Congress May Intervene If GPO Conduct Codes Lack Teeth

Medical Device & Diagnostic Industry Magazine
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Originally Published MDDI July 2005

NEWSTRENDS

Erik Swain

Group purchasing organizations (GPOs) are working to implement a code of conduct that would end practices that have come under fire for being anticompetitive. But questions remain as to whether penalties are sufficiently severe and whether enforcement would continue after an issue had faded from the spotlight. Those concerns will likely determine whether Congress intervenes, attendees at the annual Medical Device Manufacturers Association (MDMA) conference learned in May.

The Department of Justice is continuing to pursue fraud and other allegations against GPOs and the device companies with whom they may have had improper relationships. But, said Associate U.S. Attorney James G. Sheehan, such cases take a very long time to investigate, so no one should expect to see charges filed any time soon.

In the early part of this decade, some GPOs came under fire from Congress, the media, and MDMA for arrangements that excluded certain products from those GPOs' member hospitals. In some cases, the excluded product was better and cheaper than its competition. The issue, critics said, was that in each case a contract offered exclusivity for a long period of time, forced hospitals to take all of a preferred manufacturer's products even if only a few were desirable, and involved payment of administrative fees from the preferred manufacturers to the GPOs. However, such fees are legal if they don't exceed 3% of the price of the goods in the contract.

The Senate Judiciary Antitrust Subcommittee has held three hearings on GPO practices. In 2004, two members of the subcommittee introduced a bill to allow the government to monitor GPO practices and enforce penalties for unethical ones. However, the bill could not be acted on before that year's session expired. Seth Bloom, counsel to the subcommittee, said the bill could be revived if its sponsors are not satisfied with GPO's self-reform efforts. The Health Industry Group Purchasing Association (HIGPA) has written a code of conduct, as have many individual GPOs.

“These have made some difference, but more work needs to be done,” Bloom said. “There is no assurance that the reforms won't go away. We want to ensure that they will stick around. We are studying HIGPA's proposal, and we believe they made it in good faith. The principles are commendable, but they must have real meaning and real teeth.”

Todd Ebert, president of the GPO Amerinet Inc. (Warrendale, PA), said HIGPA's code was devised by the CEOs of all nine member organizations. It will be managed by an independent coordinator. Any complaints will be posted on a public Web site, minus parts that contain trade secrets. “This is an extremely transparent process, and I believe it does contain teeth,” said Ebert, whose firm has not been accused of unethical practices.

Sheehan said the challenges in bringing a criminal case over GPO dealings include having to prove there was “knowing and willful” violation of antikickback laws, difficulty in convincing a jury that harm has been done, and the lack of people likely to come forward to make allegations. “Kickbacks make it cozy for everyone involved,” he said. “You're looking at a case taking 6–10 years if there is no guilty plea. Our system is not fast. Just because you are not seeing visible cases doesn't mean there is not an interest in this area.”

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