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January 11, 2007
For Immediate Release
Media Contact: Jennifer Kasowicz
Marketing, HIGPA
(312) 673-4970
jkasowicz@smithbucklin.com

Hospitals turn to group purchasing organizations for cost savings in response to reported increases

A recent Health Affairs study reported that the growth of health care spending has slowed for the third straight year, marking the lowest year since 1999. Part of this trend can be attributed to Group Purchasing Organizations (GPOs), who use their collective buying power to gain competitive pricing and are considered an effective and needed soldier in the battle against rising health care costs. The percentage of hospital pharmacy purchases through GPOs may range as high as 85-90 percent, according to some case studies. Their power to decrease costs has contributed to a slower rate of growth in health care spending.

"Group purchasing organizations provide a means for hospitals to collaborate and identify what products, pharmaceuticals and supplies they need uniting to maximize their buying power to get lower prices on those products," said Curtis Rooney, president of the Health Industry Group Purchasing Association (HIGPA). "Group purchasing saves health care organizations money across the board, allowing providers to control costs and increasingly improve their quality of care."

Take, for example, Carson-Tahoe Hospital in Nevada. Faced with skyrocketing orthopedic surgery costs and supply expenses well over budget, the hospital decided to employ a Group Purchasing Organization (GPO) to help control costs . The GPO was able to negotiate new contracts for high-quality knee and hip implants-a move that will save the hospital about $740,000 and give its patients access to new technologies, which the hospital otherwise could not afford.

All types of medical products have seen decreases-not just pharmaceuticals, whose recent decrease in costs has been attributed to the decrease in health care spending. The same Health Affairs report indicates that durable medical equipment has only increased by 4.1 percent and non-durable medical equipment has only risen by 3.7 percent. Comparatively, costs of pharmaceuticals have risen 5.8 percent. Overall, medical products have seen slower rates of increase than other health care sectors such as physician and clinical services, home health care or nursing home care.

A recent report indicates that not using GPOs will actually increase health care costs. In 2005, Muse & Associates studied how abandoning the use of GPOs, would increase total direct U.S. health care spending by between $29.3 billion and $34.6 billion over the 10 years. Medicare and Medicaid program spending would jump between $1.2 billion and $9.7 billion, the Muse study found. Because of the success of GPOs, virtually every hospital in the nation works with one or more GPOs.

"The Muse study reinforces just how much the group purchasing industry helps providers realize substantial savings in their supply and equipment purchases," HIGPA Immediate Past Chairman Al LoBiondo said. The Health Industry Group Purchasing Association (HIGPA) is a broad-based trade association that represents 31 purchasing organizations. HIGPA 's group purchasing industry members include for-profit and not-for-profit corporations, purchasing groups, associations, multi-hospital systems and health care provider alliances.

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