Expert Commentary on GPO Abuses
Leading maker of pulse oximeters
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Over the past 15 years, countless government officials, medical practitioners, academics and consultants, hospital executives, entrepreneurs and even former hospital group purchasing organization executives have spoken out publicly against the pernicious GPO "pay-to-play" system. Comments of a representative sample of them appear below.
But nothing has changed because of the enormous political and financial clout of the GPO lobby. That's why we now face unprecedented shortages of life-saving generic drugs.
Sherry Glied, Ph.D. former assistant secretary for planning and evaluation, Department of Health & Human Services
"Black markets, FDA behavior, and changes in Medicare Part B are not the culprits behind drug shortages. Other explanations—including the role of group purchasing organizations, as suggested by Kantarjian, and the rapid growth of the generic injectable market, as suggested by our previous research—may be more plausible causes of this serious problem."
Letter to the Editor, Journal of Oncology Practice, December 23, 2014, [in response to article by Hagop Kantarjian MD]
Representatives Edward J. Markey (D-MA, now Senator Markey), Henry A. Waxman (D-CA), John D. Dingell (D-MI), Frank Pallone Jr. (D-NJ), Anna G. Eshoo (D-CA), and Diana DeGette (D-CO)
"Experts have cited the anticompetitive, exclusionary contracts between GPOs and generic drug manufacturers, coupled with excessive administrative, advance, marketing and other fees, as the reason that manufacturers have little incentive to produce those drugs. The fees drive down the manufacturers' profits to such an extent that continuing to produce the drug or piece of equipment becomes unfeasible...Unfortunately, it is not clear from available evidence that this payment scheme results either in savings to the hospitals or benefits for the patient."
Letter to Acting Comptroller General of the United States requesting a GovernmentAccountability Office investigation into the role of GPOs in causing the shortages, November 15, 2012
Howard K. Koh MD, assistant secretary for health, Department of Health & Human Services
Mr. Shimkus (R-IL). "What has distorted the fundamental principle of supply and demand...I think that is the heart of this issue.
Mr. Koh. "...First of all, these agreements are made often through these long-term contracts and so also this whole process involves multiple stakeholders, especially and including the pharmacy benefit managers and the group purchasing organizations. So it complicates this environment and sort of does not make relevant the sort of standard supply and demand economic principles that we see in other businesses.
Mr. Gingrey (R-GA) "It would seem because of supply and demand that that company would be able to raise their prices. Are there any government rules, regulations, laws, pharmacy benefit managers, something that would cause them not to be able to raise their prices even though the market would certainly let them do that otherwise?"
Mr. Koh. Yes, Congressman, so we have come to understand that this is a complex business situation where the standard economic principles of supply and demand do not easily apply. And we have manufacturers, we have purchasers, providers, hospitals, we have group purchasing organizations and pharmacy benefit managers, so we have multiple forces here all working to the final outcome that ordinarily you would see with a rise in pricing profit, but that doesn’t apply here."
Testimony before the House Energy & Commerce Committee, September 23, 2011
Richard Blumenthal, Connecticut Attorney General (now U. S. senator)
Describing the hospital group purchasing organization industry as "an insidious, incestuous, insider system," Attorney General Blumenthal said that " my GPO investigation has uncovered suspect interrelationships and questionable business practices involving hospital, GPO and major medical suppliers" executives whose practices often benefit themselves, rather than patients, insurers, and government programs that pay hospital bills." He added that "these concerns are significant and serious, requiring immediate Congressional action… Voluntary efforts offered by the GPO companies—initiated shortly after withering criticism of industry practices—are simply too little, too late."
Statement to the Senate Antitrust Subcommittee, March 15, 2006
Senator Mike DeWine (R-OH), chairman, Senate Antitrust Subcommittee, and Senator Herb Kohl (D-WI) ranking member
"…the savings figures that GPOs frequently cite as benchmarks to demonstrate savings are based on a manufacturer's list price that hospitals rarely, if ever, pay."
