Premier last week set group purchasing organizations aflutter with its release of a six-month study on best ethical practices for the industry.
But it was unclear whether Premier's personal vow that it would lead the way in staking out the ethical high ground did more to push the envelope for GPO reform or to push the buttons of fellow GPOs.
Officials at some GPOs privately wondered how Premier, which first attracted and then bore the brunt of recent public scrutiny of the industry's business practices, became the poster child for good conduct.
Premier's ready commitment to the recommendations in the study will bring about three significant reforms at the San Diego-based GPO: public disclosure of its finances, standardized administrative fees paid by vendors and a sweeping conflict-of-interest policy that encompasses all of the company's employees. Commissioned last spring, the 21-page report recommends 50 far-reaching policies and practices that Premier said it would quickly move to implement. Although many of the recommendations are already in place or were already committed to after an inquiry by the Senate Judiciary antitrust subcommittee this summer, others would be implemented according to a plan and timetable, already approved by Premier's board, officials said in a written statement.
Premier Chairman and Chief Executive Officer Richard Norling said he fully expects to implement the recommendations without any loss of revenue. He also argued that by blazing the trail toward reform, Premier could gain a competitive advantage over other GPOs.
"A lot of (people in the industry) are making a lot of noise that (the new ethical practices) will hurt Premier economically, but we don't see it," he said. "There are a couple areas where it could have some impact, but we don't see it as substantial. Frankly, the other way of looking at it is by staking out the high ground of ethical practices in group purchasing, there should be substantial economic benefits in not-for-profit hospitals looking at it and wanting to be part of it."
Other GPOs contacted by Modern Healthcare insisted their conflict-of-interest policies already well exceed the industry standard adopted last spring by their trade group, the Health Industry Group Purchasing Association (June 10, p. 8). What works for Premier works for Premier and its unique business model, they said.
"We think all GPOs should operate under the highest ethical standards, and we certainly applaud Premier's approach," said Jody Hatcher, a spokesman for Novation, Premier's largest competitor. "But at the same time we are committed to our operating principles, which we believe go above and beyond many of the issues raised by the (antitrust) subcommittee. We think we are going to raise the bar in the industry."
Novation always has provided "more disclosure than necessary," albeit not the salaries of its top executives, Hatcher said. Novation board members are not compensated, he said.
Similarly, San Francisco-based Broadlane, a privately held company with a majority stake owned by the for-profit hospital company Tenet Healthcare Corp., markets a full range of materials management services to hospitals and puts itself in a different class from garden-variety GPOs. "We are not emulating a GPO," said Trevor Fetter, Broadlane's chairman and CEO. "We are building a professional services firm that provides services to that industry." Although administration fees are not standardized, as with any full-service company, hospital customers know upfront exactly what the fee structure is and what Broadlane is earning from its business just as customers would know when dealing with an accounting or consulting firm, Fetter said.
The study, plus appendices, was conducted by business ethicist Kirk Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara (Calif.) University. Premier's charge to Hanson was to study the industry, identify best ethical practices for GPOs and then set the ethical high bar for Premier, Norling said. Hanson said when all expenses are tallied, the cost of the study to Premier will exceed $200,000 and may run as high as $250,000.
Hanson, who said he knew next to nothing about hospital group purchasing when he undertook the study in March, said he discovered an industry rife with potential conflicts of interests.
"The ethical rationale for the existence of the industry is sound: Aggregating demand and developing ancillary services which make the supply chain more efficient and produce greater value for hospitals is a worthy social and ethical objective," Hanson said. He likened the GPO industry to other new economy industries such as accounting and investment banking, which have entangled themselves in conflicts of interest as they have expanded their offerings of services.
"I don't think GPOs, in the rapid growth since 1987, thought accurately on the conflicts that could arise as they played more and more roles in the healthcare industry," Hanson said. "Not to say that their ethical behavior has been poor, but they have incurred more risks than they should."
To that end the 50 policies and practices that Hanson has recommended demand a higher degree of transparency and accountability throughout the organization. He said for-profit Premier should be held up to at least the same standard of financial disclosure as its not-for-profit members, including public release of top executives' and board members' salaries. Premier officials replied that they likely would be prepared to release those numbers in September 2003 along with the GPO's next regular round of audited financials. Premier would not disclose the compensation of its board members or top executives to Modern Healthcare for this story.
Similarly, by agreeing to standardize its fundamental source of revenue-the administration fees paid by vendors-Premier has agreed to eliminate a contract negotiating tool that could serve its self-interests rather than its members' interests, Norling said. The reform ensures that in the future contracts will be awarded purely on product quality and price.
Hanson said the ethics policing should not stop with GPOs. "The GPOs' efforts will ultimately be frustrated if there isn't similar attention to ethical behavior among the vendors, the hospitals and other participants in the broader system," he said.
Still, others questioned how Hanson could draw such generalizations after studying only Premier.
"I'm surprised (the study) was couched as an industry report," said Curt Nonomaque, executive vice president, chief financial officer and treasurer of VHA. "Nobody from our organization was contacted about it."