The Plot of the CareFusion/ Dr Denham/ NQF/ ABIM/ Dr Cassel Case Thickens Even More - Current NQF and Previous ABIM CEO Found to be Long-Term Premier Inc Board Member, Resigns from that Board

The plot of the CareFusion/ Dr Denham/ NQF/ Leapfrog Group case (as we previously entitled it)  just will not stop thickening.

Background

To summarize the events up to our last post on the subject: 
 -  The case became public with an apparently routine legal settlement between CareFusion and the US Department of Justice
 -  The CareFusion settlement for $40.1 million was made in response to allegations that kickbacks were made to promote ChloraPrep, a solution meant for preoperative and other health care skin cleaning
-  The Department of Justice news release also alleged that payments were made to a corporation called Health Care Concepts to conceal kickbacks made to its owner, Dr Charles Denham
-  The implication was that Dr Denham was supposed to influence a standard writing committee run by the National Quality Forum, a well known organization that promotes quality improvement, issues authoritative practice standards, a form of clinical practice guidelines, and has contracts with the US government for quality of care activities
-  The draft of the standard to prevent surgical site infection written by the committee allegedly included the use of ChloraPrep, although mention of that specific medication was removed in a revision
-  The Department of Justice alleged that the standard was based on a journal article sponsored by Cardinal Health, from which CareFusion split, and which may have been manipulated by its sponsor
-  NQF leaders asserted that after hearing of the case from the DOJ, the organization severed ties with Dr Denham and the non-profit organization he runs,  established a policy not to accept money from funding organizations whose leaders are on its committees, reviewed all the standards set by the committee of which Dr Denham was co-chair, and twice revised its conflict of interest policy.
- Despite these efforts by the NQF to remove excess influence by Dr Denham, a specific recommendation to use ChloraPrep, specified by formula but not by name, did appear in another NQF standard, one for preventing central line infections; the NQF logo apparently appeared on at least one educational event run by Dr Denham that advocated the use of ChloraPrep; and CareFusion cited NQF support in at least one promotional brochure
-  In retrospect, people who worked with Dr Denham on various health care quality and patient safety projects acknowledged they should have realized something fishy was going on.
-  Senator Charles Grassley is now investigating
-  Dr Christine Cassel, the CEO of the NQF, who had previous been the CEO of the American Board of Internal Medicine, was reported to be on the boards of directors of Kaiser Permanente Health Plans and Hospitals, a large non-profit health maintenance organization and hospital system, and Premier Inc, a for-profit hospital group purchasing organization.  Both these organizations could be affected by the standards set by the NQF, and possibly by the certification standards set by the ABIM.

A Change in Course at NQF

At the time these conflicts were disclosed by ProPublica, , an NQF spokesperson and the NQF board chairperson suggested that the organization was well aware of these relationships, did not believe they were serious conflicts of interest, but chose to manage them by having Dr Cassel recuse herself from specific activities that could be construed as conflicts of interest.  ProPublica quoted ethics experts who suggested that nearly all of Cr Cassel's activities at NQF could be involved in such conflicts, and hence such management would be inadequate.

Less than two weeks later, reports appeared that Dr Cassel will be resigning from the boards of Kaiser and Premier Inc.  As reported by Joe Carlson writing in Modern Healthcare,

In continuing fallout from a recent conflict-of-interest scandal, National Quality Forum President and CEO Dr Christine Cassel is stepping down from two outside board of directors jobs amid questions about whether they created conflicts of interest for her.

Cassel, 68, has worked on the board of directors at Kaiser Permanente Health Plane and Hospitals since 2003, and has held board jobs with healthcare supplier and consultant Premier and its predecessors since 2008. She told the National Quality Forum board of directors on Wednesday that she is resigning both roles because they had become a 'distraction' for the NQF. 

The story was also reported by ProPublica, and briefly with focus on California-based Kaiser, by the Los Angeles Times  and the San Francisco Business Times.

But the resignations were just to reduce "distraction," as per ProPublica,

The Quality Forum said in a statement today that Cassel's decision to sever ties was voluntary.

'Although serving on these boards provided her with direct knowledge of many current issues in health care, as well as practices of good governance, the issue of her board involvement had become a distraction,' the organization said in a prepared statement.

