The Washington Monthly‘s Mariah Blake writes about the ins and outs of group purchasing organizations (GPOs) and their effect on the development of newer, potentially safer, medical equipment. She reports the system has kept potentially lifesaving innovations off the market and may be contributing to the rising costs of health care.
Among the products she cites as having been created but largely kept out of the supply chain as a result of the GPO system are a syringe with a retractable needle, a syringe designed to reduce bloodstream infections and a surgical towel that can be spotted on X-rays to keep towels from being left in the body after surgery. Those products were developed by small suppliers who seem to be squeezed out of the market by the system.
Photo by kreg.steppe via Flickr
Blake’s combination of narrative about the small suppliers who have been stymied by the system and her investigation into how GPOs became such a game changer will be of great interest to anyone who writes about health care costs and innovations in patient safety.
Blake explains the evolution of GPOs, “a system built on a seemingly minor provision in Medicare law that few people even know about.”
It’s a system that has stifled innovation and kept lifesaving medical devices off the market. And while it’s supposed to curb prices, it may actually be driving up the cost of medical supplies, the second largest expenditure for our nation’s hospitals and clinics and a major contributor to the ballooning cost of health care, which consumes nearly a fifth of our gross domestic product.
Through a series of court cases, one of which granted GPOs protection from antitrust actions, and their subsequent consolidation, GPOs revenues became “tied to the profits of the suppliers they were supposed to be pressing for lower prices.”
A former GPO employee explains, “But GPOs make their money by charging vendors fees. And if you get a percentage of sales, going with a lower bid from a little company just loses you money and pisses off the big vendors with multiple contracts.”
Blake reports that most small suppliers are wary of speaking out about GPOs. “Several talked to me off the record. At least a half dozen more agreed to speak, only to back out at the last minute or retract their statements after we had spoken.”
Blake points out that this incentive system has an effect on health care costs. GPOs contend that they keep costs down by pooling hospitals’ buying power, but Blake reports one company has kept data on hospital purchases and found that “bids hospitals got through their GPO contracts were substantially higher” than what could be had by negotiating directly with vendors for the same equipment.