The Medical Device Manufacturers Association

GROUP PURCHASING ORGANIZATIONS

Hospital group purchasing organizations (GPOs) were created to save hospitals money on the purchase of supplies and equipment. However, with the creation of a safe harbor by Congress in 1986, certain practices have resulted in the opposite effect. The Congressional exemption allows GPOs to legally collect fees from suppliers to whom they award contracts. Contractual arrangements that have evolved between GPOs and their hospital customers frequently exclude competitive medical technologies that might help patients and allow hospitals to save more money in the long run.

What is MDMA doing?
MDMA continues to be the lead medical technology organization in Washington calling for the GPO industry to reform. MDMA has testified before Congress and regularly meets with lawmakers and Capitol Hill staff to educate them on the importance of reforming the system. Many MDMA members also participate in a GPO task force to lend their voices and experience, helping to shape the association’s policy and approach on this critical issue. MDMA is dedicated to the passage of legislation that will restore the illegality of kickbacks between suppliers and GPOs so that patients have access to the best care at the best price.

2007

GPO Whistleblower
November 18, 2007 - The New York Times reported on Cynthia Fitzgerald, the former Novation employee who filed a qui tam claim against the GPO. The article focuses on Ms. Fitzgerald’s current litigation and explores her complaints against Novation in depth. Ms. Fitzgerald's case highlights some of the broad based problems in the current GPO system, including how hospitals inaccurately report GPO incentives and rebates in their cost reports to Medicare.
Click here to read the complete story.

GPOs Receive More Scrutiny
October 4, 2007 - The Fort Worth Weekly reported on the recently unsealed qui tam action against Novation, the nation’s largest GPO. The article highlights the case of Cynthia Fitzgerald, a whistleblower and relator in the action against Novation. Ms. Fitzgerald contends that Novation illegally received additional payments and kickbacks from vendors to contract with the GPO. Ms. Fitzgerald was eventually terminated from bringing these claims to her superiors. The article also provides a brief overview of the GPO history.
To read the article, please click here.

2006

Controversy Surrounds the Prestigious Baldrige Award
December 19, 2006- Recently, several news sources have written stories highlighting the controversy over an announcement that Premier Inc, a GPO, was the recipient of the prestigious Malcolm Baldrige award. It has been reported that Premier’s CEO, Richard Norling was on the board of trustees of the foundation and that a Premier staffer served on the review committee. An article in USA Today highlighted MDMA’s support for ending the GPO’s ability to accept kickbacks from suppliers. To view the USA Today article, please click here. Other news sources to highlight this controversy include the Charlotte Observer
and the Union-Tribune. Dale Crownover, former chairman of the Baldridge Foundation, has called for Premier to withdraw its acceptance. MDMA joins Crownover in urging Premier to withdraw.

New York Times Turns the Nation’s Eye to GPO Practices
July 21, 2006- The scrutiny of hospital group purchasing organizations continues. The New York Times ran a front-page article on Monday about how certain hospital executives confidentially advise companies on how best to sell their pharmaceuticals, medical devices and financial services to hospitals. These executives all belong to an organization called the Healthcare Research and Development Institute (HRDI), a for-profit company that is owned by three dozen hospital executives, but underwritten by 40 or so of its handpicked corporate members, all suppliers to hospitals. MDMA’s Executive Director, Mark Leahey, was quoted as saying that “he was troubled by the fact that HRDI members had included leaders of organizations that negotiate major purchasing contracts on behalf of hundreds of nonprofit hospitals.” The article noted Connecticut Attorney General Richard Blumenthal’s ongoing investigation into whether HRDI allows certain vendors to buy access to hospital leaders who are in a position to influence the supplies or services their institutions purchase.

Repeal of Anti-Kickback Exemption Is “Only Viable Resolution” for GPO Industry Reform, Study Says
July 20, 2006- An in-depth analysis of the activities of certain large hospital group purchasing organizations (GPOs) recommends they be stripped of their longstanding protections from federal anti-kickback penalties and antitrust safety zone because of operating practices that have "an adverse impact on the financial health of this nation’s hospitals, nursing homes, and other healthcare organizations."