However,

[NQF board of trustees chair Helen]  Darling said she believed it was an asset to have Cassel aligned with such prominent organizations like Kaiser and Premier. 'It’s like saying you’ve got a Ph.D. from Harvard,' Darling said. 'This is something you’d be proud of.'

Ms Darling did not explain how the issue had become so distracting as to lead to a disavowal of something of which one should be so proud.

Modern Healthcare also reported that the National Quality Forum will re-review the 2010 standards that recommended use of a CareFusion product and were written by a committee that included Dr Denham, who was alleged by the US Department of Justice to have taken kickbacks from CareFusion.

What About the American Board of Internal Medicine?

Before coming to the NQF in 2013, Dr Cassel was the president and CEO of the American Board of Internal Medicine (per the NQF press release announcing her appointment). In our last post on the subject, I raised the question of whether Dr Cassel could have had a conflict of interest related to her stewardship over Premier Inc while she was running the ABIM.  However, at the time of the last post, there was nothing public about whether Dr Cassel had a role with Premier Inc or its predecessor organizations while she was the leader of the ABIM.  .

Now, according to Joe Carlson writing in Modern Healthcare, it seems that Dr Cassel had been on the board of the privately held but for profit predecessor of the publicly traded Premier Inc since 2008, overlapping at least five years of her leadership of ABIM.  Per that article, "Premier arranges for the purchases of products that could be affected by the NQF's patient-safety recommendations," and per the ProPublica article, Premier has an interest in what influences "practices adopted by medical providers across the country."  As  we wrote previously, the ABIM has a very substantial influence on health care.  Physicians must pass its examinations to become certified as internal medicine specialists or sub-specialists such as cardiologists, gastroenterologists , etc.  Recently certified physicians, and soon all certified physicians will have to participate in ABIM sanctioned "maintenance of certification" activities or risk being flagged as not adequately keeping with the board's concept of medical progress.  So it would appear that Dr Cassel's long term stewardship of the predecessor of Premier Inc could have been just as important a conflict of interest for her as ABIM CEO as it appears to be for her as NQF CEO. 

Summary

This case increasingly demonstrates how pervasive is the web of conflicts of interest that is now draped over all of health care.  It also shows how important health care organizations seem to be lead by an overlapping, interconnected group of insiders.  The same names appear again and again amidst the top hierarchies.  The more ingrown the leadership of health care becomes, the more isolated it may be from the realities of health care for patients and health care professionals on the ground. 

Specifically re the extension of this case to the American Board of Internal Medicine, to update what I wrote previously, in my humble opinion the current ABIM leadership needs to consider that Dr Cassel, its previous long-term CEO, had a conflict of interest involving her membership of the board of the private for-profit predecessor to Premier Inc from 2008 to 2013.  Was this conflict disclosed to the ABIM board of trustees?  If so, was there an attempt at management, and why was it not publicly disclosed?  If the conflict was not disclosed to anyone, why not?  If what was done conforms to current ABIM policies on conflicts of interest, should these policies be strengthened?  If what was done did not conform to such policies, should their enforcement be strengthened?


To repeat,  Dr Joe Collier said, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link here.]  To reduce further unclear thinking and its consequences, we again urge that academic medical institutions, and non-profit organizations dedicated to improving patient care and public health forthwith begin real reductions of conflicts of interest affecting all those who make clinical or policy decisions.

The CareFusion/ Dr Denham/ NQF /Leapfrog Goup Case that Would Not Go Away - NQF CEO Outed as Member of Premier Inc Board

The story of the CareFusion/ Dr Denham/ NQF/ Leapfrog Group case refuses to go away, even if it still has not created any echoes in the mainstream media or the medical and health care literature.  Now it appears that the NQF has an even bigger conflict of interest problem than previously reported. 

