HIGPA: GPOs have staying power… with good reason

Benjamin Franklin said, “But in the world nothing can be said to be certain except death and taxes.” Despite this famous admonishment, and a well-coordinated lobbying effort against group purchasing organizations, GPOs have done well to defy Franklin’s twin fates. GPOs have, thus far, successfully conveyed positive public policy messages about the merits of GPOs to policymakers on Capitol Hill. While Washington works to salvage what it can from the healthcare reform debate, it now appears that the forecast for GPOs is mostly “Sunshine” in 2010.

How did the GPO industry get here? Why did policymakers not include suggested proposals to narrow the GPO Safe Harbor “to the negotiation and administration” of contracts or be subject to additional taxation? For one, the public policy benefit of aggregating the purchasing power of hospitals and other healthcare providers has never been in dispute. To amplify this fact, the Health Industry Group Purchasing Association asked Professor Eugene Schneller, professor at the School of Health Management and Policy, W.P. Carey School of Business, Arizona State University, to survey hospital materials managers regarding the value of GPOs.

Loud and clear
Schneller, using the well-respected health policy firm Mathematica, empirically demonstrated that GPOs save the nation $36 billion annually. Schneller also found that hospitals save almost another $2 billion annually just by not having to hire eight to 18 additional full-time employees to do the job GPOs now perform on their behalf. Other studies have placed this figure higher and specifically attributed impressive savings numbers accruing directly to the Medicare and Medicaid programs. (See, Goldenberg and King, 2009).

Second, hospitals and many others weighed in against these anti-GPO proposals. Under the auspices of HIGPA, GPOs reached out to their hospital members and customers. Hospitals were asked to write their senators and congressmen about the importance and value of their GPO relationships. The response was overwhelming. Senators heard from almost 500 hospitals from across the United States in letters that stated, “We urge Congress to promote cost-cutting solutions to the healthcare crisis, such as GPOs, and to avoid any restrictive legislation affecting GPOs that could only hurt hospital care. As we approach healthcare reform, please know that changing the way GPOs work at this time is a step in the wrong direction.” In addition to these hospitals and health systems, a half dozen state hospital associations and over a dozen small suppliers also weighed in with this message. (See, GPOsSaveMoney.org.)

Third, HIGPA had earlier created a solid and credible foundation from which to present a positive public policy debate of the issues. It first endorsed the Physician Payments Sunshine Act (S. 301), introduced by Senators Grassley (R-Iowa) and Kohl (D-Wis.), which would have required manufacturers of medical devices and pharmaceuticals to report on payments to physicians and physician-owned entities. Then HIGPA worked with Senator Bill Nelson (D-Fla.) when he proposed drafting an amendment to the Senate Finance Committee bill that would have expanded the original proposal to all segments of the supply chain, including GPOs. Unfortunately, the Nelson amendment did not become part of the final bill. The original “Sunshine Act” provisions were included in the larger healthcare reform bill that passed the Senate on Christmas Eve 2009. Today, HIGPA stands by the proposition that no element of the supply chain should be excluded (or singled out) from “Sunshine.”

Fourth, HIGPA also reminded policy-makers of the GPOs’ history of support for transparency. GPOs have long complied with the 1987 law and 1991 regulations that require them to memorialize their agreements in writing and report fees received from manufacturers to their members and customers on an annual basis. This data is required to be placed on a hospital’s cost report and submitted to the Secretary of Health and Human Services. The Secretary is also authorized to review this information at any time.

Fifth, the GPO industry reminded lawmakers that it had created the Health Group Purchasing Industry Initiative (HGPII) in 2005. This unique and independent organization requires that its members adhere to strict principles of compliance, maintain a code of conduct, annually attend a Best Practices Forum, submit to an extensive questionnaire, and have their answers published online for public review. These answers are far-reaching and include common questions regarding the details of the business practices of all of the major GPOs. (See http://www.healthcaregpoii.com.)

During this same period, President Obama invited representatives from the healthcare community, including pharmaceutical and medical device manufacturers, hospitals, physicians and others to the White House. The White House followed up this photo opportunity with a serious discussion with each of the participants about how much they would be willing to contribute to healthcare reform. All but one segment of the healthcare industry quickly worked with the Senate Finance Committee and the White House to develop an agreement around funding for the Administration’s historic effort.

What the healthcare debate has made clear to many Americans is the lengths to which some will go to blame others for their problems or distort the facts for their own profit. At press time, the passage of healthcare reform was less clear due to the changes brought about by the Massachusetts Senate election. Congress and the Administration must now put together a package of policies that increase healthcare savings and improve quality. They must be willing to foster proven solutions, such as group purchasing, while reforming segments of the market that don’t work.

For example, Congress can look more closely at ways to make the healthcare market more effective regarding physician preference items. Hospitals cannot effectively manage the rising costs of implantable medical devices due to pricing confidentiality agreements they must sign with device manufacturers. These “gag clauses” only serve one party and result in unequal bargaining power. Secret pricing drives up costs for hospitals, and ultimately, the public. Hospitals need access to benchmarking and market information in order to negotiate and obtain fair pricing on implantable medical devices. Price transparency will allow hospitals to compare data and obtain better pricing on devices.

Instead of death or taxes, it is time the Senate considers adding “Sunshine” to Franklin’s list of the inevitable.

Curtis Rooney About Curtis Rooney

Curtis Rooney is president of the Healthcare Supply Chain Association, www.supplychainassociation.org

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