Senate retains grip on GPOs;
FTC probe underscores Fed’s role

For the past 18 months, the U.S. Senate has delved into the business practices of group purchasing organizations. The examination has brought several versions of codes of conduct and some more substantial changes to a once freewheeling GPO business that still handles medical supply contracts for nearly all U.S. hospitals and a significant portion of the estimated $190 billion in annual supply spending by those facilities.

Today, that lengthy probe, launched by the Senate Anti-Trust Subcommittee in April 2002, is showing few signs of loosening its firm grip on the GPO industry. In fact, according to Seth Bloom, senior counsel to the Senate subcommittee and a close aide to Sen. Herb Kohl (D-WI), a powerful member of that panel, the investigation is pressing ahead. Bloom recently told a group of mostly national accounts executives from key suppliers and purchasing executives representing GPOs and integrated delivery networks that the GPO issue "remains a top priority for the subcommittee." His remarks came in Orlando, FL during the closing session of the 9th annual IDN Summit and Expo sponsored by NCI, the Florida-based consulting and networking firm.

On the very day that Bloom was delivering his recap in Orlando, in a hearing room in the Nation’s Capitol the Federal Trade Commission and the Justice Department took a break from their high-profile National Do Not Call List dealings and conducted an airing of the much lower-profile GPO matter. The hearing was ostensibly as part of a fact-finding mission spurred by a letter from Sen. Mike DeWine (R-OH) that called for the FTC to help decide, said Bloom, "whether the guidelines affecting GPOs should be revised to make them more sensitive to competition." Several state attorneys general are also scrutinizing the GPO issue.

On hand at the FTC hearing were representatives of small medical device manufacturers from the Medical Device Manufacturers Association, the DC-based group that has been a thorn in the side of the GPO industry even before last April’s Senate hearings, along with representatives of the Health Industry Group Purchasing Association along with a few GPO and supplier executives. While the MDMA has categorized the proceedings as an investigation of anticompetitive practices in the hospital supply market, others during the three-hour session briefed the FTC panel on the GPO codes of conduct and updated the agency on progress made in GPO reform.

For example, in a written statement, HIGPA discussed its GPO Code of Conduct—which the group says promotes competition, eliminates potential conflicts of interest and provides cost savings to providers. In addition, HIGPA president and CEO Dr. Robert Betz detailed the importance of GPOs to providers and furnished examples of hospitals and other provider organizations agreeing with this belief. Specifically, his written testimony highlighted recent reaction by California providers opposing state legislation which he said would weaken the GPO business model, as well as testimony by hospital executives outlined in a May 2003 Lewin Group report. Dr. Betz warned the FTC that the ripple effect of restricting GPO contracting practices will ultimately affect federal administered healthcare programs. In support of this prediction, Dr. Betz highlighted a September 2002 Muse & Associates study stating, "Providers, payers and ultimately, consumers will pay more for products and services purchased through GPOs if their ability to negotiate on behalf of their providers is curtailed by additional restrictions on the GPO contracting processes."

In closing, Dr. Betz stated, "I urge the FTC to act with caution and not weaken a crucial mechanism that promotes competition and helps providers reduce their purchasing costs which allows them to commit more financial resources to patient care."

HIGPA also made note of the fact that healthcare providers were not invited to attend the hearing, adding that providers were also left as bystanders during Senate hearings on April 30, 2002 and the July 16 of this year.

The MDMA called for a revision of "Health Care Policy Statement 7," federal policy intended to shield GPOs from antitrust enforcement action so that they could reduce healthcare costs through volume purchasing of hospital supplies. MDMA has argued that a revision was needed on the grounds that "anticompetitive behavior by some large GPOs has resulted in disincentives to competition in the marketplace, stifled innovation and failure to reduce healthcare costs overall."

As did the Senate, the FTC hearing looked at core GPO issues such as product bundling, lengthy manufacturer/GPO sole-source contracts, and high hospital/GPO commitment contracts. GPO leaders insist that sole-source contracts may be necessary in certain instances due to the changing nature of many product marketplaces. Shifting variations in the number of players in a given market and technological changes in the products themselves, they say, may require use of sole-source contracts in an effort to aggregate buying power and achieve what they feel are lowest price levels.

There is, however, some debate regarding the lowest reaches of those price levels. Some point to experiences with the Canadian pharmaceutical market, one that is said to be mirrored in its medical device and supply market, which call into question the so-called "bottom" of prices in a given U.S. segment.

Bloom, meanwhile, added a new slant to the long-standing GPO issue. He said that some small GPOs, which he did not name, "are taking advantage of the GPO codes of conduct and offering bundling and sole-source deals on their own and this disturbs us. We don’t want GPOs to use the codes to their advantage."

Responding to a question from the Orlando audience, Bloom restated the Antitrust Subcommittee’s lack of interest in gutting the Safe Harbor rules, which Congress granted to exempt GPOs from anti-kickback laws. "As to Safe Harbor," Bloom said, "we say mend it, don’t end it." At the same time, he cautioned that the Senate was not finished studying the administrative fee matter. Said Bloom, "We don’t want the amount of ad fees to influence the contracting decision."

HPN