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U.S. Department of Health and Human Services

Regulatory Information

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2.1 Health Care Institutions and Integrated Delivery Networks (IDNs)

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Previous Section: Pharmaceutical Purchasing Organizations

Health care institutions, including, hospitals, clinics, nursing homes, home health care providers, managed care providers (i.e., HMOs), government agencies, and various alternate care providers, collectively purchased around $25.0 billion in prescription drugs in 1998 (NWDA, 1999). Over 75 percent of these purchases were from wholesalers and the remaining volume from drug manufacturers (NWDA, 1999). Health care facilities generally demand a greater quantity of prescription drugs per location and a narrower range of items than retail stores.

Over the years, health care institutions have consolidated to form integrated delivery networks (IDNs), which are organized to provide efficient and cost-effective medical services to a community. According to data compiled by the SMG Marketing Group, Inc., there are a total of 604 IDNs in the United States as of April 1999 (NWDA, 1999). Some health care institutions, including individual hospitals, chains, and IDNs, have combined to form group purchasing organizations (GPOs). While the GPOs do not purchase the drugs themselves or provide drug distribution services, they use the aggregated purchasing power of their members to negotiate favorable contracts with manufacturers and wholesalers on behalf of their members (U.S. District Court for the District of Columbia, 1998).

SMG Marketing Group, Inc., estimates that as of April 2000, there were a total of 701 hospital GPOs in the United States. Further, of these 701 GPOs, 416 are multi-hospital systems that own, manage, or lease two or more hospitals (SMG Marketing Group, Inc., 2000).

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Next Section: 2.2 Pharmacy Benefit Management Companies (PBMs)