Group Purchasing Organizations:

Federal Oversight and Self-Regulation

GAO-12-399R: Published: Mar 30, 2012. Publicly Released: Apr 30, 2012.

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Linda T. Kohn
(202) 512-7114
kohnl@gao.gov

 

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What GAO Found

GPOs are subject to certain federal laws that HHS, DOJ, and FTC are responsible for enforcing. According to HHS Office of Inspector General (HHS-OIG) officials, since 2004, the office has not routinely exercised its authority to request and review disclosures related to GPOs’ contract administrative fees, but it has collected information on GPOs’ contract administrative fees while conducting audits of hospitals’ cost reports. While HHS-OIG is responsible for enforcing the Anti-Kickback statute, the law and regulation do not require routine monitoring of GPO written agreements and disclosures. HHS-OIG officials told us that even if they requested this information from GPOs, it would not necessarily be sufficient to determine whether a GPO violated the Anti-Kickback statute. Officials from HHS-OIG also told us that, since 2004, it participated in two case investigations with DOJ that involved allegations that certain GPOs did not comply with safe harbor requirements and violated the Anti-Kickback statute. Officials told us that HHS-OIG has not imposed administrative penalties on any GPOs since 2004. DOJ and FTC have investigated complaints related to federal antitrust laws, and we identified one lawsuit filed by DOJ against a GPO in 2007. FTC officials told us that while the agency has investigated GPOs to determine whether their behavior was anticompetitive, the agency has not taken any enforcement action against a GPO since 2004.

The voluntary GPO association—HGPII—has continued its activities for GPOs to self-regulate their business practices, and also added some new activities since our 2010 report.

HGPII members are required to follow a set of principles of ethics and business conduct. HGPII members continue to be required to have a written code of business conduct, be accountable to the public by completing an annual public accountability questionnaire, and share best practices through an annual best practices forum. Subsequent to our August 2010 report, HGPII officials told us that the association formed an ethics advisory council in 2010 to provide advice to its steering committee and member GPOs on best practices and other HGPII activities. In addition, to address the concerns of vendors, HGPII implemented a vendor grievance process in 2010 that allows complaints to be reviewed by a third party provided by the American Arbitration Association.

We provided a draft of this report to HHS, DOJ, and FTC for comment. We also provided sections of the draft report to HGPII for comment. HHS, DOJ, and HGPII provided technical comments that were incorporated, as appropriate. FTC responded that it did not have any comments on the draft report.

Why GAO Did This Study

Increases in health care expenditures in recent years have intensified congressional scrutiny of the costs of medical care. Federal spending for health care services provided though Medicare and Medicaid in fiscal year 2010 totaled $793.2 billion—an increase from $514.3 billion in 2005. Federal spending for health care services is expected to continue to rise. The increase in federal spending for health care services can be attributed, in part, to the growth in health care costs, and an important component of those costs is the cost of products that hospitals and other health care providers purchase to provide care.

Hospitals and other health care providers, including those that participate in Medicare and Medicaid, have faced pressures to address rising health care costs. These providers have increasingly relied on purchasing intermediaries known as group purchasing organizations (GPO). The GPOs, on behalf of their customers—hospitals and other providers—negotiate contracts for products and services with vendors such as manufacturers, distributors, and other suppliers. The types of goods and services hospitals and other providers purchase through these GPO-negotiated contracts range from commodities, such as cotton balls and bandages to high-technology medical devices, such as pacemakers and stents. Vendors pay fees to GPOs, known as “contract administrative fees,” which are typically based on a percentage of the costs of the products that GPO customers purchase through GPO-negotiated contracts. These fees are GPOs’ main source of operating revenue, which they are allowed to collect if they meet the requirements of a safe harbor to the “anti-kickback” provision of the Social Security Act—known as the Anti-Kickback statute—which would otherwise prohibit such fees. Previously, some questions were raised about whether or to what extent the fees GPOs receive from vendors create a financial incentive for GPOs that is inconsistent with obtaining the lowest possible prices on behalf of their customers and by extension, federal payers of health care.

In recent years, members of Congress have raised questions about GPOs and we have issued several reports. We were asked about certain potentially anticompetitive business practices of GPOs4 and in July 2003, we reported that selected GPOs had adopted or revised codes of conduct in response to questions about their business practices. Later, we were asked about whether GPOs are saving their customers money, and in January 2010, we reported that we were unable to identify any published peer-reviewed studies that included an empirical analysis of pricing data that indicated whether or not GPO customers obtain lower prices from vendors.6 Finally, we were asked to describe the types of services that GPOs provide to their customers and how GPOs fund these services. In August 2010, we described the range of contracting and other types of services that certain GPOs reported providing to their customers, and the extent to which these services were funded using contract administrative fees or by charging customers directly for the service. This report also included updated information on initiatives implemented by GPOs to address continuing questions about their business practices, including the activities of a voluntary GPO membership association, the Healthcare Group Purchasing Industry Initiative (HGPII), which GPOs formed in 2005 in order to promote best practices and public accountability among member GPOs.

Since the establishment of HGPII, questions have continued to be raised about the oversight of GPOs. This oversight includes GPO efforts to self-regulate through HGPII initiatives as well as the oversight provided by federal agencies: the Department of Health & Human Services (HHS), which has enforcement responsibilities under the Anti-Kickback statute; the Federal Trade Commission (FTC), which is responsible for enforcing federal antitrust laws; and the Department of Justice (DOJ), which is responsible for enforcing both the Anti-Kickback statute and federal antitrust laws. For this report, Congress asked us to describe the oversight of GPOs. We describe (1) HHS, DOJ, and FTC oversight of GPOs since 2004; and (2) GPO self-regulation through HGPII.

For more information, contact Linda Kohn at (202) 512-7114 or kohnl@gao.gov.

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