Impacts of distributors and group purchasing organizations on hospital efficiency and profitability: a bilateral data envelopment analysis model

Total health care expenses have risen significantly in the United States. There are many factors and variables that can impact hospital operating efficiencies. Among them, engaging a distributor or group purchasing organization (GPO) is one method to influence efficiency throughout the entire supply chain. This research investigates the impact of distributors and GPOs on hospital efficiency and profitability. The data from the 2015 American Hospital Association (AHA) Annual Hospital Survey of which 6251 hospitals participated are used. These hospitals were separated by those who purchased supplies through a distributor and those who did not. Likewise, the same was performed for those hospitals that used GPO and those that did not. This study employs DEA-Solver software to develop four types of bilateral DEA models. The results of the DEA model use a ranking variable (rank sum) to rank the variables within the two groups (distributor and no distributor) to determine if there is a significant difference between distributor and nondistributor. The same is performed for GPO and non-GPO. We examined the impact of the several control variables on hospital efficiency for distributors and GPOs. Results indicate that the control variables (region, education, profit/nonprofit, government/nongovernment, and system/nonsystem) made a significant difference for hospitals that used a distributor and a GPO. Lessons and implications are discussed for future research issues, such as quality of patient care and a frontier production function.