Do GPOs save money? What GAO reports found
Manoa editorial
https://manoa.health/resources/guide-do-gpos-save-money-what-gao-reports-found

If your practice has a group purchasing organization (GPO) agreement, public reports can explain how the arrangement works and how the GPO is paid. A GPO negotiates supply contracts on behalf of its customers and is paid mostly through fees from the vendors on those contracts. Five reports by the U.S. Government Accountability Office (GAO), dated 2002 to 2014, describe that model and what they found about prices and fees. None of them measures any one organization’s savings. Read together, they point to a few terms in your own agreement worth checking.

## How we read the reports

We started with GAO’s work on GPOs and read each report below from gao.gov. The HHS comment letter in the 2014 report is a scanned image, so we relied on GAO’s summary of it. For each report we note what it examined, what it found and what it did not establish.

- **April 2002, [GAO-02-690T](https://www.gao.gov/products/gao-02-690t).** A pilot study of what 18 hospitals in one metropolitan area paid for pacemakers and safety needles in 2000.
- **July 2003, [GAO-03-998T](https://www.gao.gov/products/gao-03-998t).** Interviews with seven large national GPOs about product selection, 2002 fees and contracting strategies.
- **January 2010, [GAO-10-323R](https://www.gao.gov/products/gao-10-323r).** A review of research published from 2004 to 2009 on whether GPOs lower prices.
- **March 2012, [GAO-12-399R](https://www.gao.gov/products/gao-12-399r).** Federal oversight of GPOs and the industry’s self-regulation.
- **October 2014, [GAO-15-13](https://www.gao.gov/products/gao-15-13).** A questionnaire to the five largest national GPOs on contracts and 2012 revenue, a literature review, and interviews with experts, hospitals and vendors.

We did not read GAO’s 2010 report on GPO services (GAO-10-738), two 2005 audits by the inspector general of the Department of Health and Human Services (HHS), or the industry-funded and manufacturer-funded studies GAO cites. Where this page mentions them, it relies on GAO’s description. We read nothing newer than 2014 and did not check what has changed since.

## What a GPO does and how it is paid

GAO’s 2014 report describes GPOs as purchasing intermediaries whose intent is to save customers money by pooling purchases and taking on the work of negotiating with vendors. The GPOs told GAO that this work includes requests for proposals, scoring vendors on supply capacity, quality and safety as well as price, and product advice from committees of their customers’ physicians, nurses and other experts.

When a customer buys under a GPO contract, the vendor pays the GPO an administrative fee, usually a percentage of the purchase price. Federal anti-kickback law would otherwise prohibit that payment. A 1986 “safe harbor” allows it if the GPO meets conditions set in a 1991 regulation. Its written agreement with each customer must either cap fees at 3 percent of the purchase price or state the amount or maximum each vendor will pay. It must also tell each customer in writing, at least once a year, how much it received from each vendor on that customer’s purchases.

The five largest GPOs told GAO that administrative fees from vendors made up about 92 percent of their 2012 revenue on average. Together they collected about $2.3 billion in fees from vendors that year and passed about 70 percent of it, $1.6 billion, to customers or owners. Four of the five also used fees to fund services such as benchmarking data, equipment repair and patient safety services. GAO also reports the GPO trade association’s claim that 96 to 98 percent of U.S. hospitals buy through GPO contracts.

## What the reports found about prices

The only direct price comparison in these reports is the 2002 pilot. GAO compared what hospitals paid with and without GPO contracts for the 41 pacemaker models and six safety needle models that could be compared. It found that “a hospital’s use of a GPO contract did not guarantee that the hospital saved money.” For pacemakers, the median GPO price ranged from 26 percent below to 39 percent above what hospitals paid on their own. The four small hospitals, with fewer than 200 beds, always did better with a GPO contract, though by only 1 to 6 percent. The three large hospitals rarely did. The prices left out manufacturers’ rebates, which hospitals could receive with or without a GPO, and other payments earned through GPO contracts. GAO asked for more evidence, since the study covered one market, two devices, eight GPOs and 18 hospitals.

In 2010, GAO found one peer-reviewed article from 2004 to 2009 on GPOs and prices. It rested on a survey of hospital materials managers with a 16 percent response rate and included no empirical analysis of cost savings. Two savings estimates funded by the GPO trade association are industry claims. GAO noted that one relied on savings hospitals reported in a survey with no stated response rate, and the other applied assumptions to national spending data.

By 2014, GAO had found one empirical study of the fee-based funding model. Its authors concluded that without the safe harbor, GPOs would likely seek more competitive bids. Its data were bought through a grant received by the Medical Device Manufacturers Association, and a later article disputed it. GAO concluded that there is “little empirical evidence to definitively assess the impact of the vendor-fee-based funding structure.”

