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Controversial Role of GPOs in Healthcare‐Product Supply Chains
Abstract
This paper examines the controversial role that Group Purchasing Organizations (GPOs) play in the supply chains for healthcare products. Among the controversies, perhaps the most fundamental one is whether or not GPOs reduce purchasing costs for their members. However, the fiercest controversy is around the “contract administration fees (CAFs)” that GPOs charge to manufacturers. We examine these and other controversies using a Hotelling duopoly model. Among our conclusions: GPOs increase competition between manufacturers and lower prices for healthcare providers. However, GPOs reduce manufacturers' incentives to introduce innovations to existing products. We also demonstrate that the existence of lower off‐contract prices is not, per se, evidence of anticompetitive behavior on the part of GPOs. Indeed, we demonstrate that, under certain circumstances, the presence of a GPO lowers off‐contract prices. We also examine the consequences of eliminating the “safe harbor” provisions that permit healthcare GPOs to charge CAFs to manufacturers, and conclude that it would not affect any party's profits or costs.
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Cited by
Sorted by citations
Automating Procurement Contracts in the Healthcare Supply Chain Using Blockchain Smart Contracts
Omar, I. A., Jayaraman, R., Debe, M. S., Salah, K., Yaqoob, I., & Omar, M. (2021) · IEEE Access · doi:10.1109/access.2021.3062471 · Cited by 259
“Organizations (GPO) to improve their HCSC by gaining collective pricing power, and procurement efficiency [4], [5].”
BackgroundThe Impact of Group Purchasing Organizations on Healthcare-Product Supply Chains
Hu, Q. (., Schwarz, L. B., & Uhan, N. A. (2012) · Manufacturing & Service Operations Management · doi:10.1287/msom.1110.0355 · Cited by 103
Self-citationA hybrid approach for integrated healthcare cooperative purchasing and supply chain configuration
Rego, N., Claro, J., & Pinho de Sousa, J. (2014) · Health Care Management Science · doi:10.1007/s10729-013-9262-y · Cited by 55
Ahmadi, A., Pishvaee, M. S., & Heydari, M. (2019) · Journal of the Operational Research Society · doi:10.1080/01605682.2018.1434403 · Cited by 24
Metadata
- Authors
- Hu, Q. (., & Schwarz, L. B.
- Affiliations
- Purdue University West Lafayette (US)
- ORCID
- Hu, Qiaohai (Joice)
- Venue
- Production and Operations Management
- Publisher
- SAGE Publications
- Published
- 2011-01
- Volume
- 20
- Issue
- 1
- Pages
- 1-15
- ISSN
- 1059-1478 (ISSN-L)
- 1937-5956
- OpenAlex
- W1775696543
- Cited by
- 82
- References
- 0
- Citations by year
- 2026: 4 · 2025: 8 · 2024: 8 · 2023: 6 · 2022: 4 · 2021: 8 · 2020: 6 · 2019: 3 · 2018: 9 · 2017: 4 · 2016: 9 · 2015: 3 · 2014: 3 · 2013: 6
- FWCI
- 4.44
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Production and Operations Management (publishedVersion)
- Topics
- Social Sciences › Decision Sciences › Management Science and Operations Research › Supply Chain and Inventory Management
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Pharmaceutical Economics and Policy
- Keywords
- group purchasing organizations, manufacturer competition, anticompetitive practices, innovation incentives, safe harbor provisions
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