GPOs face federal oversight
Bill calls for HHS to police groups

  Call it counterproductive. Call it ill-conceived. Or call it wisdom. Regardless of one’s opinion, the fact is that legislation to oversee the group purchasing industry will be considered by Congress in the coming weeks.
  On Oct. 1, two U.S. senators ended months of speculation and discussions by introducing the Medical Device Competition Act of 2004. In a nutshell, the legislation calls for the Department of Health and Human Services to police the activities of GPOs.
  "Our goal is to ensure that physicians and patients have access to the highest quality medical products at the lowest prices, and to prevent improper barriers to competition among hospital suppliers,” said U.S. Senators Herb Kohl (D-WI) and Mike DeWine (R-OH), the Ranking Member and Chairman, respectively, of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights (of the Senate Judiciary Committee).
  The Medical Device Competition Act (S. 2880) is a defeat for the group purchasing industry, which had argued as recently as Sept. 14 that GPOs didn’t need outside regulation. The industry had maintained that the Codes of Conduct instituted by the Health Industry Group Purchasing Association as well as a number of its members were enough to keep GPOs in check. But a vocal group of small manufacturers, led by the Medical Device Manufacturers Association disagreed, arguing that without legislation, GPOs would backslide into anticompetitive activities.
  The bill is the latest chapter in a saga that began in early 2002. That’s when the Subcommittee first held hearings on GPOs’ business practices. The hearings followed a series of articles in The New York Times that painted a picture of an industry rife with conflicts of interest and intent on locking out small manufacturers in favor of large ones.

  Provisions
  If passed into the law, the Medical Device Competition Act would do the following:

• Require that Health and Human Services, in conjunction with the Attorney General and Federal Trade Commission, promulgate final regulations specifying contracting, business and ethical practices that are “contrary to antitrust law, to ethical standards, or to the goal of ensuring that products necessary for proper patient care or worker safety are readily available to physicians, health care workers and patients.” Such regulations would take into account “the compelling public policy goals” of encouraging competition and innovation among medical products manufacturers, reducing the cost of health care through the aggregation of buying power, and “the potentially detrimental impact of certain anticompetitive contracting practices.”
• Restrict the amount of fees paid to purchasing personnel or GPOs to 3 percent of the purchase price of goods or services provided by contract vendors. That fee would be restricted to include “only those reasonable costs associated with the procurement of products and the administration of valid contracts” and would not include “marketing costs, any extraneous fees or any other payment intended to unduly or improperly influence the award of a contract based on factors other than the cost, quality, safety or efficacy of the product.”
• Require that Health and Human Services regularly certify that personnel who negotiate contracts with manufacturers on behalf of health care providers are in compliance with the regulations. The regulations broadly define “purchasing agent” as any individual or entity “that negotiates and implements contracts to purchase hospital supplies or medical equipment, devices, products or goods or services of any kind for any group of individuals or entities who are furnishing services reimbursable under a Federal health care program.”

  IMDA members can view the legislation on the Web by visiting http://thomas.loc.gov, then typing in “S. 2880” for “Bill Number.”

  Codes defended
  In hearings in Washington on Sept. 14, Kohl and DeWine listened to the pros and cons of legislation.
  At the hearing, HIGPA President and CEO Robert Betz had argued that the association’s Code of Conduct, and the codes of many of its individual members, provided a credible alternative to federal oversight.
  ““The adoption and implementation of the Code underscores the group purchasing industry’s commitment to improving health care and advancing technological innovation at the most manageable cost to providers of care and their patients. Ultimately, it has provided greater accountability to hospitals and other providers.”
  GPOs that fail to adhere to HIGPA’s Code of Conduct can be expelled from the organization, he said. In fact, one group in Florida almost was thrown out.
  Betz also pointed out at the hearing that HIGPA had created an Internet-based “Exchange,” enabling manufacturers of health care devices and equipment – whether contracting with a GPO or not – to promote new and innovative technologies directly to GPO members.
  But the Committee members weren’t convinced that voluntary Codes of Conduct were the answer.
  For example, during the hearing, Kohl posed this question to Betz: “Isn’t it true that it wouldn’t be unreasonable to be quite worried, given past history, that in the absence of something concrete, such as legislation, there is a chance – call it large or small – that we could come back in a year or two, or three, four or five, to discover that we are back where we started?”
  Betz replied, “I would disagree with the whole basis of your observation. I think current remedies do exist.” He maintained that the Federal Trade Commission and Department of Justice already could bring action against GPOs who violate the spirit of safe harbor protections.
  Betz also cited a July 2004 report by the Federal Trade Commission and the Department of Justice, titled “Improving Health Care: A Dose of Competition,” which indicated that current remedies are indeed sufficient. According to the report, an existing statute - called Health Care Statement 7 - “does not preclude Agency action challenging anticompetitive contracting practices that may occur in connection with GPOs.”

