Friday, August 14, 2009

Senate Investigates Hospital Group Purchasing Organizations

Almost four years ago, we posted about the strange world of hospital group purchasing organizations (GPOs). These organization purchase large volumes of medical products for member hospitals, but a "safe harbor provision" in federal law allows them to charge the vendors, not the hospitals for their services. In fact, it is legal for hospitals to share in fees the vendors give these organizations, and to award contracts to vendors who pay the largest fees.

Our 2005 post focused on allegations about the operations of a single GPO, Novation. We noted "several cases in which Novation's actions seemed to have denied hospitals access to the best products, or have increased, rather than ratcheted down the cost s of supplies and equipment."

Now, the US Senate is investigating a group of the largest GPOs. According to the New York Times,

Lawmakers eager to broaden health care coverage while holding down costs are examining the institutional market for medical supplies, a largely unseen $60 billion-a-year realm where things like bedpans and heart implants change hands.

Senators from committees like finance, judiciary and aging are investigating the practices of companies that represent big networks of hospitals, nursing homes and other institutions. These group purchasing organizations select 'preferred' manufacturers and negotiate the prices of medical products, which are a closely held secret. They then use a variety of carrots and sticks to make sure their hospitals buy those brands at the contracted price.

The senators are concerned that these groups’ practices may be inflating health costs at taxpayer expense. Much of the cost is borne by the government, as it reimburses hospital expenses through the Medicare program.

On Wednesday, the senators sent letters to the seven biggest group purchasing organizations, known as G.P.O.’s, demanding detailed information about their business practices, including how they are paid, what services they perform besides picking brands and negotiating prices, and how their revenues are affected when an affiliated hospital buys supplies on its own instead of using the group contract.

The senators also asked for copies of contracts, something not normally made public.

For years, there have been complaints that the buying process is opaque and unfair. The purchasing companies’ operating expenses are usually paid by the manufacturers sitting across the bargaining table, leaving them open to accusations of steering huge blocks of institutional business to the vendors willing to pay the most.

The group purchasing organizations deny this, saying they award contracts on the merits and help hospitals get good deals, saving the government money.

The savings are hard to verify, because the market’s opacity makes price comparisons nearly impossible.

Normally, Medicare’s law against kickbacks would bar vendors from paying the companies that award them contracts, but Congress granted the industry a special 'safe harbor' many years ago, in the belief that volume purchasing saved money. The senators seem to want to test that belief and perhaps change or abolish the safe harbor, something that would turn the industry on its head.

Some of the group purchasing organizations have been in the spotlight before. Premier and Novation were the subject of articles in The New York Times in 2002, which prompted Congressional hearings and the issuance of an industry code of conduct. But Senate aides said they were still hearing reports of possible abuse....
What I wrote about group purchasing organizations four years ago still seems apt.

In summary, although GPOs were ostensibly set up simply to save hospitals money when purchasing supplies and equipment, these organizations have turned into huge, complicated and opaque entities whose actions are hidden, but which seem to be conveying large amounts of money back and forth among suppliers, hospitals, and the GPOs themselves. It is not at all clear that the GPOs save the hospitals money, nor get them the best possible supplies for the money they spend.

The leaders of the hospitals, including some of the countries most prestigious teaching hospitals, that own Novation and other GPOs ought to explain what these organizations really are doing, and particularly how they are supporting the hospitals' missions.

Again, this is another example of how opaque and unaccountable hospital leadership may be. But, the less transparent and accountable are health care leaders, the more the health care mission is at risk.


Finally, I applaud the Senators for taking this up at this time. To have meaningful health care reform, we need to address issues such as the opacity and unaccountability of the leadership of health care organizations, particularly not-for-profit hospitals that are supposed to put their patient care (and academic, if applicable) missions ahead of enhancing their financial surpluses and their executives' compensation.

ADDENDUM (19 August, 2009) - See interesting comments on this post, including some important information from the trade organization for group purchasing organizations.

7 comments:

Paul Trossel said...

At he moment we've, in the Netherlands, have the discssion about health insurance companies taking over (or getting a major interest) in hospitals. Health insurance companies in the Netherlands are former NGO's. With the introduction in 2006 of the new Health Insurance Act, health insurance companies are now profit organizations. These profit organizations who are partly privately owned could in ingenious ways lure their costumers to go to their hospital. At the moment they can't force their policyholders to do so, as the Health Insurance Act states clearly that all the policies got to provide free choices in health care and cure. But nevertheless, with premiums and bonuses they can persuade their policyholders to go only to that particulair hospital. A dangerous development in mine opinion. The policy holder always has to have the free choice to which specialist he/she wants to go and may not be lured to go only to the by the insurance company owned hospital. The policy holder must always be able to get the best cure or care that's available!

