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This research investigates the use of distributors & group purchasing organizations (GPOs) and examine how they affect hospital efficiency and profitability. The data was obtained from the 2015 Annual Hospital Survey (AHA) of which 6,251 hospitals participated. 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 which used GPO and those which did not. This study employs the 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 non-distributor. The same is performed for GPO and non-GPO.  T-test for operating margin was used to determine if hospitals with distributors and GPOs are more profitable than non-distributors and non-GPO hospitals, respectively. Nonparametric Binomial Spearman Correlation is used to determine the relationship between rank sum and each input and output, to determine which input and outputs are correlated with rank. Finally, a Mann-Whitney test to analyze the differences between two groups in terms of the ranks. We examined the several control variables to examine for statistical significance between these variables and with distributor and without distributor and with group purchasing organizations and without group purchasing organizations. Results indicate that the control variables (teaching and metro hospitals) made a significant difference for hospitals that used a distributor and those that use a GPO.

Hospital Efficiency, Profitability, Data Envelopment Analysis