The controversy over GPOs has been somewhat quiet over the past few years, but now the purchasing organizations are back in the news as a Washington Monthly story takes on the groups' power to limit market access for small companies and stifle innovation.
GPOs are purported to offer value to member hospitals by negotiating pricing with suppliers; buying in bulk for an entire network of hospitals could naturally be expected to yield lower prices on products and equipment, though the system has favored the largest manufacturers. Washington Monthly uses Retractable Technologies as exhibit A. The company developed a special IV port designed to reduce the spread of bacteria in hospitals and funded the research to prove the product's efficacy; earlier, the company developed a retractable syringe aimed at reducing needlesticks. However, as a small firm that didn't work with a GPO, they found they couldn't get in the door at hospitals.
A GPO has the power to set which products a hospital will buy. To the syringe example, the article describes how the GPO Premier contracted with Becton Dickinson, the largest supplier of syringes in the country, to require member hospitals to purchase 90% of their syringes and blood collection products from Becton Dickinson (Retractable Technologies' President and CEO Thomas Shaw described that deal on our blog here.) This would effectively shut out competitors and could prevent innovative products from gaining penetration in the marketplace.
In addition to concerns about patient access to the most effective technologies, there are concerns about whether GPOs are actually keeping prices low. Suppliers pay fees to contract with GPOs, and these fees can run as high as 25% of sales of some products, which could drive prices up. In his blog for us, Mr. Shaw likened these fees to "kickbacks," adding that this practice "would be illegal in virtually every other American industry." On the hospital side, bundling products may not be cost-effective.
Retractable Technologies' story is nothing new, but these questions about the value of GPOs are coming at a time when Washington is placing increased pressure on the healthcare system to cut costs and maximize efficacy - alongside the rise of comparative effectiveness, bundling, competitive bidding and a number of other measures intended to reduce mounting healthcare expenditures. Democratic Senator Herb Kohl is currently investigating how GPOs operate and says he's drafting new legislation designed to improve transparency at these organizations. In their blog on the topic, the Wall Street Journal reports that Sen. Kohl is working to schedule a hearing on GPOs this fall, which could bring GPO practices back into the limelight.
