Medical Device Link.

Originally Published MX May/June 2002

INDUSTRY ASSOCIATIONS

Despite recent criticism, group purchasing organizations offer providers advantages that the U.S. healthcare system has come to rely on.

Robert Betz

Robert Betz, PhD, is president and CEO of the Health Industry Group Purchasing Association (HIGPA; Washington, DC).

Spiraling healthcare costs have long been a concern to policymakers in Washington, DC, and elsewhere. Throughout the past decade, for instance, changes in the ways that patients pay for their healthcare have drawn dire predictions for the future of the U.S. healthcare system as a whole. Of special concern have been the inability of third-party insurers to keep up with rapidly rising healthcare costs, and the growing number of elderly patients who rely upon Medicare to pay for their healthcare.

What can be done to mitigate, or at the very least not inflame, this problem? One answer lies in maintaining strong and healthy group purchasing organizations (GPOs). For almost 100 years, GPOs have empowered hospitals and other healthcare providers, helping them purchase the best possible products at the best price. In an era when one-third of all hospitals have negative operating margins as a result of skyrocketing costs and falling reimbursements, the value that GPOs offer to providers will become increasingly important and apparent.

The cost-reduction value of GPOs is well documented. Hospital executives and purchasing managers have stated that, on average, GPOs save them 10–15% off what they would normally pay for medical products.¹ A March 2000 study commissioned by the Health Industry Group Purchasing Association (HIGPA) found that these percentages translate into savings of at least $15 billion each year.¹

Additionally, in July 2000, an Arizona State University researcher found that if GPOs did not exist, it would cost hospitals an average of $353,000 per facility to perform the same cost-comparison and product-standardization functions that GPOs provide.² What is particularly important about this figure is that it does not include the volume discounts that GPOs provide.

Indeed, between 96 and 98% of all U.S. hospitals participate in at least one GPO, while most use between two and four groups for their purchasing functions.³ This level of participation is not involuntary. Rather, because participation in a GPO is voluntary, such overwhelming use is an unambiguous testimonial to the value that GPOs offer to healthcare providers.

Product-Evaluation Practices

Recently, HIGPA commissioned The Lewin Group (Falls Church, VA), a highly respected independent research organization, to look at additional benefits that GPOs provide to hospitals, namely the clinical input processes that GPOs and their member institutions use to evaluate products.⁴ What the researchers found was a reaffirmation of the benefits that GPOs enable providers to realize—benefits that are in addition to volume discounts.

Specifically, the study found that GPOs play a critical role in drawing upon and consolidating the clinical expertise of hospitals across the country. In working with GPOs, hospitals seek to make clinically informed, evidence-based decisions about which medical products will offer the highest quality of care to patients, according to the report.

The study reviewed the processes that GPOs and their participating hospitals use to evaluate both existing and new technologies, including breakthrough products. A notable finding was that "GPOs and health systems conduct extensive and rigorous clinical reviews when deciding which healthcare technologies will be listed in purchasing contracts and made available for use.

"The exact locus of the clinical review process can vary—sometimes more is done at the GPO level, and sometimes more is done at the health system level—but in any event these processes employ widely accepted methods for assessing the clinical value of healthcare technologies."

Additionally, the researchers reported that "most health systems and GPOs have dedicated functions or other provisions for incorporating new and unique technologies into their purchasing contracts."

The Lewin Group found that the survey respondents "have established comprehensive committee structures and related processes to review new products. Committee members are generally drawn from the clinical, pharmacy, and technical staff of GPO member institutions, supplemented by GPO staff and other outside experts... Committees are charged to evaluate clinical and related technical properties first. If these elements are consistent with expectations for quality, then the committees consider relevant economic and other impacts of a product."

The study said that several elements of clinical review processes were prevalent among responding GPOs and health systems, including the following.

• Clinical review processes of health systems and GPOs rely upon comprehensive systems of expert committees.
• GPOs and hospitals are using recognized independent technology assessment resources.
• Health systems and GPOs have functions for monitoring and incorporating breakthrough and other novel technologies.
• There are mechanisms for ongoing review in place.
• Information is shared among clinical review functions.
• GPOs can facilitate clinical trials.

• Technical properties and performance.
• Safety and risk to patients and healthcare workers.
• Efficacy and effectiveness.
• Economic attributes.
• Acceptability to patients and clinicians (e.g., comfort, ease of use, utility).
• Risk of liability.
• Potential for standardization.
• Impact on market share and competitiveness.
• Requirements for facility or work flow modification.
• Manufacturer reputation and support.
• Capacity of vendor to provide sufficient and reliable supply.

At a minimum, what is clear from this study is that GPOs work closely with their provider-members to offer volume discounts for the most clinically appropriate products. Because hospitals are not forced to participate in a GPO—indeed, at least one-quarter of all hospital purchases are not done through a group purchasing organization—GPOs must have a clear understanding of what products their members are seeking to purchase.

Conclusion

Recently, some have suggested that GPOs act in a manner that differs from the interests of their provider-members. However, such an argument does not seem to be logical. In many instances, GPOs are owned by their member-providers and in all instances are ultimately accountable for providing them with substantial value. If GPOs fail in this duty, they will fail in a business sense. GPOs do not purchase products or compel their members to purchase a particular product. Their value is based solely on offering providers access to desired products at reduced prices.

The overwhelming use of GPOs is the best possible evidence that they are providing tremendous value to hospitals and other providers. As providers continue to feel increasing pressure to reduce expenditures while improving the quality of care, the importance of GPOs will grow.

GPOs are the real untold success story in healthcare. As more everyday Americans begin to feel the pinch of rising healthcare costs, the important role that GPOs play in healthcare will become far more visible and appreciated.

2. ES Schneller, The Value of Group Purchasing Organizations in the Health Care Supply Chain (Tempe, AZ: Arizona State University, 2000): 6.

3. 2001 Report & Directory: Multi-Hospital System & Group Purchasing Organizations (Chicago: SMG Marketing Group, 2001): 5.

4. The Lewin Group, The Clinical Review Process Conducted by Group Purchasing Organizations and Health Systems (Washington, DC: Health Industry Group Purchasing Association, 2002).

Copyright ©2002 MX