What the Experts Say About GPOs

  • Government Officials

    Richard Blumenthal, Connecticut Attorney General (now U. S. senator):

    Describing the GPO industry as "an insidious, incestuous, insider system," Attorney General Blumenthal said that " my GPO investigation has uncovered suspect interrelationships and questionable business practices involving hospital, GPO and major medical suppliers" executives whose practices often benefit themselves, rather than patients, insurers, and government programs that pay hospital bills." He added that "these concerns are significant and serious, requiring immediate Congressional action… Voluntary efforts offered by the GPO companies—initiated shortly after withering criticism of industry practices—are simply too little, too late."

    Statement to the Senate Antitrust Subcommittee, March 15, 2006

    Senator Mike DeWine (R-OH), chairman, Senate Antitrust Subcommittee, and Senator Herb Kohl (D-WI) ranking member

    "…the savings figures that GPOs frequently cite as benchmarks to demonstrate savings are based on a manufacturer's list price that hospitals rarely, if ever, pay."

    Letter to Secretary of Defense Donald Rumsfeld cautioning him on DOD plan to use GPOs to purchase healthcare supplies for the military, May 2, 2003.

    James Sheehan, Former associate U. S. attorney for healthcare fraud (currently New York State Medicaid Inspector General):

    Commenting on a $1 million "special" payment Becton Dickinson made to Novation, the largest GPO, Mr. Sheehan said that he had "serious questions" about whether such payments were legal under federal laws against kickbacks.

    The New York Times, July 19, 2002

    Senator Herb Kohl (D-WI), chairman, Senate Antitrust Subcommittee:

    "We have heard startling allegations of scandal and conflicts of interest that have infected" these [hospital group purchasing organizations] groups, said Senator Herb Kohl (D-WI). "These practices are appalling and cannot be tolerated."

    Statement at Senate Antitrust Subcommittee hearing on GPOs, April 30, 2002

    Senator Mike DeWine (R-OH), ranking member, Senate Antitrust Subcommittee

    In an apparent drive to reap profits for themselves, buying groups, he said, have strayed from their basic reason for being — obtaining the best products at low prices for hospitals. "I am concerned about the extensive range of businesses and programs run by these groups," he said.

    The New York Times, May 1, 2002

    Senator Orrin Hatch (R-UT)

    "I am concerned about recent press reports that senior executives have received or obtained stock or stock options from product suppliers, creating serious conflicts of interest."

    Statement released before Senate Antitrust Subcommittee hearing, April 30, 2002.

    Senator Patrick J. Leahy (D-VT)

    Hospitals, not suppliers, should pay for buying groups. he said. "The hospitals are going to be even more attentive to how they're performing… because, after all, they're paying for it."

    The New York Times, March 4, 2002.

    Physicians and Nurses

    Karen Daley, president of the American Nurses Association; contracted HIV/AIDS and hepatitis C after an accidental needle stick injury at Boston's Brigham & Women's Hospital.

    "…as your inquiry over the past three years has uncovered, GPOs have often harmed competition, stifled innovation and increased the cost of healthcare because of their own financial interest. I urge you to repeal the GPO safe harbor from the Medicare anti-kickback statute. This would end the financial stronghold between GPOs and the vendors they are charged with evaluating and allow GPOs to function in a conflict free environment. It would also result in an open and competitive marketplace where patients and caregivers would have access to more innovative, cost-effective technologies."

    Letter to Senator Mike DeWine (R-OH), chairman, Senate Antitrust Subcommittee, and Herb Kohl (D-WI) ranking member, June 23, 2005

    Julia Naunheim Hipps, a Missouri nurse who contracted hepatitis C from a 1999 accidental needle stick injury

    "The concept of group purchasing is now a detriment to those working in the health care industry," she said in written testimony submitted to the Senate Antitrust Subcommittee. She told The New York Times that she felt angry and betrayed by the way hospitals buy medical supplies. "I am the end result," she said.

    The New York Times, July 19, 2002

    Dr. Mitchell Goldstein, neonatologist, West Covina, CA

    "…in the interest of looking at cost and cost containment, we have to ask the question, what is the cost of a dead baby? What is the cost of a baby who has gone blind from retinopathy, of prematurity? How do you explain this? What do you say to the parents in defense of this action?"

    Testimony before Senate Antitrust Subcommittee, April 30, 2002.

    Augusto Sola, M. D., professor of pediatrics, Emory University School of Medicine, Atlanta, GA.

