As the war in Iraq drew to a close, the Senate Judiciary Committee's antitrust subcommittee turned the attention of Secretary of Defense Donald Rumsfeld to the incendiary issue of hospital group purchasing organizations, dumbfounding GPOs that have been revising controversial business practices for more than a year.
In a May 2 letter, subcommittee Chairman Mike DeWine (R-Ohio) and ranking Democrat Herb Kohl of Wisconsin cautioned Rumsfeld about GPO business practices as his department seeks to negotiate medical and surgical supply contracts for U.S. Defense Department medical facilities.
Based on the subcommittee's yearlong investigation, in which members examined allegations that the industry was "plagued" with anticompetitive business practices and conflicts of interest, the senators said, they learned that "the purported benefits of GPO purchasing are not always realized." GPO cost savings are in dispute, and GPOs often employ contracting tools that limit choice and flexibility for participating hospitals, they added.
GPOs expressed some dismay with the letter, considering the most prominent national groups have spent almost a year working on codes of conduct to address concerns that GPOs hamper small-device manufacturers from bringing their products to market.
"We were perplexed by it all given the efforts we've made," said Pat Poston, senior vice president of communications at Premier.
Similarly, Jody Hatcher, senior vice president for Novation, noted that in its own study of the commercial GPO business, the Defense Department determined that it could save more than $23 million per year on nonpharmacy items through access to commercial GPO pricing. The savings would be realized if the Defense Department bought at least $260 million worth of its $400 million annual purchases of medical surgical supplies through GPO contracts, according to the study.
"Clearly there are differences of opinion about what was brought forth by the subcommittee in contrast to the (Defense Department)," Hatcher said.
Nevertheless, Novation has decided not to bid on a Defense Department contract, Hatcher said.
"Our charge is fundamentally to serve those that own us," Hatcher said. "By contracting with the (Defense Department), what benefit would accrue to those members?"
A Defense Department spokeswoman declined to comment.