Over 200 California Auctions End Today - Bid Now

Hospitals slam anti-GPO report

by Brendon Nafziger, DOTmed News Associate Editor | December 16, 2010
More than a dozen major hospital systems that are members of the same group purchasing organization attacked a medical device industry-funded report that argued GPOs raised supply prices, in the latest bout of scrapping over how best to control supply chain costs.

In a letter to the device lobby sent this week, the hospitals, which included Mayo Clinic, Memorial Hermann and Sutter Health, called the report "completely unbelievable," and said its proposals to change how GPOs are funded wouldn't cut supply costs and would hurt smaller hospitals.

Nearly all of America's hospitals belong to GPOs. The idea behind them is simple: to use the bargaining power of multiple hospitals to negotiate with suppliers to drive down product costs. But critics of GPOs claim they are caught in a conflict of interest, as they often collect administrative fees (usually a percentage of sales) from the very suppliers they're haggling with.

An October report sponsored by the trade lobby Medical Device Manufacturers Association said this situation meant GPOs did not provide the lowest prices, and that the government should overturn an exemption to anti-kickback laws that lets GPOs pocket their cuts when dealing with federal money, such as Medicare. In the report, the group said they had proof GPOs didn't bring the lowest cost: they ran a study showing prices of successful bids in some aftermarket auctions, where vendors bid with GPO-reached prices against other vendors, were 10 to 14 percent cheaper than the original price negotiated by the GPO.

But in their letter to MDMA chairman Eamonn P. Hobb, the hospitals said there's no evidence the lobby's favored approach, having direct funding of GPOs by hospitals, would affect prices over the long term.

"Our decades of experience negotiating with manufacturers tell us that it is implausible to think device manufacturers would voluntarily reduce prices for any sustained period of time if GPOs were funded directly by hospitals," they wrote.

They also pointed out that many smaller hospitals would be unable to afford such a scheme, and would therefore lose access to GPOs and price-saving features.

While the MDMA study found GPOs raised prices, others have backed them. A September report from the Government Accountability Office found hospitals increasingly relied on them to cut prices. And a federal court this August upheld a verdict defending device maker C.R. Bard's contract with a GPO, finding the organizations help lower supply costs on average by about 16 percent.