Background

As of our last post on 5 February, 2014, the background was-
-  The case became public with an apparently routine legal settlement between CareFusion and the US Department of Justice
 -  The CareFusion settlement for $40.1 million was made in response to allegations that kickbacks were made to promote ChloraPrep, a solution meant for preoperative and other health care skin cleaning
-  The Department of Justice news release also alleged that payments were made to a corporation called Health Care Concepts to conceal kickbacks made to its owner, Dr Charles Denham
-  The implication was that Dr Denham was supposed to influence a standard writing committee run by the National Quality Forum, a well known organization that promotes quality improvement, issues authoritative practice standards, a form of clinical practice guidelines, and has contracts with the US government for quality of care activities
-  The draft of the standard to prevent surgical site infection written by the committee allegedly included the use of ChloraPrep, although mention of that specific medication was removed in a revision
-  The Department of Justice alleged that the standard was based on a journal article sponsored by Cardinal Health, from which CareFusion split, and which may have been manipulated by its sponsor
-  NQF leaders asserted that after hearing of the case from the DOJ, the organization severed ties with Dr Denham and the non-profit organization he runs,  established a policy not to accept money from funding organizations whose leaders are on its committees, reviewed all the standards set by the committee of which Dr Denham was co-chair, and twice revised its conflict of interest policy.
- Despite these efforts by the NQF to remove excess influence by Dr Denham, a specific recommendation to use ChloraPrep, specified by formula but not by name, did appear in another NQF standard, one for preventing central line infections; the NQF logo apparently appeared on at least one educational event run by Dr Denham that advocated the use of ChloraPrep; and CareFusion cited NQF support in at least one promotional brochure
-  In retrospect, people who worked with Dr Denham on various health care quality and patient safety projects acknowledged they should have realized something fishy was going on.
-  Senator Charles Grassley is now investigating

The Conflicts of the NQF CEO

In our first post about the case, I noted that at the time that Dr Denham was a committee member, the NQF seemed to have a relatively weak policy on conflicts of interest, although  this post noted it was later strengthened somewhat.  I also commented that the organization seemed accommodating of conflicts of interest affecting its board of directors, and to have institutional conflicts of interest in that it accepted funding from health care corporations which might have interests in NQF quality standards being written in their favor. 

So maybe it should not be too great a surprise that the latest twist in this case is the revelation that the new CEO of NQF has her own quite significant conflicts of interest.  Last week, ProPublica published a story about the conflicts of interest of the new CEO of the NQF.  The basics were:

The top executive at the country’s pre-eminent health care quality organization is being paid hundreds of thousands of dollars by two large medical companies that have a stake in the group’s work.

The payments to Dr. Christine Cassel raise new conflict-of-interest concerns at the National Quality Forum, which endorses benchmarks that Medicare uses to compensate hospitals based on performance.

As ProPublica recently reported, the Quality Forum is reviewing its conflict-of-interest policies after being stung by allegations that the former co-chair of one of its endorsement committees had accepted kickbacks to help a drugmaker win favorable treatment.

Cassel received about $235,000 in compensation and stock last year as a board member for Premier Inc., a North Carolina company that says it provides group purchasing and performance improvement consulting for an alliance of 2,900 hospitals and thousands of nursing facilities and other providers.

Cassel also was paid $189,000 as a board member for the Kaiser Foundation Health Plans and Hospitals in 2012, Quality Forum officials confirmed to ProPublica. Kaiser’s tax forms are not available for 2013, but they show that in 2010 and 2011 Cassel received a total of $357,125.

Cassel, who declined to be interviewed, took over as chief executive officer last summer after a decade as president and CEO of the American Board of Internal Medicine. 

Not unexpectedly, the official position of the NQF was nothing to see here, just move along.

The group's chairwoman, Helen Darling, said in an email that the board was 'fully aware' of Cassel’s outside compensation when she was hired in December 2012. Darling, president of the National Business Group on Health, initially agreed to an interview but did not respond to follow-up contacts.

Spokeswoman Ann Greiner said the board got a legal opinion and discussed it in depth before agreeing that Cassel could recuse herself 'where her outside board service would be construed as an actual or perceived conflict of interest.' So far that hasn’t happened, Greiner said.

Note that those defending NQF saw no reason to explain why it had not previously disclosed Dr Cassel's other positions or how the conflicts would be managed.  Perhaps a board that includes executives of large health corporations, of a financial firm with large health care interests, and of a trade associations for large health care corporations would not see a problem with having a CEO who is simultaneously on the boards of a for-profit hospital group purchasing organization and a very large, albeit non-profit health care system.

Others were much more skeptical and critical. 

Two ethics experts interviewed by ProPublica said Cassel’s relationships with Kaiser and Premier present obvious conflicts given the Quality Forum’s broad involvement in health care.

The Quality Forum maintains a clearinghouse of more than 700 quality measures — covering everything from tracking hospital readmissions to setting information technology standards — that are established by expert committees and widely adopted by U.S. hospitals and other providers.

