Vote of Confidence for GPO Safe Harbor

Law’s provisions for disclosure, reporting and transparency outweigh any potential harm, say former fed officials

Two former federal officials intimately involved with the GPO safe harbor provisions reflected, in a recent report, on their professional experience, personal knowledge and various perspectives related to the safe harbor.1 The results are enlightening.

“In the over 25 years since the OIG started reviewing GPO arrangements and activities, a Governmental understanding and recognition of their benefits has developed,” state Richard P. Kusserow and Thomas E. Herrmann. Kusserow served as the U.S. Department of Health and Human Services (DHHS) Inspector General from 1980 to 1992. Thomas E. Herrmann served in various capacities in the DHHS Office of Inspector General Counsel’s Office for over 20 years, and as an administrative appeals judge.

“The OIG recognized the potential cost savings that can be realized through the pooling of purchasing power by GPOs,” they note. “The mandated disclosure and reporting of cost savings that healthcare providers achieve through the use of GPOs ensures that federal healthcare programs also benefit from lower costs.”

The report includes important information about the law and the Congressional intent behind its passage. For example, as early as 1985, Congress indicated a desire to encourage certain business practices, including the discounting of prices for healthcare items and services, especially where they were passed onto the Medicare and Medicaid programs. One of these practices included the use of GPOs. Interestingly the report points out that the push to continue these practices was predicated on the “many inquiries and complaints from hospital suppliers.”

Anti-kickback statute
Congress recognized that the anti-kickback statute – the key federal statute addressing financial relationships between federally reimbursed healthcare providers and suppliers, and manufacturers and suppliers of healthcare items and services – was very broad in its application and thus hindered some relationships. As a result it passed a law that directed the OIG to develop “safe harbor” regulations “to limit the reach of the statute” and “encourag[e] beneficial and innocuous arrangements.” The law charged GPOs with specified disclosure, reporting, and transparency requirements in order to benefit from an authorized exception under the anti-kickback statute.

Kusserow and Herrmann outline how both Congress and the Administration found important the fact that federal healthcare programs were moving from reimbursement on a cost-plus basis to a prospective payment system, fee schedules and capitated managed care payments. It was understood that any risks associated with GPOs could be addressed through the statutory and regulatory requirements of disclosure, reporting, and transparency. It was also well-understood that the mandated disclosure and reporting of cost savings that healthcare providers achieve through the use of GPOs ensured that federal healthcare programs also benefited from lower costs. The report concludes that questions raised about the appropriateness of GPOs with respect to their engagements and payments to vendors and healthcare providers participating in federal healthcare programs are addressed in the law.

The authors also note that some critics of the vendor-based funding model for GPOs have suggested that these payments are anticompetitive “kickbacks,” arguing that they may distort a GPO’s purchasing decisions and lead to higher prices, as the fees are passed through to the customers. Kusserow and Herrmann report that Congress rejected these arguments and further legitimized GPOs with specified disclosure requirements and transparency. Congress understood that under current methodologies for paying healthcare providers participating in the federal healthcare programs, potential risks can be avoided with adequate disclosure, reporting and transparency.

Advisory Opinion
In their review of more recent developments, the authors note that the OIG provided a response to a large health system that requested an Advisory Opinion regarding a “proposal to establish a…GPO that would be wholly-owned by an entity that also wholly owns many of the potential participants in the GPO, and to pass through the participants in the GPO a portion of the payments received by the GPO from Vendors.”

The OIG referenced various General Accounting Office and OIG audits, reviews, and reports that identified certain ways in which GPO arrangements that would not be considered beneficial. The OIG, however, determined that the arrangement presented “an acceptably low level of risk to Federal healthcare programs.” Further, the OIG concluded that “although the Proposed Arrangement cannot receive GPO safe harbor protection because the ownership structure of the Proposed GPO, the Proposed Arrangement includes a number of features that mitigate the risks present in some GPO arrangements.”

Therefore, the OIG advised that it would not impose administrative sanctions for any potential violations of the anti-kickback statute resulting from the proposed GPO arrangement.

The report is especially authoritative because its authors were so intimately involved with the GPO safe harbor at its inception. Most compelling is the suggestion by the authors that the law’s enduring power is owed to the ongoing safeguards of disclosure, reporting, and transparency. It is easy to conclude that this model could and should be used for others in the healthcare supply chain.

A copy of the report can be accessed at www.supplychainassociation.org/resource/resmgr/research/gpo_report_22_march_2013.pdf


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

1Activities and Perspectives of the Office of Inspector General in the U.S. Department of Health and Human Services Regarding Group Purchasing Organizations (GPOs) Richard P. Kusserow, Chief Executive Officer Thomas E. Herrmann, JD, Senior Vice President Strategic Management Services, LLC, March 22, 2013.

Curtis Rooney About Curtis Rooney

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

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