Saying it's perhaps time for a Senate panel to turn its attention away from the embattled group purchasing industry, hospital alliance Premier indicated last week that it plans to halt a controversial business practice that is largely dictated by powerful manufacturers.
Called bundling, the practice involves the joint marketing of disparate products and is common within the group purchasing industry, according to a report by the General Accounting Office on seven national GPOs. The report was released concurrently with a hearing held last week by the Senate Judiciary Committee's antitrust subcommittee. The Senate panel has been investigating for more than a year whether GPOs undermine the market introduction of innovative technologies made by fledgling manufacturers. The panel's scrutiny has spurred several federal investigations. Last week's hearing was described as a progress report.
"If there were no GPOs at all, the bundling issue would not go away," Premier Chairman and Chief Executive Officer Richard Norling told Modern Healthcare after the hearing. "It's a practice of large manufacturers that are taking advantage of their broad product array."
Small device manufacturers contend bundling is one of several GPO business practices that block their products from reaching patients. By offering volume discounts to hospitals for purchasing bundled products from large, established manufacturers, GPOs hamper niche products from entering the marketplace, the small manufacturers charge.
Premier said at the hearing it fully plans to give up the practice, but it couldn't do so without the cooperation of large manufacturers. Novation, the nation's other leading GPO, said it wouldn't terminate its bundling program before 2004.
A common practice in all industries, on the consumer side bundling is a variation of buy-several-of-anything, get-one-free deals. The GAO reported that all but one of the GPOs in the study used some form of bundling.
The two largest GPOs-Novation and Premier-and a third unidentified GPO give hospitals discounts if they purchase unrelated products from one manufacturer, according to the GAO. One of the two largest GPOs reported that as of Jan. 1, such corporate agreements accounted for 40% of its purchasing volume for medical-surgical products, the GAO said. Still, the use of bundling arrangements may be on the decline, the GAO said.
Noting both leading GPOs still engage in the practice, ranking minority member Herb Kohl (D-Wis.) wondered why Novation would not commit itself to terminating its bundling program before 2004. Under persistent grilling by Kohl, Novation President Mark McKenna held firm. The voluntary program "was built at the request of our members" and their interests would be best served by waiting, he said.
Norling said requests for proposals will be going out later this month for bids on at least eight separate product categories involving sutures and minimally invasive surgery equipment that until now have been bundled into one contract.
Although Norling never mentioned a manufacturer by name, medical device giant Johnson & Johnson has acknowledged that it is under investigation for bundling the very same products. In May, J&J officials disclosed that the Federal Trade Commission and the attorneys general of New York and Connecticut had requested documents related to the "bundled" marketing of sutures and endoscopic instruments manufactured by two of its subsidiaries.
Officials at J&J said the investigations are ongoing and they are complying with all requests for information.
"We look at our GPOs and hospitals as partners. We believe we share a common goal of high-quality patient care and cost-effective prices," said Susan Odenthal, a J&J spokeswoman. "We're willing to work with those partners to develop contract strategies that meet those goals and comply with all relevant guidance."
The hearing, which featured testimony from the nation's two largest GPOs, device manufacturers and a venture capitalist, reflected the vastly different perspectives of the players. Some said there has been much progress in reforming business practices; others said there has been little to none.
"The biggest thing I take away is that people in different parts of the industry see a different world," said Sen. Mike DeWine (R-Ohio), the subcommittee's chair. The "stark" differences suggested the subcommittee had more work to do, DeWine said. The subcommittee's oversight will continue, he said.
After the hearing Kohl, who spearheaded last year's investigation, wrote a letter to HHS Secretary Tommy Thompson asking him to appoint an officer to supervise hospital group purchasing. Kohl also said HHS should re-examine and make "stricter" Medicare safe-harbor regulations that allow GPOs to collect administrative fees from suppliers-the bread and butter of GPO revenue. But Kohl did not have the backing of the subcommittee's chairman.
"It's a Kohl letter. It's not ours," said Amanda Flaig, a spokeswoman for DeWine.