Hospital use of group purchasing organizations: A cost effect analysis

In recent years, the United States has witnessed a significant increase in overall healthcare costs. Given the cost of supplies accounting for a large portion of healthcare expenses, hospitals have looked to external organizations, such as group purchasing organizations (GPOs), to enable them to benefit from lower supply costs. Various external factors can impact the efficiency of healthcare operations–including the role of distributors and GPOs in the supply chain process. This study explores the influence of GPOs on hospital cost efficiency, utilizing data from the 2016–2018 American Hospital Association's Annual Hospital Survey and the Healthcare Provider Cost Reporting Information System. The multilevel regression model evaluates the effects of GPO network size on inventory cost and operational expenses through the lens of resource dependence theory. The results indicate that, in addition to potential reduction of inventory costs, overall operational expenses can be directly reduced by the size of the GPO membership and via the mediated effect of inventory costs.