GPOs pool healthcare providers' buying power to drive down supply costs. Premier says it delivers about $5 billion in savings to its more than 2,800 hospital and 98,000 non-acute care provider members.
In its 2013 annual report to the Securities and Exchange Commission, MedAssets reported conducting $28 billion in purchasing on behalf of its more than 3,000 hospital clients in 2012. Virtually all of the more than 5,000 hospitals in the U.S. belong to a GPO, some to more than one.
Despite that high rate of adoption, changes in the wider payment and delivery system for healthcare are exerting pressures on the GPOs, causing them to diversify their business models and intensify the competition to sign up provider clients.
Last year, MedAssets claimed it had received reports that Premier was considering going public and was telling potential members, including some MedAssets customers, that “joining Premier could provide financial benefits to the hospitals in the form of shares of that stock,” according to a July 3 letter from MedAssets Chief Legal Officer Jonathan Glenn to his counterpart at Premier, Jeffrey Lemkin. Lemkin responded that “Premier continues to monitor such interactions to assure that ethical and legal compliance is maintained.”
MedAssets then hired former federal healthcare prosecutor and Boston attorney Michael Loucks to evaluate a business plan similar to the one allegedly being used by Premier. Loucks concluded that the alleged arrangement might violate the anti-kickback statute, which prohibits anyone from paying a hospital to use certain products on Medicare patients.
In strong language, Premier rejected the legal analysis and disputed how Loucks was characterizing the proposed business arrangement. In an Oct. 5 letter to Glenn and Loucks, Lemkin noted that “you may not be fully aware of Premier's existing and long-standing business model which includes member ownership as a stockholder in Premier … This business model has been described, disclosed and reviewed on more than one occasion to and with the OIG, CMS, HHS, GAO, as well as United States Senators and Congressmen and their staffs,” he wrote.
About 200 hospitals and health systems are owners of Premier. For instance, the University of Texas MD Anderson Cancer Center owned a 1.15% stake, roughly $4.1 million, in Premier as of Dec. 31, 2012, according to financial documents. Not all of the company's owners disclose their investments in Premier.
When MedAssets CEO Bardis directly accused Premier of soliciting hospitals to join Premier “in order to benefit from the IPO,” Premier's outside counsel fired back that “MedAssets knowingly disregarded the facts concerning Premier's business model and proposed transactions.”
In the wake of the exchange, MedAssets decided it had a responsibility to its stockholders to investigate similar action. “A decision was made to figure out what MedAssets could do,” Loucks said in an interview.
After putting together a business plan, MedAssets submitted it to HHS' inspector general's office for an opinion. MedAssets described its proposal as one where members would sign five- to seven-year agreements in which they would agree not to decrease volume of purchases and accept stock instead of other types of remuneration.