Imminent Demand

Imminent Demand: Legislative proposals regulating the healthcare supply chain are on the way.

Nearly 20 years ago, legislation providing healthcare group purchasing organizations (GPOs) a safe harbor to accept administrative fees from hospital suppliers was enacted; propelling GPOs into what is now a $238 billion dollar industry. Over the years, individual GPO business models evolved into complex, multifaceted organizations.

GPO contracting practices like sole-sourcing, bundling and long-term contractual relationships became front-page news in 2002. This, in turn, ignited legislative and regulatory scrutiny by the U.S. Senate, Federal Trade Commission (FTC), Department of Health and Human Services Inspector General, the Government Accountability Office, and various state legislatures and attorney generals. The industry responded by enacting Codes of Conduct to address ethical concerns in hopes of thwarting legislation. Despite the industry’s efforts, various legislative proposals are now on the table for consideration.

The Senate Judiciary Antitrust Subcommittee plans to hold a fourth hearing on GPOs. Originally scheduled for Oct. 19th, the hearing was postponed due to a crowded Senate agenda, including Supreme Court nominee confirmation hearings. Subcommittee leadership expects the hearing to take place in February 2006.

Senate Antitrust Subcommittee Majority Leader, Mike DeWine (R-Ohio) and Ranking Member, Herb Kohl (D-Wis.), plan to focus the hearing on four options they foresee for the GPO industry.

One option centers on the recently embodied Healthcare Group Purchasing Industry Initiative (HGPII). Formed by nine of the nation’s GPOs, the Initiative’s goal is to “pledge to follow six core ethical principles, to report annually on adherence to these principles using an Annual Accountability Questionnaire, and to participate in an Annual Best Practices Forum to discuss best ethical and business conduct practices with other GPO representatives and with representatives from government and other organizations.” Though many provider organizations have supported this initiative, the Subcommittee’s leadership is still wary of the industry’s commitment to their self-regulating Codes of Conduct.

Legislation from the 108th Congress [The Medical Device Competition Act of 2005 (S.2880)] is being reconsidered, as well as two new legislative proposals. The principles of each vary, but reflect one or more of the following provisions:

Affirmative regulation or certification of compliance by the Department of Health and Human Services (HHS).
Either elimination of or limitations on administrative fees paid to GPOs and other related organizations.
Coordination among HHS, FTC and the Department of Justice to oversee the purchasing industry.

If enacted, the legislative proposals would impact not just GPOs and integrated delivery networks, but all segments of the healthcare supply chain. Potentially pharmacy benefit managers (PBMs), distributors, wholesalers and even providers, as well as each entities’ employees, would be subjected to new regulation.

The effects of modifications to the Medicare safe harbor will be exuberant. To explore this topic and more, Robert Betz Associates; Inc. encourages you to attend its inaugural RBA’s Health Policy Forum: A Supply Chain Forecast, on Feb. 2-3, 2006 in Washington, DC. For more information on this forum or on other health policy issues please visit the RBA Web site at or contact us at (703) 243-1719.

About the Author

Robert Betz Ph.D.
Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit
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