Curtis Rooney said...

The Health Industry Group Purchasing Association (HIGPA) is currently reviewing the Senate’s letter addressed to a number of its members and looks forward to providing the information that is requested. We appreciate the Senate’s interest in learning more about the important role of GPOs in healthcare, the savings GPOs provide to the industry, and what that ultimately means for patients – better services, better quality, and better patient care.

Unfortunately, the August 14th story by Mary Williams Walsh in the NYT resurrects old claims against the health care group purchasing industry and suggests that new congressional interest will force much needed change. The fact of the matter is that our industry is one of the most transparent, ethical and efficient in the health care arena. Please see for yourself at www.healthcaregpoii.com. This website provides many of the answers to the Senate’s questions. Both you and Ms. Walsh use the word “opaque” to describe GPOs. I hope you’ll do more research than she did on these questions.

Three important points that need to be added to Ms. Walsh’s story:

First, in 2005, our industry adopted a comprehensive code of conduct to ensure a new standard in ethical business practice that all members subscribe to; more information is available at www.healthcaregpoii.com.

Second, with regard to questions posed by Senators Grassley, Kohl and Nelson, we are eager to respond as this provides us with the opportunity to tell a very positive ‘untold’ story.

Third, during this time of unparalleled economic crisis, few activities rival the success of GPOs in keeping health care costs low while preserving service quality. Hospitals’ current arrangements with GPOs enable them to save considerable amounts of money and focus on what they do best – care for those in need. A recent study by Eugene Schneller and Mathematica showed that by using GPOs, hospitals and health care providers annually save over $6 billion for pharmaceuticals and over $8 billion for medical/surgical purchases alone. Want more? Go to www.GPOsSaveMoney.org.


Curtis Rooney
President
Health Industry Group Purchasing Association
2025 M Street, N.W. Suite 800
Washington, D.C. 20036
P 202.367.1215
F 202.367.2215
crooney@higpa.org
www.higpa.org

Roy M. Poses MD said...

Mr Rooney, I appreciate your response.

I wonder why your organization is planning to respond to an inquiry directed at individual corporations?

In any case, I would appreciate either specific quotes or direct links to specific information that refutes the "old claims," and that specifically demonstrates how the corporations in question are transparent and ethical.

Yes, I realize that your web-site does link to a voluminous yearly report that asserts that certain corporations have their own codes of ethics. Admittedly, they are thus better off than many health care organizations which have no such codes. But merely having a code is not the same as having a rigorous code that is public, clear, and publicly and effectively enforced.

I personally would be much more convinced about the corporations transparency and ethics if their codes of ethics were published, and how they are implemented was clear and public.

Curtis Rooney said...

Outstanding! A dialogue not a diatribe. Very refreshing in these times of health care town hall meetings. Let me provide you with the answers you requested.

Q. I wonder why your organization is planning to respond to an inquiry directed at individual corporations?

A. The individual companies will be providing individual responses to the Senate inquiry. HIGPA, as you know, is the voice of the industry and regularly meets with lawmakers and staff. HGPII is a separate organization whose mission is solely concerned with the GPO industries ethics inititative.

Q. In any case, I would appreciate either specific quotes or direct links to specific information that refutes the "old claims," and that specifically demonstrates how the corporations in question are transparent and ethical.

A. Please find below links to the appropriate GPOs and the specific section of their websites that take you to their codes of conduct.

Q. Yes, I realize that your web-site does link to a voluminous yearly report that asserts that certain corporations have their own codes of ethics. Admittedly, they are thus better off than many health care organizations which have no such codes. But merely having a code is not the same as having a rigorous code that is public, clear, and publicly and effectively enforced.

A. We agree and think the GPOs actually lead the way in terms of transparency and welcome other industries joining the code of conduct band wagon. That said, these documents can be a chore to read and whether a document is clear will be subjective. To address this HGPII has made an annual questionnaire that addresses over 100 individual questions or subquestions you or others may have. One element of an effective compliance program is to look for areas for clarification and improvement. HGPII has consistently invited any comments or suggestions.

Q. I personally would be much more convinced about the corporations transparency and ethics if their codes of ethics were published, and how they are implemented was clear and public.

A. The links below are public. The HGPII questionnaire is public. The individual company responses are public and include answers to questions concerning bid processes, sole source, dual source, multi-source contracting, bundling, fees, etc.

