Medical Device Daily

The Medical Device Manufacturers Association (MDMA; Washington) is continuing its criticism of the group purchasing organization (GPO) sector, with a new challenge to the industry's oft-repeated claim that GPOs enable hospitals to reap significant savings when purchasing supplies and equipment, thus benefiting the entire healthcare system.

MDMA this week issued a statement citing a recent report arguing there is no “clear-cut definition“ of the purported savings via GPOs and that, without such a definition, “hospitals will remain vulnerable to unsubstantiated claims of savings while their costs of doing business rise unabated.“ Titled “Defining and Measuring Product-Based Cost Savings in the Health Care Supply Chain,“ the report was prepared by Lynn Everard, an independent consultant and “hospital industry supply chain strategist,“ according to MDMA.

The “safe harbor“ exemption from federal anti-kickback rules granted to GPOs by Congress is one target of the report. The exemption enables GPOs to collect legal fees from suppliers to whom they award contracts for hospital supplies, but the report says this exemption is highly question-able as supply prices continue to rise.

The Senate Judiciary Subcommittee on Antitrust also has been concerned about GPO business practices and has conducted three hearings into the matter since 2002, the MDMA noted in a statement.

Everard states in the report: “In almost any other industry, the practice protected by the safe harbor would be considered illegal or at least unethical. While the fees may be legal, their full impact on the GPOs' business dealings with manufacturers may never be known . . . .“

The report urges the hospital supply industry to commission a pricing study to “trend the pricing of not less than 1,000 medical technologies and commodity line items over a period of not less than 10 years“ to establish the impact of GPOs on actual hospital pricing.

Everard said he surveyed hospital purchasing officers in order to determine cost savings achieved for the hospitals by GPO contracts.

The report states: “An overwhelming 94% of respondents believe that their GPO saves them money. Yet only 29% said they actually knew how much money their GPO had saved them — and 80% of those said they knew how much — because their GPO told them.“

Everard proposes that, as a key first step, the hospital supply industry should adopt a definition for “product cost savings,“ which would include pricing, length of time a price is in effect, purchasing contract terms, the role of list prices in determining cost savings, and a statement of “value.“

“In creating the safe harbor, the federal government intervened in the affairs of commerce related to the health care supply chain,“ Everard said. “Should valid analysis determine that GPOs do not produce the cost savings and value they purport, the federal government should act to remove their previous interference, to restore the competitive market forces that result in lower prices and increased innovation.“

The challenge to GPO practices is a key MDMA platform representing the interests of its membership, primarily smaller and entrepreneurally oriented med-tech firms. The organization has long asserted that the contracting practices of certain GPOs have had the unintended but inevitable effect of locking innovative products — often developed by these smaller firms — out of the hospital marketplace and not creating the 10% to 15% savings the industry claims.

Mark Leahey, executive director of MDMA, told Medical Device Daily that the Everard report isn't focused on taking sides on the issue but simply emphasizes the need for accounting clarity.

He added that it also “demonstrates that transparent business behavior is more likely to allow fair pricing and enhance competition in the hospital supply industry. Only by continuing to open up the market, and the practices of certain large GPOs, to public scrutiny will healthcare professionals and the patients they serve gain access to innovative medical technologies that can save lives, at a cost that hospitals can afford.“