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New report analyzes impact of GPOs

by Lauren Dubinsky, Senior Reporter | July 10, 2014
Group purchasing organizations (GPOs) deliver nearly $55 billion in annual savings for hospitals, Medicare and Medicaid and taxpayers, according to an economic analysis report announced yesterday by the Healthcare Supply Chain Association - a trade association that represents 14 purchasing organizations. GPOs are expected to generate up to $864 billion in savings for the entire U.S. health system, $229 billion for Medicare and $169 billion for Medicaid between 2013 and 2022.

“This report reaffirms the increasingly important role that GPOs play in the critical battle to contain health care costs,” Curtis Rooney, president of HSCA, wrote to DOTmed news, “At a time when hospital reimbursement is declining, health care CEOs and purchasing executives are turning to their GPOs to help reduce non-labor spending and to ensure that patient needs are met.”

HSCA commissioned Dobson DaVanzo & Associates, a health care consulting firm, to update a previous report conducted in May 2009. The economists at the firm carried out the analysis by using data published by the Centers for Medicare and Medicaid Services and several surveys published by other firms — one from Muse & Associates and another conducted by Eugene S. Schneller of Health Care Sector Advances, Inc.

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They found that GPOs save providers about 10 to 18 percent on their purchases. “We’re getting to a point where we know we have to rein-in our health care expenditures and every little bit is helpful,” Steven Heath, manager of research and data analytics at Dobson DaVanzo & Associates, told DOTmed News.

GPOs save the hospitals money by negotiating contracts to purchase supplies and have been bringing down the cost of supplies for hospitals for over 100 years, according to the economists.

However, they’re not able to calculate the savings from a century ago because some portion of it is “buried” in the baseline. “We know since group purchasing organizations have been in the mix for all this intervening time that they’re having an impact — it’s just impossible to quantify,” said Heath.

The analysis also found that hospital spending for implantable medical devices (IMDs) was fairly constant from 2010 to 2012 — it went up from 5.3 percent of overall hospital costs in 2010 to 5.7 percent in 2012. However, increased IMD market penetration for GPOs would lead to a reduction in the growth of hospital spending on IMDs, according to the analysis.

“Part of why we looked at it is because it’s been a very important driver of costs,” said Joan DaVanzo, CEO of Dobson DaVanzo & Associates. “It’s a component of supplies and it’s a very expensive component, and there has been a lot of back and forth and a lot of contention about it.”

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