In July, the Healthcare Supply Chain Association released a report with healthcare economists Dobson DaVanzo & Associates that indicated group purchasing organizations could help reduce overall healthcare spending by up to $864.4 billion by 2022.
However, Oren Gavriely, founder and CEO of BeatMed, an online marketplace for medical supplies, thinks this estimate is too low. "Much more can be saved," he says, though he believes the solution may lie outside GPOs.
When GPOs first rose to prominence in the 1980s, they were effective at negotiating pricing terms with suppliers on behalf of the providers, largely to ensure suppliers weren't taking advantage of providers. Now, Mr. Gavriely suggests GPOs aren't as effective or valuable as they used to be.
Part of the reason for this ineffectiveness can be traced back to the 1987 passage of the Anti-Kickback Statute, which paved the way for the administration fees GPOs collect from suppliers. In requiring the supplier to pay the administrative fee to the GPO and the GPO having to report all administrative fees annually to customers, the GPO avoids kickback accusations.
The administrative fees GPOs can collect are capped at 3 percent of what a hospital pays a supplier for its products. Mr. Gavriely argues since GPOs are receiving this fee in the form of a percentage based on sales revenue, they don't have an incentive to negotiate a better price for the hospitals.
"Their incentive is within the product," Mr. Gavriely says. "[GPOs] are maintaining a price market that is lower than what it used to be, but it's maintained at this [elevated] price level."
What's more, Mr. Gavriely says both smaller manufacturers and smaller providers have more difficulty in forming such relationships and working with GPOs. He suggests smaller manufacturers are at a disadvantage because administrative fee totals would be smaller than for large manufacturers who have more product offerings or simply can charge more for their products, making smaller manufacturers less attractive to GPOs.
In the case of smaller providers such as surgery centers, the person in charge of purchasing is also often responsible for a number of other operations. Compared to a hospital which has a designated buyer and purchasing department, small surgery centers don't always have the power or the time to manage such processes.
Another issue surrounding GPOs lies in the transparency of the GPO-provider relationships, according to Mr. Gavriely. While part of the Safe Harbor provision requires GPOs to report annual administrative fees to consumers, the consumers are hard-pressed to find competitor data because such numbers aren't publicly reported.
"We're talking about the 21st century. Everything about pricing needs to be transparent," Mr. Gavriely says, adding this begins with a transition of power. "The control needs to shift from people who are sitting in an office in a contracting environment into the online social and open platform."
This is the model off of which Mr. Gavriely runs BeatMed. Providers log on to BeatMed and can purchase their supplies directly. Prices for supplies are displayed on the website, and BeatMed negotiates with suppliers on behalf of the providers. Suppliers, too, are involved in the process. If a supplier posts a product for $50 and a competitor says they can offer a similar product for $40, the latter can post their product as an alternative on the site.
Where GPOs solely facilitate contract negotiations between providers and suppliers and stay out of the transactions, BeatMed sells products sans contracts directly to providers using shared information and crowdsourcing.
"Not only are we negotiating more actively but by opening up and being more social, people can go in and get better prices as well," Mr. Gavriely says.
Operating online platforms for social sharing is going to be the key for this transparency and, in turn, accountability, according to Mr. Gavriely. "Everyone in the healthcare industry is still very closed," he says. "Closed is not the way to grow. We need to be open and share information."
As for the future of GPOs, Mr. Gavriely says that those that don't evolve into a social, open platform will have a hard time surviving the changing industry. But those that do will play an impactful role in healthcare savings, bringing the issue back to the original idea that there are more potential savings.
"Everything that's contributing to an open environment is going to contribute to saving in the long run and make healthcare available for more people," Mr. Gavriely says. "Once manufacturers publish prices online, GPOs are not needed, sales reps are less required and purchasing becomes easier."
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