Medical Device Link.

Originally Published MDDI May 2002

NEWS & ANALYSIS

Robert Drummond

Largest GPOs by annual purchasing volume, 2000. (click to enlarge)

Following months of increasing debate about group purchasing organization (GPO) practices, a Senate panel heard testimony April 30 from several parties on both sides of the issue, including chief executives of Premier and Novation—the nation's two largest GPOs. The hearing, which was held by the antitrust subcommittee of the Senate Judiciary Committee, featured a report presented by the General Accounting Office (GAO) that examined GPO practices and policies.

Among other items, the GAO report found that GPOs did not necessarily guarantee savings for the hospitals that used them. In some cases, the report found, hospitals using GPOs actually paid higher prices than did hospitals working directly with vendors.

According to press reports, lawmakers at the hearing criticized the GPOs for a number of offenses, from cultivating conflicts of interest to receiving stock options from contracted suppliers. In defense of the GPOs, Richard A. Norling, chief executive of Premier, and Mark McKenna, president of Novation, stated that they saved money for hospitals and were committed to operating openly.

Thomas Shaw, president and CEO of the safety syringe and blood collection device manufacturer Retractable Technologies Inc. (Little Elm, TX), disagrees. In written testimony, Shaw charged the GPOs with having operated "in collusion" with the nation's largest needle manufacturers. The GPOs, Shaw said, "have used anticompetitive, unfair, and... illegal trade practices to block [Retractable Technologies] from introducing safe-needle technology into America's healthcare facilities."

Bess Weatherman, a managing director of the venture capital firm Warburg Pincus and vice chair of the National Venture Capital Association's medical group, also testified. "Good old American free trade is the best way to get the products to the market, to allow innovation to thrive, and to allow the consumers to get the best price," she told MD&DI. "We don't believe the GPOs' current way of operating is conducive to that."

Premier and Novation denied the charge that they stifle technology and block out smaller firms. They offered their own study, which was conducted by the Lewin Group (Triangle Park, NC) to document the GPOs' "breakthrough technology" program. The study was commissioned by the Health Industry Group Purchasing Association (HIGPA), a trade association that represents 30 GPOs and over 140 of their trading partners. The study's findings claim that GPOs conduct "extensive and rigorous clinical reviews when deciding which . . . technologies will be listed in purchasing contracts."

Larry Holden, president of the Medical Device Manufacturers Association (MDMA), dismisses the study as groundless. "All the study says is that the GPOs gave the Lewin Group some data, and then an analysis was done from that data," he says. "It was not audited, there was no way to show that what the GPOs gave [the Lewin Group] was true and accurate information."

But Holden says he was pleased with the outcome of the hearing, and encouraged that the executives from Premier and Novation are "willing to sit down with us and help find solutions, real solutions to these problems."

After hearing testimony on all sides, the Senate mandated that a 90-day discussion period be enacted to establish a new GPO "code of conduct."

"We're encouraged that they said they will work with us," Holden says, "but we're going to hold them to it. We're going to want to see data, and to have an open airing of what their current practices are, and what we think their practices should be, moving forward."

Copyright ©2002 Medical Device & Diagnostic Industry