NCPA - National Center for Policy Analysis

Group Purchasing Organizations Dominate Hospital Supply Markets

November 10, 1998

Critics charge that health care consumers are being denied lower costs and better care by the actions of little-known groups called Group Purchasing Organizations (GPOs). GPOs are buying consortiums originally designed to leverage the purchasing power of hospitals, allowing them to obtain discounts on medical supplies. Industry critics contend, however, that they chiefly exist to restrict open market competition in health care.

  • Because only a handful of GPOs dominate the market, only the largest and best-connected manufacturers of medical supplies thrive.
  • The two largest GPOs negotiate contracts for critical medical supplies and dominate medical product purchasing at two-thirds of the country's acute care hospitals.
  • GPOs discourage member hospitals from buying from any company not on the prescribed list.
  • By controlling the market in such a way, GPOs reduce competition and destroy the incentives to bring new products to market.

The long-term prospects are not encouraging, observers note, because contracts typically run five years or longer, placing key decisions about health care in the hands of accountants and purchasing agents, not medical professionals.

Source: Jerry Tims (Chairman and CEO of Dexide Inc.), "For Patients' Sake," Washington Times, November 7, 1998.


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