The ethics experts said they were uncertain how Cassel could recuse herself to anything related to Kaiser and Premier and still do her job.

'Would that mean every time somebody said the word ‘hospital’ she would have to say, ‘I can’t be in this conversation?’' said Eric Campbell, a Harvard School of Medicine professor who has published extensively on conflicts of interest.

'Conflict of interest is as much an appearance as it is an effect,' added Sheldon Krimsky, a medical ethics expert at Tufts University. He called Cassel’s conflicts 'absolutely egregious'

Campbell and Krimsky said the cleanest way to eliminate potential conflicts would be for Cassel to resign from the outside boards.

The plot thickens because of the amount of influence wielded by the NQF,

 In 2009, Medicare awarded a $40 million contract to the Quality Forum to recommend measures it could adopt. President Obama’s health care reform law accelerated the move to pay-for-performance. Medicare already has begun penalizing and rewarding hospitals based on readmission rates, mortality and patient satisfaction measures. By 2017, it’s expected that 9 percent of Medicare payments will be based on performance.

Having some leverage on that influence would seem to be particularly important to Premier Inc, the now publicly held for-profit group purchasing organization on whose board Dr Cassel sits,

 Premier reported revenues of $869 million in the fiscal year ending last June. It spent more than $1 million on lobbying in 2013, according to OpenSecrets.org. In August and November, the company urged members of Congress to instruct Medicare to run any quality measures through the Quality Forum.

Premier featured Cassel’s status as a board member and future top executive of the Quality Forum in documents last May describing its initial public stock offering. In September Cassel acquired 3,704 shares of Premier stock that were then worth about $100,000.

The company’s business involves group purchasing and a consulting arm that uses data analysis to help providers perform better on various quality metrics. In October, a measure sponsored by Premier to track hospital care by the average length of stay was up for renewal by the Quality Forum.

Of course, a Premier Inc spokesperson denied that could be a problem,

[Spokesperson Blair] Childs said Cassel’s role on the Premier board doesn’t pose any conflict of interest, and that her relationship with Premier was vetted carefully by the Quality Forum’s board. Cassel was a good addition to the Premier board because of her commitment to improved care and lower costs, he said.

However, I submit that the conflict here is particularly acute because Dr Cassel is not merely a part time consultant or adviser to Premier Inc.  She is on the board of directors.  In 2006 we first discussed a newly discovered species of conflict of interest in health care, in which leaders of medical or health care organizations were simultaneously serving on boards of directors of health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]  Of course, after the global financial collapse of 2008 made us sadder and a little wiser, we realized that many board members actually seem to have unyielding loyalty to their cronies among top management.  However, in any case, the stated or actual interests of a member of the board of a health care corporation, like a for-profit hospital purchasing organization, could be very different and at odds with the mission of an academic medical institution or a non-profit ostensibly dedicated to improving health care quality. 

However, in my humble opinion, the issue here goes even beyond a blatant and undisclosed conflict of interest.  That a top steward of a big for-profit health care corporation could simultaneously be the top leader of an influential non-profit health care quality improvement organization suggests that increasingly US health care is run by an insular group of insiders whose influence gets ever larger because of their collective power, not necessarily because of their dedication or ability to improving health care.  As ProPublica put it,

Rosemary Gibson, an author and senior adviser to The Hastings Center, a research group dedicated to bioethics in the public interest, said she wasn’t surprised at Cassel’s outside compensation. So much money permeates decision-making in Washington, she said, that participants have become oblivious.

'The insiders don’t see it,' Gibson said. 'It’s like a fish in water.'

Additional Questions


Finally, the forced disclosure of Dr Cassel's conflicts of interest raise some additional questions. 

Did Dr Cassel Have an Equally Severe Conflict as CEO of the ABIM?

Dr Cassel was previously the CEO of the American Board of Internal Medicine (ABIM).  This non-profit organization also has a very substantial influence on health care.  Physicians must pass its examinations to become certified as internal medicine specialists or sub-specialists such as cardiologists, gastroenterologists , etc.  Recently certified physicians, and soon all certified physicians will have to participate in ABIM sanctioned "maintenance of certification" activities or risk being flagged as not adequately keeping with the board's concept of medical progress.

