Do GPOs promote or stifle competition in healthcare-product supply chains?
By Qiaohai (Joice) Hu, Ph.D. and Leroy B. Schwarz,Ph.D., Purdue Krannert School of Management. Full manuscript and reference list available from the Regenstrief Center’s electronic library (e-Pubs) at http://docs.lib.purdue.edu/rche_rp/55/.
Group purchasing organizations (GPOs) play a very significant - and very controversial - role in the supply chains for healthcare products. A 2005 study conducted for the Health Industry Group Purchasing Association (HIGPA) reported that 72-80% of every healthcare dollar in an acute care setting is acquired through group purchasing. GPO purchasing power is highly concentrated: According to a 2003 GAO study, the two largest GPOs account for approximately two-thirds of total GPO purchasing volume for all medical products. In 2007, Modern Healthcare reported that the largest GPO, Novation, contracted for over 2,400 hospitals and 30,000 alternative sites, with 2006 purchasing volume of over $33 billion.
GPOs negotiate the prices that their “provider-members” pay for products they purchase “on contract”, either direct from manufacturers or through healthcare-product distributors. The rationale for healthcare providers to belonging to a GPO is that they will incur lower total cost of ownership (TCOO) by purchasing “on contract” through a GPO than they might obtain for themselves.
GPOs earn revenue from several sources (i.e., membership fees, administrative fees). The most common, most significant and most controversial source of GPO revenue is the Contract Administration Fee (CAF), a revenue-sharing mechanism nominally set at 3% of each manufacturer’s contracted sales.
Many of the criticisms about healthcare GPOs are linked to CAFs. For example, manufacturers complain that they are forced to charge higher prices for all products - whether they are sold on or off contract - in order to recover the CAFs they pay to GPOs for on-contract sales. Others assert that the elimination of the “safe-harbor” provisions, which allow GPOs to charge CAFs to manufacturers, would either yield large cost savings to providers and/or payers.
Additional criticisms revolve around whether or not GPO’s on-contract prices are the lowest prices available and whether GPOs pose a barrier to the entry of small firms and newer, better products.
To date, the “cases” for and against GPOs have been based on surveys or macro-economic scenario analysis. Using these as background, the [researchers developed and analyzed] several economic models involving GPOs, manufacturers, and providers.
The models demonstrate that purchasing through GPOs lowers prices for providers. The price advantage generated by the GPO for the providers arises from two sources: the buying power of the GPO and the intensified competition between the manufacturers created by the CAFs.
In addition, [the researchers] demonstrate that if the manufacturers could choose to sell through a GPO or directly, then the presence of the GPO can cause the off-contract price to be lower than on-contract price. On the other hand, despite its price advantages, the presence of the GPO lowers the manufacturers’ incentives to innovate. Finally, eliminating the so-called “Safe Harbor” provision of the Social Security Act (which permits GPOs to charge GAFs to manufacturers) will not change any party’s profit or cost. Neither will it resolve the innovation dampening effect of the GPO.
Co-author Leroy B. Schwarz, Louis A. Weil, Jr., Professor of Management commented on the complex roles of GPOs in healthcare supply chains. “Our models don’t represent all of these roles,” said Schwarz. "Hence, our ‘conclusions’ should be interpreted as ‘insights’, or points of view, rather than facts. Nonetheless, my co-author and I hope that these insights will contribute to a comprehensive understanding of GPOs.”
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A 36-hospital time and motion study: How do medical-surgical nurses spend their time?
By Ann Hendrich, RN, MSN, FAAN, Ascension Health; Marilyn Chow, DNSc, RN, FAAN, Kaiser Permanente; Boguslaw Skierczynski,Ph.D., Ascension Health; Zhenqiang Lu,Ph.D., Purdue University. Adapted version reprinted with permission. The Permanente Journal, Summer 2008, Vol 12, No. 3, pp. 25-33.
A growing evidence base links more nursing time per patient-day with better patient outcomes (1–4). However, increased nurse workload and the growing nursing workforce shortage reduce the amount of nursing time available for patient care activities. Current research suggests that two interrelated elements—nurse work process and the physical hospital environment—contribute to the efficiency and safety of patient care (5–7). An understanding of how nurses spend their time will target opportunities for nursing care effectiveness through improvements in management, workforce, work processes and organizational culture (8).
Ascension Health, Kaiser Permanente and Regenstrief Center-affiliated researchers undertook the first time-and-motion study to quantify how medical surgical nurses spend their time, in real-time and in real work contexts. Specifically, the study aimed to determine:
- the amount of time nurses spend on specific activities
- the distance traveled by the average nurse during a typical shift, and
- the physiologic impact of the work environment on nurses.
The study was conducted at 36 hospital medical-surgical units within 17 health care systems and 15 states. The study population of 767 nurses was supplied with personal digital assistants (PDAs) to record the location (patient room, nurse station, on-unit, off-unit) and different types of activities (nursing practice, unit-related functions, nonclinical activities and waste) in which nurses engaged during their shifts.
All participating nurses wore radio frequency identification (RFID) tags that continually monitored where they were, how far they traveled, and the duration of activity in any one spot. In addition, 288 nurses volunteered to have their physiologic response monitored by specialized armbands both on and off shift for 23 hours a day for a seven-day period.
Nursing practice was concentrated in the patient room (30.8%) and nurse station (38%). Within nursing practice, the greatest proportion of time was devoted to documentation (35.3%). Care coordination—communication with team members or other departments—accounted for 20.6%. Patient care activities accounted for less than one-fifth of total nursing practice time (19.3%). No consistent, statistically significant relationship was found between the various architectural types (“racetrack,” “corridor,” and “radial”) and nursing time spent with patients.
Individual nurses across all study units traveled between 1 and 5 miles per 10-hour daytime shift (median, 3.0 miles), considerably more than when they were not at work. They also expended 12% more energy on-shift (1.71 normalized metabolic equivalents versus 1.5).
|Figure 1. Nursing practice by location and by subcategory
The findings demonstrate that nurses spent more than three-quarters of their time on nursing practice-related activities—but less than one-fifth of all nursing practice time on activities defined as patient care activities. The much larger proportions of time devoted to care coordination, medication administration, and, in particular, documentation may represent opportunities for process improvement.
Previous research has shown that a primary reason for nurse attrition is the workloads traditionally inherent in this profession (9). These findings regarding the physical activity required in nursing—long distances traveled and increased metabolic expenditure—corroborate the physical and workload demands nurses endure on a regular basis. In fact, there was more variation in miles traveled and patient time between nurses on the same unit than between units. This finding suggests that process and policy, as well as relatively minor physical changes within a unit (such as distribution points of supplies or medications), can have a major impact on nurse workload.
The results of this study illustrate the complex and demanding hospital work environment and suggest opportunities to improve the efficiency of nursing work. Changes to the process and technology of documentation, communication, and medication handling, as well as the physical design of units, could benefit nursing efficiency and the safe delivery of care.
Analysis of nursing practice time by location revealed that the largest proportion of nursing practice was done at the nurse station (A). Three subcategories of nursing practice (B) consumed most nursing practice time not accounted for by patient care activities: documentation, medication administration, and care coordination.
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