Study says hospitals could save billions from change in rules on purchases of devices

By Marley Seaman, AP
Wednesday, October 6, 2010

Study: Medical device buying rules waste billions

NEW YORK — A study published Wednesday says hospitals and the federal government could save tens of billions of dollars a year if they changed the way group purchasing organizations — which buy medical supplies in bulk for member hospitals — are compensated.

The study said hospitals and health care providers save money when they buy medical devices on their own instead of getting them through group purchasing organizations even though GPOs exist to save money for those buyers. The authors of the study say that is because medical device suppliers pay the GPOs for the right to sell their products to the hospitals, creating a conflict of interest.

The study was funded by the Medical Device Manufacturers Association, a trade group that represents medical device companies. It was conducted and written by Robert Litan, a senior fellow in economics at the Brookings Institution, and Hal Singer, adjunct professor at the McDonough School of Business at Georgetown University. Litan and Singer are executives at the consulting firm Navigant Economics.

A trade organization representing GPOs said studies by the Government Accountability Office and other federal agencies have found that GPOs save money for hospitals. The Health Industry Group Purchasing Association said more than 90 percent of U.S. hospitals use group purchasing organizations, and that if purchasing rules are changed, medical device makers will benefit at the expense of hospitals, patients, and health care providers.

Group purchasing organizations conduct auctions with medical device makers, allowing the winning bidders to sell their devices to hundreds of hospitals. Because group purchasing organizations are paid by medical device makers and not hospitals, they are encouraged to maintain current deals rather than negotiating new ones even if it means the hospitals pay more for equipment.

Hospitals funded the GPOs until 1986, when a change in Medicare rules allowed medical device companies to pay the organizations directly. The authors said private health care spending could be cut by as much as $25 billion a year, and federal spending by an additional $11.5 billion, if the law were restored and hospitals funded the GPOs again.

The conclusions were based on a review of 8,100 hospital transactions over the last decade. The authors said hospitals saved 10 percent to 14 percent by buying devices themselves instead of using a GPO.

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