Group purchasing organizations (GPOs) play an important role in the provision of health care
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.
Answer preview to healthcare financial management
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