Group Purchasing Organizations:

Research on Their Pricing Impact on Health Care Providers

GAO-10-323R: Published: Jan 29, 2010. Publicly Released: Mar 1, 2010.

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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. 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. However, these studies have limitations. Congress 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 GAO identified in GAO's literature review.

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. 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. 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.

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