GAO Report on Group Purchasing Finds Increased Transparency, Low Administrative Fees and Discount Pricing as a Result of Aggressive Codes of Conduct and other Voluntary Accountability Initiatives

WASHINGTON, Sept. 28 /PRNewswire/ -- The Health Industry Group Purchasing Association (HIGPA) today applauded the release of a new Government Accountability Office (GAO) report on group purchasing organizations (GPOs), which detailed the comprehensive, industry leading steps taken by GPOs to ensure transparency, fair contracting, and discount product pricing for American hospitals.  

"With so many votes of confidence affirming the value of GPOs, and 98% of all hospitals reliant on GPO low-cost contract pricing, the market has spoken loudly and the facts are clear. We urge people to read the GAO report for themselves to get unbiased, non-political information proving that GPOs operate in a competitive market that is working and bending the healthcare cost curve," said HIGPA President Curtis Rooney.  

GAO interviewed the six largest GPOs, as well as several hospitals and device vendors, and determined that hospitals increasingly rely on GPOs as the primary means to help keep the costs of medical products and services in check.

"The GAO report clearly demonstrates the group purchasing industry's firm commitment to remaining the most transparent industry in health care.  The report affirms that our aggressive efforts have yielded increased transparency and low administrative fees in health care contracting, the second largest expense for hospitals after the cost of labor," said HIGPA President Curtis Rooney.  "GAO and academic research have documented the significant cost savings and the wide range of valuable services that GPOs provide to hospitals, which is why virtually all American hospitals voluntarily contract with GPOs."

"The GAO has confirmed what the 8th Circuit Court of Appeals, U.S. Department of Justice, Government Accountability Office, the Federal Trade Commission, and virtually all of the 5,000+ American hospitals have already found – GPOs reduce costs for hospitals," added Rooney.

Key GAO findings include:

• 90% of hospitals voluntarily contract with GPOs and these hospitals use an average of 2-4 GPOs per facility;

• All GPOs have in place programs to evaluate innovative technologies that could provide a meaningful benefit to patients, and can take steps to rapidly introduce these technologies in the marketplace;

• GPOs have responded to the needs of hospitals and long-term care providers by adding a broad range of services to improve quality, safety and economy;

• All GPOs interviewed offered a broad range of services to hospitals, including individualized contracting services, product evaluation services such as clinical evaluation and standardization, and assessment of new technologies;  

• GPOs distinguish themselves in a highly competitive marketplace by offering additional services designed to meet the needs of hospitals, including e-commerce and benchmarking services, patient safety services, clinical resource guides, and supply chain services to help manage in-house pharmacies;

• GPOs provide many of these additional services at no cost to hospitals through collection of nominal administrative fees received from vendors under GPO contract;

• 3 of 5 device vendors interviewed indicated that they are now paying lower admin fees, and that fees are more consistent and predictable as a result of transparency initiatives voluntarily undertaken by GPOs;

• The average weighted contract administrative fee for the GPOs interviewed ranged from 1.22% to 2.25%;

• Multi-sourcing device contracts may be less cost-effective than anticipated, as some medical device suppliers have increased device prices in response;

• In 2005, in consultation with Congress, group purchasing organizations created the Healthcare Group Purchasing Industry Initiative (HGPII), which has successfully led to increased transparency in contracting, increased number of multi-source contracts, and to the development of technology innovation provisions by all GPOS interviewed;

• All GPOs reported that their codes of conduct had an impact on their contracting practices, innovative product selection, administrative fees, conflict of interest policies, transparency and accountability of GPO practices;

• Voluntary initiatives undertaken by GPOs include establishing and revising codes of conduct, creating ethics hotlines for employees, hiring compliance officers, and convening Best Practices Forums, where Congressional staff is invited to monitor progress.

"Although the GAO report overwhelmingly demonstrates the positive impact of GPO initiatives on transparency in the contracting process, we will continue to work to improve the contracting process," said HGPII Chairman Lee Perlman.  "The group purchasing industry, with input from congressional staff and ethics experts, has recently adopted new measures aimed at further increasing openness and accessibility, including the establishment of a supplier grievance evaluation process to resolve contracting disputes through the American Arbitration Association, and an Independent Advisory Council providing independent, third-party oversight of compliance with the code of conduct."

At the request of Congress, the GAO has previously reviewed existing peer-reviewed and non-peer reviewed academic literature and articles about the impact of GPOs on pricing for hospitals.  All GAO-reviewed literature confirmed that GPOs reduce health care costs for hospitals by lowering product prices.

"As we move toward implementation of federal healthcare reform, the cost savings that GPOs provide to American hospitals are more critical than ever.  HIGPA is committed to further increasing price transparency in the healthcare sector, and to promoting access, competition and choice so hospitals are able to identify and purchase the best products at the highest value," said HIGPA Chairman Rand Ballard.

In 2005, the group purchasing industry created the Healthcare Group Purchasing Industry Initiative (HGPII), a voluntary membership organization dedicated to promoting best practices and industry accountability.  The goal of the Initiative is to ensure ongoing adherence to ethical conduct and business practices, and to hold the confidence of the public and the government in the integrity of the GPO industry.  Each GPO has committed to the Initiative at the highest level and adheres to a strict code of ethical conduct.  If a GPO refuses to abide by HGPII principles, it is expelled from HGPII.

To read the full text of the July 2010 GAO report on the group purchasing industry ("GPOs: Services Provided to Customers and Initiatives Regarding Their Business Practices"), please visit:  http://www.gao.gov/new.items/d10738.pdf

About HIGPA

The Health Industry Group Purchasing Association (HIGPA) is a broad-based trade association that represents 16 group purchasing organizations, including for-profit and not-for-profit corporations, purchasing groups, associations, multi-hospital systems and healthcare provider alliances. HIGPA's mission is to advocate on behalf of health care group purchasing associations, to provide educational opportunities designed to improve efficiencies in the purchase, sale and utilization of all goods and services within the health industry and to promote meaningful dialogue between GPOs. For more information, visit www.higpa.org.

About HGPII

Founded in 2005, the Healthcare Group Purchasing Industry Initiative (HGPII) is an organization that promotes and monitors the best ethical and business practices in purchasing for hospitals and other healthcare providers. The goal of the Initiative is to assure ongoing adherence to ethical conduct and business practices, and to hold the confidence of the public and the government in the integrity of the GPO industry. Each GPO has committed to the Initiative at the highest level and adheres to a strict code of ethical conduct. The governing body of the Initiative is comprised of the nine founding GPO Chief Executive Officers, who serve as a Steering Committee to set the Initiative's policies and programs.

SOURCE Health Industry Group Purchasing Association