Blog - Group Purchasing Organizations Expose Weakness in Market Solution

 

Some oppose the recently enacted Patient Protection and Affordable Care Act (ACA) because it provides for too much federal regulation of the health care industry.  These dissenters are proponents of a market based approach to health reform and contend that the market will find ways to drive down costs in the absence of burdensome government regulation.  But,  proponents of an entirely market based solution need to consider what has happened with Government Purchasing Organizations (GPOs) over the last two decades.

 

GPOs negotiate on behalf of a group of hospitals with medical supply manufacturers and then sell the supplies to the group hospitals at the negotiated price.  In concept, it seems like a good case of the market creating a way to save money by allowing hospitals to band together behind a GPO in order to leverage their collective buying power to negotiate lower prices.  However,  a 2010 literature review conducted by the Government Accountability Office (GAO) at the behest of the Senate Finance Committee’s Ranking Member found a dearth of reliable data and at best mixed findings.

 

Now an article in the decidedly left –leaning  The Washington Monthly  reports that self-dealing and conflicts of interest by GPOs and their executives has had the effect of both stifling competition and endangering quality and safety.  

 

 

The point isn’t to say that all GPOs are evil, or even to suggest that they do not save money—I’m sure they do save hospitals some money when compared to purchasing supplies on the individual market.  The point is that absent any real competition, GPOs cannot achieve the amount of cost control needed.  And of course it goes without saying that hospitals and other providers ultimately pass on their increased supply costs on to all payers.  I think only government can address the kind of cash fueled, unethical anti-competitive collusion, self dealing and conflicts of interest reported in this story on GPOs.

 

So what can we take away from all of this? While the profit motive and cost control do overlap in some areas such as in competitive bidding for government purchases of DME, they also depart in other areas.  Over the years, the experience of GPOs and medical supply companies suggests that when left to their own devices, they are unlikely to achieve any significant progress toward helping to “bend the cost curve down”.  Only government acting in the public interest can realign the profit motives of GPOs and supply manufacturers with cost control.  Now of course it goes without saying that there are any number of possible policy solutions, some more intrusive on the private market than others, but to contend that government has no role in the matter is untenable.

 

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