Private Equity Firm Reviews State of the GPO World
Private equity and research firm HealthpointCapital recently released a report on GPOs based on the assumption that the regulatory framework relevant to group purchasing organizations is going to evolve. GPOs are increasingly consolidated and handle about $100 billion worth of healthcare purchases every year, or more than 70 percent of hospital purchases. The market dynamics at work are complex, as is illustrated by this diagram from HealthpointCapital’s report:
Because of the sheer volume of money they handle in a context where health care is an ever larger part of the American economy, GPOs are likely to attract more attention. Because conflicts of interest and misaligned incentives stem from these complex relationships between vendors, providers and GPOs, calls for regulation reform are becoming stronger. Some see GPOs as self-serving organizations that benefit large manufacturers more than hospitals and raise barriers to entry for smaller, innovative competitors. HealthpointCapital is a member of the Medical Device Manufacturers Association which strongly stands on the side of GPO reform so that only hospitals fund GPOs at the exclusion of vendors. Meanwhile the Health Industry Group Purchasing Association claims GPOs save hospitals more than $30 billion per year.
Jack Fleischer, VP of Strategic Sourcing at New York-Presbyterian Hospital, the University Hospital of Columbia and Cornell, was interviewed by HealthpointCapital and brought an interesting perspective thanks to his prior employment with retailer J.C. Penney for 29 years, where he had been among other things director of merchandising then head of the men’s division. Fleischer didn’t know about GPOs prior to his arrival at Presbyterian which primarily uses Novation. Fleischer sees value in that relationship but doesn’t restrict his organization to it. In another interview with the Journal of Healthcare Contracting, he said he saw distributors moving to compete with GPOs with a blend of services consulting, data management, and inventory support.
September 20, 2006 Related topics: Group purchasing & GPOs