The GPO Agreement Should Clarify the Responsibilities and Engagement Rules Between the GPO and Its Members
When it comes to the GPO Agreement always utilize experienced GPO law firms and lawyers to mitigate risks for the GPO via a properly drafted GPO Agreement, there is simply too much at risk that can be avoided
For a brief understanding of a typical GPO Agreement, we have outlined below some of the common provisions included in general GPO Agreements, provisions that are useful in most GPO Agreements and for most types of GPOs. Remember, when it comes to typical business agreements between two parties, seeking legal advice is prudent, when you take into consideration the fact that GPO Agreements are executed among the GPO parent and many parties, having a law firm or lawyer that specializes in representing GPO’s and crafting GPO friendly GPO Agreements is critical for risk mitigation. It’s also extremely useful for the GPO members as the GPO Membership Agreement also provides information on the rules of engagement to the signing members and having a clear, well-defined path to engage leads to more productive and headache free GPO and member interactions. Clarity is good for everyone involved and the GPO Agreement provides just that!
Group purchasing organizations (GPOs) come in all shapes and sizes and serve a wide variety of industries. One thing they have in common is that the relationship they have those to who use their services to achieve more favorable purchasing terms needs to be carefully documented through an agreement with each one of them. Such agreements themselves may go by various names, but here they will be referred to as GPO Membership Agreements. Simply put, the GPO Membership Agreement should describe the services provided by the GPO to its members or participants, specify how it will be compensated for its services and set forth what is expected of the members who enjoy the GPO’s services.
GPO Agreements – A Representative Sampling of Provisions Found in GPO Membership Agreements
- The GPO Agreement provides the description and scope of purchasing program services to be provided by the GPO to it’s membership.
- The GPO Agreement contains provisions relative to the use and handling of data provided to and/or derived from the involvement of Suppliers and Members with the GPO’s purchasing programs.
- The GPO Agreement specifies the dues or fees to be paid by the GPO Members.
- The GPO Agreement provides the disclaimer of warranties of products and services provided through GPO to the member and limitation of liability provision
- The GPO Agreement requires the GPO member to maintain public liability insurance of at least a certain amount and to name the GPO as an additional insured.
- The GPO Agreement requires the GPO Member to indemnify and hold the GPO harmless from damages arising out of the GPO Member’s participation in the GPO and other specified causes.
- The GPO Agreement provides the statement of criteria to be maintained on an ongoing basis to remain a Member of the GPO. Examples could require that the Member be creditworthy, be prompt in the payment of all debts owed to the GPO or its suppliers, that it be in the business upon which the GPO is focused, to list a few.
- GPO Agreements set the expectations or duties to be performed by Member for the benefit of GPO. Examples could include a specified degree of support of the GPO’s purchasing programs, attendance at meetings, and participation on committees. (the latter two examples would be more typically found in a buying group or GPO owned its members.)
- GPO Agreements define whether Member is permitted to join other GPOs. A GPO would not typically permit participation in other groups which closely compete with it.
- GPO Agreements define whether the Member may have a separate purchasing arrangement with a supplier for products already covered by a purchasing program of the GPO. Click here for more details.
- GPO Agreements set forth the grounds for terminating a Member’s participation in the GPO.
- GPO Agreements set forth the remedies of the GPO against a Member or members for violating terms of GPO Membership Agreement, or other defaults.
- The GPO Agreement includes a provision for how long the GPO Agreement will be in effect, if not indefinitely, any automatic renewal provisions or providing for type of notice required to voluntarily terminate the Agreement.
- The GPO Agreement stipulates what the rights of the GPO and the Member are upon termination of Agreement. For example, the GPO should be entitled to receive a release of liability from the Member upon termination.
- GPO Agreements typically include a confidentiality provision to protect the proprietary information of the GPO with which the Member is entrusted.
- Any GPO Agreement should include a provision that the Membership Agreement is non-assignable.
- GPO Membership Agreements also contain the usual contractual provisions at the end, such as those pertaining to notices, governing law, dispute resolution, the remedy specific performance being available, etc.
