Premier Inc: GPO Economics & Acute Care Procurement

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Was it always this way, that the health system would pay the GPO?

Years ago, before 1987, when the Safe Harbor Act went into effect. This law, in my opinion, contributes to the industry's problem by allowing group purchasing organizations (GPOs) to collect fees from suppliers in the healthcare industry. In other industries, like farming, you might have a co-op or GPO where small or large farms pool resources to hire people who negotiate for fuel, fertilizer, and other necessities. These efforts are funded by the members. However, in healthcare, the purchasing personnel are funded by the suppliers, which I see as problematic.

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Was it always this way, that the health system would pay the GPO?

At the end of the day, a good GPO will return around a cent on the $0.03 collected to the members. For example, the $0.03 that went to Premier, a cent should go back to the member. If you're a hospital receiving $0.0080 back on the dollar, you might question the need to hire additional staff for the same purpose.

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The GPO would keep roughly 2 cents on the dollar

Well, let's say they got $0.03. Premier would give back $0.015 to $0.0175 to the hospital system, which is significant. Currently, Vizient is better than Premier. Premier might give back $0.015 to $0.0175, HealthTrust might give back $0.025, and Vizient might give back $0.02. GPOs don't all return the same amount, and larger hospital systems receive a larger share back compared to smaller hospitals. This financial complexity illustrates how GPOs earn money and reimburse their members.

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