This report originally appeared in the January 2010 issue of DOTmed Business News.

Skepticism of GPO effectiveness in the healthcare cost arena still lingers, despite two recent studies that, respectively, attribute $36 and $60 billion in annual savings to GPO efforts.

That skepticism is more than a casual concern for GPOs, since the chairman of the Senate subcommittee on antitrust Herb Kohl has had GPOs in his crosshairs for years. And now, confronted with the recent reports of savings, he argues that the estimates are "highly exaggerated."
The Wisconsin Democrat, joined by Charles Grassley (R-Iowa) and Bill Nelson (D-Fla.), wrote a letter in August to seven of the largest GPOs in the nation, seeking some clarity, or as they put it: "It is essential that we understand how these entities operate."

For GPOs, the letter might be as impactful as Cato's were to the American Revolution, if the GPO responses don't convince Congress to maintain the safe harbor legislation that allows administrative fees, the lifeblood of GPO funding.

Fueling the fire, as always, is the Medical Device Manufacturers Association (MDMA), the trade group that has argued that GPOs shun smaller manufacturers for the more lucrative contracts with larger players, who by virtue of their larger sales volumes generate more total administrative fees for the GPOs. The MDMA web site highlights a recent letter to Forbes Online by Daniel DeLay, a former senior vice president at VHA, that further challenges the GPO administrative fee model, arguing: "This system raises costs for everyone. It creates an inherent conflict of interest for the GPOs...."

Whether DeLay is a valiant whistle blower or modern day Quisling, the battle lines are coming into focus, given that the raging healthcare debate cannot ignore an industry that governs $100 billion a year in healthcare contracting. There have been abuses, just as in any industry, and to eschew total transparency anywhere invites suspicion. But we should be mindful of the many great people working daily in the GPO industry to reduce costs in healthcare, thereby reducing the violent price variations of pre-group years, and, if nothing else, insuring thousands of providers against price gouging.

I would argue as a former hospital materials manager and vice president, one factor too often left out of the debate is the simple fact that purchasing personnel are understaffed and overwhelmed. With perhaps several thousand vendors to manage and many thousands of SKUs, such people stand bravely at the gate, charged with a primary goal of acquiring daily needs of critical products, trusting those products are safe, on time and available when needed by critical patients. They are Lucille Ball on the candy assembly line, trying to keep up. A GPO contract portfolio provides a blanket of protection, a trove of contracted pricing that, if untapped, allows thousands of daily purchase order prices to become the unpatrolled playground for predators.

Finally, the near total adoption of group membership by thousands of providers serves as a solid endorsement of GPO effectiveness, although some observers might blanch at the GPO "dividends" or "sharebacks" that build hospital loyalty and, as some suspect, could foul Medicare reporting. The urgency of that issue surely rates low on the list of monstrous challenges the government has in controlling Medicare costs generally.

Our system is byzantine, and defies easy analysis. We can only hope the Senate doesn't ask climate scientists at Britain's University of East Anglia to weigh in. But keep an eye on Kohl, et al., as they ponder the place of group purchasing organizations in our healthcare system. The stakes are high.

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