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entitled 'Group Purchasing Organizations: Research on Their Pricing 
Impact on Health Care Providers' which was released on March 1, 2010. 

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United States Government Accountability Office: 
Washington, DC 20548: 

January 29, 2010: 

The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

Subject: Group Purchasing Organizations: Research on Their Pricing 
Impact on Health Care Providers: 

Dear Senator Grassley: 

Hospitals and other health care providers use purchasing 
intermediaries--group purchasing organizations (GPO)--as a way to 
control the cost of various medical products. Through GPO-negotiated 
contracts, hospitals and other health care providers can purchase 
everything from commodities, such as cotton balls and bandages, to 
high-technology medical devices, such as pacemakers and stents. 
[Footnote 1] By pooling the purchases of these products for their 
customers, GPOs are in a position to negotiate lower prices from 
manufacturers, distributors, and other suppliers, which may in turn 
benefit health care providers and, ultimately, consumers and payers of 
health care such as insurers and employers. 

Members of Congress and others have recently raised questions about 
the extent to which GPOs negotiate lower prices for health care 
providers. GPO and other trade associations have funded studies on the 
impact of GPOs.[Footnote 2] However, these studies have limitations. 
[Footnote 3] You asked us to review research on the impact of GPOs on 
pricing for hospitals and other health care providers. This report 
summarizes the peer-reviewed and nonpeer-reviewed literature on the 
impact of GPOs on pricing for hospitals and other health care 
providers that we identified in our literature review. 

To identify the peer-reviewed literature on the impact of GPOs on 
pricing for hospitals and other health care providers, we conducted a 
literature review. To conduct this review, we searched 11 reference 
databases, such as EconLit and Medline, for articles published between 
January 2004 and October 2009. In our search, we used a combination of 
search terms such as "group purchasing" and "prices."[Footnote 4] We 
considered an article relevant to our review if it discussed the 
pricing impact of GPOs on hospitals and other health care providers. 
Using the articles we identified as relevant to our review, we then 
determined which of these articles were published in peer-reviewed 
journals. To confirm that our search captured all of the relevant 
literature that met our criteria, we reviewed the bibliographies of 
the relevant articles to identify other potentially relevant studies. 
We did not assess the methodologies of the studies we identified or 
review the reliability of the data used in these studies. 

We conducted our work from October 2009 through January 2010 in 
accordance with all sections of GAO's Quality Assurance Framework that 
are relevant to our objective. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

In our review, we identified one peer-reviewed article on the impact 
of GPOs on pricing for health care providers that was published 
between January 2004 and October 2009.[Footnote 5] The authors of this 
article concluded that according to hospital directors of materials 
management who are responsible for hospitals purchases of medical 
supplies, alliances between hospitals and GPOs can contain rising 
health care costs by reducing product prices, reducing transaction 
costs through commonly negotiated contracts, and increasing hospital 
revenues via rebates and dividends. The findings in the article are 
based on a national survey of hospital directors of materials 
management.[Footnote 6] While we did not assess the methodology of 
this article, the article identified some limitations to the analysis, 
including that the findings rely on the perceptions of materials 
managers identified through a survey and do not include empirical 
analyses of hospital cost savings. The article also stated that the 
survey yielded a low response rate of 16 percent. However, the article 
reported that, although the response rate was not high, the 
researchers found little evidence of survey bias introduced by the low 
level of response and employed additional techniques to correct for 
any potential bias. 

In the course of our review we also identified other, nonpeer-reviewed 
articles on the impact of GPOs on pricing that were published between 
January 2004 and October 2009. The articles provide mainly anecdotal 
and other information related to the impact of GPOs on pricing for 
hospitals and other health care providers and do not include the 
results of empirical analyses. (Enclosure 1 provides a selected list 
of these articles.) 

As arranged with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days after its issue date. At that time, we will send copies 
to other interested parties. In addition, the report will be available 
at no charge on the GAO Web site at [hyperlink,]. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. Please contact 
me at (202) 512-7114 if you have any questions. Major contributors to 
this report were Kristi Peterson, Assistant Director; Kye Briesath; 
Kelly DeMots; and Krister Friday. 

