Federal officials reportedly are reviewing the legality of purchasing contracts between Deerfield, Ill.-based Baxter International and three for-profit hospital chains.
Under one agreement in question, Baxter paid Nashville, Tenn.-based Quorum Health Resources a $2.4 million "contract-signing bonus" in 1989, according to a report in The Twin Falls (Idaho) Times-News. Quorum manages 136-bed Magic Valley Regional Medical Center, a county-owned facility in Twin Falls.
In 1989, Baxter paid more than $50 million to Quorum, Health Trust-The Hospital Co. and Hospital Corporation of America, The Times-News said. In exchange, the chains made Baxter their primary supplier and vowed to work to increase their Baxter purchases, the newspaper said.
The newspaper also reported that Magic Valley's purchases from Baxter increased to $1.7 million in 1992 from just over $1 million in 1989. Hospital executives were quoted as saying the increases were caused by greater use of Baxter products, rising prices and Baxter's acquisition of additional product lines, and not by any improper incentives.
Baxter executives said the contracts are legal and said they offered no improper incentives to the hospital.
Manufacturers commonly offer hospitals and hospital groups rebates, discounts and other financial incentives to increase their purchases.
In general, such incentives could violate federal fraud and abuse statutes in two ways, said Sanford Teplitzky, an attorney in the Baltimore office of Ober, Kaler, Grimes & Shriver.
First, hospitals could bill Medicare for the price of products without knocking off the value of discounts, rebates and other incentives, Mr. Teplitzky said. Second, government authorities could view some incentives as illegal efforts to increase purchases under Medicare or Medicaid programs.
"Safe harbor" guidelines define the incentives considered acceptable under the anti-kickback portion of fraud and abuse laws. The discount exception to the statute, however, outlines incentives more broadly. "There is really a gray area," Mr. Teplitzky said.
The Times-News, investigating the practices of its local hospital, asked the Seattle regional office of HHS to review the Baxter contracts. Although the contracts might be legal, some elements appeared questionable, said Jack Nixon, financial management chief for the HHS office in Seattle. Mr. Nixon said he forwarded the contracts to HHS' inspector general's office, a step taken routinely in such cases.
"Most of the time, they don't turn out to be a problem," Mr. Nixon said.
Regardless of whether the contracts are legal, the scrutiny they have received is indicative of local newspapers' current interest in hospital business practices.
Spokesmen for the U.S. Justice Department and the inspector general's office, the agencies that handle Medicare fraud and abuse cases, declined to say whether they had received the contracts or were reviewing them.
A Baxter spokeswoman said the company had not been contacted by authorities. She would not confirm contract details reported because they are considered proprietary.
"This isn't a special contract that we don't have with other people," said Lester Knight, who heads Baxter's hospital business.