Review of Revenue From Vendors at Three Additional Group Purchasing Organizations and Their Members

EXECUTIVE SUMMARY:

Our objectives of this report were to determine (1) how much revenue three large group purchasing organizations (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.  The three large GPOs that we reviewed collected administrative fee revenue of $513 million.  Of this amount, $275 million represented net revenue in excess of operating costs.  The GPOs retained $58 million of the $275 million in net revenue to provide reserves and venture capital for new business lines.  They distributed the remaining $217 million to members.  We reviewed how seven healthcare systems, representing several hundred GPO members, accounted for the net revenue distributed by the three GPOs.  We found that $5 million of net revenue distributions and $1.6 million of rebates were not credited on Medicare cost reports.  We believe that clarification of instructions from the Centers for Medicare and Medicaid Services to hospitals is needed and that recommendations in our prior report on three GPOs (A-05-03-00074) are timely and valid.