As Congress deliberates restrictions on hospital group-purchasing organizations and after continuing cost-reporting problems were found by a second government audit, the industry's trade group is releasing a new study to bolster its case on Capitol Hill.
Commissioned by the Health Industry Group Purchasing Association, the analysis indicates that by negotiating volume discounts for provider members-a strategy common to other industries-GPOs and integrated delivery networks saved hospitals and other providers as much as 15%, or $38.7 billion in supplies in 2004. HIGPA said the networks are included in the study because they act as their own GPOs.
Echoing what HIGPA has argued all along, the analysis also cautions that state and federal efforts to restrict GPOs' practices could result in higher public and private costs for health services and supplies. The study found that reducing GPOs' savings ability by even 1 percentage point could mean up to a $2.58 billion rise in total public and private expenses for services and supplies, including up to $725 million in Medicare and $524 million in Medicaid. The industry argues that such a decline is a distinct possibility if Congress were to enact legislation.
"What jumped out at us (from the study) was the validation of what we've been saying," said Robert Betz, president and chief executive officer of HIGPA. "The thing we will highlight (to Congress) is that we need to be very careful about breaking something with tremendous cost-saving potential."
The Senate Judiciary Committee's antitrust subcommittee has spearheaded a flurry of investigations into GPO practices for the past three years. In recent months, the industry has been lobbying to avert legislation that would among other things cap vendor fees-the mainstay of GPOs' diet-to 3% of the price of goods and services sold to providers (Oct. 4, 2004, p. 4). Subcommittee Chairman Mike DeWine (R-Ohio) and ranking member Herb Kohl (D-Wis.) introduced a bill last year that also would have given HHS greater oversight of the industry, but it died with the last Congress.
The subcommittee is deciding whether to reintroduce the bill from last year, introduce a modified version, or go in a whole new direction, said Lynn Becker, a Kohl spokeswoman.
Meanwhile, an audit by HHS' inspector general's office recently determined that of $513 million in administrative fee revenue collected by three unspecified GPOs from 2001 through 2003, $238 million was deducted in operating costs and another $58 million was set aside for reserves and venture capital (June 13, p. 18). Critics charged that the audit shows that GPOs are overcharging.
Some might question the timing of the HIGPA study by Muse & Associates, but Betz said it was commissioned in December 2004 and was meant to update 2000 and 2002 studies, also by Muse.
Among other findings, the study also determined that hospitals and nursing homes purchased an estimated $274 billion in supplies in 2004 with hospitals buying $30.1 billion in drugs and $46.8 billion in medical and surgical equipment. Nursing homes bought an estimated $2.2 billion in drugs and $2 billion in equipment.
Hospitals and nursing homes estimate that they purchase as much as 80% of their supplies under GPO and integrated delivery network contracts, according to the study. That means hospitals last year bought up to $219.2 billion in supplies using GPO and network contracts, according to the estimate.
"I think a justifiable charge against the industry is that we have not done a good enough job of telling our story. We're going to do a better job of that, and this is part of it," Betz said.