Sincerely yours, 

Signed by: 

Linda T. Kohn: 
Director, Health Care: 


[End of section] 


Selected Nonpeer-Reviewed Articles on the Impact of Group Purchasing 
Organizations on Pricing for Hospitals and Other Health Care Providers: 

Becker, C. "A shift for VHA; New approach aims to give members more 
cash back." Modern Healthcare, vol. 35, no. 19 (2005). 

Birk, S. "Millions saved with purchasing coalition." Materials 
Management in Health Care, vol. 18, no. 3 (2009). 

Long, G. "Pursuing supply chain gains." Healthcare Financial 
Management, vol. 59, no. 9 (2005). 

Page, L. "Buying en masse: Hospitals unite for purchasing power." 
Materials Management in Health Care, vol. 14, no. 6 (2005). 

Neil, R. "From the buyer's perspective: A survey of materials managers 
about their GPOs." Materials Management in Health Care, vol. 14, no. 9 

Rhea, S. "MedAssets' Colo. connection; State group creates regional 
GPO to reap savings. (Colorado Hospital Association's group purchasing 
program)." Modern Healthcare, vol. 37, no. 24 (2007). 

Rhea, S. "Shopping close to home; Illinois Hospital Association's 
regional GPO is off and running, but it's already facing competition 
from locals and nationals." Modern Healthcare, vol. 37, no.26 (2007). 

Roark, D. "Managing the healthcare supply chain." Nursing Management, 
vol. 36, no. 2 (2005). 

"Study documents savings from e-commerce." Hospital Materials 
Management, vol. 29, no. 7 (2004). 

Weinstein, B. "The Role of Group Purchasing Organizations (GPOs) in 
the U.S. Medical Industry Supply Chain." Estudios De Economía 
Aplicada, vol. 24, no. 3 (2006). 

[End of section] 


[1] A stent is a device used to provide support for tubular structures 
like blood vessels. It can be made of rigid wire mesh or may be a 
metal wire or tube. 

[2] See, for example, E.S. Schneller, "The Value of Group Purchasing - 
2009: Meeting the Needs for Strategic Savings" (2009); D.E. Goldenberg 
& R. King, "A 2008 Update of Cost Savings and a Marketplace Analysis 
of the Health Care Group Purchasing Industry" (2009); H. Singer, "The 
Budgetary Impact of Eliminating the GPOs' Safe Harbor Exemption from 
the Anti-Kickback Statute of the Social Security Act." Two of the 
articles (Schneller, and Goldenberg & King) were funded by the Health 
Industry Group Purchasing Association and estimate savings that GPOs 
produce for hospitals or other providers and federal programs, 
respectively. The third study (Singer) was funded by the Medical 
Device Manufacturers Association and analyzes the expected effects on 
federal expenditures if certain statutory protections for GPOs were 

[3] For example, the study by Schneller relies on estimates of savings 
reported by hospitals in a survey, but does not report the survey 
response rate or how the respondents were selected, although the 
author states that smaller hospitals were underrepresented. In 
addition, the article states that because of variation in how 
hospitals calculated their savings, it is difficult to precisely 
estimate savings to hospitals nationally. The Goldenberg & King and 
Singer studies apply varying assumptions to national expenditure data 
to model the effects of GPOs on providers or federal expenditures. 

[4] Our search terms included the following: "group purchasing," 
"purchasing alliance," "health," "hospital," "cost," "pricing," 
"prices," "price," "money," "medical," "physician," and "nursing home". 

[5] See L.R. Burns & J.A. Lee, "Hospital purchasing alliances: 
Utilization, services, and performance," Health Care Management Review 

[6] The survey was administered to all members of the seven alliances 
and individual members of the Association of Healthcare Resource & 
Materials Management, a professional society of materials managers 
affiliated with the American Hospital Association. According to the 
study, the seven alliances accounted for nearly 93 percent of hospital 
purchases through alliances, and the population of materials managers 
surveyed was approximately 5,014. 

[End of section] 

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