The Group Purchasing Organization's Economic Value to the Not-For-Profit Hospital: What are the Determinants of Value

There exists today a symbiotic relationship between the Not-For-Profit (NFP) hospital and the healthcare Group Purchasing Organization (GPO). This relationship is based on a business model which creates a revenue stream for the GPO based on fees collected from manufacturers, vendors and suppliers of products and services used by the NFP hospital. With each contracted product or service purchased, a fixed percentage of the paid invoice is passed back to the GPO. It is these fees that support the business model which covers the expenses required by the GPO to remain in business and provide "free with membership" access to the contract portfolio for the NFP hospital. Fees collected in excess of those needed to run the GPO are returned to the NFP. The current business model is shielded from federal anti-kickback violations by the Safe Harbor Legislation of 1987. There are currently external factors (i.e. loss of Safe Harbor protections, demand from the NFP for a larger percentage of the fees collected to be returned, a decrease in the value of the GPO contracts, etc.) that are challenging the current model and will (potentially) require the NFP to pay for access to the GPO contract portfolio. This research examines the relationships among several value variables to determine which (if any) of those are considered value determinants for a continued "fee for service" business model.