Paradox of GPO size and a hospital’s relative power for purchasing efficiency and the moderating role of system membership

Purpose Extant research documents the cost benefits of group purchasing organizations (GPOs) to member hospitals, but understudies concerns about the market dominance of a few large GPOs and the relatively weakened buyer power of hospitals in the US healthcare product supply chain. To fill the gap in the literature, this study investigates whether GPO size and a hospital’s relative power to its GPO affect the hospital’s supply expenses, and whether and how system membership moderates the power–performance link. Design/methodology/approach For this study, we collect the panel data from various secondary sources on GPO–hospital dyads, which include the seven largest GPOs and their 2,590 unique acute care hospital members in 51 states over the period of 2009–2017. To address the endogeneity issue associated with simultaneity, we establish a one-year time lag between dependent and independent variables and analyzed the 15,527 hospital-year observations using the time-series regression with fixed-effect. Findings We find that a hospital’s relative power to its GPO is the most critical factor to reduce its supply cost while GPO size has no effects. We also find that a nonsystem hospital achieves greater cost savings by leveraging its relative power to its GPO while a system hospital gains no benefits. Originality/value To the best of our knowledge, this study is the first to address the paradox of GPO size and a hospital’s relative power and the moderating role of system membership for the hospital’s purchasing efficiency using a large nation-wide dataset of US hospitals–GPO dyads.