The group purchasing industry is perhaps a month away from completing the details of a voluntary ethics initiative aimed at averting legislation that would strictly regulate its business practices.
But it remains to be seen if the industry alternative, which calls for greater transparency on an industrywide basis but demurs from disclosing GPO-specific details, will pass muster with the Senate Judiciary Committee's antitrust subcommittee, which has demanded a self-regulatory proposal with "teeth."
"Our belief is that more disclosure on an industry basis is better than less disclosure on a company basis," said Kirk Hanson, university professor and executive director of the Markkula Center for Applied Ethics at Santa Clara (Calif.) University. Hanson, who had a contract with hospital alliance Premier in 2002 to evaluate its business ethics, is acting as interim coordinator of the initiative.
Four GPOs-Consorta, GNYHA Ventures, Healthtrust Purchasing Group and Premier-launched the initiative six months ago shortly after the antitrust subcommittee said it would introduce legislation unless the industry came up with a viable alternative (Sept. 20, 2004, p. 8). Subcommittee Chairman and ranking member Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.) subsequently introduced legislation that among other things would give HHS greater oversight over the GPO industry and also limit GPO vendor fees to 3% of the price of goods and services sold (Oct. 4, 2004, p. 4). When the bill died with the last Congress, the senators informally gave the industry 90 days to develop a self-regulatory proposal before they considered re-introducing it.
Five other GPOs have signed onto the effort in recent weeks, bringing nine of the country's largest GPOs on board. In addition, the Health Industry Group Purchasing Association voted overwhelmingly earlier this month to support the so-called Healthcare Group Purchasing Industry Initiative and is encouraging all of its industry members to join, according to Robert Betz, HIGPA's president and chief executive officer, in a letter to the senators. The five newest members are Amerinet, Broadlane, Child Health Corp. of America, MedAssets and Novation.
The document is still a work in process. Among key elements as outlined by Hanson, the initiative establishes an annual reporting process for the participants as an industry, although public information regarding individual GPOs will not be disclosed, he said. The participating organizations also will hold an annual forum to discuss industry practices with regulators and government officials. As outlined, the initiative calls for a permanent coordinator. Hanson said it would likely be a part-time position based in Washington. He said he is not interested in the job.
The "teeth" built into the initiative include the shame of being kicked out of the group if noncompliant business practices persist, Hanson said. The initiative would foster an "open discussion of the policies of companies" that goes "considerably deeper" than the codes of conduct that individual GPOs have adopted in recent years, he said. In terms of financial disclosure, "My hope would be that there will be increased transparency regarding the flow of funds from suppliers to GPOs and ... to (hospital) members. All of these things are under discussion," Hanson said.
Small medical-device companies, whose complaints about GPO business practices spurred the antitrust subcommittee's investigation nearly three years ago, are skeptical. Mark Leahey, executive director of the Medical Device Manufacturers Association, said even without seeing the details, he believes the initiative "lacks any real independent oversight mechanism." He also said there seems to be no real penalty for noncompliance. "Anything short of the potential to have the safe harbor revoked would not result in any meaningful reforms from GPOs," Leahey said.
Veronica Lewis, vice president, general counsel and compliance officer for Novation, said the initiative will "greatly improve transparency," which in turn will drive compliance. "We think the difference will be in the competitive marketplace," Lewis said. "It would be difficult to be a viable competitor without committing to sign on. We think it will be a differentiation factor."
The Healthcare Group Purchasing Industry Initiative is modeled in part after the Defense Industry Initiative on Business Ethics and Conduct, which was created by the defense industry in 1986 in the wake of criticism of its procurement practices, Hanson said. Hanson said he was personally involved in its creation, while Alan Yuspeh, senior vice president of ethics, compliance and corporate responsibility for HCA, was formerly a coordinator for the defense initiative.
In a joint statement DeWine and Kohl said they would study the proposal carefully in the coming days to see if "it addresses our objectives of obtaining a transparent and enforceable mechanism to assure the permanency of GPO reforms to prevent anticompetitive and unethical practices."
Hanson said a formal announcement of the effort would likely be ready in about a month.