Hospitals and the federal government could perhaps save billions if group purchasing organizations (GPOs) had to comply with the antikickback statute of the Social Security Act, according to an economist. GPOs, which purchase medical devices for groups of healthcare facilities, are currently exempt from the antikickback law.
Hal Singer estimated that the government could save as much as $2.5 billion by removing the exemption.
Hal Singer, president of Criterion Economics LLC (Washington, DC), presented those conclusions to attendees of the Medical Device Manufacturers Association (MDMA) annual meeting in June. MDMA, which represents mostly small device firms, has decried the practices of GPOs, claiming they favor large device companies that make side payments to them to stifle competition.
First, he said, removing the exemption would enable hospitals to realize almost all the revenue from the savings enabled by group purchasing. Without kickbacks, hospitals would receive rebates directly from medical device makers, and they would pay the GPOs their operating expenses plus a reasonable return on those expenses. But in today's world, studies have shown GPOs only distribute between 68% and 79% of net revenue to member hospitals, Singer said. Fully captured rebates, then, would net hospitals between $471 million and $808 million annually.
Second, Singer said, studies show that side payments from device manufacturers to GPOs increase prices 1–5%. Eliminating these payments would save hospitals $830 million to $4.15 billion per year.
The federal government in turn could save $598 million to $2.28 billion per year from those measures, he said, because studies have shown that the government saves about $0.46 for every dollar saved by hospitals.
Table I. (click to enlarge) Table I. Annual budgetary effects, in millions of dollars, of implementing antikickback laws.
Third, said Singer, a system that is more transparent would decrease problems with reporting rebates to Medicare. He said his analysis shows that Medicare would learn of an additional $91.4 million to $479 million in rebates that hospitals have received. So between those three factors, he said, the total savings to hospitals could be $1.26 billion to $4.74 billion, and the total savings to the federal government could be $640.56 million to $2.5 billion (see Table I).
Those numbers could, in fact, be conservative, Singer noted, because they do not account for potential savings to state and local governments. Nor do they account for savings from reduced medical errors brought about by greater access to better products. And they do not account for savings from other schemes of anticompetitive exclusion that may exist today. “These [estimates] actually understate what's really going on,” he said.