adding their own administrative costs the burden of the expense is placed on the consumer. GPOs contracting with one vendor eliminates probability of competitive pricing for medical devices. Product bundling can limit the amount of products/devices offered by a particular vendor, thus limiting the services that a healthcare provider can offer. Finally, GPOs limiting customer access to new and innovative technology may cause customers to seek care out of network, increasing prices or simply not having access to necessary care in turn worsening their condition.
“Of the over 600 GPOs in the U.S. in 2007, six GPOs accounted for 90% of all hospital purchases nationwide through GPO contracts.” (1).
In my opinion, theoretically GPOs make sense and would be good for healthcare, but if and only if there are a set of standards for GPOs to follow. GPOs must be held accountable to a universal code of ethics and must have an open network to suppliers for competitive purchasing options instead of contracting with single vendors. It is also often found that GPOs offer other services other than medical device purchasing such as e-commerce, benchmarking, resource guides, and supply chain services to improve quality, safety, and efficiency of care. As healthcare treatments and interventions are continuously revolutionized, prices are likely to increase, but GPOs can limit the increase for new, innovative technologies that can make an immediate impact/improvement on patient conditions. GPOs can cut healthcare costs significantly and assist greater access to care for many individuals.
Group purchasing organizations (GPOs) overall have a positive impact on the health care system in the United States. There are several positive impacts to explore when looking at the GPOs.
First, research has demonstrated the satisfaction of hospitals that utilize group purchasing organizations (GPOs). Hospitals have the option to create purchasing agreements without a GPO; however, approximately 96% of hospitals choose to use GPO contracts for some part of their supplies or purchases. In addition to the widespread use of GPOs among hospitals, the quantity of purchases that go through these organizations has also increased over time. Notwithstanding this impressive increase in usage, a poll given by experts at University of Pennsylvania found that approximately 90% of hospital executives were satisfied with the services provided by their GPO. This high satisfaction rate is bolstered by the average length of time hospitals will stay with the same GPO, which ranges from 9-11 years.
Another benefit of using a GPO is the savings hospitals and similar businesses save by purchasing through a GPO. Working with a GPO increases a hospitals negotiation power which in turn helps reduce prices on a variety of different products and services. A recent study by Federal Trade Commission found that GPOs save providers approximately 10-18% on a variety of services and products.
Lastly, group purchasing organizations have help foster more competition with suppliers. Through single source and dual source supply strategies that limit the number of sources, GPOs create a necessity for supplies to compete with one another during the bidding process. In doing so, GPOs may secure lower-priced products and services for their clients.
O’Brien, Daniel Anello, Russell (June 2017). How Group Purchasing Organizations Reduce Healthcare Procurement Costs in a Highly Competitive Market Daniel O’Brien, Jon Leibowitz, and Russell Anello. https://www.davispolk.
James G. Scott, J.D. John S. Voorhees Melissa Angel (October, 2014) GPOs: Helping to Increase Efficiency and Reduce Costs for Healthcare Providers and Suppliers https://www.
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