Tuesday, October 15, 2013

GPOs: To be or not to be a member?

I recently completed a term paper from which the idea came about from discussions with a pharmacy director at a major hospital. While our discussion was centered around pharmaceutical shortages, a couple of comments that were made, sent me in a different direction that is discussed below.

Group purchasing organizations (GPOs) negotiate healthcare products and services (i.e. pharmaceuticals, medical devices, and cleaning services) for hospitals. The basic concept is that by pooling the demand from many hospitals into one, economies of scale can be created, thus obtaining lower prices from manufacturers and service providers.

Many hospitals will tell you that their GPO is great and saves them money and time. This is probably true. Other hospitals have chosen not to join a GPO, which means they must do all the negotiating themselves. They will tell you that joining a GPO would not save them money. This is probably true as well. Research confirms that GPOs save money and that GPOs do not save money. Therefore, the true answer probably lies somewhere in the middle.

My paper centered around determining when it makes sense for a hospital to join a GPO. Specifically, I wanted to know what the characteristics are for hospitals that choose to join a GPO and those that do not. While I do not have concrete answers, I believe that some hospitals are foregoing cost saving opportunities by continuing to belong to a GPO. However, to leave their GPO creates another set of challenges that were not discussed in-depth in the paper. Perhaps that is for next one.

If you are familiar with GPOs or other aspects of the healthcare supply chain, I would enjoy hearing your thoughts about this idea.