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Management Insights
Author(s) -
Guillaume Roels
Publication year - 2008
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.3401/poms.1080.0065
Subject(s) - computer science , operations management , business , process management , economics
There have been heated debates on the controversial role of healthcare Group Purchasing Organizations (GPOs) which negotiate contracts with vendor on the behalf of healthcare providers. These GPOs cover their costs by charging manufacturers ‘‘Contract Admi nistrative Fees,’’ instead of being reimbursed by the providers. This causes conflicts of interests. Therefore, purchasing through GPOs might not lower providers’ purchasing costs. Hu and Schwarz demonstrate that the presence of a GPO lowers providers’ purchasing cost by intensifying competitions among manufacturers. However, the presence of GPOS lowers manufacturers’ incentive to innovate. We also conclude that eliminating the ‘‘safe harbor’’ provisions that permit healthcare GOPs to charge contract administration fees to manufacturers would not affect any party’s profit or cost.