## What they found about fees and contract terms

Fee levels are the best-documented part of the record, and they come from the GPOs’ own reports. In 2003, five of seven large GPOs said their highest fee in 2002 did not exceed 3 percent. Private-label products, sold under a GPO’s own brand, were the exception, with one fee of nearly 18 percent. For 2012, all five of the largest GPOs said their most frequent fee was 3 percent and their volume-weighted averages were around 1 to 2 percent. GAO added that manufacturers’ fees are likely higher than that average, because distributors’ fees are often below 1 percent.

What remains disputed is whether fees tied to price push prices up. Some experts told GAO that a GPO paid a percentage of the price has little reason to seek a lower one. Others, including the GPOs, said competition among GPOs and hospitals’ freedom to switch push GPOs toward the lowest prices. One GPO representative described weighing a product’s “total value,” including quality, discounts, rebates and anticipated fee revenue as well as price. GAO’s 2012 letter noted that federal oversight cannot settle this question, because the fees are permitted under the safe harbor.

Fees returned to customers are also partly unmeasured. Hospitals must report GPO distributions as a reduction in costs on their Medicare cost reports. According to GAO, a 2005 audit by the HHS inspector general found that 21 hospitals had offset $200 million of the $255 million they received. In 2014, GAO said the extent of this reporting was unknown because HHS had not reviewed it since 2005. HHS agreed to add review steps to its audits of hospital cost reports.

Contract terms also change what a customer pays. All five of the largest GPOs reported commitment provisions, which lower the price or add a rebate when a customer buys a set share of a product group from one vendor. GAO’s 2002 testimony noted that a hospital buying 25 percent of its cardiac stents from one manufacturer may pay nearly three times more per stent than one buying all of them there. The five GPOs said most of their contracts had two or more vendors and most 2012 awards had three-year terms. Each also used sole-source contracts, bundles of related products and terms of five years or more in some situations.

## What none of the reports establishes

- None measured the savings of a particular organization, and none offers a figure you should expect to save.
- The buyers in these reports are hospitals. None examined a multi-site physician practice or surgery center.
- Most fee and contract figures came from the GPOs. GAO said in 2003 that it did not independently verify them, and in 2014 that its interviews with hospitals and vendors were not generalizable.
- The only price comparison uses data from 2000 in one market. The newest fee data are from 2012.

## What a multi-site practice can do with this

The reports show what your agreement is supposed to contain and where the money moves. They also describe the contracting work GPOs do, and in the 2002 pilot the smallest hospitals did better with a GPO contract on every pacemaker model compared.

Take out your agreement and ask your GPO representative:

1. Does our agreement cap vendor fees at 3 percent, or does it state the amount or maximum each vendor pays?
2. Who in our organization receives the annual written report of fees each vendor paid on our purchases, and where is last year’s?
3. Do we receive a share of those fees? If so, on what formula and how often? Ask your accountant how any payment should be recorded.
4. Which of our prices depend on a commitment level? What share must we buy, and do all our locations count toward it?
5. Which of the contracts we use are sole-source, bundled or at least five years long?
6. For the items we buy most, when did someone last compare the contract price with an outside offer for the same item and pack?

Record each answer and the person who follows it up in the [responsibility worksheet in our GPO guide](/resources/guide-what-does-a-healthcare-gpo-do-and-whats-left-for-you). If a question has no owner, [compare hiring, software and an outside service](/resources/guide-healthcare-purchasing-hire-buy-software-or-outsource) for that work. We publish this page as Manoa, a purchasing service that works alongside a customer’s GPO agreement.

Sources
GAO-02-690T: Group Purchasing Organizations: Pilot Study Suggests Large Buying Groups Do Not Always Offer Hospitals Lower Prices (April 30, 2002): https://www.gao.gov/products/gao-02-690t (checked 2026-09-23)
GAO-03-998T: Group Purchasing Organizations: Use of Contracting Processes and Strategies to Award Contracts for Medical-Surgical Products (July 16, 2003): https://www.gao.gov/products/gao-03-998t (checked 2026-09-23)
GAO-10-323R: Group Purchasing Organizations: Research on Their Pricing Impact on Health Care Providers (January 29, 2010): https://www.gao.gov/products/gao-10-323r (checked 2026-09-23)
GAO-12-399R: Group Purchasing Organizations: Federal Oversight and Self-Regulation (March 30, 2012): https://www.gao.gov/products/gao-12-399r (checked 2026-09-23)
GAO-15-13: Group Purchasing Organizations: Funding Structure Has Potential Implications for Medicare Costs (October 2014): https://www.gao.gov/products/gao-15-13 (checked 2026-09-23)