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Group Purchasing Organization (GPO)

Group Purchasing Organization

Overview

A group purchasing organization (GPO) is an entity authorized to act as a purchasing agent for a group of individuals or entities who are furnishing services payable by Medicare or a state healthcare program, and who are neither wholly owned by the GPO nor by subsidiaries of a parent corporation that wholly owns the GPO (either directly or through another wholly owned entity).

Gillian I. Russell, Terminology, in FUNDAMENTALS OF HEALTH LAW 1, 19 (American Health Lawyers Association 5th ed., 2011).

Policy

The GPO industry faces intense scrutiny from federal legislators and agencies, including the Senate Judiciary Committee and the Antitrust, Competition Policy and Consumer Rights Subcommittee and the U.S. Government Accountability Office, in addition to the Federal Trade Commission. Proponents contend that GPOs create purchasing power and efficiencies by pooling the purchasing power of providers. Critics argue that GPOs can reduce competition among manufacturers of medical supplies as a result of tying, bundling, and exclusive dealing arrangements.

Excerpt from Christine White, “Improving Healthcare: A Dose of Competition”: What Antitrust Counselors Need to Know About the July 2004 Joint FTC and DOJ Health Care Report, Antitrust Practice Group, American Health Lawyers Association, October 2004.

Authority

The Anti-Kickback Statute includes a statutory exception for amounts paid by a vendor to a GPO as long as two conditions are satisfied: 1. the person has a written contract with each such individual or entity, which specifies the amount to be paid the person, which amount maybe a fixed amount or a fixed percentage of the value of the purchases made by each such individual or entity under the contract; and 2. in the case of an entity that is a provider of services (as defined in § 1861(u)), the person disclosures (in such form and manner as the Secretary requires) to the entity and, upon request, to the Secretary the amount received from each such vendor with respect to purchases made by or on behalf of the entity.

Conclusion

Within the safe harbors, the Department of Health and Human Services Office of Inspector General narrowed the scope of the protection offered to GPOs by excluded GPOs that are part of the same corporate family as the entities for whom the GPOs are purchasing. On the other hand, although the statue requires that the agreement specify the amount the vendor pays the GPO, irrespective of the amount, the safe harbor permits the agreements to state that vendors will pay the GPO a fee of 3% or less of the purchase price of the vendor’s goods. If the fee is more than 3%, the agreement must specify the amount (or, if unknown, the maximum amount) of the GPO payment by each vendor.

Excerpt from David E. Matyas, Fundamentals of Health Law Fraud and Abuse, in FUNDAMENTALS OF HEALTH LAW 149, 162 (American Health Lawyers Association 5th ed., 2011).