GAO-323R Group Purchasing Organizations 

United States Government Accountability Office

Washington, DC 20548 

January 29, 2010 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

Subject: Group Purchasing Organizations: Research on Their Pricing Impact on Health 

Care Providers

Dear Senator Grassley: 

Hospitals and other health care providers use purchasing intermediaries—group purchasing 

organizations (GPO)—as a way to control the cost of various medical products. Through 

GPO-negotiated contracts, hospitals and other health care providers can purchase everything 

from commodities, such as cotton balls and bandages, to high-technology medical devices, 

such as pacemakers and stents.1

 By pooling the purchases of these products for their 

customers, GPOs are in a position to negotiate lower prices from manufacturers, distributors, 

and other suppliers, which may in turn benefit health care providers and, ultimately, 

consumers and payers of health care such as insurers and employers. 

Members of Congress and others have recently raised questions about the extent to which 

GPOs negotiate lower prices for health care providers. GPO and other trade associations 

have funded studies on the impact of GPOs.2

 However, these studies have limitations.3 You 

asked us to review research on the impact of GPOs on pricing for hospitals and other health 

care providers. This report summarizes the peer-reviewed and nonpeer-reviewed literature 

on the impact of GPOs on pricing for hospitals and other health care providers that we 

identified in our literature review. 

 

1

A stent is a device used to provide support for tubular structures like blood vessels. It can be made of 

rigid wire mesh or may be a metal wire or tube. 

2

See, for example, E.S. Schneller, “The Value of Group Purchasing – 2009: Meeting the Needs for 

Strategic Savings” (2009); D.E. Goldenberg & R. King, “A 2008 Update of Cost Savings and a 

Marketplace Analysis of the Health Care Group Purchasing Industry” (2009); H. Singer, “The Budgetary 

Impact of Eliminating the GPOs’ Safe Harbor Exemption from the Anti-Kickback Statute of the Social 

Security Act.” Two of the articles (Schneller, and Goldenberg & King) were funded by the Health 

Industry Group Purchasing Association and estimate savings that GPOs produce for hospitals or other 

providers and federal programs, respectively. The third study (Singer) was funded by the Medical 

Device Manufacturers Association and analyzes the expected effects on federal expenditures if certain 

statutory protections for GPOs were changed. 

3

For example, the study by Schneller relies on estimates of savings reported by hospitals in a survey, 

but does not report the survey response rate or how the respondents were selected, although the 

author states that smaller hospitals were underrepresented. In addition, the article states that because 

of variation in how hospitals calculated their savings, it is difficult to precisely estimate savings to 

hospitals nationally. The Goldenberg & King and Singer studies apply varying assumptions to national 

expenditure data to model the effects of GPOs on providers or federal expenditures. 
To identify the peer-reviewed literature on the impact of GPOs on pricing for hospitals and 

other health care providers, we conducted a literature review. To conduct this review, we 

searched 11 reference databases, such as EconLit and Medline, for articles published 

between January 2004 and October 2009. In our search, we used a combination of search 

terms such as “group purchasing” and “prices.”4

 We considered an article relevant to our 

review if it discussed the pricing impact of GPOs on hospitals and other health care 

providers. Using the articles we identified as relevant to our review, we then determined 

which of these articles were published in peer-reviewed journals. To confirm that our search 

captured all of the relevant literature that met our criteria, we reviewed the bibliographies of 

the relevant articles to identify other potentially relevant studies. We did not assess the 

methodologies of the studies we identified or review the reliability of the data used in these 

studies. 

We conducted our work from October 2009 through January 2010 in accordance with all 

sections of GAO’s Quality Assurance Framework that are relevant to our objective. The 

framework requires that we plan and perform the engagement to obtain sufficient and 

appropriate evidence to meet our stated objectives and to discuss any limitations in our 

work. We believe that the information and data obtained, and the analysis conducted, provide 

a reasonable basis for any findings and conclusions in this product. 

In our review, we identified one peer-reviewed article on the impact of GPOs on pricing for 

health care providers that was published between January 2004 and October 2009.5

 The 

authors of this article concluded that according to hospital directors of materials 

management who are responsible for hospitals purchases of medical supplies, alliances 

between hospitals and GPOs can contain rising health care costs by reducing product prices, 

reducing transaction costs through commonly negotiated contracts, and increasing hospital 

revenues via rebates and dividends. The findings in the article are based on a national survey 

of hospital directors of materials management.6

 While we did not assess the methodology of 

this article, the article identified some limitations to the analysis, including that the findings 

rely on the perceptions of materials managers identified through a survey and do not include 

empirical analyses of hospital cost savings. The article also stated that the survey yielded a 

low response rate of 16 percent. However, the article reported that, although the response 

rate was not high, the researchers found little evidence of survey bias introduced by the low 

level of response and employed additional techniques to correct for any potential bias. 

