Group purchasing organizations are steeling themselves for the likelihood that legislative and regulatory proposals aimed at strictly controlling the industry will be on the table when the Senate Judiciary Committee's antitrust subcommittee holds an upcoming hearing examining the business practices of the hospital supply middlemen, Modern Healthcare has learned.
It is the latest in a string of bad news confronting the industry. Much of the recent trouble is centered around the nation's largest GPO, Novation, the joint supply company of VHA and University HealthSystem Consortium. The company disclosed earlier this month that it had received an administrative subpoena from the U.S. attorney's office in Dallas requesting some documents as part of a criminal inquiry (Aug. 23, p. 4). The subpoena contained "boilerplate language that is common to healthcare subpoenas when an inquiry is in its early stages," Novation officials said in a written statement. Then last week, in light of the federal investigation, Connecticut Attorney General Richard Blumenthal confirmed that he likewise has been investigating Novation for a year.
"To our knowledge, there is no link between the various inquiries currently involving Novation," said Jody Hatcher, senior vice president of Novation. "It's not unexpected that Novation would receive a disproportionate share of attention. We are the market leader and realize that this goes with the territory."
GPO industry insiders said that private talks with Senate subcommittee staff have focused on four industry regulation options that may be combined. The subcommittee hearing-the third of its kind since April 2002-will probably be held in September, GPO insiders said (Aug. 16, pullout section). Lynn Becker, a spokeswoman for Sen. Herb Kohl (D-Wis.), who has spearheaded the Senate inquiry, said she could not confirm the date of the hearing or what witnesses might be called.
Nevertheless, several GPO executives close to the discussions with the subcommittee staff said those options include directing HHS to take a much more active role in regulating the industry and creating a special counsel in the Federal Trade Commission's Bureau of Competition to police GPOs. Other options would alternatively establish a special counsel in the antitrust division of the U.S. Justice Department or codify various aspects of the voluntary industry guidelines-particularly those focused on contracting practices. Some of the options may be combined.
Any change in the status quo would not sit well with the GPO industry, which has been voluntarily complying with the subcommittee's requests in the interest of avoiding legislative remedies. "We feel our code of conduct is a strong one, and we've taken appropriate action to regulate our own activities. We're always open to listening to concerns about group purchasing, and we think we've been proactive about that," said Hunter Kome, a spokesman for Premier, the nation's second largest GPO.
Hearing the complaints of small equipment manufacturers who have long contended that the GPO industry hampers innovation in the medical supply marketplace, the Senate panel has been examining the industry for nearly 21/2 years and spurred a handful of federal investigations.
Meanwhile, Blumenthal's investigation of Novation was prompted by complaints from "smaller manufacturers" involving antitrust and government fraud issues, he told Modern Healthcare. He said his office is "in contact with the Department of Justice," but he declined to elaborate.
Blumenthal said he is concerned about Novation's "extraordinary market dominance," noting that it "controls (purchasing for) about 60% of the hospital beds in Connecticut." He said the investigation is focused on "whether Novation has misused its market dominance to bundle products and potentially impose other requirements on its customers that would be anticompetitive." There is also "concern that the payment of fees, rebates and other benefits and discounts may not be reflected in the costs charged to Medicare," he said.
Other national GPOs, including MedAssets, Premier, Consorta and Broadlane, said they had not been subpoenaed, were unaware of any investigations and declined to comment or speculate about it. Some have suggested that the investigation may focus on Medicare cost reporting by hospitals, yet several of Novation's hospital members similarly said they had not been subpoenaed and were completely in the dark about the investigation.
Officials at the American Hospital Association declined to comment as did officials at New York-Presbyterian Healthcare System, one of Novation's largest members.
"We've not been subpoenaed and are not privy to details," said Vin Petrini, a spokesman for Yale New Haven (Conn.) Health System. The system's relationship with Novation and its parent has come under scrutiny since April when Joseph Zaccagnino, Yale-New Haven's president and chief executive officer, was named board chairman of VHA.
During the same period, the Service Employees International Union, which has had labor issues with Yale New Haven, activated a Web site called GPO Watch, which was changed shortly after to Novation Watch, said Nick Rudikoff, senior field researcher for SEIU. The name was changed because "when we started digging into it, we found the behavior of Novation gave us more cause for concern, and we're going to focus on one company because of scarce resources," Rudikoff said.