    Dr. Sola wrote that an innovative Masimo Corp. pulse oximeter helped reduce eye damage in infants, but that he was thwarted in his efforts to get it into his hospital. "If babies had been the ones choosing, they would not have been allowed to choose what they consider to be best for them," he wrote.

    He added: "I was unable to grasp this concept of GPO contracts, 'exclusive' products, 'loss of benefits,' in which every reasonable and scientific argument I was literally ignored….I also know many physicians and RN's are not even aware of how this issue impacts their practices. More importantly, patients are not aware. In some cases…patients continue to receive care for a long time with equipment and medications not chosen by their MD's, or actually used against their MD's recommendation. I now know that in many cases the equipment and medications are chosen by GPO's/Hospitals for their own selfish reasons. In many cases their decisions do not lower costs and delay improving patient care: the two worst combinations in health care."

    Letter to Senator Herb Kohl, chairman, Senate Antitrust Subcommittee, April 19, 2002

    Dr. William Head, Plano, TX orthopedist

    "The GPO may lock the hospital into buying the cheapest, low-end implant, forcing the physician into an ethical dilemma of whether to continue to work there," adding that some hospital officials fail to take into account a hidden cost of cheaper implants – that they may require replacement years sooner than top-quality devices.

    Houston Chronicle, April 18, 1999

    Neil Kahanovitz, M. D. orthopedist; president & founder, Center for Patient Advocacy

    "GPOs take medical decisions out of the hands of patients and their physicians and place them in the hands of corporate officials focused solely on the fiscal bottom line…Unless we educate the public about GPOs and urge public officials to examine their questionable business practices, GPOs will continue to be the gatekeepers that hold quality patient care and innovations hostage."

    Houston Chronicle, April 18, 1999

    Former GPO Executives

    Diana Smith, former director of surgical services, Broadlane (now part of MedAssets, Inc., Alpharetta, GA)

    Referring to a surgical towel with an x-rayable strip that prevents surgeons from leaving towels in patients, she said, "It should have been a no-brainer…Garrett [Bolkes, the inventor], had a good product, and it was cheaper than everybody else's. But GPOs make their money by charging vendors fees. And if you get a percentage of sales, going with a lower bid from a little company just loses you money and pisses off the big vendors with multiple contracts."

    She went on to say that GPO executives got hospital administrators to sign off on more expensive contracts by using misleading pricing data. "Our job was to bamboozle hospital CFOs and purchasing managers," Smith explained. "My boss used to call it getting them to drink the Broadlane Kool-Aid."

    Washington Monthly, July/August 2010

    Daniel DeLay, CEO of iHealth Analytics, LLC.

    "This system raises costs for everyone. It creates an inherent conflict of interest for the GPOs: The more a hospital buys, at higher pricing, the greater the GPOs' revenue."

    Forbes.com 11/12/09

    Cynthia Fitzgerald, former contracting officer, Novation, Irving, TX

    "I don't look good in orange or in stripes," Ms. Fitzgerald said she told her supervisor after objecting to the way another contract was handled. Before long, the company, Novation, arranged to have her "escorted off the property by guards."

    New York Times, August 1, 2002

    Hospital Purchasing Executives

    Michael Bohon, retired hospital purchasing director and chairman of a Novation product selection council

    "I was in a meeting where a manufacturer offered a substantial payment for conversion," Mr. Bohon said. "Their argument was, We know this is going to be a difficult conversion, and you'll lose some of your fees; we know you're going to have some of the old product left over. So we are going to offer you $200,000." "I didn't feel comfortable hearing that. I said, 'Let's take this off the table, I'm not going to consider it at all."

    The New York Times, September 14, 2004

    Robert Carretta, corporate vice president of the St. Barnabas Health Care System, Livingston, NJ

    He told The New York Times that his system buys directly from suppliers, saving 6 percent to 10 percent over Premier's prices. On drugs alone, he said, his hospitals saved $5 million in the last three years. "We don't think they have brought a whole lot of value to the table," he said of Premier.

    The New York Times, October 8, 2002

    Bob Bissell, principal, CoalesCo Ltd, which sets up purchasing coops for hospitals

    Referring to a questionable Novation contract for hospital trash bags, Mr. Bissell said, "There is much better bag pricing outside the Novation-Heritage agreement" – sometimes more than 20 percent better.

    The New York Times, August 1, 2002

    Duncan Gallagher, executive vice president, Iowa Health System, Des Moines

    In an interview with The New York Times, he said that for years the common wisdom was that hospitals that tried to buy on their own would pay more. He expects that his system may eventually save 30 percent to 40 percent. "The people who are saying it is impossible are wrong," he said.