The GPO Agreement – It’s Critical to Obtain Proficient Legal Advice When Creating Such a Foundational Agreement Such as the GPO Agreement, Including any Revision to a Standing GPO Agreement
GPO Membership Agreements – Key Components of the GPO Agreement With Respect to Healthcare GPO’s
When it comes to GPO agreements and healthcare, there are some nuances that make them different than GPO Agreements for other types of GPO’s. The GPO Membership Agreements for healthcare GPOs must comply with the Safe Harbor Regulations to avoid possible exposure under the Anti-kickback Statute (AKS) (See 42 U.S. Code § 1320a–7b). The Safe Harbor Regulations may be found at https://www.ecfr.gov/current/title-42/chapter-V/subchapter-B/part-1001/subpart-C/section-1001.952 and are cited as 42 C.F.R. § 1001.952(j). The AKS only applies to GPOs that serve healthcare providers who receive federally funded healthcare payments such as Medicaid or Medicare. For more information regarding the nature of healthcare GPOs and compliance with the Safe Harbor Regulations, please go to GPO Antitrust Update for 2023 and GPO Safe Harbor . Accordingly, their GPO Membership Agreements must check a number of boxes to comply with the Safe Harbor Regulations. Membership Agreements for GPOs that are not healthcare related are relieved of that burden. Let’s focus upon the types of provisions that should be included in healthcare-related GPO Agreements
GPO Agreements - Membership Agreements Provisions Specific to Healthcare Related GPOs
Under the Safe Harbor Regulations, the GPO Membership Agreement must be entered into in writing with all of its members. In addition, it must provide for either or of the following: (i) That participating vendors who sell to the GPO’s members will pay a fee to the GPO not to exceed 3% of the purchase price of the goods provided to the members of the GPO; or (ii) If the fee paid by the vendor to the GPO is not 3% or less, then the amount to be paid by the vendor must be disclosed, or if not known, the maximum amount to be received by the vendor must be disclosed in the GPO Agreement. Such amount can either be stated as a fixed amount or as a percentage of the purchases made from the vendor by the members of the group under the agreement between the vendor and the GPO. In addition, the GPO must disclose to each healthcare provider member in writing at least once a year, and to the Department of Health and Human Services, when requested to do so, the amount received from each vendor with respect to purchases made by on behalf of such member. The definition of a group purchasing organization under the Safe Harbor Regulations is worth noting here as it in and of itself can be seen as a requirement. The definition is given as follows:
“the term group purchasing organization (GPO) means an entity authorized to act as a purchasing agent for a group of individuals or entities who are furnishing services for which payment may be made in whole or in part under Medicare or a State health care program, and who are neither wholly-owned by the GPO nor subsidiaries of a parent corporation that wholly owns the GPO (either directly or through another wholly-owned entity).”
Therefore, another requirement is that the GPO must serve as a negotiating agent for a collection of unrelated healthcare providers. If they were all affiliates of each other, then they would not fit within the Safe Harbor Regulations.
GPO Agreements for Healthcare GPO’s - Let’s Consider Some of the Specific Provisions in a GPO Agreement for Healthcare GPO’s
- GPO Agreements include a provision disclosing the percentage of purchase volume or the amount of fees the GPO will receive from the suppliers who participate in the GPO programs.
- GPO Agreements include a provision requiring the GPO to report on an annual basis the amount it received from each Supplier with respect to purchases made by or on behalf of Member to the member and to the Secretary of the United States Department of Health and Human Services upon his or her request.
- Both the GPO and the member will make its books and records open to each other for audit insofar as they pertain to such party’s participation in the purchasing programs offered by the GPO.
- GPO Agreements include an agreement by Member to comply with the Safe Harbor Provisions.
- GPO Agreements stipulates an obligation of Member to remain licensed under state law to provide its healthcare services and certified to participate in the Medicare and Medicaid programs.
- GPO Agreements include a provision for disclosing the GPO’s affiliates who may either be suppliers or members of the GPO
- That neither party is excluded or disbarred from participating in any Federal Healthcare Program (as defined under 42 U.S.C. § 1320a 7b(f), has not been convicted of a criminal offense related to healthcare services, or is under investigation for such.
- Agreement by Member that every purchase of a product subject to the requirements of § 340B of the Public Health Services Act made by Member through any contract with a supplier contract provided by the GPO shall be for Member’s ultimate consumption or “Own Use,” and not for resale.
- Similarly, Members should be required to agree not to sell any such 340B type product purchased through the GPO to any wholesaler, distributor, or other entity.
Attitudes of GPOs toward the ability of their members to cut separate, more favorable deals, or deals which build upon and enhance the deals made by the GPO vary widely, from GPO to GPO.
In the healthcare industry, side deals which completely circumvent the GPO are usually prohibited in the Membership Agreement. This is understandable, because the GPO derives its revenues from the purchasing volume the group places with that supplier. If the purchases are made outside of the GPO’s program, it loses that revenue. On the other hand, if the GPO is primarily or exclusively supported by the membership dues or payments, then it may not object to such side arrangements. The economic reality is that the larger members of a GPO can often command more favorable terms than the smaller members can. The GPO does not want to lose the volume of the larger members. So, many GPOs will countenance or look the other way as to side arrangements that provide the larger members better terms than what is being offered to the Group as a whole. Such terms might be an extra rebate, extra discount off the pricing given to the group or a more favorable prompt payment discount.