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Last week, Groupon — the market leader in the online “group buying” industry— officially went public, ending months of speculation regarding the website’s valuation. By selling $700 million in shares, Groupon became the largest IPO for an American tech company since Google went public in 2004. Shares surged 40 percent at the open, before settling at $26 a share, or a valuation of $16.5 billion.
From the healthcare GPO perspective, the Groupon model is nothing new. Groupon aggregates the purchasing power of consumers, enabling the purchaser to receive a better price by buying with a group. Similarly, Groupon’s revenue methods are not unique - consumers pay Groupon by purchasing the deal. Groupon then pays the local businesses after taking an administrative fee—typically a 40%-50% share of the revenue generated by the deal.
However, there are differences between Groupon and the average healthcare GPO. For example, the average fees that healthcare GPOs collect are far smaller than Groupon’s fees, ranging between an average of 1.8 percent and 2.2 percent according to a recent survey.
Also, GPOs are governed by the Medicare and Medicaid Patient Protection Act of 1987 that allows GPOs to charge administrative fees to suppliers while providing services to hospitals and other health care providers. Because GPOs arrange for the referral of business to healthcare suppliers (through negotiating contracts for the benefit of their healthcare provider members) and receive an administrative fee in return for these services, this situation could trigger the federal Anti-Kickback Statute. “Safe Harbor” regulations describe how health care providers are required to structure their financial transactions and create transparency so that they comply with federal law. There might be some additional differences but clearly the group purchasing model, which is over 100 years old, is a tried and true method of reducing costs, increasing savings, and delivering value.