A Comparative Study of Healthcare Procurement Models

Group Purchasing Organizations (GPOs) play a significant role in the healthcare industry. The presence of GPOs helps the healthcare centers to offload their responsibilities so that they can focus on more critical areas which require attention like providing quality care. This thesis involves the comparison of three models of procurement operations in terms of cost efficiency. This cost comparison model features a healthcare organization associated with a national GPO, a healthcare organization which procures by self sourcing (not associated with a GPO), and a hybrid procurement model involving a national GPO and a regional GPO. The comparison model highlighted the cost effectiveness of these three different ways of procurement, which threw significant light on the purchasing operations of healthcare organizations. In the second part of this research study, we formulated a method to measure the degree of access to innovative products across the above mentioned procurement models either involving on-contract (from a GPO) purchasing, or off-contract purchasing (from individual manufacturers not affiliated to GPO) or both. We also identified the metrics for innovation and measure the innovativeness of products. Based on the literature study, it was found that purchasing groups may also be an entry barrier to new suppliers (Zweig 1998), with big national GPOs dominating the market and dictating the pricing of commodities. The first hypothesis H1 of this research study was stated as National GPOs (Group Purchasing Organizations) enable the healthcare establishments to lower the cost of medical services and operations. The second hypothesis H2 of this research study was acknowledged as National GPOs a barrier to entry of Innovative product manufacturers in the healthcare industry. This thesis will identify the advantages and disadvantages of each type of procurement operation and address the economic issues which affect the relationship between a healthcare center and a GPO. The proposed research would indirectly help to identify whether cost savings are being shared by the links in the downstream supply chain and the savings are being percolated to the patients for the added welfare of the society. It will also identify the importance of innovative products in the society and will raise the bar of specialty treatments without compromising on the level of service being offered to the patients. This thesis will also highlight positive aspects of niche manufacturers of innovative products with smaller volumes which are currently marginalized in the market by the big national players. To the best of the author\u27s knowledge, the research objective of measuring innovation of products has not been addressed yet in academic literature and will have the benefit of comparing three different purchasing models used in healthcare industry