Time to Curb Some Excesses

Edition: April 2002 - Vol 10 Number 04
Article#: 1223
Author: Mark Thill

Were there any more terrifying words for GPOs in the March 4 New York Times article “2 Powerful Groups Hold Sway Over Buying at Many Hospitals,'' than these, which appeared at the very end: “Later articles will examine who benefits from the decisions of hospital buying groups.'' You mean, it gets worse?


It might. Congress has been making noise about investigating GPO practices for months, but the events of Sept. 11 relegated the issue to the back burner. Now, it's front and center again. The article in The Times made sure of that.


For those of you who missed the newspaper article, suffice it to say, it is damning. Some highlights:
• Mallinckrodt, who edged out the much smaller Masimo for a pulse oximeter contract, paid Premier $1 million to help finance its Premier Innovation Institute. There were other manufacturers as well.
• Novation acknowledges that administrative fees on about 30 percent of its contracts exceed 3 percent of sales. A hospital official who buys through that group complains that some fees are in the teens.
• Late last year, Los Angeles-based American Pharmaceutical Partners – a company that Premier helped start – went public. At that time, the buying group's stake was worth $46 million.
• Richard A. Norling, Premier's chairman and chief executive, was allowed to retain and continue collecting a supplier's stock options that he converted into a $4 million profit in 2001.
• In 1998 Horizon Medical Products (news/quote), Manchester, GA, issued Premier a warrant for up to 500,000 shares of its stock “in partial compensation'' for Premier's business, records show. A top Premier contracting executive also got stock options as a member of Horizon's board.
• Premier invited suppliers to attend a 2000 conference with this written offer: for $25,000, a company could buy not only advertising at the conference, but also a “private dinner'' with two Premier vice presidents, and a “small group meeting'' with hospitals.
• In September 2000, an expert panel of six cardiologists from Premier institutions evaluated St. Jude Medical's claim that its pacemaker was indeed “breakthrough technology,'' and that the company should get a contract. (Premier had existing pacemaker contracts with Medtronic and Guidant.) “In light of the increased device longevity and ease of use, the expert panel agreed unanimously that St. Jude's breakthrough claim is substantiated,'' they wrote. But Premier reported to its contracting committee that the experts had found only a “theoretical breakthrough potential,'' and never mentioned the unanimous expert conclusion.


This is the stuff of which nightmares are made…if you're a GPO executive.
Being predominantly on the supplier side, many Repertoire readers would like nothing more than for GPOs to get legislated out of existence. They resent the role that GPOs play in their customers' businesses, and they fear that it will become even more important in the future. The damning article by the New York Times just might make their wishes come true.


But is that as it should be? The fact is, there's nothing wrong with providers joining forces to get better prices. And why shouldn't hospital buyers “outsource'' contracting and negotiating to experts, in order to free up their own time for greater cost-savings projects, such as improved internal logistics? And let's face it: Groups began getting tough on compliance largely because vendors were tired of offering pricing concessions without getting increased market share in return. But greater compliance is a double-edged sword: It's great for the contract winner, it's disaster for the loser.


What's more, GPOs offer more than just contracts to their members. We've written about some of these outstanding programs, including Consorta's Resource Management initiative, which links clinical and financial outcomes; and Premier's Performance Improvement program, in which Premier members compare notes on how they deliver care, with an eye toward raising the bar for all. Novation, AmeriNet, Shared Services Healthcare and other GPOs also offer non-contracting programs that can benefit providers immensely, and should be preserved and strengthened.


That said, it just doesn't seem right for GPOs to invest in the companies with which they contract. Nor does it seem proper for GPO executives to reap huge profits from stock options in contract vendors. Nor is it right for GPOs to ask for million-dollar grants from manufacturers to participate in an Innovation Institute. And who can justify administrative fees in the teens?


Congress may very well end up legislating some kind of oversight to eliminate these excesses. It won't be easy. In fact, it may be as difficult as passing legislation to prohibit accounting firms from collecting consulting fees from their clients. Yet it must be done. We are, after all, talking about healthcare. If that's not a matter of public trust, we don't know what is.