Background of group purchasing

Hospitals and other health care providers face escalating pressures to provide the best, most efficient care to an increasing number of patients with declining financial resources from public and private sector payers. It’s a refrain we see across health care, particularly following the passage of the Affordable Care Act (ACA). How can we do more with less?

One way Vizient works with its not-for-profit hospital members to safely reduce their costs is through group purchasing arrangements where hospitals pool the negotiating and buying power of multiple health care providers to better negotiate the best drug, supply, services and medical device prices for patients. In short, group purchasing helps hospitals purchase the supplies they need for less. In fact, Vizient members have worked with our group purchasing organization (GPO) to save more than $1.8 billion annually on supplies and services they need to deliver the best patient care. Member hospitals say our GPO offers a fair and open marketplace for suppliers and helps them afford the high quality medical products patients need that might otherwise be too expensive. Keep in mind that in our case, as a member owned company, the hospitals themselves actually own the GPO. That means that the incentives for delivering savings are directly in line with helping hospitals afford what they need for delivering care.

A 2010 study from the U.S. Government Accountability Office found that an estimated 98 percent of America’s 5,000+ hospitals use GPOs voluntarily. It’s a system that works for them and for their patients and communities they serve.

Of course, hospitals do not buy everything they need through GPOs — far from it. The latest estimates show that about 27 percent of a hospital’s purchases are undertaken directly with a manufacturer, outside of a GPO contract. Hospital purchasing executives are in total control when determining what to purchase — and from where.

Vizient continues to monitor legislative and regulatory developments that could hinder GPO’s ability to continue to support hospitals and help them achieve these savings and efficiencies.

Current status of group purchasing organizations

Issues surrounding the operation of GPOs date back to the passage of the federal anti-kickback law in the early 1970s, a law passed to protect patients and federal health care programs from fraud and abuse by curtailing the influence of money on health care decisions. In the course of developing the anti-kickback provisions, it became clear that the law could prohibit some beneficial, money-saving commercial arrangements between hospitals, manufacturers and GPOs.

Congress, supported by the Department of Health and Human Services’ Office of the Inspector General, created the statutory exemption for GPOs known as the safe harbor because of the economic value they bring to the health care marketplace.

The need for expanded group purchasing capacity was closely linked to severe economic pressures mounting on hospitals beginning in the 1980s, pressures stemming from reduced Medicare and Medicaid funding, expansion of managed care and the rapid expansion of costly medical technologies. Group purchasing, then and now, offers hospitals the ability to lower their costs without diminishing patient care.

As such, Congress authorized the Department of Health and Human Services to issue regulations designating specific safe harbors for various payment and business practices that would be allowed.

Our position

Increased government examination of GPO practices and intense market competition have challenged GPOs to become more transparent, more responsive and more accountable. GPOs already are appropriately regulated to assure a competitive marketplace. GPOs also have processes in place to help clinicians learn about and afford innovative medical technologies they need to treat patients.

The current safe harbor that allows GPOs to support hospitals should remain in place. Repealing the safe harbor would severely damage a hospital’s ability to negotiate better prices and will drive up the cost of patient care. Increased regulation could greatly reduce the variety of GPO models that exist today, limiting competition in today’s expensive health care supply marketplace. Additionally, changes to the statutes and legislation will have a direct impact on providers’ bottom lines and their ability to provide optimal patient care.

What we are doing

Vizient undertakes many initiatives to ensure that hospitals can afford what they need for patient care. One example of these efforts is our work to ensure that the best products are made available to members regardless of manufacturer size. We are committed to encouraging and supporting the development of certified small, minority, women and veteran business enterprises (SMWVBEs) that meet high quality standards. Potential SMWVBE suppliers and distributors provide appropriate credentials verifying their classification as a SMWVBE business and can then join our Supplier Diversity Program, which includes purchasing and medical-surgical distribution agreements. Access to a wide variety of SMWVBE suppliers and distributors allows greater supplier choice for members and ensures access to the best products for the best prices.

We also helped to create the Healthcare Group Purchasing Industry Initiative (HGPII), where GPOs have created more transparent business practices, resulting in one of the most transparent business models in health care. HGPII works with its members to uphold ethical business practices and promote standards that are intended to strengthen the integrity of the health care supply chain.

With healthy competition between GPOs, Vizient believes that the marketplace is working to reduce the cost of medical supplies to hospitals across the country. Vizient continues to support hospital GPOs as an essential industry to hold down ever-increasing device costs and ensure the best value for hospitals.