Letter to Secretary of Defense Donald Rumsfeld cautioning him on DOD plan to use hospital group purchasing organizations to purchase healthcare supplies for the military, May 2, 2003.
James Sheehan, former associate U. S. attorney for healthcare fraud
Commenting on a $1 million "special" payment" Becton Dickinson made to Novation, then the largest group purchasing organization, Mr. Sheehan said that he had "serious questions" about whether such payments were legal under federal laws against kickbacks.
The New York Times, July 19, 2002
Senator Herb Kohl (D-WI), chairman, Senate Antitrust Subcommittee:
"We have heard startling allegations of scandal and conflicts of interest that have infected" these [hospital group purchasing organizations] groups..."These practices are appalling and cannot be tolerated."
Statement at Senate Antitrust Subcommittee hearing on GPOs, April 30, 2002
Senator Mike DeWine (R-OH), ranking member, Senate Antitrust Subcommittee
In an apparent drive to reap profits for themselves, buying groups, he said, have strayed from their basic reason for being — obtaining the best products at low prices for hospitals. "I am concerned about the extensive range of businesses and programs run by these groups."
The New York Times, May 1, 2002
Senator Orrin Hatch (R-UT):
"I am concerned about recent press reports that senior executives have received or obtained stock or stock options from product suppliers, creating serious conflicts of interest."
Statement released before Senate Antitrust Subcommittee hearing, April 30, 2002.
Senator Patrick J. Leahy (D-VT):
Hospitals, not suppliers, should pay for buying groups. he said. "The hospitals are going to be even more attentive to how they're performing… because, after all, they're paying for it."
The New York Times, March 4, 2002.
Wendy Zens, former nurse-manager, Harvard Vanguard Medical Associates, Boston
"The GPOs I dealt with provided no knowledge or service while pushing out the vendors that did...I could have gone out to Costco for supplies at better prices."
Linkedin Pulse comment, September. 5, 2014
Robert Campbell MD, anesthesiologist, chairman of Physicians Against Drug Shortages (PADS), and president, Pennsylvania Society of Anesthesiologists
"We are convinced that the anticompetitive contracting and pricing practices, kickbacks and self-dealing of hospital GPOs are the root cause of this public health emergency."
Anesthesiology News, April 3, 2013
Joel Zivot MD, chief of cardiothoracic intensive care, Emory University Medical Center; Atlanta, co-chair, PADS
"What we want is for the safe harbor clause to be repealed for the GPOs. They can be part of the drug distribution industry, but they should not have this kind of power. We want a normal market. When it is cracked open, other manufacturers will enter and drug shortages will stop."
Medscape, January 24, 2013
Curtis Baysinger MD, associate professor of anesthesiology, Vanderbilt University, Nashville; co-chair, PADS
"The issue with the group purchasing organizations is the way they are paid," adding that medical suppliers are generally required to pay a fee to the group to have access to the member hospitals, and that creates a disincentive and leads to shortages.
Tennessean, November 24, 2012
Michael J. Bonck RPh, Manager, Pharmaceutical Services, Franciscan Health System, Tacoma, WA
Comment on Health Affairs website, June 21, 2011
Karen Daley, president of the American Nurses Association; contracted HIV/AIDS and hepatitis C after an accidental needle stick injury at Boston's Brigham & Women's Hospital
"…as your inquiry over the past three years has uncovered, GPOs have often harmed competition, stifled innovation and increased the cost of healthcare because of their own financial interest. I urge you to repeal the GPO safe harbor from the Medicare anti-kickback statute. This would end the financial stronghold between GPOs and the vendors they are charged with evaluating and allow GPOs to function in a conflict free environment. It would also result in an open and competitive marketplace where patients and caregivers would have access to more innovative, cost-effective technologies."