Thus the content of the ABIM examinations and sponsored activities can influence physicians' thinking and decision making.  How the ABIM under Dr Cassel's leadership dealt with conflicts of interest affecting those who write examinations, provide content, and lead the organization is unclear.

Furthermore, it seems possible that Dr Cassel had a conflict of interest generated by her work for Premier Inc while she was still CEO of ABIM.  However, before Premier Inc made its initial public offering, information about its management and governance was scarce.  Whether Dr Cassel was on the board of a precursor to the publicly traded Premier Inc is not easy to ascertain.  Maybe the current ABIM leadership needs to consider whether Dr Cassel had a conflict involving Premier Inc or its precursor while she was CEO of ABIM, and how that conflict could have affected the direction of ABIM at the time. 

How Would Dr Cassel Respond to Criticisms of Premier Inc and How Would that Reflect on the ABIM and the NQF?

Premier Inc is a hospital group purchasing organizations (GPOs).  GPOs, particularly including Premier Inc, have been criticized for anti-competitive practices that distort the market in health care drugs and devices, for accepting the ethical equivalent of kickbacks, and particularly for generating drug shortages.  For example, an opinion piece in the Baltimore Sun claimed,

 The main reason is that most of these drugs are purchased through a handful of supply chain middlemen called hospital group purchasing organizations, or GPOs, whose anti competitive practices and self-dealing have been documented in Senate antitrust hearings, media reports, government investigations and lawsuits. These buyers' monopolies purchase upward of $300 billion in drugs, devices and supplies annually for about 5,000 private acute care hospitals, including virtually every one in Maryland. Five giants account for roughly 90 percent of all such purchases. [Apparently including Premier Inc - Ed]

Under a 'pay-to-play' arrangement, vendors compete not on the basis of who can supply the best product at the best price but on who can pay the biggest fees to these cartels. In return, they receive exclusive contracts. This artificially constrained supply chain is why many drug manufacturers have fled the marketplace, leaving just one or two to produce many drugs. In turn, hospitals receive incentives based on their compliance with contracts the GPOs award to favored suppliers.

In 1987, Congress enacted the Medicare anti-kickback 'safe harbor,' which exempted GPOs from criminal penalties for accepting payments from suppliers — payments that in virtually every other industry would be considered unlawful kickbacks.

The GPOs trade organization vigorously contested this argument, of course.

But the awkward fact is that Dr Cassel, as a board member of Premier Inc, can be seen as a steward of that corporation, and hence responsible for the its overall direction.  Thus, Dr Cassel could easily find herself in the uncomfortable situation of having to defend and justify questionable behavior by Premier Inc while simultaneously wearing the hat of CEO of NQF.  How that would play out is not obvious.

Summary

So now it appears that the problems with conflicts of interest at the NQF affect not only its standard setting committees, board of trustees, and organizational funding.  They also affect its CEO.

Dr Joe Collier said, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link here.]  To reduce further unclear thinking and its consequences, we again urge that academic medical institutions, and non-profit organizations dedicated to improving patient care and public health forthwith begin real reductions of conflicts of interest affecting all those who make clinical or policy decisions.   

We previously suggested:that NQF leaders might also consider:
-  further strengthening their conflict of interest policy for standard setting committees, particularly by minimizing the number of committee members with conflicts, and banning individuals with conflicts from chairing committees, as per the IOM report on standards for trustworthy clinical practice guideline development
-  increasing transparency about conflicts of interest, particularly by making disclosures for all projects available without complex web searching
-  decreasing institutional conflicts of interest by refusing funding from health care corporations whose revenues might be affected by the content of standards and guidelines, and reducing conflicts affecting NQF board members and executives

I would now add that in my humble opinion, the NQF ought to immediately fully disclose any other conflicts that might exist affecting its committees, staff, board of trustees, or funding, and then begin a progressive but ultimately complete phase out of all significant conflicts affecting these areas.  

Roy M. Poses MD for Health Care Renewal

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.

How Hospital CEOs Get Paid Tens of Thousands to Advise Hospital Suppliers

The New York Times just reported on the activities of an organization called the Healthcare Research and Development Institute (HRDI).

Despite its name, HRDI is a "for-profit company owned by about three dozen hospital executives, but underwritten by 40 or so of its handpicked corporate members, all suppliers to hospitals." These "executives benefit from payments made by companies their hospitals do business with." HRDI industry members are limited to "only two competing companies in any specific field."

