The Role of Group Purchasing Organizations (GPOs) in the U.S. Medical Industry Supply Chain
A group purchasing organization (GPO) is an intermediary in the supply chain for pharmaceuticals and medical equipment. Hospitals and clinics join GPOs in order to aggregate purchases and thereby extract lower prices from suppliers. In the United States, GPOs currently account for more than $25 billion of hospital procurement. Though supporters of GPOs claim they save hospitals and clinics considerable sums, several recent studies have found that lower prices can often be obtained outside of the GPO.This paper argues that GPOs have turned the market for medical products in the U.S. into a bilateral oligopoly. Congressional hearings in 2002 and 2003 revealed that several GPOs had been engaged in non-competitive practices, such as receiving excessive rebates and providing executives with stock options in supplier companies. Faced with possible anti-trust suits and greater Federal government oversight, GPOs have begun to modify their behavior. All this means a solid gap between theory and practice.