In the course of our review we also identified other, nonpeer-reviewed articles on the impact 

of GPOs on pricing that were published between January 2004 and October 2009. The articles 

provide mainly anecdotal and other information related to the impact of GPOs on pricing for 

hospitals and other health care providers and do not include the results of empirical analyses. 

(Enclosure 1 provides a selected list of these articles.) 

 

4

Our search terms included the following: “group purchasing,” “purchasing alliance,” “health,” 

“hospital,” “cost,” “pricing,” “prices,” “price,” “money,” “medical,” “physician,” and “nursing home”. 

5

See L.R. Burns & J.A. Lee, “Hospital purchasing alliances: Utilization, services, and performance,” 

Health Care Management Review (2008). 

6

The survey was administered to all members of the seven alliances and individual members of the 

Association of Healthcare Resource & Materials Management, a professional society of materials 

managers affiliated with the American Hospital Association. According to the study, the seven 

alliances accounted for nearly 93 percent of hospital purchases through alliances, and the population 

of materials managers surveyed was approximately 5,014. 

 2 GAO-323R Group Purchasing Organizations
– – – – – 

As arranged with your office, unless you publicly announce the contents of this report earlier, 

we plan no further distribution of it until 30 days after its issue date. At that time, we will 

send copies to other interested parties. In addition, the report will be available at no charge 

on the GAO Web site at http://www.gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. Please contact me 

at (202) 512-7114 if you have any questions. Major contributors to this report were Kristi 

Peterson, Assistant Director; Kye Briesath; Kelly DeMots; and Krister Friday. 

Sincerely yours, 

Linda T. Kohn 

Director, Health Care 

Enclosure 

 3 GAO-323R Group Purchasing Organizations
Enclosure I 

4 GAO-323R Group Purchasing Organizations 

Selected Nonpeer-Reviewed Articles on the Impact of Group Purchasing 

Organizations on Pricing for Hospitals and Other Health Care Providers 

Becker, C. “A shift for VHA; New approach aims to give members more cash back.” Modern 

Healthcare, vol. 35, no. 19 (2005). 

Birk, S. “Millions saved with purchasing coalition.” Materials Management in Health Care, 

vol. 18, no. 3 (2009). 

Long, G. “Pursuing supply chain gains.” Healthcare Financial Management, vol. 59, no. 9 

(2005). 

Page, L. “Buying en masse: Hospitals unite for purchasing power.” Materials Management in 

Health Care, vol. 14, no. 6 (2005). 

Neil, R. “From the buyer’s perspective: A survey of materials managers about their GPOs.” 

Materials Management in Health Care, vol. 14, no. 9 (2005). 

Rhea, S. “MedAssets’ Colo. connection; State group creates regional GPO to reap savings. 

(Colorado Hospital Association’s group purchasing program).” Modern Healthcare, vol. 37, 

no. 24 (2007). 

Rhea, S. “Shopping close to home; Illinois Hospital Association’s regional GPO is off and 

running, but it’s already facing competition from locals and nationals.” Modern Healthcare, 

vol. 37, no.26 (2007). 

Roark, D. “Managing the healthcare supply chain.” Nursing Management, vol. 36, no. 2 

(2005). 

“Study documents savings from e-commerce.” Hospital Materials Management, vol. 29, no. 7 

(2004). 

Weinstein, B. “The Role of Group Purchasing Organizations (GPOs) in the U.S. Medical 

Industry Supply Chain.” Estudios De Economía Aplicada, vol. 24, no. 3 (2006). 

(290832) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
The Government Accountability Office, the audit, evaluation, and GAO’s Mission investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost Obtaining Copies of is through GAO’s Web site (www.gao.gov). Each weekday afternoon, GAO 

GAO Reports and posts on its Web site newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, Testimony go to www.gao.gov and select “E-mail Updates.” 

Order by Phone 	 The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s Web site, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information. 

Contact: To Report Fraud, 

Waste, and Abuse in Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Federal Programs Automated answering system: (800) 424-5454 or (202) 512-7470 

Ralph Dawn, Managing Director, dawnr@gao.gov, (202) 512-4400 Congressional U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Relations Washington, DC 20548 

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800 Public Affairs U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548