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FOR IMMEDIATE RELEASE
Contact: David McDonough
Phone: 703-243-9262

Click here for PDF version of HIGPA's Testimony.

WASHINGTON, D.C. (April 30, 2002) - During an era when health care expenditures are skyrocketing and reimbursements are falling, the benefits group purchasing organizations (GPOs) offer to hospitals and other health care providers are of critical importance, Health Industry Group Purchasing Association (HIGPA) President & CEO Robert Betz, Ph.D., stated in written testimony submitted to the U.S. Senate Judiciary Subcommittee on Antitrust for their hearing on health care group purchasing on April 30, 2002.

"As an industry, GPOs save providers between 10 to 15 percent of what they would pay without the benefit of a GPO. In an era when one-third of all hospitals have negative operating margins, reimbursements from both private and public payers are falling, and overall expenditures are rising, this substantial cost saving is of critical importance. Quite simply, hospitals would be in far worse circumstances if GPOs did not exist. Very few hospitals could continue to serve their patients if GPOs did not empower them to purchase needed products at considerable discounts," Betz said in his testimony.

Betz offered in his testimony a detailed explanation of the benefits of the current GPO business model. He stated that "GPOs are able to offer additional value to their provider-members because much of their operating revenue is generated through earning administrative fees paid by suppliers." Betz noted that "in the mid-1980s, Congress and the Department of Health and Human Services' Office of Inspector General recognized the value in allowing such fees, given that the alternative would be for hospitals to take money away from patient care. Indeed, in 1985 Richard P. Kusserow, the then HHS Inspector General said, 'We [HHS OIG] believe the current practice of reimbursement by vendors to group purchasing agents should be permitted. The use of volume purchasing through group purchasing agents clearly reduces the cost of purchases by hospitals. Therefore, we would encourage use of such arrangements regardless of the reimbursement methodology.'"

Betz also warned that if GPOs lost the ability to earn administrative fees, which would result in a weakening of their ability to represent providers, the result would "favor larger suppliers over both their smaller counterparts and providers themselves. Purchasing contracts would still exist, as they do for any business, but they would have to be negotiated thousands of different times with each individual provider. This would tilt the marketplace in favor of larger suppliers because they would have greater ability than smaller suppliers to fund the necessary operations to maintain such an extensive list of contracts. I do not believe this option to be beneficial to any entity in the health care supply chain, be it provider, GPO, or manufacturer."

In addition, Betz summarized the findings of two recent studies on group purchasing. The first study provided a legal analysis from one of the most respected antitrust scholars in the country, Professor Herbert Hovenkamp from the University of Iowa College of Law. Betz referenced Professor Hovenkamp's findings, including the assertion that "GPO group purchasing is a socially beneficial, procompetitive activity that reduces costs by enabling sellers to bid for high volume sales" and that "there are many reasons for thinking that GPO group purchasing increases output, reduces prices, and is procompetitive. There are no reasons, either structural or behavioral, for finding their activities to be anticompetitive."

The second study that Betz referenced in his testimony was conducted by The Lewin Group and examined clinical review processes that GPOs and their provider-members utilize during their purchasing processes. Betz pointed out that the researchers from The Lewin Group said "GPOs and health systems conduct extensive and rigorous clinical reviews when deciding which health care technologies will be listed in purchasing contracts and made available for use."

Finally, Betz defended the group purchasing industry from false accusations that GPOs have conflicts of interest and reduce the quality of health care. Betz said that the small group of manufacturers who make such claims "believe they know what is best for hospitals and how those hospitals should provide patient care. This group of companies would like you to believe that hospitals are unable to make the most appropriate purchasing decisions because of GPOs, and therefore need the assistance of manufacturers-the very companies that are trying to sell them products. Although this is a convenient argument for those manufacturers, it is not based in fact…I believe those manufacturers who are unhappy with the current purchasing model are trying to disguise their arguments as being in the best interests of hospitals and their patients. In reality, their efforts are designed to benefit their companies and their shareholders."

In sum, Betz said, GPOs are do not force providers to purchase any particular product. He said that "at the end of the day, it is up to individual providers whether to purchase products via a GPO contract, or whether to make purchases independent of a GPO…GPOs only perform contracting functions, while providers are ultimately responsible for purchasing. This business model keeps the ultimate power of what products are used in a hospital squarely where it should be - in the hands of providers."

Betz also brought to the subcommittee's attention seemingly contradictory remarks by some critics of GPOs, remarks that paint two very different pictures of the health of their business. For example, he said, "one California-based manufacturer of pulse oximeters recently told a major newspaper that they could not sell their device to many hospitals. Yet at the same time, this company boasts that it has 'grown by over 2,000%, with an average compounded growth rate of 122% since 1998,' and that with their sales 'more than doubling year after year, the demand on our manufacturing team to keep up with this level of customer demand has been tremendous.'"

Betz added that "at the same that time this manufacturer's chairman & CEO says to the news media that it is doubtful that a company like his could ever secure proper funding, he also states that they have been 'successful in raising close to $100 million' from investors."

Betz concluded his testimony by stating that "we are here today not because hospitals are unhappy with the current system of group purchasing," but rather because "a small, yet vocal, group of medical device manufacturers would like to have Congress intervene in the marketplace in favor of 'small' suppliers, at the expense of hospitals…What some self-interested, profit-maximizing companies are urging is to give hospitals less power in the purchasing process."

HIGPA is a chartered trade association of over 165 health care purchasing and supply chain organizations that serve approximately three out of every four U.S. acute care hospitals, as well as most of the long term care, home care and medical group practice markets. HIGPA's Industry Members include purchasing groups, associations, multi-hospital systems, and health care provider alliances. HIGPA's Trading Partner members include many of the world's leading health care product manufacturers, distributors, wholesalers and related suppliers. According to a recent study conducted by a former principal analyst at the Congressional Budget Office, hospitals save patients approximately $20 billion each year by purchasing products through group contracts.

To learn more about HIGPA or the group purchasing industry, visit www.higpa.org or call 703-243-9262.

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