Observation Deck – GPOs in the court of public opinion…again

Some people really don’t like GPOs. Among them would appear to be S. Prakash Sethi, who has published a book called Group Purchasing Organizations: An Undisclosed Scandal in the U.S. Healthcare Industry (available on Amazon.com). Sethi, who testified at Senate hearings on the GPO industry a couple of years ago, is University Distinguished Professor, Academic Director of Executive Programs, and Professor of Management at the Zicklin School of Business, Baruch College, The City University of New York.

His area of expertise is international codes of conduct. In fact, he is CEO of the International Center for Corporate Accountability (www.icca-corporateaccountability.org), whose self-described mission is to “urge multinational corporations to create voluntary standards that would guide their conduct in overseas operations regarding issues such as wages and working conditions,” and other issues. “An even more important aspect of our mission is to create systematic procedures by which we provide independent external monitoring to verify compliance by the companies with their voluntarily created codes of conduct.”

According to Sethi, GPOs are damaging to U.S. healthcare in that they are oligopolistic (a handful of companies controlling vast amounts of purchases), self-aggrandizing (collecting vast amounts of money from vendors in return for signing lucrative contracts with them), and, for lack of a better term, murky (that is, secretive about how much money they collect and how they spend it).

Readers should be aware that while the title of Sethi’s book says GPOs are “an undisclosed scandal,” the fact is, there’s nothing in this book that hasn’t already been undisclosed. It reads like a research paper, which, in fact, is what it is. Much of it was prepared as part of Sethi’s report to the U.S. Senate’s Subcommittee on Antitrust, Business Rights, and Competition of the Committee on the Judiciary. Many pages are devoted to rehashing the events that transpired between 2002 and 2006, when GPOs caught the attention of lawmakers and the national media, including the New York Times. It includes, in an epilogue, a detailed description of a whistleblower’s lawsuit filed in September 2007 against Novation, VHA and University HealthSystem Consortium, accusing the GPOs of shaking down vendors in return for signing contracts with them and other illegal activities.

In the book, Sethi strongly criticizes the GPO industry’s Voluntary Code of Conduct, which has been institutionalized in an organization called the Healthcare Group Purchasing Industry Initiative (www.healthcaregpoii.com). “[It] is weakened by a lack of specificity, nonexistent performance standards, an internally controlled and self-serving governance structure, and an absence of genuine independent external monitoring,” he writes. “[It] needs to be enhanced by requiring the GPOs to make full and complete disclosure of their finances. Moreover, the financial disclosure would be certified and independently verified by an outside auditing firm.”

Indeed, Sethi is delightfully cynical about most codes of conduct. “Creation of industrywide voluntary principles or codes of conduct has been a growth industry for the last two decades,” he writes. “Unfortunately, the widespread creation of such codes by corporations and industry groups has not gone beyond the rhetorical stage.”

Is that the case for the GPO initiative? Who’s in a better position to judge than GPOs’ members – that is, you? If you haven’t already done so, read the Initiative’s six core ethical principles on the HGPII Web site. And in the next issue of JHC, we’ll hear how Richard Bednar, coordinator of the Healthcare Group Purchasing Industry Initiative, responds to Sethi’s criticism. In the meantime, we’ll be watching who’s got the upper hand in this battle in the court of public opinion.

About the Author

Mark Thill
Mark Thill is the Editor of The Journal of Healthcare Contracting and has been reporting on healthcare supply chain issues since 1985. He is a graduate of Dominican University in River Forest, Ill., and he received a master's degree in journalism from Northwestern University in Evanston, Ill.