The purpose of the organization is apparently to give hospital suppliers access to the CEOs of large not-for-profit hospitals. "Last May, more than 130 representatives from 40 health care companies were scheduled to attend confidential consulting sessions at the Broadmoor, a Colorado Springs hotel. When not attending the sessions, hospital chief executives and suppliers mingled at company-sponsored tennis, golf and social events. Each year, H.R.D.I. holds two gatherings like the one in Colorado, where each corporate member gets a meeting of up to three hours with five or six chief executives, according to [HRDI CEO]Mr. Mecklenburg." "'The typical organization is paying $40,000,' Mr. Mecklenberg said. 'It can be more, but that would not be typical.' Additional access to hospital executives and their institutions can cost companies $55,000 a year or even more. For example, a special two- to three-day visit to a specific hospital costs $2,000 a person, according to H.R.D.I., which says most of that money is eventually passed on to the hospital."

"It is unclear exactly how much hospital executives, who are the shareholders of the healthcare institute, earn annually for consulting at the two conferences. Asked to verify a report that some members earned as much as $50,000, Mr. Mecklenberg initially denied it. 'Our observation and recollection is $20,000 to $30,000 a year,' he said. 'It may be more than that but we don’t have data in front of us, but it’s certainly not $50,000.'

Mr Mecklenberg himself has an interesting history. He is "a former chairman of the American Hospital Association, the industry’s largest trade group." Furthermore, now he "not only runs a large nonprofit hospital, Northwestern Memorial in Chicago, but he also serves on the board of Becton, Dickinson and Company, a major supplier of medical devices to hospitals around the world, including his own. Becton, Dickinson pays the institute for marketing advice, and the institute pays Mr. Mecklenburg $50,000 a year, mostly for participating in two national conferences, according to the group."

HRDI is now under the scrutiny of Connecticut Attorney General Richard Blumenthal, who "is investigating whether the organization allows certain vendors to buy access to hospital leaders who are in a position to influence what supplies or services their institutions purchase. As a result, Mr. Blumenthal said, hospitals may not be getting the best deals, either in terms of cost or quality. 'At the very least it suggests insider dealings — an insidious, incestuous, insider system,' said Mr. Blumenthal...." He is also investigating whether the limitation on HRDI membership to only two companies from each sector violates anti-trust regulations. Mr Blumenthal recently testified that HRDI is a "secretive" network of "ethically questionable business arrangements." Note that until recently, the organization did not allow public access to its web-site, and did not list its members, although its current membership list and list of corporate sponsors are currently on the web.

The Times' investigative reporting has opened yet another window on the pervasive web of conflicts of interest that entangles health care. The report reveals problems at multiple levels:

• Hired leadership of not-for-profit hospitals seem to be personally profiting from their positions of trust
• Hospital leaders not only have cozy relationships with at least some suppliers, but are paid handsomely by these same suppliers for their supposed market advice, raising questions about how effectively their hospitals will negotiate with these suppliers
• The leader of the organization that makes these cozy relationships possible is simultaneously a not-for-profit hospital CEO and a member of the board of directors to a major hospital supplier, and hence has a fiduciary duty to that organization that seemingly clashes with his duty to his main employer

You just can't make this stuff up.
And people wonder why health care is so expensive? And think that the only solution to the rising cost of health care is to keep cutting physicians' fees for "cognitive services?" (See post here.)
Note that the well-publicized article by Brennan et al that castigated physicians for accepting so much as a coffee mug with a company logo from a drug or device company would have put academic medical center administrators in charge of enforcement of this stringent policy, the same administrators who may personally get paid tens of thousands of dollars to sit give market advice to the companies whose logos are on the coffee mugs. LOL. (See post here.)
Instead, as we have said before, there needs to be a broad, impartially enforced policy that bans major conflicts of interest affecting all decision makers in health care.
And we need some of leaders of large health care organizations, not just pharma and device companies, but also managed care organizations and insurance companies, hospitals, academic medical centers and health care systems, and medical schools and universities, to to look in the mirror to see who has been dodging responsibility for rising costs, declining access, stagnant quality, and demoralized providers.

The Investigation of Novation

The Fort Worth Weekly has an investigative report on the curious world of hospital group purchasing organizations, focusing on Texas based Novation.