Letter to Senator Mike DeWine (R-OH), chairman, Senate Antitrust Subcommittee, and Herb Kohl (D-WI) ranking member, June 23, 2005
Julia Naunheim Hipps, a Missouri nurse who contracted hepatitis C from a 1999 accidental needle stick injury
"The concept of group purchasing is now a detriment to those working in the health care industry," she said in written testimony submitted to the Senate Antitrust Subcommittee. She told The New York Times that she felt angry and betrayed by the way hospitals buy medical supplies. "I am the end result," she said.
The New York Times, July 19, 2002
Mitchell Goldstein, MD neonatologist, West Covina, CA
"…in the interest of looking at cost and cost containment, we have to ask the question, what is the cost of a dead baby? What is the cost of a baby who has gone blind from retinopathy, of prematurity? How do you explain this? What do you say to the parents in defense of this action?"
Testimony before Senate Antitrust Subcommittee, April 30, 2002.
Augusto Sola, MD., professor of pediatrics, Emory University School of Medicine, Atlanta
Dr. Sola wrote that an innovative Masimo Corp. pulse oximeter helped reduce eye damage in infants, but that he was thwarted in his efforts to get it into his hospital. "If babies had been the ones choosing, they would not have been allowed to choose what they consider to be best for them," he wrote.
He added: "I was unable to grasp this concept of GPO contracts, 'exclusive' products, 'loss of benefits,' in which every reasonable and scientific argument I was literally ignored….I also know many physicians and RN's are not even aware of how this issue impacts their practices. More importantly, patients are not aware. In some cases…patients continue to receive care for a long time with equipment and medications not chosen by their MD's, or actually used against their MD's recommendation. I now know that in many cases the equipment and medications are chosen by GPO's/Hospitals for their own selfish reasons. In many cases their decisions do not lower costs and delay improving patient care: the two worst combinations in health care."
Letter to Senator Herb Kohl, chairman, Senate Antitrust Subcommittee, April 19, 2002
William Head, MD, Plano, TX orthopedist
"The GPO may lock the hospital into buying the cheapest, low-end implant, forcing the physician into an ethical dilemma of whether to continue to work there," adding that some hospital officials fail to take into account a hidden cost of cheaper implants – that they may require replacement years sooner than top-quality devices.
Houston Chronicle, April 18, 1999
Neil Kahanovitz, MD. orthopedist; president & founder, Center for Patient Advocacy
"GPOs take medical decisions out of the hands of patients and their physicians and place them in the hands of corporate officials focused solely on the fiscal bottom line…Unless we educate the public about GPOs and urge public officials to examine their questionable business practices, GPOs will continue to be the gatekeepers that hold quality patient care and innovations hostage."
Houston Chronicle, April 18, 1999
Hospital Group Purchasing Executives (former & current)
Fetter stated on an earnings call that "manufacturers paying for GPOs has always appeared strange and that customers paying the fees is an appropriate model."
Wall Street Journal, February 25, 2011
Diana Smith, former director of surgical services, Broadlane (now part of MedAssets, Inc., Alpharetta, GA)
Referring to a surgical towel with an x-rayable strip that prevents surgeons from leaving towels in patients, she said, "It should have been a no-brainer…Garrett [Bolkes, the inventor], had a good product, and it was cheaper than everybody else's. But GPOs make their money by charging vendors fees. And if you get a percentage of sales, going with a lower bid from a little company just loses you money and pisses off the big vendors with multiple contracts."She went on to say that GPO executives got hospital administrators to sign off on more expensive contracts by using misleading pricing data. "Our job was to bamboozle hospital CFOs and purchasing managers," Smith explained. "My boss used to call it getting them to drink the Broadlane Kool-Aid."
Washington Monthly, July/August 2010
Daniel DeLay, chief resource officer, Ascension Health; former senior vice president, VHA Inc. (parent of Novation LLC)
"This system raises costs for everyone. It creates an inherent conflict of interest for the GPOs: The more a hospital buys, at higher pricing, the greater the GPOs' revenue."
Forbes.com November 12, 2009
Lisa & Michael Sokol (Lisa Sokol is a former vice president of marketing for Premier Inc.
