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HOSPITALS/PROVIDERS: GPOs under investigation

There’s a long article in the NY Times this weekend suggesting that the next target for investigation by HHS and DOJ are the GPOs (Group Purchasing Organizations). The largest of these Novation (the GPO of the VHA a group of some 1400 hpsitals and the much smaller University Hospital Consortium) has received a supoena investigating its relationship with suppliers. The NY Times mole, a former Novation exec, likened the case to the “best price” issues that Medicaid and Medicare have had with the pharma companies:

The former Novation executive said he believed that the federal investigators might see similarities in those arrangements to payments that drug companies have made to doctors who prescribed their brands – payments that have led to multibillion-dollar settlements by some pharmaceutical companies.

“Pharmaceuticals are referred to in the press because the average reader can associate with them more,” the former executive said. “Consumers don’t buy operating-room tables or X-ray machines, or that kind of stuff, but you’ve got the same sort of thing going on. And it’s huge, huge money.”

GPOs have historically had some influence moving market share between different suppliers, but any member of the buying group has always been free to go around the group if they can get a better deal outside it. So because the GPO cannot force its members into buying supplies through it, they are always looking to deliver reasons to stay within the buying fold. The article suggests that the complexity of the GPO’s arrangements both in terms of rebates for volume purchases it gets from manufacturers, and dollars and services it delivers back to its memeber hospitals has ended up with either over complex or false real pricing. Hence Medicare and Medicaid may not have got the best prices, as they are legally supposed to.

It might also be worth keeping an eye on whether the same issues have been raised in some of the bigger chains practices, notably HCA or Broadlane (the buying group owned by Kaiser and Tenet). There’s no hint of that in the report, but if HHS is looking at one GPO you can assume that most of them have been following the same pattern.

Where this investigation goes will be interesting. The complexities of rebates and pricing in these cooperatives are mind-boggling. Some of the intricacies of the relationships between the big hospitals, the GPOs, the big wholesalers (like McKesson and Cardinal) are very complex. Add into that mix that some suppliers, notably GE as reported in the NY Times a while back, are rolling in consulting across a whole hospital’s operations as part of a wider business realtionship, and it becomes very difficualy indeed to figure out what the “best price” really is.

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