David Burda: Hello everyone. This is Dave Burda, editor of Modern Healthcare and Modern Physician magazines. Earlier this month, the Senate Finance Committee offered a healthcare reform bill that includes a new tax on medical-device manufacturers. The amount of the proposed tax is $4 billion per year, or $40 billion over the 10-year life of the bill backed by Sen. Max Baucus (D-Mont.) Baucus subsequently lowered that proposed tax last week to about $3 billion per year or about $30 billion. Visiting with us today is Curtis Rooney, president of the Health Industry Group Purchasing Association, which represents healthcare group purchasing organizations, to explain how the proposed tax got in to the bill and why GPOs are under increased scrutiny from key lawmakers in Congress. Curtis, tell us about some of the provisions in the draft legislation that would have a negative impact on GPOs.
Curtis Rooney: Back in May of this year, we went to talk to the Baucus and Grassley staff about GPOs, and they essentially were suggesting that GPOs be limited to—GPO fees be limited to—administration and negotiations of contracts, and we explained to the staff—and I think they understood—that GPOs are much broader than just purchasing. They do all kinds of thing like IT, patient safety, efficiencies of aggregating and so forth, so they took that provision out, they took it off the table. And what we said to them was, “Look, all the questions that you have are actually on a Web site,” the
HGPII Web site that they could go to. The HIGPA folks have put together … a questionnaire that covers all of the items that they were concerned about such as sole sourcing, contracting and things to that nature. And I think they did, but they still had other questions. And we said to them, “We're happy to answer any questions that you have.”
David Burda: Tell us a little more about how the excise tax was proposed.
Curtis Rooney: I think back in July there was this discussion on healthcare reform, about how to pay for healthcare reform. And so, GPOs, as I think I mentioned to you earlier, are already paying or already responsible for $36 billion annually in savings to hospitals. And so, when the healthcare industry went down to the White House, we didn't go with them, there was discussion of an excise tax to help pay for healthcare reform which the device manufacturers have decided to fight. And, in that discussion they suggested to staff that the GPOs have an excise tax. And, when we entered that conversation, people were scratching their heads because they didn't understand how one industry could suggest to lawmakers that another industry pay for taxes for them. So, we went to them. We suggested that there's a better way to do it and that they understood GPOs are savers. The device guys, if they're going to pay for excise taxes, should pay for it themselves. And the current proposal is $40 billion over 10 years for device manufacturers.
David Burda: Curtis, we understand that those provisions are now off the table. Can you tell us about the grass-roots movement that helped you get that accomplished?
Curtis Rooney: A couple things. Just to take one step back. Most people don't know that GPOs are actually owned by hospitals—mostly. And so they went—the GPOs went to their customers, the hospitals, and said, ‘Please contact your member of Congress and also please contact the suppliers that you work with.' So that was our grassroots effort, and the response was overwhelming. Over 400 hospitals wrote in to their member of Congress and senators saying, “Please don't change the way GPOs do business. They provide all kinds of savings and services to the hospitals. You're asking for $155 billion in cuts and reductions. This is not the time to change this business model.”
David Burda: If devicemakers are assessed those fees or even a smaller amount, how would that affect GPOs?
Curtis Rooney: Sure. Two things: One is they suggest that they will pass on those costs, and so, ultimately, will be paid for by the customers, which, of course, is the hospitals. Interestingly we had a study done by Eugene Schneller at Arizona State University, who looked at GPOs and asked hospital resource managers and materials-resource managers: Where did GPOs save you the most? And in the area of what are known as physician-preference items—implants, cardiac implants, knees, hips—GPOs and those manufacturers really don't do a lot of work together. And so when they do do it, it's mostly like you and I would use Kelley Blue Book as a comparison. But we don't expect it to affect GPOs. But we do expect it to affect hospitals.
David Burda: Your members were sent a letter by key Senate lawmakers asking for more information about GPO operations, how do you intend to respond to their requests?
Curtis Rooney: Sure. So, going back to the discussion we had back in May with the Baucus and Grassley staff, we said to them, “Look, most of these questions you're asking are on this Web site. Here it is.” And that information was provided. They asked approximately nine questions. Six of those questions are actually on that Web site covering the issues that I just mentioned earlier. And, some of the other questions—the three other questions—are very specific questions that only really a specific GPO could answer, such as, “Show us an example of your contract. What are your fees specifically?” So those individual GPOs will be following up, and actually the deadline for that submission is the 25th of September, so that should be coming up. And we probably expect other follow-up questions, and we'll be happy to provide all the information. And each GPO will be doing so.
David Burda: Curtis, do you expect Congress to hold any more hearings on GPO operations?
Curtis Rooney: I think it's hard to say. We haven't had a hearing since '06. I think the industry certainly has moved on and certainly has done its best to make sure that all of the business practices that were in question are provided to the public. And so we feel like we've done a good job of that, but if there are hearings, we'd be happy to participate because we think we have a great story to tell. We think GPOs are the unsung heroes of healthcare reform because they do all the things that healthcare is talking about, reducing costs, improving patient safety and improving efficiency as well.
