Medical Device Link.

Originally Published MX May/June 2004

ADVERTISING, DISTRIBUTION, & SALES

Hospital use of group purchasing organizations (GPOs) can be traced as far back as 1909. But it was not until the 1980s, when multiple financial pressures began to adversely affect hospitals, that the use of GPOs became widely popular. Since that time, the influence of GPOs has been felt throughout the healthcare system.

Medical product manufacturers seeking to sell into such an environment need to be aware of how GPO decision makers can affect selling practices. Following are some of the key characteristics of the current environment, as described by Robert Betz, president of the Health Industry Group Purchasing Association, in his July 2003 testimony to the U.S. Senate Committee on Judiciary, Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

• One-third of all hospitals have negative operating margins. All are experiencing increased costs and reduced revenue, which require they seek cost savings.
• Approximately 72% of all hospital purchases are made via a GPO-negotiated contract.
• In the United States, 96% of acute-care hospitals use GPOs to help reduce their purchasing costs, as well as improve their supply chain management and quality of care.
• On average, hospitals use the services of at least two, and as many as four, GPOs per facility.
• Most hospitals belong to multiple GPOs, each with a unique set of contracts. They thus have a choice among GPOs or to go directly to the supplier to purchase a particular product.
• As an industry, GPOs save providers between 10 and 15% of what they would pay without the benefit of a GPO.

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