GPOs decry new legislation restricting their activities

October 25, 2004

This was not the news that group purchasing organizations (GPOs) wanted to hear. The Medical Device Competition Act of 2004, introduced in the Senate earlier this month, would mandate that Health & Human Services oversee the GPO industry as a way to prevent groups from engaging in anticompetitive or unethical practices. The bill-S. 2880-would also direct HHS to write rules forbidding such behavior, bar GPOs from receiving vendor fees without HHS certification of their compliance with the rules, and limit vendor fees to 3% of the price of goods and services sold.

This was not the news that group purchasing organizations (GPOs) wanted to hear. The Medical Device Competition Act of 2004, introduced in the Senate earlier this month, would mandate that Health & Human Services oversee the GPO industry as a way to prevent groups from engaging in anticompetitive or unethical practices. The bill-S. 2880-would also direct HHS to write rules forbidding such behavior, bar GPOs from receiving vendor fees without HHS certification of their compliance with the rules, and limit vendor fees to 3% of the price of goods and services sold.

Reaction by the industry was swift and unfavorable. Carolyn Hickey, director of communications for the Health Industry Group Purchasing Association (HIGPA), the industry's Arlington, Va.-based trade organization, asserted that such legislation would prove to be a financial burden. "Ultimately, the more regulations you have, the more costly things get. It goes down the line and will impact everyone."

Even health-system pharmacy directors who concede that the healthcare purchasing industry had credibility problems a few years ago aren't too keen on a legislative approach to reform. "I think that any time you keep legislation out of it, you're better off," said James Jorgenson, director of pharmacy at University of Utah Hospitals & Clinics in Salt Lake City. Jorgenson asserted that the industry's self-imposed code of conduct that was implemented in 2002 is adequate. "I think it would be hard for [GPOs] to get away with any indiscretions that they did in the past. There are just too many people looking on."

The hospital group purchasing industry has been on the hot seat for several years, ever since charges of anticompetitive business practices were leveled against it-among them, questionable financial ties to the medical supply industry. In an attempt to reform the industry's image and avoid government oversight, a voluntary code of conduct was put in place.

In September 2004, the Senate Judiciary Subcommittee on Antitrust, Competition Policy & Consumer Rights conducted a hearing that saw testimony from leading GPO executives, who vehemently argued their case against legislation. At the hearing's conclusion, the subcommittee said it would consider three options: (1) Do nothing and let the self-imposed code of conduct run its course; (2) pursue legislation that would involve HHS; or (3) look at nonlegislative solutions, e.g., giving the code of conduct "more teeth."

In a Sept. 21, 2004, letter to subcommittee chairman Mike DeWine, (R, Ohio), HIGPA president and CEO, Robert Betz requested the draft legislation be tabled. But on Oct. 1, the Senate announced that it had selected option No. 2, much to industry chagrin. Jody Hatcher, senior VP of Irving, Texas-based Novation, a leading GPO, said the market has incorporated the changes ever since the code of conduct was implemented. "Given that the changes have been institutionalized and become a dynamic part of the fabric of the industry, it really begs the question-Why burden the industry with additional legislation that could have unwarranted and unforeseen circumstances?"