Transparency has become an increasingly popular buzzword in the healthcare industry this past year. Both the government and the private sector have launched a number of initiatives to try to move toward a more transparent healthcare system. Unfortunately, transparency of healthcare companies' business practices is still at an early stage of development. Each link in the healthcare supply chain must continue to improve upon the transparency of healthcare compliance and business practices, or face additional regulation.
For example, California recently enacted the California Marketing Compliance Law. It is intended to lower prescription drug costs and ease public concerns about conflicts of interest between physicians and pharmaceutical company sales representatives.1 One requirement of this law is for pharmaceutical companies (and some device manufacturers) to annually disclose in writing that they are in compliance with their own comprehensive compliance program and this law. If the healthcare supply chain does not react, either the government or healthcare consumers will take their own action to bring more transparency to the marketplace.
Most recently, healthcare purchasers such as the University of Pennsylvania, Yale University, and the University of California at San Francisco implemented new policies to prohibit all gifts from healthcare manufacturers to ensure no conflict of interest exists with their employees.2
The group purchasing organization (GPO) industry has actively developed an oversight organization that is helping shine light on the compliance and business practices of all players in this healthcare sector. The Healthcare Group Purchasing Industry Initiative (HGPII) was created around the idea that each GPO is responsible for promoting an ethical culture of compliance, characterized by transparency of its business operations. HGPII's transparent self-governing model is one that other healthcare sectors could consider following to ensure that the government and public have confidence in their business practices.
The Background of HGPII
In 2002, the New York Times published a series of investigative reports criticizing some GPOs' business practices. The articles' criticisms regarded whether some GPOs were inappropriately being influenced by financial ties to suppliers. They also addressed whether GPOs' contracting practices with medical manufacturers were anticompetitive in nature and reduced innovation in healthcare. Following the publication of these articles, the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy, and Consumer Rights held a series of hearings to address the criticisms of the GPO industry's business practices.
In response to this subcommittee's concerns, the industry's trade association, the Health Industry Group Purchasing Association (HIGPA), created an industry code of conduct in 2002. HIGPA was the first healthcare supply-chain trade association to require companies to comply with a certification process to belong to its trade association. Members were required to certify that their individual codes of conduct complied with its code of conduct each year. Despite this self-certification process, the Senate subcommittee was not satisfied that individual GPOs' codes of conduct alone would be an effective mechanism to monitor GPO business practices. After another subcommittee hearing in 2004, the chief executive officers of the nine largest GPOs collaborated to develop HGPII in May 2005.
HGPII's Primary Member Requirements
HGPII requires each member to pledge to follow six core ethical principles. They must report annually on adherence to these principles through a detailed Annual Public Accountability Questionnaire. In addition, they must participate with other GPO representatives and interested parties in a Best Practices Forum on ethics and business practices. Finally, they must share the cost of the administration of the initiative. HGPII's certified disclosure process to the public is a key aspect of the initiative that sets it apart from other industry ethics initiatives or voluntary industry codes of conduct. The amount of information GPOs voluntarily provide to the public each year about their compliance programs is unprecedented.
HGPII members are required to fill out the questionnaire, which is lengthy, and to provide related materials to support each question, including Web URLs. HGPII members' annual disclosures address topics such as bundling of medical products, and policies and procedures to mitigate any conflict of interest that exists with suppliers. The coordinator of HGPII scrutinizes each GPO's response and backup materials. This ensures that each GPO statement is fair, complete, and accurate before any response is posted. HGPII hired a compliance expert with the law firm Crowell & Moring LLP to serve as the HGPII coordinator. HGPII GPOs' responses can be found on the HGPII Web site at www.healthcaregpoii.com.
GPOs discuss best practices with regard to compliance, regulatory, and business practices with the participation of government officials and other supply-chain participants at HGPII's annual Best Practices Forum. By receiving input from the government and supply-chain participants, HGPII seeks to continue to improve its initiative. The forum also allows all links in the healthcare supply chain to share best practices on mutual compliance issues.
Key Benefits of the Transparency Model
The effort of healthcare companies to be transparent in the description of their compliance and business practices to the public has a number of benefits. HGPII was formed as a transparent self-governing organization. Therefore, its members have made a strong public statement that each embraces and practices the highest ethical standards and can be trusted as business partners. For example, HGPII's transparent process allows hospitals to better understand how manufacturers bid and compete for GPO contracts free of any conflict of interest. And although HGPII membership is voluntary, it is becoming a business necessity. HGPII has been endorsed by all the major hospital associations and a group of senators.3 Many hospitals are now requiring GPOs to belong to HGPII before competing for their group purchasing business. In 2006, HGPII's Web site was visited more than 250,000 times.
HGPII's model can serve as an important source of information to medical manufacturers. Manufacturers want to conduct business with companies that are perceived as ethical organizations. Among other things, HGPII provides manufacturers with information about GPOs' contract bidding processes. HGPII's Web site is an additional source of information where device manufacturers can learn more about individual GPO compliance programs. This is important because it is common for GPOs to require manufacturers to fully comply with their compliance programs' policies to compete for a contract award.
