New GPO bill could permanently alter purchasing

Materials Management in Health Care

In its complicated two-year dance with the group purchasing industry, a Senate subcommittee flirted with the GPO industry's proposition that self-regulation could control its controversial buying practices, but in the end it came down on the side of federal regulation.

The Medical Device Competition Act, introduced Oct. 1 by the subcommittee's leaders, Sens. Mike DeWine, R-Ohio, and Herb Kohl, D-Wis., would bar GPOs from aggressive contracting tactics that thwart competition among vendors.

The bill now faces another intricate two-year tango through Congress and the federal rule-making process. Aides to the sponsors say it is not expected to be voted on until next year, when a new Congress comes into session.

If the bill passes, industry leaders fear that it could sideline GPOs like so many wallflowers -- a prospect that might actually be a mixed blessing for hospital purchasing.

On the one hand, Arlington, Va.-based Health Industry Group Purchasing Association, which represents GPOs, predicts that weakened purchasing power under the bill would cause hospitals to lose $2.2 billion a year in savings from group purchasing, out of a total savings of $30 billion.

On the other hand, the bill seeks to widen hospitals' choice of discounted products, which has been severely squeezed in the negotiating process.

GPOs have been criticized for such tactics as sole-source contracting, which leaves just one vendor in a category, and bundling, which forces a hospital to buy a group of products from the same vendor in order to get the one product it wants.

The legislation directs the Department of Health and Human Services to make rules in the next two years “specifying contracting, business and ethical practices” of GPOs and other purchasing agents and then to make sure GPOs meet those rules through a certification process.

The bill specifically bars GPOs from levying administrative fees from vendors that exceed 3% of the price of the contracted product or service. Sponsors believe high fees exclude small, innovative vendors from being selected.

But the bill does not address sole-source contracting, bundling or other controversial practices, leaving it up to HHS to decide in the rule-making process if they also should be outlawed.

HIGPA warns that the legislation will result in "higher costs at the expense of patient care." It has vowed to defeat the bill, and it may yet succeed.

The industry will make its case with Senate leaders such as Majority Leader Bill Frist, R-Tenn., who has strong ties with the hospital industry. It already has an ally in Sen. Saxby Chambliss , R-Ga., a member of the antitrust subcommittee, who said in September that new regulations “would likely just add more administrative and financial burdens to already struggling hospitals and detract from competition rather than add to it.”

But the bill also has a lot going for it. In a sharply divided Congress, DeWine and Kohl's bipartisan collaboration means a lot. DeWine is chairman and Kohl the ranking minority member of the antitrust subcommittee, which has explored the GPO issue in three separate hearings in the past two years, the most recent of which took place on Sept. 14.

While the industry argues that the bill would lower discounts, proponents of the bill argue that it would actually save money by promoting more competition among vendors.

“Given the increasing costs of health care in the United States,” the text of the bill states, “there is a compelling public interest in ensuring that there is full and free competition in the medical device and hospital supply industries so that the best and safest products are available to physicians and patients at a competitive price.”

Meanwhile, GPOs have already undone many of their aggressive tactics through voluntary reforms in the past two years, meant to demonstrate that a law was unnecessary. Some GPOs have pledged to the 3% limit on administrative fees or abolished sole-source contracting or bundling. But many GPOs have held to at least some of these controversial practices, warning that they cannot possible keep prices down without them.

The industry is also feeling the heat from the courts. The largest GPO, Irving, Texas-based Novation, has been subpoenaed by the U.S. Department of Justice. So far, there is no evidence that Novation is the actual target of the investigation, and the true target remains a mystery.

John E. SiedIinski , president and CEO, Materials Management Consultants, Inc., Naperville , Ill. , maintains that s ome hospitals might actually be relieved if the huge purchasing organizations just faded away.

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