Novation, and other group purchasing organizations (GPOs), were originally intended to help hospitals save money by banding together to negotiate better prices for hospital supplies and equipment. There are currently about 600 GPOs, "wielding control over $66 billion in healthcare supplies every year. Only about 30 have the size to negotiate significant volumes of sales, and the largest of them all is Irving-based Novation, a for-profit cooperative that claims to broker $24 billion in sales annually. Novation and Premier, the second-place company, together control about 54 percent of all hospital purchases."

"Novation came into existence in 1998, when two hospital networks — VHA of Irving and the University HealthSystem Consortium based in Illinois — set it up as a joint venture. VHA is a network of around 2,200 nonprofit hospitals and care organizations, including large hospitals like Baylor and Yale-New Haven. UHC has only about 200 members, but they include prestigious teaching and research hospitals like Parkland in Dallas."

Novation's business model is peculiar, to say the least. "In 1986, Congress passed legislation regulating GPOs, including the so-called 'safe-harbor' agreement that exempts GPOs from federal laws against kickbacks." Thus, although one might expect that a GPO's administrative expenses would come from its participating hospitals, instead, GPOs collect fees from the suppliers who wish to sell their wares to its hospitals.

Furthermore, "Since GPOs are set as up as cooperatives, their revenue from administrative fees is shared with member hospitals. Several sources told the Weekly that most hospitals bill insurance companies and Medicare or Medicaid for the full price of supplies bought through GPOs. When the hospitals later receive the fee income that provides a substantial discount on those prices, the resulting cost reductions are not passed through to those who were charged full price. Some question whether that practice constitutes insurance and Medicare and Medicaid fraud."

"With 2,400 hospitals as members, Novation controls access to close to a third of hospitals nationwide and claims to have saved its members $1 billion in 2003. But the company does not release information on its revenue. In fact, Novation’s reputation is one of extreme secrecy."

The Fort Worth Weekly documented 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.

