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New study confirms that GPOs drive savings for hospitals

Posted Sep 26 2008 5:17pm

by Kester Freeman

Opponents of healthcare group purchasing continue to spew out endless smokescreens about the value of GPOs.  I, for one, have been amazed that GPOs – to which nearly every hospital in the U.S. belongs – have been so roundly criticized.  Could all those hospitals be so wrong for so long?

Turns out they aren’t and there’s new research to prove it!

A significant new study by a noted Wharton School professor of healthcare management confirms what those of us in healthcare executive leadership positions have known for a long time: “Hospital purchasing group alliances succeed in reducing healthcare costs by lowering product prices, particularly for commodity and pharmaceutical items. Alliances also reduce transaction costs through commonly negotiated contracts and increase hospital revenues via rebates and dividends.”

The study, “Hospital purchasing alliances: Utilization, services, and performance,” by Professor Lawton R. Burns, PhD, MBA, and J. Andrew Lee, SCM, a doctoral student at the University of Pennsylvania’s Wharton School, was published in the July-September 2008, Health Care Management Review. Link to abstract.
The authors note that the study is “the first national investigation of hospital purchasing alliances and their contribution to cost containment. They conclude that “hospital purchasing alliances . . . serve an important function in hospital cost-containment activities.”

I couldn’t have said it better. In coming blog posts, I’ll discuss some of the study’s other important findings. Meanwhile, if you get the opportunity, read it.  It definitely clears the air of those smokescreens GPO detractors have been pumping out baselessly for years.
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