In proposing a return to the original "Fee Based" group purchasing model, they wrote: "This concept is well known, tried and true. In fact, practically the whole industry was founded on this principle in its purest form. It has worked for years and spawned many a success story. Unfortunately, in my opinion, a good portion of the industry has moved far off the reservation," adding that: "Under the fee based model, the GPO itself makes money by having members. The more members, the more dollars, simply and ethically."
Letter to the Editor, Healthcare Purchasing News, August 2003.
Cynthia Fitzgerald, former contracting officer, Novation, Irving, TX
"I don't look good in orange or in stripes," Ms. Fitzgerald said she told her supervisor after objecting to the way another contract was handled. Before long, the company, Novation, arranged to have her "escorted off the property by guards."
The New York Times, August 1, 2002
Hospital Purchasing Executives
Michael Bohon, retired hospital purchasing director and chairman of a Novation product selection council
"I was in a meeting where a manufacturer offered a substantial payment for conversion," Mr. Bohon said. "Their argument was, We know this is going to be a difficult conversion, and you'll lose some of your fees; we know you're going to have some of the old product left over. So we are going to offer you $200,000." "I didn't feel comfortable hearing that. I said, 'Let's take this off the table, I'm not going to consider it at all."
The New York Times, September 14, 2004
Robert Carretta, corporate vice president of the St. Barnabas Health Care System, Livingston, NJ
He told The New York Times that his system buys directly from suppliers, saving 6 percent to 10 percent over Premier's prices. On drugs alone, he said, his hospitals saved $5 million in the last three years. "We don't think they have brought a whole lot of value to the table," he said of Premier.
The New York Times, October 8, 2002
O. L. Roach, former CPO/director purchasing and operations, Strong Health/University of Rochester
"The GPO 'industry' has clearly lost its focus on the real value it can bring to its members and the healthcare consumer in general. The focus on bringing lower costs, driving standardization and providing a means to drive healthcare industry efficiency has been replaced with efforts to fund major investments, grow GPO fee revenues and fund ventures more important to the GPO than its members."
Letter to the Editor, Healthcare Purchasing News, August 2002.
Bob Bissell, principal, CoalesCo Ltd, which sets up purchasing co-ops for hospitals
Referring to a questionable Novation contract for hospital trash bags, Mr. Bissell said, "There is much better bag pricing outside the Novation-Heritage agreement" – sometimes more than 20 percent better.
The New York Times, August 1, 2002
Duncan Gallagher, executive vice president, Iowa Health System, Des Moines
In an interview with The New York Times, he said that for years the common wisdom was that hospitals that tried to buy on their own would pay more. He expects that his system may eventually save 30 percent to 40 percent. "The people who are saying it is impossible are wrong."
The New York Times, April 30, 2002
Larry Dickson, purchasing executive, Providence Health System, Seattle
Mr. Dickson said that he couldn't get specific information on fees from Novation. "Why is this so secret?" he asked. "There is an accountability question that is very much concerning a lot of people in health care. And if you ask, and the response you get is, "That's none of your business," that raises more questions than it answers."
The New York Times, March 4, 2002
Paul Lombardi, head of contracts, Swedish Medical Center, Seattle
"It's just like payola." Buying groups are "getting paid" to buy certain products, said Mr. Lombardi, whose hospital system dropped Premier [one of the two largest GPOs] in 1996.
The New York Times, March 4, 2002
Sean W. Wieland, senior research analyst, Piper Jaffrey & Co.
"Three health systems in North Carolina are uniting to form a larger IDN in the hopes of bringing down costs by not only standardizing medical practice, but by leveraging aggregated purchasing volume to bring down supply costs. We believe this is another example of the decreasing efficacy of the GPO business model in the healthcare supply chain."
"Isn't That the Point of a GPO?," Industry Note, September 19, 2014
Peter Pitts, president, Center for Medicine in the Public Interest; former FDA associate commissioner for external affairs
"This initiative is a courageous step forward in addressing the foundational reasons behind both the tragedies caused by drug compounding and the broader issue of preventable drug shortages. The anticompetitive manipulation of American healthcare by GPOs is an urgent topic for congressional action."