• An engineer named Tom Shaw developed a needle and syringe to reduce the likelihood of needle-stick injury to hospital personnel, "a syringe in which a spring mechanism retracts the needle into the barrel once the plunger is depressed, making reuse — and accidental pokes — impossible. He started Retractable Technologies to market the invention." But when Shaw tried to market his product, he found he " couldn’t even get in the door to show the products to hospitals, despite some clear advantages over competing products and the preference expressed by healthcare workers who had tried them. The reason, it turned out, was that the hospitals he tried to sell to were on GPO contracts — and were required to purchase from the large manufacturers that sold through the GPO, like $5 billion-a-year syringe giant Becton Dickinson, which controls 90 percent of the syringe market in this country." " 'If you pay anybody any fee, administrative or otherwise, to try to influence a purchase, that would put you in prison in any other industry,' he said. 'With the safe harbor [provision], the major manufacturers can pay GPOs to keep [other companies] out of the hospitals, and the GPOs make a lot of money.' When Novation finally looked at another of Retractable’s products — a safer device for taking blood samples — the GPO suggested to Shaw that it could carry his company’s product under its private label, Novaplus. Novation officials told him that by labeling the product as Novaplus, they could raise the price per unit to $1 from the 27-cent bid that Retractable had submitted, and the two companies would share the profits from the huge markup. According to the lawsuit Retractable eventually filed, a similar offer came from Premier, the second-largest GPO, which invited Retractable to attend a conference for suppliers, where $25,000 would buy Shaw not only advertising but also a 'private dinner' with Premier executives and a small-group meeting with hospitals." "Shaw and others said that his company’s experience makes it clear that the basic problem with GPOs won’t be fixed until the organizations are forced to stop taking fees from manufacturers. 'You work for the man who pays you,' Shaw said. GPOs aren’t really group purchasing organizations, working to help the buyer, he said — 'They’re group sales organizations. They’re moving sales for major manufacturers, who pay bribes they call administrative fees. Becton Dickinson pays to keep us out of hospitals — and that would put them in prison if they didn’t have a safe harbor provision.'" Retractable Technologies sued Novation, Premier, Becton Dickinson and Tyco, charging that they conspired to lessen competition and maintain monopoly power. Novation, Premier, and Tyco settled with retractable for an undisclosed sum.
• Joe Kiani developed a pulse oximeter (oxygen measuring device that does not require drawing blood) for monitoring newborn babies, and founded a company called Masimo to market it. "Like Shaw, Kiani found that hospitals would not buy his product because Masimo did not have a contract with a GPO. According to court filings, when Masimo approached Premier, the GPO’s own product-review process concluded that the new oximeter was superior to Nellcor’s [a company owned by Tyco]. Nonetheless, Premier’s contract for pulse oximetry went to Nellcor — which, along with its parent company, was paying millions of dollars in fees to Premier and even investing in Premier’s 'Innovation Institute.' Nellcor also got a multi-year contract with Novation." Masimo sued Tyco for anti-competitive practices. "Masimo also alleged that Novation’s contract with Tyco gave larger discounts to hospitals that purchased at least 95 percent of their oximeters from Tyco. 'The most favorable price discounts,' the complaint stated, 'are not linked to sales volume, but ... to the exclusion of competition.' The complaint also alleged that Novation offered additional incentives to hospitals that purchased bundles of products from Tyco, leaving Masimo, which sold only oximeters, in an uncompetitive position while giving Tyco larger sales for many different supplies." "In March of this year, a jury concluded that Tyco owed Masimo $140 million in damages. Tyco has appealed this verdict."
• Novation invested in Neoforma, a dot.com that would allow hospitals to order supplies online, whose fortunes had plunged after the dot.com bubble burst. "In 2000, Novation invested its member hospitals’ money in a deal that made Neoforma into Novation’s e-commerce partner for 10 years. UHC and VHA, the two hospital consortia that formed Novation, came to own 50 percent of a company that has bled more than $700 million in red ink since it came into existence." Neoforma continued to lose money. "Some Novation executives also owned shares of Neoforma — which hospital officials pointed to as a conflict of interest. Curt Nonomaque, chief executive officer of VHA and a board member of Novation, had personally invested $150,000 in Neoforma, although he sold that stock in 2001. When congressional pressures for reform caused GPOs to institute an informal code of conduct, GPO board members had to declare conflicts of interest, including investments in companies that did business with the GPOs. This resulted in several board members at Novation leaving the company rather than selling their stock. And Neoforma didn’t just hemorrhage money — it infuriated suppliers who alleged that forcing them to pay for Neoforma’s service was a double-dip by Novation." " Last month, Neoforma announced a merger with Global Healthcare Exchange, its only remaining competitor in healthcare e-commerce." "GHX is a privately owned enterprise belonging to Premier and 80 of the largest medical supply manufacturers, including Becton Dickinson and Tyco. The merger means Novation has jumped in bed with its largest rival. " One expert interviewed by the Weekly charged, "This is just another opportunity for Novation and Premier to get together along with all the large manufacturers and have meetings behind closed doors. By having GHX come and buy Neoforma, Novation executives look like geniuses to their member hospitals, although they’re really creating a monopoly. The GPOs are supposed to be fighting the manufacturers, but instead they’re openly getting in business with them." A law-suit, by Medical Supply Chain, "alleges that Novation and Neoforma, in conspiracy with manufacturers, distributors, and suppliers, have charged $100 billion in excess costs to hospitals since 2002."

Novation is now the subject of several investigations. Federal prosecutors in Dallas, TX, opened a criminal investigation of the medical supply industry, "with Novation at the center of it." The focus seems to be on rebates hospitals receive from GPOs. "'Hospitals get a big fat check once or twice a year from the GPOs,' explained one expert who is close to the investigation. 'No other deal gives free money to a hospital. And they can report checks not as a reduction in cost, but as miscellaneous income. This allows them to be reimbursed ... for the original price before they account for the money they get from GPOs and manufacturers. That’s what the investigation is about.'" The investigation has gone slowly, in part because two of the prosecutors involved died unexpectedly.
Novation also "came under scrutiny from Connecticut Attorney General Richard Blumenthal, whose office, he said, was 'very interested in potential undue influence exerted by vendors and manufacturers on individuals in positions to make healthcare purchasing decisions.'"
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.

ADDENDUM (1 January, 2010) - In fact, questions were raised about Novation in 2002 in the New York Times:
Hospital Group's Link To Company Is Criticized, April 27, 2002.
Questioning $1 Million Dollar Fee in a Needle Deal, July 19, 2002.
Buying Group for Hospitals Vows Change, August 9, 2002.
It is a measure of the anechoic effect that I had not heard of this when I wrote the post above in 2005.