Observation Deck: What value is the middleman?

Nobody likes the middleman. One speaker brought up that point at the recent Health Policy Forum, sponsored by Robert Betz Associates, Arlington, Va. He’s right. The middleman is always in the unenviable position of having to justify his position in the marketplace. Just ask distributors. Or group purchasing organizations.

Now, what would happen if that middleman were taken away? That’s something that IDN contracting professionals and suppliers might consider, as the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights (of the Senate Judiciary Committee) takes stock of the testimony it heard during recent hearings on the group purchasing industry (which at press time were scheduled for March 15).

Some are skeptical that Congress will actually rescind the Safe Harbors, which protect the right of GPOs to collect vendor-paid administrative fees based on contract sales. But others believe it’s a possibility. Robert Betz, former president and CEO of the Health Industry Group Purchasing Association, is no novice in matters pertaining to Capitol Hill and group purchasing. In fact, it was partially due to Betz’s efforts 20 years ago that the Safe Harbor for administrative fees was enacted. “Some people call it a policy anomaly, because it clarifies a practice from the government’s standpoint – and the government doesn’t like to do that type of thing,” he says of the Safe Harbor. “The federal government likes to keep its options open.”

But that was 20 years ago. Today, Congress might reverse itself, says Betz. “The Safe Harbor has done a good service for the hospitals and healthcare providers of this country,” he says. But with supply chain costs eating up a good chunk of the country’s healthcare dollars, “Congress is going to want to get in, examine it, and fine-tune it if necessary.”

What Congress will find is that the Safe Harbors have been stretched beyond what Congress originally intended, that is, to protect GPOs’ ability to collect money to cover the administrative costs of contracting, says Betz. Today, the “right to collect fees” is being invoked by a myriad of players, including pharmacy benefit management companies, to finance activities that do not result in money returned to providers. “I’m not saying there’s anything wrong with that,” says Betz. “It’s just that the Safe Harbor has been stretched beyond the original intent.”

The fee issue dovetails with the ongoing Congressional scrutiny of GPOs’ ethics and business practices. Some observers predict that Congress will back off its threat to introduce legislation controlling GPOs, and instead, allow the industry to police itself. Why? Because the government (particularly, the Department of Health and Human Services) lacks the manpower or the will to police anybody else, they say.

But others, including Betz, think Congress will act. Legislation doesn’t necessarily mean that the Safe Harbors protecting administrative fees will be revoked. Even so, a legislative proposal suggesting that very thing has been making the rounds on Capitol Hill.

Regardless of what happens, contracting professionals will be called on to do some soul-searching. Two questions they might consider:

If GPOs were to lose their right to collect administrative fees from vendors, would hospitals and IDNs be willing to pick up the slack? In other words, rather than receiving a big dividend check at the end of the year, would providers be willing to write a check to their GPO for its contracting services? The whole idea gives “pay for performance” new meaning.
If the very existence of GPOs were threatened due to lack of funding, would IDNs stand by and let it occur?

GPOs will need to do some soul-searching too. After all, if fees are curtailed, they will be forced to quantify their value to their members – if they expect to get paid for their services. Suppliers will have cause for reflection as well. They may resent group purchasing organizations. But as one supplier noted, “Maybe you don’t like [group purchasing], but it’s the way contracting is done.” Perhaps the industry has gone too far to throw this baby out with the bath water.

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.
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