Hospitals in the Same Area Often Pay Widely Different Prices for Comparable Supply Items

HRD-80-35: Published: Jan 21, 1980. Publicly Released: Jan 28, 1980.

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A review was made of the procurement practices of 37 hospitals in 6 cities to determine: (1) the prices paid for selected routine hospital items; and (2) whether there are significant variations in prices paid for the same or similar hospital items within the same geographical area.

GAO identified significant differences in prices paid by different hospitals in the same geographic area for the same items. The overall weighted impact of the differences in terms of total annual usage was 10 percent, although in some instances the difference ran as high as 300 percent. No adequate explanation for the variations was apparent; however, the most plausible explanations were: (1) that purchasing agents did not share or exchange price information; and (2) that the higher prices for some items were due to other services furnished by vendors. Although the Department of Health, Education, and Welfare (HEW) and its Medicare intermediaries did not believe that scrutiny of the prices paid for hospital supplies would be cost effective, GAO identified 5 items which offered potential aggregate savings of about $150,000, or 4 percent aggregate volume of those items, for hospitals in two or more cities. The potential savings on the five items alone could amount to millions of dollars.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: On October 1, 1983, Medicare began implementation of a hospital prospective payment system that bases payments to individual hospitals on the average costs of all hospitals. This provides an incentive to hospitals to purchase items at the lowest cost. Therefore, there is less need for HCFA to be concerned about prices hospitals pay.

    Recommendation: The Secretary of HEW should direct the Administrator of the Health Care Financing Administration (HCFA) to instruct Medicare intermediaries to: (1) gather and compile price information in various areas on the five items GAO identified that appeared to offer the greatest potential for cost savings; and (2) communicate such information to the hospitals they service.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Not Implemented

    Comments: On October 1, 1983, Medicare began implementation of a hospital prospective payment system that bases payments to individual hospitals on the average costs of all hospitals. This provides items at the lowest cost. Therefore, there is less need for HCFA to be concerned about the prices hospitals pay.

    Recommendation: The Secretary of HEW should direct the Administrator of HCFA to instruct intermediaries to periodically monitor their hospitals' purchases of the items identified and report back to HCFA in order to: (1) assess the extent that this activity may result in cost savings; and (2) determine whether it should be expanded to include other hospital supply items.

    Agency Affected: Department of Health and Human Services

 

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