HGPII's approach to transparency and voluntary compliance could become a model for the entire healthcare industry in the future owing to both the federal and state governments' enforcement efforts. In 2006, the U.S. government had another record year in healthcare fraud settlement recoveries. It collected more than $3 billion in healthcare fraud settlements and judgments.4 The Department of Justice and the Office of Inspector General for HHS could view sincere participation in a self-governance ethics organization as a mitigating factor when deciding whether to prosecute or exclude a company from federal healthcare programs. HGPII's model should help ensure that industry's view of compliance with the law is aligned with the government's interpretation. It is not uncommon for the government and industry to arrive at different interpretations of healthcare regulations. A transparent self-governance model that encourages interaction with the government should clarify the law and help healthcare companies ensure that they are compliant with it.
In addition, participation in a transparent self-governance model should help decrease the number of frivolous whistleblower lawsuits filed against participants. The government receives a significant amount of its healthcare fraud and abuse cases from whistleblowers under the Federal False Claims Act. Whistleblowers can be employees, but also can be consumers and competitors. If a company discloses more information about its compliance program and business practices to the public, it is likely to decrease its chances of a whistleblower lawsuit. Defending a frivolous whistleblower lawsuit can easily cost seven figures. A more transparent process has the potential to save both companies and the government millions of dollars in investigating unnecessary claims.
A transparent self-governance model can also help healthcare companies ensure that their compliance program meets the requirements of the U.S. Sentencing Commission Guidelines for the Sentencing of Organizations. Federal judges use these guidelines to determine the penalty for a company when a violation occurs. One of the key principles of the guidelines is that each organization must promote a culture that encourages ethical conduct and commitment to comply with the law. A company's penalty can be reduced by as much as 95% if it is deemed to have an effective compliance program in place.5
Finally, investing in a transparent self-governing organization that promotes compliance can even directly affect the value of a company's supply chain. Some recent studies suggest a significant return on investment when a company invests in promoting ethical business practices. For example, a McKinsey study found more than 80% of institutional investors said they would pay 18% more for a company with good governance.6,7
Although cash is king in the finance arena, transparency may soon become king in the compliance arena. A more transparent system should provide more accountability and efficiency in the marketplace and ultimately lead to cost savings and better health outcomes for the consumer. A higher level of compliance with the law also can further ensure fair competition in the marketplace, which leads to higher-quality healthcare services and products.
In the future, consumers will demand that transparency become the standard in the healthcare compliance arena. HGPII's self-governance model goes a long way toward forming a true partnership with the government, increasing consumer trust in the U.S. healthcare system, and serving as an example for other healthcare sectors to follow.
The views expressed in this article are the author's own and should not necessarily be construed to be the position of Broadlane or HGPII.
Greg Radinsky is assistant general council of Broadlane and serves as the vice chair of the Healthcare Group Purchasing Industry Initiative's working group. Contact him at [email protected].
1. California SB 1765, “Senate Health and Human Services Committee Analysis” [online] (April 12, 2004 [cited 9 February 2007]); available from Internet: http://info.sen.ca.gov/pub/03-04/bill/sen/sb_ 1751-1800/sb_1765_cfa_20040412_ 144131_sen_comm.html.
2. Karen Springen, “Pharma Gifts to Docs Come under Scrutiny: Saying No to Big Pharma,” Newsweek [online] October 5, 2006 [cited 9 February 2007]; available from Internet: www.msnbc.msn.com/id/15143275/site/newsweek.
3. HGPII, “Key Senators and Largest Hospital Groups Express Support for New Initiative Promoting Greater GPO Transparency” [online] July 12, 2005 [cited 9 February 2007]; available from Internet: www.healthcaregpoii.com/hgpii-initiative-release-71205.pdf.
4. Taxpayers Against Fraud Education Fund, “Record Fraud Recoveries under the False Claims Act: 20-Year Old Law One of Nation's Most Effective,” False Claims Act Update & Alert [online] October 4, 2006 [cited 9 February 2007]; available from Internet: http://188.8.131.52/whistle113.htm.
5. U.S. Sentencing Commission, “Organizational Guidelines” [online] (2004) [cited 9 February 2007]; available from Internet: www.ussc.gov/orgguide.htm.
6. Cynthia A. Glassman, “Speech by SEC Commissioner: Remarks at the Government Affairs Conference” [online] March 12, 2003 [cited 9 February 2007]; available from Internet: www.sec.gov/news/speech/spch031203cag.htm.
7. Stacey Hamaker, “Spotlight on Governance,” Information Systems Control Journal 1 [online] Information Systems Audit and Control Association, 2003 [cited 9 February 2007]; available from Internet: www.isaca.org/Template.cfm?Section=Home&CONTENTID=16186&TEMPLATE=/ContentManagement/ContentDisplay.cfm.