Some financial information that hospital alliance Premier vowed to publicly disseminate as a result of an ethicist's six-month study last year was quietly posted on the GPO's Web site in May, and it shows Premier earned a whopping 42% profit margin in the fiscal year ended June 30, 2002.
Private, for-profit Premier pulled in $379 million in revenue that year and earned net income of $159 million, according to its Web site. That was a jump of 62% from $98 million in net income in 2001 on revenue of $367 million-a 27% profit margin. Owned by more than 200 hospitals and healthcare systems, Premier generates the lion's share of its revenue from its group purchasing division.
For the first time, Premier's Web site offers a financial summary of eight line items-four "selected income statement highlights" and four "selected balance sheet highlights." Among the balance sheet highlights, Premier reported that the alliance distributed $137 million in cash to its 199 owners in 2002, compared with $115 million in cash distributions the previous year.
Premier spokesman Ted Pickens said he could not offer a ready explanation for the 62% jump in net income from 2001 to 2002. But because net income includes some non-cash items, which he could not specify, Pickens said the cash distributions to Premier owners-a 19% increase from 2001 to 2002-would not necessarily reflect the larger increase in net income.
The hospital alliance posted the financial numbers in response to a self-commissioned study on best ethical practices for the GPO industry conducted last year in the wake of public scrutiny of the industry's business practices. Last October, Premier's board readily committed to adopting the study's recommendations (Oct. 28, 2002, p. 8). Apparent conflicts of interest and allegedly anticompetitive business practices at Premier initially had attracted the scrutiny of the Senate Judiciary Committee's antitrust subcommittee and spawned several federal investigations in the spring of 2002 (July 21, p. 14).
Among his 50 recommendations, business ethicist Kirk Hanson said Premier should be held up to at least the same standard of public financial disclosure as its not-for-profit members, including the release of top executives' and board members' salaries. Premier officials said at the time they would likely make public the financial and salary information, along with the GPO's next regular round of audited financials, in September 2003. GPOs, which are all privately held, historically have been selective in what financial information they share with the public. Premier's direct competitor, VHA, annually releases information regarding the dividends paid to members and posts that and other financial information on its Web site.
Pickens said Premier posted the financial summary because "people were asking for it and we made an agreement." Still, the alliance did not issue a news release that some of the promised information was available, he said.
"We're going through a learning period here," Pickens said. "The whole idea is to be open and transparent."
Pickens said the financials for fiscal 2003 will be released in September after the board receives the information. He said he could not say if the information would be more comprehensive than the eight line items now posted on the Web site. He also said he could not say definitively how-or if-Premier would disclose the salaries of top executives and board members.
"The information is being worked through the compensation committee under the board of directors, and we're preparing materials for release," Pickens said.