    The New York Times, April 30, 2002

    Larry Dickson, purchasing executive, Providence Health System, Seattle

    Mr. Dickson said that he couldn't get specific information on fees from Novation. "Why is this so secret?" he asked. "There is an accountability question that is very much concerning a lot of people in health care. And if you ask, and the response you get is, "That's none of your business," that raises more questions than it answers."

    The New York Times, March 4, 2002

    Paul Lombardi, head of contracts, Swedish Medical Center, Seattle

    "It's just like payola," he said. Buying groups are "getting paid" to buy certain products, said Mr. Lombardi, whose hospital system dropped Premier [one of the two largest GPOs] in 1996.

    The New York Times, March 4, 2002

    Nicholas C. Toscano, head of purchasing, Virtua Health, Marlton, NJ

    He said his hospitals do their own buying, and save money. "There are no administrative fees in the contract," he said. And that means cheaper prices, he added. "We just gave our nurses some significant increases in salaries…We're expanding our emergency rooms. We're improving our operating rooms."

    The New York Times, March 4, 2002.


    S. Prakash Sethi, president of the International Center for Corporate Accountability, Baruch College, City University of New York (CUNY) ; Author, Group Purchasing Organizations: An Undisclosed Scandal in the U. S. Healthcare Industry

    "It's a gravy train… Why should they get off it? We can't even begin to talk seriously
    about GPO reform until we realign the financial incentives so that hospitals, not vendors, are their main clients."

    Washington Monthly, July/Aug 2010.

    Michael E. Porter professor, Harvard Business School, & Elizabeth Olmsted Teisberg, professor, Darden School of Business, University of Virginia

    "Most troubling is that some GPOs are funded by suppliers rather than solely by hospitals. The fees that suppliers pay, which would normally be considered illegal kickbacks, are allowed by the 1986 amendment to the Social Security Act. Thus, buying groups may serve the interests of the suppliers that provide their funding, not providers, thereby undermining value-based competition. While the extent of this bias is contested, the potential for conflict of interest is indisputable."

    "To enable value-based competition, every buying-group practice should be consistent with open and fair competition. There is no valid reason for buying groups to accept financing or any payments from suppliers: if a buying group adds value, the customers (hospitals) should voluntarily pay for it."

    Porter & Teisberg, "Redefining Health Care," Harvard Business School Press, 2006.

    Einer Elhauge, professor of antitrust law, Harvard Law School

    "The essential problem is that large incumbent medical device makers have entered or offered exclusionary agreements through GPOs that effectively foreclose member hospitals to rival device makers…this practice appears to be an instance of the general economic problem that powerful sellers and buyers often have incentives to collude to create monopoly power by raising their rivals costs and then splitting the monopoly profits they created."

    And he added: "But by far the bigger cost of such exclusionary agreements is that they are likely to prevent all sorts of innovative products from ever being created. These costs are harder to see and estimate because the alternative products are not tangible. But they should be the greatest source of social concern."

    The Exclusion of Competition for Hospital Sales through Group Purchasing Organizations, June 25, 2002.

    Janine Jagger, director, International Health Care Worker Safety Center, University of Virginia

    "GPOs are making it more difficult for small companies to get their products into the marketplace." Market concentration, she said, "is not good for the safety field."

    Business Week, March 16, 1998


    Garrett Bolkes, healthcare supplies entrepreneur & developer of an x-rayable surgical towel, Tulsa, OK.

    "Without a GPO contract, it doesn't matter how good your product is. Even if I could wave this wand [another device he had developed] over your body and cure you from cancer, chances are I couldn't sell it to hospitals."

    Washington Monthly, July/August 2010

    Said Hilal, president and CEO, Applied Medical Resources Corp. Rancho Santa Margarita, CA.

    "We face markets as closed as a castle, with the GPOs as the most treacherous of the outer moats. We are on the other side of the moat…In markets unencumbered by GPOs, we have done extremely well…in the progressive European markets, where GPOs are not a factor, we have five times the market share in the trocar market as we do here."

    Testimony before the Senate Antitrust Subcommittee, July 16, 2003

    Robert L. Aromando, Jr. vice president, marketing Bracco Diagnostics, Inc., Princeton, NJ; maker of x-ray diagnostic imaging products.

