Originally Published MDDI October 2004

NEWSTRENDS

New Legislation Could Alter GPO Payments

Perhaps [the Senate] will look at other aspects of the antikickback law as well. —Mark Leahey

Erik Swain

The Department of Justice is investigating whether hospital purchasing practices are fraudulently overcharging Medicare, Medicaid, and state health programs for medical devices. The healthcare purchasing landscape could also be altered by proposed legislation in the Senate that would tighten limits on what payments device companies could make to hospital purchasing organizations.

The August 21, 2004, editions of The New York Times and The Hartford Courant reported that more than a dozen device
companies received federal subpoenas. The companies were to answer questions for an investigation into how products are sold to institutions serving Medicare and Medicaid patients.

The Times reported that the investigation appears to be centering on the business practices of Novation (Irving, TX), one of the country's largest group purchasing organizations (GPOs). In particular, the Department of Justice (DoJ) appears to be interested in whether the rebate and fee systems used by GPOs cause Medicare and Medi-caid to be charged for more than what the hospitals are actually spending. The Times said the DoJ and the HHS Office of Inspector General are seeking to learn “the nature of payments suppliers make to Novation, how Novation picks which companies will be awarded contracts, and what Novation does with the payments it receives” from device companies.

GPOs are exempt from certain antitrust laws covering gifts and payments to institutions that receive Medicare money. They can accept payments from device companies to be included in their contracts. But those payments cannot be more than 3% of what each firm sells through those contracts.

The questions that remain are whether those payment levels have been exceeded and whether different types of payments not covered under the “safe harbor” of the law have been permitted.

Those laws may be altered soon, however. Following a Sept. 14 hearing, the antitrust subcommittee of the Senate Judiciary Committee circulated a draft bill that would require HHS to issue regulations outlining which hospital purchasing practices violate antitrust laws. It would also ban collecting fees from device companies to cover marketing costs and to cover the costs of converting from one brand of device to another.

GPO business practices have come under fire in recent years from smaller device companies. These smaller companies claim they have been shut out of GPO contracts despite having less-expensive and more-effective products than competitors who have contracts.

At the Sept. 14 hearing, senators from both parties said that they believe some questionable practices have stopped but others remain, and that continued oversight is needed to ensure abuses don't return.

Mark Leahey is executive director of the Medical Device Manufacturers Association, which has been a staunch advocate for GPO reform. Leahey says he hopes the investigation “will shed light on the anticompetitive practices that we have raised in the past. When they look at the areas of Medicare and Medicaid fraud, perhaps they will look at other aspects of the antikickback law as well.”

Novation told the Times it would cooperate fully with the investigation.

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