Press release, Office of Rep. Ed Markey (D-MA), announcing request for GAO investigation into role of GPOs in causing drug shortages and fungal meningitis outbreak, November 15, 2012
Diana L. Moss, PhD, vice president, American Antitrust Institute
"The severity of the drug shortage problem, coupled with impaired market structures and perverse incentives created by GPO contracting practices and compensation, calls for a careful collaborative investigation by antitrust enforcers and regulators...Congress should repeal the anti-kickback safe harbor that has created the principal-agent problem surrounding GPO compensation. Because GPOs are compensated by vendors, rather than their member hospitals, small pharmaceutical and medical device and supplies manufacturers, who do not benefit from this legislated advantage, but that may produce superior, lower-price products, are potentially foreclosed from the market."
"Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads?," a white paper, May 7, 2012
*Nick Rudikoff, field researcher, Service Employees International Union (SEIU), New York
"We believe that Novation's … business practices exclude some of the most innovative medical devices like safer needles, while the costs [of resulting injuries and claims by workers] are passed on to healthcare purchasers," he said. "The infuriating part is our members don't mind putting their lives on the line, but hospitals aren't doing all they can to protect our workers. It's completely unacceptable that the hospitals can't buy these technologies because they are locked in a contract."
Referring to Novation, he added: "I've talked to member hospitals who say it's like getting information out of the CIA… They don't disclose anything to the public. They're resistant to any kind of oversight…They act as though everything is their own private business, which just happens to be 60 percent sponsored by taxpayers."
Fort Worth Weekly, November 23, 2005
David A. Balto, former antitrust enforcement attorney, Federal Trade Commission, Washington, D. C.
"My experience has taught me that the elimination of impediments to competition will bring the greatest long term benefits. When thse side payments or other types of anticompetitive practices are eliminated, you will see competition flourish and innovation and lower prices come about."
Testimony before Senate Antitrust Subcommittee, September 14, 2004.
Elizabeth H. Weatherman, managing director, Warburg Pincus, a New York venture capital firm, and vice chair, medical group, National Venture Capital Association
"It is hard enough for a small company to overcome the power of a large entrenched competitor even in an open and competitive marketplace. It is nearly impossible when monopolistic producers collude with monopsonistic buyers, such as GPOs to suppress competition…the idea that GPOs save money for hospitals by extracting larger price discounts from manufacturers than manufacturers could achieve themselves is unprovable and most likely wrong."
And she said: "There is no doubt that patients' health has suffered as a result of GPO practices."
Testimony before the Senate Antitrust Subcommittee, April 30, 2002
David Nelson, chairman, Institute for Supply Management, Tempe, AZ, an association of purchasing managers and buyers
Referring to the vendor-financed GPO business model, he said, "I had no idea that the kind of things you're talking about were going on," adding that If such practices occurred in the industries he knows, "red flags would go up all over the place…"you get the tail wagging the dog," he said.
The New York Times, March 4, 2002.
*Bill Borwegen, director, occupational health and safety, Service Employees International Union (SEIU), Washington, D. C.
"We are talking about life and death products where the decisions on the life and death products are done by administrators, not health-care professionals," he said. "If health-care workers could choose their products, I know overnight they would choose retractable syringes and self-blunting collection devices."
Houston Chronicle, April 18, 1999
*Andy Stern, international president, Service Employees International Union (SEIU), Washington, D. C.
Newhouse News Service, June 3, 1998
*Important Note: When Messrs. Stern, Borwegen and Rudikoff made these statements, the SEIU supported GPO reform. Unfortunately, in 2006, the union reversed itself as a result of a deal with the Greater New York Hospital Association (GNYHA). Under this agreement, the GNYHA promised continued generous increases in compensation and benefits for members, and in return the SEIU promised to oppose GPO reform.