In a new study, "Group Purchasing Organizations: An Evaluation of Their Effectiveness in Providing Services to Hospitals and Their Patients," the International Center for Corporate Accountability demonstrates that the “only viable resolution” to reforming the GPO industry is to subject it to the discipline of the hospital supply marketplace. Bipartisan legislation to accomplish that goal ("The Ensuring Competition in Hospital Purchasing Act") is sponsored by Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.) and being considered in the United States Senate. MDMA Supports this legislation in order to ensure patients and caregivers have access to the best products at the best price.

Hospitals Could Save Nearly $5 Billion Through GPO Reform, Study Shows
June 20, 2006- According to a new report released during MDMA’s recent 12th Annual Meeting, the nation’s hospitals collectively could save nearly five billion dollars if hospital Group Purchasing Organizations (GPOs) lost their safe harbor protection under the Medicare anti-kickback statute. Hal Singer, Ph.D., president of the economic consulting firm Criterion Economics, developed the study. He told MDMA that if GPOs – which purport to save the health care system money through volume purchasing on behalf of groups of hospitals – no longer were permitted to collect fees from dominant suppliers in exchange for market exclusivity, Medicare could save $2.5 billion annually.

The safe harbor, which was enacted by Congress in the 1980s, exempts GPOs from criminal penalties for accepting kickbacks from health care suppliers. The Senate Judiciary Antitrust Subcommittee has been investigating allegations of anticompetitive conduct and conflicts of interest by GPOs and is contemplating legislation, including repeal of the safe harbor. MDMA Executive Director Mark Leahey commented: “The study demonstrates that GPOs cannot serve two masters. If the GPOs are to save money for hospitals and the health care system, and help assure delivery of high quality medical technologies to patients, they cannot be compensated by their suppliers.”

Read the Report

More on the annual meeting

MDMA’s GPO Efforts Highlighted in the National Journal
April 28, 2006- MDMA’s ongoing efforts to reform the anticompetitive practices of hospital group purchasing organizations (GPOs) recently were profiled in the April 22 edition of the National Journal. The article covered last month’s Senate antitrust subcommittee hearing, as well as detailed activities of certain GPOs, the excessive fees, ineffective self-policing code of conduct, and how some innovative companies have been denied market access.

MDMA Receives Inquiries after the Senate GPO Hearing
March 24, 2006- The MDMA spent a significant amount of time handling inquiries related to the Senate Judiciary Antitrust Subcommittee’s recent hearing on hospital group purchasing organizations. The hearing generated a lot of interest from various parties because of its impact on the quality and cost of care. For more information, click here.

MDMA Director Urges Congress to Stop GPO Kickbacks

Watch video testimony

March 15, 2006- The Medical Device Manufacturers Association (MDMA) today asked Congress to eliminate anticompetitive practices in the hospital supply industry that deny patient access to life-saving medical technologies. MDMA Executive Director Mark Leahey urged the Senate Judiciary Antitrust Subcommittee to protect patients from the anticompetitive and exclusionary practices employed by certain large hospital group purchasing organizations (GPOs). For many years, MDMA has actively worked to reform the GPO system and firmly believes that legislation is required to ensure that patients and caregivers have access to the most effective technologies at the best price. In order for the GPOs to truly reform, the safe harbor from the Medicare anti-kickback statute must be repealed.
Oral testimony
Written testimony
Video Testimony
Click here to read MDMA's press realease.

Action Alert! Call your Senators Today about GPOs
March 10, 2006- In preparation for next week’s March 15th Senate Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee hearing on the practices of hospital group purchasing organizations (GPOs), we need your help in reaching out to lawmakers to support the repeal of the GPO safe harbor. MDMA has created an Action Alert to help you reach senators from key states.

