A new report by the Healthcare Supply Chain Association, which represents health-care group purchasing organizations (GPOs), confirms that GPOs do save money while also creating a more competitive marketplace.

Group purchasing organizations are companies that negotiate prices for drugs, medical devices, and other products and services on behalf of groups of health-care providers, such as hospitals, ambulatory care facilities, physician practices, nursing homes, and home health agencies. Group purchasing organizations are also used in many other industries, such as grocery, electronics, and industrial manufacturing.

The report, "Group Purchasing Organizations: How GPOs Reduce Healthcare Costs and Why Changing Their Funding Mechanism Would Raise Costs," says that health-care providers typically realize 10 to 18 percent savings on the cost of supplies by using GPOs. These savings come from lower transaction costs and the GPOs' ability to negotiate lower prices than providers would receive on their own, according to the report. GPOs are especially beneficial for smaller, rural hospitals, which have less purchasing clout than larger facilities, according to the report. Providers then pass these savings on to patients, and, ultimately, to taxpayers.

Because GPOs are one of several options when it comes to purchasing supplies, they help to create a highly competitive market, the report asserts. Health-care providers can procure supplies directly from vendors and/or choose to join one or or more GPOs. Health-care providers often own and control their GPOs, and it's common for them to use multiple GPOs simultaneously, the report points out. According to the Healthcare Supply Chain Association, almost all U.S hospitals and the vast majority of non-acute-care providers use GPOs.

Finally, the report concludes that the current funding model for GPOs, which involves collecting administrative fees from vendors, is fair and more effective than collecting fees from the GPOs' members. The U.S. Congress authorized the current payment model 30 years ago in an attempt to cut health-care costs.