The GAO had drawn a bead on GPOs.  In a report issued yesterday the Government Accountability Office expressed concern over the effect of GPOs (group purchasing organizations) on Medicare rates.  The report recommended that HHS look into the matter and determine whether hospitals are properly reporting their GPO revenues.

A GPO is an organization that purchases supplies and other goods for groups of hospitals.  A GPO is funded primarily through administrative fees paid by the vendors—the sellers—of the goods.  That may sound like a violation of the Anti-Kickback Statute, and it would be, except that GPOs enjoy a special safe harbor under that statute.

There are two advantages for hospitals purchasing through a GPO rather than on their own.  First, a GPO can leverage its market power to ratchet prices down.  Second, at the end of each year, a GPO returns a portion of its profits to its hospital members.

It’s the second advantage that’s the primary focus of the GAO report.  When a hospital makes its annual cost report to Medicare, it’s supposed to fully account for the revenue it received from its GPO.  But the report questions whether that really happens.  If the revenue isn’t fully reported, the eventual result is an artificial inflation of Medicare rates.

But the report also expresses concern over the first advantage, especially in light of the increasing consolidation of the GPO market in recent years.  The report notes that the Federal Trade Commission regularly receives complaints but hasn’t taken any action for at least ten years.

The report is GAO-15-13.