Goldenberg/King Event News Release

CONGRESS TAKE NOTICE: UNHERALDED HEALTH CARE GROUP PURCHASING ORGANIZATIONS SAVE NATION UP TO $64.5 BILLION ANNUALLY

New Study Reveals in 2008 Public Heath Care, Medicaid and Medicare Realized Up to $36 Billion in Savings from GPOs; Life Saver for Hospitals Resulting in Up to 18 Percent Saved On Purchases

WASHINGTON, D.C.///July 7, 2009///In an era of ever increasing health care costs and as President Barack Obama and Congress search for ways to reduce costs while preserving service quality, a new report released today suggests that the largely unknown Group Purchasing Organizations (GPOs) have and continue to dramatically bring down health care costs by realizing up to $64.5 billion to the nation in annual savings. Medicaid and Medicare, now representing nearly 25 percent of the entire federal budget and growing, are also shown to have saved nearly $30 billion in 2008, according to an examination of Centers for Medicare and Medicaid Services and National Health Expenditure data, undertaken by Dr. David E. Goldenberg, vice president, Locus Systems, Inc.and Roland King, an independent consulting actuary.  

Dr. Goldenberg has nearly 30 years of experience in applied research and management consulting. Before joining Locus Systems, Inc., Dr. Goldenberg was Senior Research Director at Muse & Associates where he spent more than a decade directing research and providing technical support for studies in health and human services, health insurance, health finance, cost analysis, and rate regulation. Mr. King served as Chief Actuary for the Health Care Financing Administration (HCFA) for sixteen years. He has written and spoken extensively on issue relating to the financing of health care, the financial status of the Medicare program, and social insurance. He has been an industry leader in public sector health financing programs.

The new report also showcases how vital GPOs are to hospitals and other health care providers across the country, saving them up to 18 percent annually on their purchases. Hospitals spend nearly half of their total costs on materials, ranging from latex gloves to pharmaceuticals. A recent Healthcare Financial Management Association survey found that four in 10 hospitals report a decline in net patient revenue and investment losses of 25 percent or more. Given hospital reliance on federal funding (more than 50 percent) and declines in non-operating revenue, the need for health care cost reductions at the hospital level is urgent across the United States.

GPOs are large national organizations and smaller regional entities that achieve health care cost savings by aggregating their health care buying volume and then using that aggregated buying volume as leverage to negotiate discounts with manufacturers, distributors and other vendors. GPOs negotiate on behalf of hospitals and affiliated health care providers to contract for the best value in their purchase of supplies, equipment and services.

Titled, “A 2008 Update of Cost Savings and a Marketplace Analysis of the Health Care Group Purchasing Industry,” the report by Dr. Goldenberg and Mr. King finds the following results from GPOs for calendar year 2008 as part of the $64.5 billion in price savings:

• Between $16.3 and $36 billion for public health care programs: between $12.9 and $28.5 billion for the federal government, with state and local government savings totaling between $3.4 and $7.4 billion.
• Between $8 and $17.7 billion in attributed savings to Medicare.
• Between $5.7 and $12.5 billion in attributed savings to Medicaid.

The study also notes that GPOs make a major contribution to the U.S. health care industry as a whole by improving not only incremental costs but also much larger systems and processes with these benefits leading to better use of staff and lower total costs. Goldenberg/King also find that GPOs have a significant impact on the marketing and movement of health care commodities in the United States; that GPO-aggregated purchasing volume and negotiated contracts with purchasers and vendors assure hospitals and patients receive needed products and services while realizing significant cost savings.

Dr. David Goldenberg said:  “GPOs often act as a bridge between health care providers in an otherwise chaotic health care 'system.' Consequently, they play an increasingly important role and have a significant impact on the U.S. health care system. They provide efficiencies to medical sales supply chains that results in major cost savings to hospitals and patients. This study demonstrates that GPOs produce substantial savings, up to $64.5 billion annually, by removing costs from across sales and supply chains, not by simply contracting for the cheapest products.”

Commenting on the new report, Mina Ubbing, president and CEO of Fairfield Medical Center in Lancaster, Ohio said:  “This study reinforces our hospital's experience with our GPO - they negotiate discounted prices on the purchase of medical equipment, supplies and services - prices that my hospital, Fairfield Medical Center (FMC), could never obtain on its own. By participating in a GPO, we realize annual savings in the millions of dollars. If FMC had to carry out its own contracting and take on the functions currently provided by its GPO, we would spend an additional $500,000 a year hiring new staff alone. With health care costs already high, this is an unaffordable proposition for Ohio's health care system as a whole.”

Dr. Lon Butikofer, CEO of Regional Medical Center, Manchester, Iowa said: “Given that we are a small, 25-bed acute care facility operating in rural America, we are reliant on our GPO to maximize the precious dollars we spend on hospital purchases, ranging from capital equipment to pharmaceuticals to physician preference items. Our GPO relationship has been ideal in this regard, and the Goldenberg/King study on GPO cost savings affirms our small acute center experience on a much larger scale.”

Curtis Rooney, president, Health Industry Group Purchasing Association, said:  “This study and its findings of significant GPO-produced savings to the nation reinforce and build on the conclusions offered by Dr. Eugene Schneller and Mathematica Research in their April 2009 investigation into GPO cost savings. Importantly, the Goldenberg/King study showcases the sizeable dollars GPOs save the public purse, with public health programs realizing up to $36 billion saved in 2008. There is more that GPOs can do.and we look forward to working with the President and Congress to maximize efficiencies in the health care system.”

The Goldenberg/King report was carried out with financial support from the Health Industry Group Purchasing Association (HIGPA), a broad-based trade association that represents 16 GPOs, including not-for-profit and for-profit corporations, purchasing groups, associations, multi-hospital systems and health care provider alliances. HIGPA provides educational opportunities designed to improve efficiencies in the purchase, sale and utilization of all goods and services within the health industry and to promote meaningful dialogue between GPOs.

To read the report and methodology, visit http://www.GPOsSaveMoney.org on the Web.

CONTACT:   Raquel Ortiz (202) 263-2580 or rortiz@amplifypublicaffairs.net