Establishing an Association Group Purchasing Organization
As trade associations and professional societies continue to lose members because of increased economic concentration, they search for effective means for supporting smaller members who compete in local markets. Often the Mom and Pop retail store or the independent professional is facing stiff competition from national retail operations or professional chains that have acquired numerous local operations and formed national competitors. These national competitors use their expanded purchasing power to obtain volume discounts when purchasing goods and services which they then resell in direct competition with the Mom and Pop retail stores or independent professionals.
Associations and professional societies recognize that small businesses promote the entire industry and/or profession by providing necessary governmental grass root support on both the state and national level and by giving consumers, especially in rural or semi-rural areas, access to products and services. In order to keep their small members competitive, some associations and professional societies have established Group Purchasing Organizations (GPO). A GPO is a separate corporation that combines the purchasing power of its members to obtain volume discounts for products and services which, when applicable, they resell to consumers. No association member is required to join the GPO. Those who are interested voluntarily agree to purchase a specific amount of goods and or services from the GPO. The GPO then shops competing sellers and negotiates volume discounts for its members. The sellers ship directly to each buyer and the GPO gets a small commission.
There are antitrust issues involved with establishing and operating a GPO. If not structured properly, the GPO and its members may engage in practices that could be construed as price fixing, concerted refusals to deal, or attempts to control markets in violation of the antitrust laws. However, the good news is that the FTC and the Antitrust Division of the Department of Justice (DOJ) have established guidelines and issued a series of Advisory Opinions and Business Review Letters that set out clear directions of how to operate a GPO and minimize antitrust risks.
The recent Business Review Letter that the Antitrust Division sent to the American Optometric Society is a good tutorial. See January 15, 2020 Business Review letter from Makan Delrahim, Assistant Attorney General, Antitrust Division, Department of Justice to Victoria L. Smith, Stinson Leonard Street, LLP, Counsel for the American Optometric Association attached below. This Business Review Letter describes the structure of the industry, the proposed structure of the GPO, the competitive benefits of the GPO, the potential antitrust risks, how the association’s proposal meets established DOJ criteria, and concludes that, based on the facts presented, the DOJ does not intend to challenge the proposed action.
GKG Law has assisted its clients with establishing their GPOs and will be glad to discuss establishing a GPO with your association.
If you need assistance, please contact Steve Fellman at sfellman@gkglaw.com or David Monroe at dmonroe@gkglaw.com.
