Hospital Group Purchasing Alliances and Financial Performance

Abstract

Background: Hospital use of Group Purchasing Organizations (GPOs) may serve as a cost-containment strategy in the purchase of supplies and services. However, there is limited research examining whether there are financial performance differences between users and non-users of GPOs.

Purpose: To explore whether hospital use of GPOs is related to financial performance.

Methods: Data on hospitals’ GPO utilization and financial performance were combined with organizational and market characteristics. Panel ordinal logistic regression with facility and year fixed effects analysis was used to examine the relationship between operating margin and the use of GPOs controlling for organizational and market characteristics.

Results: Data from an average of 4,484 hospitals were available for analyses from 2004 to 2014. Overall, the number of hospitals utilizing the services of GPOs increased significantly from 3,027 (72.9%) in 2004 to 3,128 (75.2%) in 2014. In regression analysis, hospitals that utilized the services of GPOs were 17 percentage points more likely to be in the combined higher second, third, and fourth quartiles of operating margin (OR=1.19, p<0.05). The significant findings suggest that hospitals utilizing the services of GPOs had higher operating margins compared to hospitals that did not.

Practical Implications: Hospital utilization of GPO services is associated with better financial performance. These findings may inform practice managers and consultants about the benefit of utilizing the services of GPOs, which provides support for the utilization of GPOs when making strategic business decisions about purchasing.

Keywords:

Group purchasing organization; financial performance; supplies; hospitals