TCH News

Issue date: 11/5/07 Section: News

A life-endangering predicament, involving hospitals and surgical centers that use group purchasing organizations, recently has come under review by the U.S. Congress.

Although most healthcare industry problems are of little interest to most SCCCC students, this one certainly should be.

In actuality, these group-purchasing organizations can exhibit conflicts of interest similar to what led to the collapse of the Enron corporation.

Shaun Sweeney, co-owner of Cygnus Medical, a surgical supplies and services company, explained the problems associated with group-purchasing organizations. "There are a handful of group purchasing organizations, such as Premier, Broadlane, and Novation that manage the purchasing of supplies for thousands of hospitals," he said. Approximately 5000 hospitals, surgicenters, and private practices sign over a great deal of their purchasing power to these organizations.

Target products, like cleaning brushes, gowns, and gloves will go to bid, with group purchasing organizations often awarding contracts to single suppliers. However, the best offer does not usually win.

Because these group purchasing organizations receive a percentage of the contract, they'd rather receive four percent of a $1 million contract than four percent of an $800,000 contract, for example.

This often pushes small companies out of the running because larger ones can offer a "wrap around" deal. This means that large companies can offer benefits for hospitals when awarded several contracts. Unfortunately, a smaller company offering "niche products" which may be better suited for the contract will lose the bid.

While that may be unfortunate for small companies, people probably don't see how this affects them yet. In the healthcare industry, innovation is almost exclusively generated by small companies because large companies do not need to take risks to be awarded contracts.

However, innovation is absolutely crucial in the industry because better technological advances are what help save lives. "Group purchasing organizations are stamping out innovation and advancement in technology when they stamp small companies out of bids," said J. Roche, a healthcare industry worker.

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