  Opposing viewpoint
  Disagreeing with Betz at the Sept. 14 hearing was David Balto, partner in the Washington, D.C.-based law firm Robins, Kaplan, Miller & Ciresi, LLP, and former policy director of the Bureau of Competition of the Federal Trade Commission. “The industry’s efforts at self-regulation have fallen far short,” said Balto. “The time for effective self-regulation has passed. Congress should act to regulate anti-competitive activities.”
  Also appearing before the Subcommittee was Joe Kiani, president and CEO of Masimo Corp., Irvine, CA., who testified on behalf of the Medical Device Manufacturers Association. A veteran of previous Subcommittee hearings on group purchasing, Kiani believes that his company - which makes pulse oximeters - has been locked out of GPO contracts in the past because of collaboration between GPOs and Nellcor, a Tyco Healthcare company that also makes pulse oximeters.
  The good news, Kiani said, was that Masimo has secured contracts with Premier, Novation and other GPOs. The bad news is that bundling continues unabated among some GPOs, he added. What’s more, some GPOs still protect big companies, such as Tyco, at the expense of their smaller competitors.
  “The Codes of Conduct have not worked,” Kiani told the senators. “Many GPOs continue to engage in anti-competitive practices, which get in the way of the best products getting into the patients’ hands, at the most competitive prices.”
  Still, Kiani didn’t escape the hearing unscathed. “Hospitals in Ohio tell me how important it is for GPOs to keep working,” DeWine said to Kiani. “Certainly they are aware of the need to provide the best quality of care. Certainly…they believe they’re using the best devices. If GPOs were in fact cutting off access to new technology, why wouldn’t hospitals be demanding this technology? Why wouldn’t they be leaving GPOs?”
  Kiani responded that in many cases, hospitals are unaware of new technology, adding that some GPO contracts prohibit hospitals from even looking at technology that competes with that of its contract vendors. “I do believe that it’s what hospitals don’t know [about new technology] that makes them say what they say,” said Kiani.

  Reactions to legislation
  Both sides of the issue were quick to weigh in following introduction of the bill.
  ‘This legislation is counterproductive to the shared priorities of the Senators and the industry of ensuring health care providers access to the best products at the best price,” said Betz in a published statement. “The public policy goals outlined in S. 2880 are the same founding principles of health care purchasing organizations -- encouraging competition and innovation in the hospital supply and medical device markets, and reducing the cost of health care as a result of aggregating buying power. However, legislation is the wrong avenue to pursue these goals.”
  One of HIGPA’s biggest members – Irving, TX-based Novation -- weighed in as well. “Unfortunately, this bill puts the interests of a handful of publicly traded medical device companies and their stockholders ahead of the interests of America’s not-for-profit hospitals and the patients they serve,” said Novation, which provides group purchasing for VHA and University HealthSystem Consortium. “GPO industry self-regulation that was implemented over the past two years in cooperation with the Subcommittee is working. The full effects of these efforts are just beginning to mature. We are open to ideas that don’t jeopardize our ability to provide members with the best value on high quality products. However, stepping in now with onerous legislation is premature, runs the risk of neutralizing the current dynamic competitive marketplace, and promotes poor policy that will drive up health care costs.”
  Not surprisingly, the Medical Device Manufacturers Association presented a different perspective. "We are grateful to Senators DeWine and Kohl for their persistence and leadership in ensuring that competition is allowed to flourish in the hospital supply industry,” said MDMA Executive Director Mark Leahey in a prepared statement. “This legislation will allow health care professionals and the patients they serve to gain access to a wide array of innovative medical technologies that can save lives."

Copyright © 2004 IMDA