Capitol Questions

Senators rekindle their interest in GPO activities

Group purchasing executives appeared unruffled at press time by the latest inquiry into their activities by Capitol Hill.

On Aug. 11, three influential senators asked seven of the nation’s biggest GPOs for detailed information on how they spend the money they make on administrative fees, as well as what services other than contracting the GPOs provide. They also asked the GPOs to tell them how their revenues are affected when members buy off contract, and they requested copies of contracts that GPOs sign with manufacturers, something normally not made public. The senators asked that GPOs respond by Sept. 8.

It was not known whether the Senate would ask GPO executives to testify on Capitol Hill, as they have several times in the past decade; or whether lawmakers would reconsider the “safe harbor” allowing GPOs to collect money from suppliers to whom they award contracts (a practice which, save for the “safe harbor” designation, would be illegal under Medicare’s laws against kickbacks).

The letters were somewhat of a surprise to the group purchasing industry, said Curtis Rooney, president of the Health Industry Group Purchasing Association (HIGPA). “We met with both the Grassley and [Montana Democratic Senator Max] Baucus staffs in June. We thought we had answered all their questions.

“What we told them back in June was that GPOs are probably the most transparent entities in healthcare today,” he continued. “The answers to the questions they’re asking are actually on the [Healthcare Group Purchasing Industry Initiative] Web site.”

GPOs put a brave front on the latest development. “From my perspective, I’m a little bit excited [by the letters],” said Joe Greskoviak, executive vice president, sales, business development, marketing and communications for Broadlane. “If you read the questions, it’s a tremendous opportunity for us to talk about the Broadlane business model and the value we bring to healthcare as it relates to reducing cost. Part of the challenge has been that, to a degree, some of that business model and value has been misunderstood.”

Kohl, et al
The senators making the requests were Herb Kohl (D-Wis.), chairman of both the Special Committee on Aging and the Judiciary Committee’s antitrust subcommittee, who has been at the core of several public hearings on the GPO industry; Charles E. Grassley (R-Iowa), of the Senate Finance Committee and a member of the antitrust subcommittee; and Bill Nelson (D-Fla.), who is on the Finance and Aging committees. Recipients of their letters, dated Aug. 11, were MedAssets, Premier, Novation, Consorta, Broadlane, Amerinet and HealthTrust Purchasing Group.

Specifically, the senators asked each of the GPOs for the following:

  • Details on the “functions and activities” that the GPO performs on behalf of its members that are related to negotiating and administering GPO agreements and contracts.
  • Details on the activities and services offered “beyond activities related to negotiating and administering group purchasing agreements/contracts.”
  • For each of the activities described in Nos. 1 and 2, identification of “the source(s) of funding, including to what extent the activity or service is paid for by administrative or other fees collected from manufacturers, other vendors and suppliers, and distributors in connection with group purchasing functions and activities.”
  • Description of all types of payments received from manufacturers, other vendors and suppliers, and distributors, and the purpose for which the GPO receives each type of payment. “In addition, please provide copies of sample contracts or agreements outlining such payments,” the senators wrote.
  • Description of any payments received from GPO members, and the purpose of each.
  • Description of the circumstances under which the GPO awards sole-source contracts, and identification of such contracts.
  • Description of the criteria (i.e., volume purchases, size of company) with which the GPO makes purchasing selections of medical devices.
  • Description of the impact on fees collected by the GPO “if a client decides to go off a sole-source contract or its purchase volume fails to meet the percentage specified in a purchasing contract.”
  • Copies of sample contracts for any “bundled” agreements, with description of price concessions, including any tiered discounts for reaching specific volume targets.

GPOs as facilitators
Greskoviak pointed out that even though the senators’ attention is focused on GPOs, Broadlane contract awards are in fact made by its hospital members, with Broadlane acting as a facilitator. “It’s the individuals who use the products on a daily basis, in the course of daily care, who determine product acceptability,” he said. “The whole concept that the GPOs are out there making arbitrary awards is off base and warrants some type of clarification.”

Greskoviak added, “If a hospital had to replicate the infrastructure required to manage what the GPO manages, not only would prices go up, but the additional infrastructure cost would be against what we’re trying to accomplish in healthcare reform – preserving high-quality care at the lowest cost.”

Broadlane manages and facilitates more than 2,000 value analysis meetings annually, added Executive Vice President of Supply Chain Services Michael Berryhill. “It is a massive amount of work to solicit feedback, [coordinate] product evaluations, set strategy and make contract awards. To think that all that infrastructure is there to raise the cost of products and services … is insulting to our clients.”

“This is an insult to our providers, [to charge] that they would knowingly purchase products at a higher cost than they need to while they struggle with ever-increasingly tight margins,” ” added Michael Lozich, vice president and compliance officer for Broadlane.

GPOs are far more transparent about their business practices than the suppliers who are charging them with adopting unfair business practices, added Lozich. On the Healthcare Group Purchasing Industry Initiative Web site, as well as that of individual GPOs, visitors can access information about GPOs’ ethics and compliance standards, he said. “Go to any company complaining about GPO practices and ask, ‘Where is your version of this? Where do you talk about your standards and practices? Where do you talk about your contracting practices?’” said Lozich. “With regard to what [GPOs] do and how we do things, it’s really a matter of public record.”

Lozich made one more comment: “Talk to the providers and consumers. If they thought they were getting a lousy deal from GPOs, they wouldn’t use them. But almost every hospital in America has a GPO relationship.”

Testimony ahead?
If GPOs are ultimately asked to testify on Capitol Hill, it would not be the first time. In fact, GPOs were the subject of Senate hearings in April 2002, July 2003, September 2004 and March 2006.

In October 2004, Kohl and others introduced the Medical Device Competition Act, which would have 1) put strict limits on administrative fees, 2) required that personnel who negotiate contracts with GPOs be certified, and 3) required the Department of Health and Human Services, the Attorney General and the Federal Trade Commission to issue final regulations specifying business and ethical practices that are contrary to antitrust law and ethical standards. The bill died when Congress adjourned in November 2004. But in early 2005, the Senate gave GPOs (and their trade association, HIGPA) until mid-March to come up with a voluntary Code of Conduct. The organization did create such a Code.