The target states are AL, AZ, CA, DE, IA, IL, KS, MA, NY, OH, OK, PA, SC, TX, UT, VT, and WI – all states with Members on the Judiciary Committee. If you’re a resident of one of these states, please take a few minutes to send an email to your senator in Washington using MDMA’s Legislative Action Center. The letter is provided for you. All you have to do is send it along. To help with this important effort, please click here.

Also, please pass the link along to ANYONE in the states listed above where you have operations, distributors, sales representatives, customers, potential customers, or patients and ask them to do the same.

MDMA has been meeting with Senate staffers to discuss the importance of this issue.

Senate Judiciary Committee Sets Date for Fourth GPO Hearing
On February 16th, the Senate Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee announced a fourth hearing on the practices of hospital group purchasing organizations (GPOs), which will be held on Wednesday, March 15. The hearing will focus on the recently launched Healthcare Group Purchasing Industry Initiative and consider whether additional legislative measures are needed to ensure reform of the anticompetitive practices of certain GPOs. MDMA has been actively working to reform the GPO system for many years and firmly believes that legislation is required to ensure that patients and caregivers have access to the most effective technologies at the best price.

GPO Issue Raised During Alito Nomination Hearing
On January 11th, the issue of hospital group purchasing organizations (GPOs) was raised during the Supreme Court nomination hearing of Judge Samuel Alito. Senator Mike DeWine (R-OH), Chairman of the Senate Judiciary Antitrust Subcommittee, talked about the difficulty that smaller device manufacturers had in gaining access to the hospital marketplace even if their product was better and/or cheaper than the dominant supplier because of bundled contracts and exclusive relationships with GPOs. DeWine specifically asked Alito about his dissent in the 3M v. LePage’s Inc. case in which the judge felt the bundled rebates were not anticompetitive. Alito responded by saying he was not an antitrust expert, and that he “plods his way through these antitrust issues when they come up.” He went on to say, “there’s uncertainty, really, about how the monopolization standard applies to issues of bundling. So I think it’s quite up in the air and should it come up again, I think it merits reexamination.”

2005

Ongoing Scrutiny of Group Purchasing Organizations
On November 23rd, the Fort Worth Weekly published a feature article on hospital group purchasing organizations (GPOs) titled “Hijacking at the Hospital-Purchasing groups created to hold down health costs seem to be holding up patients instead.” The article provides a good overview of the evolution of the issue and the problems that continue to exist.

To read the article please click here.

Connecticut AG Blumenthal Continues Scrutiny of GPOs
The New Haven Register recently reported that Connecticut Attorney General Richard Blumenthal has issued additional subpoenas to Yale-New Haven Hospital as he continues his probe of the health care supply industry.

Blumenthal said they were sent several weeks ago to the hospital and, "persons associated with" the hospital, as well as to "many vendors and manufacturers" within the medical supply network. The CT AG went on to say he was "very interested in potential undue influence exerted by vendors and manufacturers on individuals in positions to make health care purchasing decisions."

To read more please click here.

GPO Initiative Falls Short of Meaningful Reform
On July 12th a group of GPOs published a “voluntary initiative” that lacks uniform practices, does not include independent oversight and has no real penalties for non-compliance. As a result, MDMA strongly urges Congress to act to ensure that patients and caregivers have access to innovative technologies.

To read MDMA’s press release click here.

Second HHS OIG Audit Finds More of the Same-GPOs Fees Far Exceed Operating Expenses
On June 7, 2005, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a second report regarding an audit of three additional group purchasing organizations (GPOs). The report stated: "the three large GPOs that we reviewed collected administrative fee revenue of $513 million. Of this amount, $275 million represented net revenue in excess of operating costs."

This data combined with the data from the first HHS OIG audit show that during the audit periods, 6 large GPOs collected over $2.3 Billion in fees, yet their operating expenses were only $725 million. As result, the 6 GPOs charged close to $1.6 billion in fees above operating expenses and withheld close to half a billion dollars from their member hospitals.

To read the HHS OIG Report please click here.

