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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of Revenue From Vendors at Three Group Purchasing Organizations and Their Members," (A-05-03-00074)

January 19, 2005

Complete Text of Report is available in PDF format (366 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


The objectives of this review were to determine (1) how much revenue three large GPOs received from vendors and what the disposition of that revenue was, (2) how members treated distributions of net administrative fee revenue received from GPOs on their Medicare cost reports, and (3) whether members properly recorded rebates received from vendors on their Medicare cost reports.  We found that the three GPOs we reviewed collected $1.3 billion representing net revenue in excess of operating costs.  The GPOs retained $415 million of the $1.3 billion in net revenue to provide reserves and venture capital for new business lines.  They distributed the remaining $898 million to members.  We also found that the GPO members we reviewed did not fully account for the net revenue distributions on their Medicare cost reports.  GPO members generally offset rebates on their Medicare cost reports as required.  We recommended that CMS (1) provide specific guidance on the proper Medicare cost report treatment of net revenue distributions received from GPOs, and (2) prepare a “frequently asked questions” or other bulletin to remind institutional providers that all rebates from vendors must be shown as credits on their Medicare cost reports.