GPO Reform Plan Unveiled, but Industry Unsatisfied

Medical Device & Diagnostic Industry MagazineMDDI Article Index Originally Published MDDI September 2005 NEWSTRENDS

Erik Swain

September 1, 2005

3 Min Read
GPO Reform Plan Unveiled, but Industry Unsatisfied

Medical Device & Diagnostic Industry Magazine
MDDI Article Index

Originally Published MDDI September 2005


Erik Swain

Kirk O. Hanson says the initiative signalsa much-needed step towards transparency and ethical practices.

A group purchasing organization (GPO) industry–led initiative that aims to revamp business practices and raise ethical standards has attracted support from congressional critics of GPOs. However, the device industry remains skeptical, with one trade association arguing that the reforms don't solve fundamental problems in the hospital supply marketplace.

GPOs came under fire several years ago after allegations of uncompetitive practices. These included charging excessive administrative fees and maintaining single-source contracts. The latter sometimes had the effect of denying certain products—even if they were proven to be more effective and less expensive than their competitors—access to hospitals. In theory, GPOs pool hospital purchasing operations to lower costs.

The Healthcare Group Purchasing Industry Initiative has six core principles. Each participant must:

• Create and adhere to a written code of business conduct.
• Train all employees about their responsibilities under the code.
• Make both high quality of care and cost-effectiveness goals.
• Work toward an open and competitive purchasing process that is free of conflicts of interest.
• Share best practices with each other at least once a year.
• Be accountable to the public.

Each member must submit a public accountability questionnaire annually. These are to be posted on the initiative's Web site,

“This GPO initiative is the most extensive voluntary disclosure of ethical and business practices undertaken by any industry in the country,” says Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics and professor at Santa Clara University, who serves as the interim coordinator for the initiative. “The steps taken by these GPOs represent a new standard in ethical business practices and challenge others in the healthcare supply chain to operate with similar transparency.”

Nine GPOs, representing about 80% of the nation's GPO purchasing power, are part of the initiative, which has drawn bipartisan praise.

Mark Leahey believes Congress should act to reform the GPO industry.

“With healthcare costs soaring through the roof, GPOs perform an extremely valuable service for our hospitals and consumers,” says Senator Chuck Schumer (D–NY). “I hope that with the steps the industry has taken, the Senate will not have to intervene.”

The initiative's transparency and accountability will “provide important support for technological innovation in American healthcare, which ultimately benefits patients,” says Senator Jon Kyl (R–AZ). Both Schumer and Kyl serve on the Senate's finance and judiciary committees. The Medical Device Manufacturers Association (MDMA), which has strongly criticized GPO practices, says the initiative doesn't go far enough, however. In particular, says Mark Leahey, MDMA's executive director, it doesn't establish uniform contracting practices, have independent oversight, or contain meaningful penalties for noncompliance. He also says it doesn't address the issue of excess administrative fees.

“MDMA is eager to see the GPO industry clean up its own act. But this initiative fails to address the anticompetitive and other questionable practices by certain GPOs that have long prevented cost-effective medical technologies from reaching
the market,” Leahey says. “These artificial barriers to innovation prevent health professionals from obtaining the most innovative technologies with which to care for their patients. Congress must act to reform the industry in a meaningful way.”

Copyright ©2005 Medical Device & Diagnostic Industry

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