Whether a new audit of the group purchasing industry by HHS' Office of the Inspector General reflects well or poorly on the industry depends on who is describing it. For GPOs, lobbying to block proposed legislation that would beef up federal oversight of their industry, the report released last week was a validation that nothing untoward is happening.
"I think it casts a fairly positive light on what has been by many respects misrepresented by many of the critics of the industry," said Jody Hatcher, senior vice president of Novation. Novation, the joint GPO of VHA and University HealthSystem Consortium, is under a separate U.S. Justice Department criminal investigation and is cooperating with investigators. Hatcher said they have "no clarity about the nature of the investigation."
Device manufacturers, on the other hand, found the report "very troubling" in light of "longstanding congressional concerns of excessive vendor fees," said Mark Leahey, executive director of the Medical Device Manufacturers Association. "The concerns we've raised about excessive fees are true. This report spells it out clearly," he said.
The report aimed to determine how much revenue three large but unspecified GPOs received from vendors, their revenue distribution and how hospital and provider members treated their distributions of net administrative fee revenue. The audit also examined whether providers properly accounted for rebates from vendors on their Medicare cost reports.
Between 1998 and 2002, the three GPOs collected administrative fee revenue of $1.8 billion, distributing $898 million to provider members, according to the audit. Hospital members failed to account for about 22% of their cash distributions of the fee revenue on Medicare cost reports, based on a review of 21 providers receiving the largest distributions-collectively representing 28% or $255 million of the $898 million in distributions. Seven out of 21 providers failed to report rebates of about $3 million of a total of $285 million, the inspector general said.
The audit proposed that CMS provide specific guidance to hospitals on the proper cost report treatment of net revenue distributions received from GPOs and also provide a bulletin to remind hospitals to show all vendor rebates as credits on their Medicare cost reports.