Continued Scrutiny of GPOs and Select Dominant Supplier
June 6, 2005 - Forbes magazine published an article scrutinizing certain practices by dominant suppliers as well as GPOs. The article states, “A bigger industry problem is restrictive contracts between device makers and group purchasing organizations, which can negotiate on behalf of hundreds of hospitals and typically get a 3% cut of sales, if not more. Two such groups - Premier and Novation - have been in the crosshairs of three hearings since 2002 by the U.S. Senate Subcommittee on Antitrust. Small makers of medical devices complain that patients have suffered because contracts denied them access to better, sometimes cheaper, products.

Click here to read more.

LA Times Reveals Lack of GPO Cost Savings for UC Medical Centers
In early 2004, Dr. John Glaspy, professor of medicine at the UCLA Medical School and medical director of UCLA's Bowyer Oncology Center, discovered that he could negotiate better prices on cancer drugs by going outside of the bulk discount contracts between the University of California system and two national group purchasing organizations (GPOs). "It's fair to say that Glaspy was astonished to discover with a few phone calls that he could beat the Cardinal/Novation price by roughly $800,000 a year. Then came a bigger shock: Instead of congratulating him for unearthing a promising source of savings, UC officials told him to back off." Michael Hiltzik, columnist for the Los Angeles Times has been following the story.

A Valuable Drug Discovery at UC (02.17.05)

Secrets Aid Drug Suppliers, Not UC (02.21.05)

Supply Middlemen May Leave Hospitals Ailing (04.14.05)

Masimo Verdict a Victory for Patients, Innovation and Hospitals
Washington, D.C., March 24, 2005 – The Medical Device Manufacturers Association (MDMA) today hailed Masimo Corporation’s victory this week in its federal antitrust case against Tyco International as “a critical step” in addressing the anticompetitive and other questionable practices by certain dominant manufacturers and hospital group purchasing organizations (GPOs).

MDMA PRESS RELEASE

MDMA Submits Comments to HHS OIG regarding GPO Safe Harbor
On Tuesday, February 8th, MDMA submitted comments to HHS OIG recommending that in order to promote quality, cost-effective care, the GPO safe harbor be modified to cap the level of fees that vendors pay GPOs to 3 percent. In addition, MDMA believes that the safe harbor should be modified to address specific contracting, business, and ethical practices of certain GPOs that are contrary to antitrust law and competitive principles, to ethical standards, or to the goal of ensuring that products necessary for proper patient care or worker safety are readily available to physicians, healthcare workers, and patients. Broadening the safe harbor to address these concerns would promote the compelling public policy goals of encouraging competition and innovation in the hospital supply and medical device markets.

Click here to view comments.

Hospital Supply "Savings" from GPOs Remain Elusive, Hospital Industry Analyst's Report Urges New Standards for Measurement
Washington, D.C., February 2, 2005 - Despite claims by hospital Group Purchasing Organizations (GPOs) that they save hospitals money on the purchase of supplies and equipment, compelling evidence will be generated only through new industry standards for measuring actual cost savings, according to a report by hospital industry supply chain strategist Lynn Everard. The report, "Defining and Measuring Product-Based Cost Savings in the Health Care Supply Chain," asserts that absent a "clear cut definition of what constitutes a product cost savings, hospitals will remain vulnerable to unsubstantiated claims of savings while their costs of doing business rise unabated."

MDMA PRESS RELEASE

Read report, Defining and Measuring Product-Based Cost Savings in the Health Care Supply Chain

HHS OIG Issues Report Regarding Revenue From Vendors at Three Group Purchasing Organizations
January 19, 2005 - Today, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a report regarding an audit of three group purchasing organizations (GPOs). During the audit period GPOs collected $1.8 billion in fees of which $1.3 billion exceeded operating expenses. GPOs retained $415 million for VC investment and other business ventures. OIG also audited 21 hospitals and found that many were not correctly filing their cost reports. Some hospitals accounted for only 54% of the fees in their costs reports. The report also stated that most of rebates directly from manufacturers were accurately reflected in the cost reports.