Publisher’s Letter September/October 2009

GPOs getting asked the tough questions again

The recent inquiry by the Senate into GPO contracting practices resurfaces a number of concerns that seem to continually reoccur. The inquiry asks the seven big GPOs to provide more information on bidding processes, sole and dual source agreements, bundling and the flow of administrative fees. The last time these practices were probed, GPO contract throughput was somewhere around $80 billion in 2005 – increasing to over $130 billion in 2008.

Often the GPOs compensate their members and owners for purchases from their contracts with share backs that are essentially overages of funds used by the GPO to cover operations. These share backs have grown possibly three- to four-fold since the Senate judiciary committee first inquired into GPOs in 2002.

The Safe Harbor may be in jeopardy, not because these share backs put upward pressure on prices, but because of how the hospitals account for the revenue. If the Safe Harbor is rescinded, it will be fascinating to see the fee structure GPOs put forward.

Many people believe GPOs will have to charge a fee to hospitals for access to their negotiated contracts. So instead of hospitals receiving as high as six-figure checks, they will pay thousands in fees to get access to the negotiated prices. That change could be quite a budget shock to our nation’s hospitals.

In all the press, conjecture and posturing that swirls around GPO scrutinization that seems to happen every few years, you never really hear that many of the GPOs are owned by the hospitals using their contracts, and that every year they increase that utilization by billions of dollars.

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About the Author

John Pritchard
John Pritchard is the publisher of The Journal of Healthcare Contracting.