In 2002, questions were raised about the ethical nature of group purchasing organizations (GPOs) after it was found that they were taking part in anticompetitive business practices, including excessively high contract fees. However, a review conducted by the U.S. Government Accountability Office (GAO) shows improved transparency within the system.
GPOs are organizations that act as purchasing intermediaries that negotiate contracts between healthcare providers and medical device vendors. The GAO was asked to outline initiatives and codes of conduct of GPOs after Sen. Chuck Grassley, R-Iowa, and other members of Congress questioned the business motives surrounding the purchasing organizations.
In 2009, 73 percent of all nonlabor purchases at hospitals were contracted by GPOs, and 98 percent of U.S. hospitals were using GPOs to purchase products. There are more than 600 GPOs in the U.S. alone and six of the largest GPOs surveyed in this review account for almost 90 percent of all hospital purchasing. The combined purchasing volume of these six GPOs totaled over $108 billion in 2008.
While all six of the GPOs examined within the GAO review offered custom contracting, clinical evaluation and standardization of products and assessments of new technology services, other services such as electronic commerce and benchmarking data services were only offered by some.
Only three GPOs reported providing their customers with patient-safety services and only one GPO provided clinical resource guides to address how to use products safely. Two of the six GPOs reported adding supply-chain analysis services to help customers manage in-house pharmacies, which included helping them to make the switch to low-cost generic drug therapy.
Additionally, GPO representatives said that the level for contract administrative fees from vendors is based on negotiated contracts with vendors, and in 2008, fees paid by vendors ranged from 1.22 percent of customer purchases to 2.25 percent of purchases.
Within the current review, GPOs reported that they received contract administrative fees that ranged from 0.09 percent to 10 percent of the product's purchasing price. Two of the GPOs reported that contract administrative fees in 2008 were over 3 percent of the purchasing price. Combined, the six GPOs collected $1.7 billion in contract administrative fees in 2008 and $320 million in other revenue. Additionally, 53 percent of GPOs' total revenue was distributed in 2008, which totaled about $1.1 billion.
“The GPOs in our review reported that they have revised their codes of conduct and established a voluntary membership association focused on promoting best practices and public accountability among member GPOs,” GAO stated.
One example is the formation of a 2005 policy that required GPOs to monitor the market for new and innovative technology products that had the potential to be included in contracts. Additionally, a 2008 policy recommends that the GPO include a provision within its contract that allows the GPO to add other vendors at any time if vendor precuts offer incremental benefits to patient safety.
Most of the GPOs surveyed reported that they had strengthened employee compliance of codes of conduct and educated employees on the codes. All of the GPOs reported that these codes of conduct may have decreased the potential for conflicts of interests because more of the revamped policies require the disclosure of such relationships.
“Some GPOs reported that their codes of conduct have resulted in more transparent business practices and that the establishment of HGPII [Healthcare Group Purchasing Industry Initiative] had an impact on both the transparency and accountability of their business practices,” GOA stated.
To monitor the aforementioned policies, the HGPII reports information on policies and business practices in an accountability questionnaire each year.
“Each of the six GPOs reported that their codes of conduct have had an impact on their contracting practices such as sole-source contracting and bundling,” GAO stated. Four GPOs reported that codes of conduct limiting sole-source contracts have results in the negotiation of multi-source contracts and limiting bundling resulted in GPOs choosing not to bundle products, even when this could result in lower prices.
The review of the six GPOs was conducted between June 2009 and August of this year and was in accordance with the GAOs Quality Assurance Framework.