Corporate United’s continued growth bucks the GPO trend in terms of 2010 study by delivering balanced value

Posted on January 27, 2011


Corporate United Achieves 17 Percent Growth in Membership, Expands Infrastructure by 15 Percent

CLEVELAND, OH (January 27, 2011) – Corporate United, the nation’s largest group purchasing organization, announces significant growth in 2010, as it adds 26 new member companies and a number of key employees to its staff.

United We Stand, Divided We Fall

Whenever I see headlines or press releases making specific or definitive statements surrounding growth or findings that tend to support the issuing company’s interests, I always through a scrutinizing eye ask why?

Why are they sharing this information?  Why will my readers be interested?  Why will I either want to write about it on one my blogs or talk about it on the radio and TV shows?

This innate desire to look beyond the surface and learn more has served me well, in some instances helping me to avoid missteps that would have proved costly, and at other times enabling me to break a story a little bit sooner than my fellow bloggers and, more often than not adding an interesting or new dimension of understanding to a familiar topic.

It was of course within this context that I viewed the press release from Corporate United announcing the continuing upward growth (or maybe expansion would be a better word) of their organization adding 17% more member companies and increasing their employee base by 15%.

Of course Corporate United is a Group Purchasing Organization or “GPO” and it wasn’t that long ago that I had the opportunity to talk with the company’s Vice President and 2009 Supply and Demand Chain Executive “Pro To Know” David Clevenger on the PI Window on Business Show.  (Note: here is the link to the on-demand interview The Modern Group Purchasing Organization: Leveraging Spend, Increasing Value.)

During that interview Clevenger and I talked frankly about the sometimes spotty history of GPOs making references to articles such as a January 22nd, 2009 piece titled “Sunshine bill is back with sharper teeth,” which  reported that new legislation “requires that manufacturers or group purchasing organizations disclose all payments or transfers of value to physicians worth $100 or more.”  The implications are of course clear regarding the potential and real problems associated with GPOs that operate in a vacuum of self-interest.

Concerns of deal fixing were further emphasized in a 2010 study funded by the Medical Device Manufacturers Association (MDMA) and conducted by leading economists Drs. Robert Litan and Hal Singer, who between 2001 and 2010 examined a database of 8,100 hospital transactions in an effort to determine if GPOs actually delivered better value than open market bidding.

The results were alarming if not surprising.  Based on an analysis of the data the economists estimated that Open Market Competition Outperforms GPO Pricing By Up To $37.5 Billion.

The reasons that were given for this high level of GPO under-performance is linked directly to the current compensation models where according to Drs. Litan and Singer, the organizations are compensated not by their member hospitals but instead by medical suppliers.  Or to be even more precise, GPOs are incentivized to protect deals with incumbent device makers, to the detriment of their member hospitals.

While the study emphasized the fact that “GPOs can and should have an important role to play in helping control U.S. healthcare costs,” the primary breakdown according to Singer is directly related to the way they make money, which  is at “cross-purposes with their mission to be aggressive negotiators for their clients.”

The doctor concluded that “by aligning the GPOs’ incentives with their clients’ incentives, GPOs would do an even better job at a time when holding costs down is vitally important.”

It is against this backdrop of misaligned interests and questionable results that the Corporate United announcement takes on a greater meaning that extends well beyond a percentile growth and strikes at the heart of both the challenges and true value of a GPO.  In short, Corporate United is growing because they operate in a truly transparent environment where they have effectively balanced the interests of all stakeholders within the framework of an effective model.

Achieving unrealized savings potential while achieving a win-win outcome for all interested parties is a why for which it is worthwhile to know the answer!