    "…Bracco's inability to compete equally in the marketplace may result in a disincentive for investment in future capacity and production that would otherwise be necessary. Most important, however, is the fact that certain patients that would benefited from Bracco products, and certain physicians who have been denied access to our products because of this GPO's contract restrictions and penalties."

    Statement to the Senate Antitrust Subcommittee hearing, July 16, 2003.

    Joe Kiani, CEO Masimo Corp., Irvine, CA; maker of pulse oximeters

    "Many companies are exploting the system to exclude competition. Compeittion and innovation is, therefore, stifled. Prices are kept artificially high. Patient care is being harmed. Today it is the best pulse oximetry, the best pacemaker, the best safety needle, but tomorrow, it could be the best cancer treating medication that is kept out."

    Peter Vincer, Technology Management Group, Oak Creek, WI; equipment maintenance company

    The big buying groups "are like a form of government," he said. "They say who can play and what it costs to play."

    The New York Times, March 4, 2002

    In Proposing a Return to the Original "Fee Based" Group Purchasing Model

    A former Premier executive wrote "This concept is well known, tried and true. In fact, practically the whole industry was founded on this principle in its purest form. It has worked for years and spawned many a success story. Unfortunately, in my opinion, a good portion of the industry has moved far off the reservation," adding that: "Under the fee based model, the GPO itself makes money by having members. The more members, the more dollars, simply and ethically."

    Lisa / Michael Sokol (Lisa Sokol is a former vice president of marketing for Premier Inc.), Letter to the Editor, Healthcare Purchasing News, August 2003.

    "The GPO 'industry' has clearly lost its focus on the real value it can bring to its members and the healthcare consumer in general. The focus on bringing lower costs, driving standardization and providing a means to drive healthcare industry efficiency has been replaced with efforts to fund major investments, grow GPO fee revenues and fund ventures more important to the GPO than its members."

    O. L. Roach, former CPO/director purchasing and operations, Strong Health/University of Rochester, Letter to the Editor, Healthcare Purchasing News, August 2002.

    Other Experts

    Nick Rudikoff, field researcher, Service Employees International Union (SEIU), New York

    "We believe that Novation's … business practices exclude some of the most innovative medical devices like safer needles, while the costs [of resulting injuries and claims by workers] are passed on to healthcare purchasers," he said. "The infuriating part is our members don't mind putting their lives on the line, but hospitals aren't doing all they can to protect our workers. It's completely unacceptable that the hospitals can't buy these technologies because they are locked in a contract."

    Referring to Novation, he added: "I've talked to member hospitals who say it's like getting information out of the CIA… They don't disclose anything to the public. They're resistant to any kind of oversight…They act as though everything is their own private business, which just happens to be 60 percent sponsored by taxpayers."

    Fort Worth Weekly, November 23, 2005

    David A. Balto, former antitrust enforcement attorney, Federal Trade Commission

    "My experience has taught me that the elimination of impediments to competition will bring the greatest long term benefits. When thse side payments or other types of anticompetitive practices are eliminated, you will see competition flourish and innovation and lower prices come about."

    Testimony before Senate Antitrust Subcommittee, September 14, 2004.

    Elizabeth H. Weatherman, managing director, Warburg Pincus, a New York venture capital firm, and vice chair, medical group, National Venture Capital Assn.

    "It is hard enough for a small company to overcome the power of a large entrenched competitor even in an open and competitive marketplace. It is nearly impossible when monopolistic producers collude with monopsonistic buyers, such as GPOs to suppress competition…the idea that GPOs save money for hospitals by extracting larger price discounts from manufacturers than manufacturers could achieve themselves is unprovable and most likely wrong."

    And she said: "There is no doubt that patients' health has suffered as a result of GPO practices."

    Testimony before the Senate Antitrust Subcommittee, April 30, 2002

    R. David Nelson, chairman, Institute for Supply Management, Tempe, AZ, an association of purchasing managers and buyers

    Referring to the vendor-financed GPO business model, he said, "I had no idea that the kind of things you're talking about were going on," adding that If such practices occurred in the industries he knows, "red flags would go up all over the place…"you get the tail wagging the dog," he said.

    The New York Times, March 4, 2002.

    Bill Borwegen, director, occupational health and safety, Service Employees International Union (SEIU), Washington, D. C.

    "We are talking about life and death products where the decisions on the life and death products are done by administrators, not health-care professionals," he said. "If health-care workers could choose their products, I know overnight they would choose retractable syringes and self-blunting collection devices."

    Houston Chronicle, April 18, 1999