Within a few months, political insiders say two senators will hold public hearings about the business practices of hospital group purchasing organizations (GPO). This will be the first time for GPOs to face this type of congressional scrutiny. The senators want to investigate whether GPOs have negatively affected competition among medical device and hospital supply companies.

Certainly GPOs have delivered benefits to their member hospitals over the years, but not without many flaws. Within the hospital laboratory profession, there is widespread dissatisfaction about specific methods employed by GPOs to select a limited number of designated vendors and then enforce compliance by individual hospitals with those contracts.

In Vivo magazine, discussing this topic, described the problem succinctly. It said the "criticism of group purchasing is simply that, whether intentionally or not, GPOs and their contract vendors have closed the market, creating a very insular world where very large, market share leaders play exclusively with very large, consolidated groups." Few laboratorians would disagree with that characterization.

If GPO contracting practices become a public issue, it will probably be over concerns about how contracting practices for pharmaceuticals and large-ticket medical devices limit competition and thus contribute to higher healthcare costs. Diagnostic products are a smaller component of this larger game and so it's unlikely they will undergo the same level of scrutiny as other product segments.

What I've always found interesting about GPO contracting practices is that, despite the national contract which supposedly establishes an attractively low price, larger hospitals and hospital systems can invariably negotiate lower-than-GPO-contract pricing for their particular purchases. I wonder if this phenomenon will surface in the congressional hearings.

The Dark Report has long predicted that the formation of multiple hospital integrated delivery networks (IDNs) and e-commerce technology will force changes to how hospital GPOs conduct business. What will be interesting to watch is whether congressional hearings stimulate reforms to certain GPO practices. Among hospital lab administrators, there is lots of quiet support for restoring a greater degree of choice beyond the limited number of big vendors typically favored with GPO contracts.

Largest Hospital Lab JV Making Steady Progress

Aurora and Advocate Health Systems unifying lab & pathology operations

CEO Summary:  It's a daunting task to rationalize and integrate lab testing services among 21 hospitals spread out between Eastern Wisconsin and the South side of Chicago. Since the joint venture was announced April 2000, management initiatives have generated lower costs. But the number one obstacle to faster progress has turned out to be information system capabilities between the two systems.

ProxyMed & Medscape Select Atlas' LabWorks

Collaboration with Atlas Development Corp. involves electronic lab test ordering capabilities

CEO Summary: ProxyMed and MedScape just announced contracts with Atlas Development Corporation. Both companies will integrate Atlas LabWorks for electronic test ordering and results reporting into software products they sell to labs and physicians' offices. Such collaborations again illustrate the importance of a competitive solution for electronic lab test ordering and reporting.

Beckman Coulter Positions Itself For Biotech Testing Continuum

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CEO Summary: Here's a little-known side to diagnostics giant Beckman Coulter, Inc. Its efforts to expand into the fields of biomedical R&D and clinical research is a strategic shift designed to give it early access to promising technology that could be introduced into the clinical diagnostics marketplace. In this exclusive interview, John (Jack) Wareham, Chair, President and CEO of Beckman Coulter, outlines the market trends driving healthcare and how they impact diagnostics. He explains why Beckman Coulter recently made changes to its organization and discusses the types of new products soon to be heading into the marketplace. The interview was conducted by Robert L Michel, Editor-In-Chief.

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