Do prices vary with purchase volumes in healthcare contracts?

Abstract

Hospitals are facing severe increases in the cost of clinical supplies, and a common strategy is to drive economies of scale achieved by hospital consolidation. The supply strategy of “volume leveraging” involves sourcing through contracts with Group Purchasing Organizations (GPOs) for commercial distributors and manufacturers of medical products. This study seeks to document the empirical benefits associated with volume leveraging, through analysis of purchasing data from three large hospitals. The dependent variables include a number of factors that are used to justify volume leveraging approaches, yet the study finds no significant explanatory factors that determine price variation related to the volume purchased. Interviews with physicians and clinicians suggest that poor data quality leads to lack of transparency, and an inability to aggregate volumes across inventory SKUs may be preventing volume-based cost savings from materializing. The results also suggest that lack of transparency results in low levels of utilization, which increases costs.