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Investing.com -- A former Supply Chain Director at Tenet Healthcare (NYSE:THC) has opened up about the revenue model of group purchasing organizations (GPOs) in the healthcare industry. The director’s conversation with In Practise offers insights into how GPOs operate and their financial impact on healthcare providers.
The director highlighted the Safe Harbor Act of 1987, which allows GPOs to collect fees from suppliers in the healthcare industry. This contrasts with other sectors, such as farming, where GPOs or co-ops are funded by member contributions to negotiate for essential resources. The director noted this difference and expressed concerns about the potential issues arising from suppliers funding purchasing personnel in healthcare.
The former director also shed light on the price comparison across GPOs, revealing that not all GPOs return the same amount. For example, Premier might give back $0.015 to $0.0175 to the hospital system, while HealthTrust might give back $0.025, and Vizient might give back $0.02. This difference in returns is significant, as larger hospital systems typically receive a larger share back compared to smaller hospitals.
The director further explained the distribution economics within large health systems. In the case of Tenet Healthcare, the rebate structure in place resulted in a net fee reduction. If there was a 1% markup fee, Tenet Healthcare might receive 5% back in rebates, effectively reducing the fee to minus 3.5%. These rebates came from the distributor due to Tenet Healthcare’s participation in the reprocessing program and their product purchases.
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