As to enforcement, the GPO industry adopted the public transparency route as the primary method for enforcement. We provide a lot of details in those questionnaires with the idea that if someone wasn’t being honest or accurate in a disclosure, then someone would call them on it.

Let me know if you need more.



Curtis Rooney
President
Health Industry Group Purchasing Association
2025 M Street, N.W. Suite 800
Washington, D.C. 20036
P 202.367.1215
F 202.367.2215
crooney@higpa.org
www.higpa.org




Amerinet
Corporate Contracting Principles: http://www.amerinet-gpo1.com/ANetPub/uploads/corp_contracting_principles.pdf
Standards of Business Ethics and Conduct: http://www.amerinet-gpo1.com/ANetPub/uploads/Ethics.pdf
Supplier Diversity: http://www.amerinet-gpo1.com/Amerinet.aspx?tabid=150&NavId=8

MedAssets
Standards of Business Conduct: http://ir.medassets.com/documentdisplay.cfm?DocumentID=2870

Premier
Business Conduct Guidelines: http://www.premierinc.com/about/mission/ethics-compliance/Resource%20Booklets/BCG/Business_Conduct_Guide.pdf
Group Purchasing Code of Conduct: http://www.premierinc.com/about/mission/ethics-compliance/Resource%20Booklets/COC/code-of-conduct-feb-2006-version-printable.pdf

Novation
Business Conduct, Compliance and Ethics Program: http://www.novationco.com/about/compliance/default.asp

HPG
Ethics & Compliance and Code of Conduct Policies: http://www.healthtrustcorp.com/about-vendor-ethics.php

Broadlane
Ethics and Compliance: http://www.broadlane.com/ourcompany/ethicsandcompliance/ethicsandcompliance.html

Consorta
Code of Conduct: http://www.consorta.com/about/code.aspx
Ethics and Compliance: http://www.consorta.com/about/ethics.aspx

Roy M. Poses MD said...

Mr Rooney, thanks for participating so helpfully in this dialogue.

It obviously may take me (or other readers) a little while to review this information, but I hope it will generate more discussion.

Anonymous said...

Mr. Rooney:
I read with interest the article by Mary Williams Walsh in the NYT titled “Health Care Renewal” and the on-line posted comments from you in response. My company is new to the health care marketplace. We are attempting to bring a product that we’ve been marketing to our core market of food production facilities to the health care marketplace. Our system allows hospitals to test environmental surfaces for the presence of ATP thus verifying their cleaning effectiveness.
Since we are new to this market, we’re learning a great deal every day. We understand that group purchasing organizations exist and the rationale for their existence. But I have to echo Ms. Walsh’s description of their practices as opaque at best. Admittedly, we’ve had only a very small amount of experience with GPOs but I can tell you that we’ve encountered at least one example of an agreement with a vendor that appears to make no sense in terms of its benefit to the GPO’s members and which has effectively locked us out of doing business with them. In this example, 3M has negotiated an agreement to be the sole supplier to HPG of ATP cleaning verification and tracking systems. We were told by one HPG member, St. Mary’s Hospital of Athens, GA, that they could not purchase our system because of this agreement.
What’s puzzling is that at no time were we ever contacted by anyone at HPG concerning OUR system. So how could they know that the deal they negotiated with 3M was a good one? Our system is $1300 less expensive at retail than the 3M product and does much more. We have a product that is much better suited to hospitals while the 3M system was designed for use in food production facilities.
If you believe that GPO’s are transparent, I think it would be interesting for you to try and imagine yourself as a new vendor and try to contact them to get them to take a look at your product. The GPO’s we’ve tried to contact provide only an on-line form that a new vendor fills out, submits and then waits for some future contact. There’s no contact information and the submission Website advises that “due to the large volume of submissions” they’ll be back in contact with us only if there’s some interest. One would wonder how they would know whether their members would be interested with no real opportunity to provide anything more than a ten-word description of a product or service.
I’d be curious to hear your response. From the perspective of one outsider GPO’s appear to be large, monolithic entities that impede competition, stifle innovation and the adoption of new and improved technologies and provide their members with no cost savings. They appear to exist for their own benefit.

James L. Topper
Market Development Manager - Healthcare
Neogen Corporation
620 Lesher Place
Lansing, MI 48912
800-234-5333 X2218

Chris said...

It is my understanding based on reading the GPO's website that the GPO's are largely owned by the hospitals they service. Am I reading this incorrectly? It does seem odd to have reimbursements coming from the government while kick backs are coming from manufacturers. Something is not quite right.