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Under the Microscope -- Purchasing Group Fallacies Exposed

Hospitals and their purchasing groups are being explored in a series of articles published by The New York Times. The first two pieces in the series were, “2 Hospital Purchasing Groups Face Questions Over Conflicts,” published on March 4, 2002 and “When a Buyer for Hospitals Has a Stake in Drugs It Buys,” published March 26, 2002.

These investigative articles exposed what happens when large purchasing groups, buying for approximately half of the nation’s hospitals, purchase medical products and become involved with the profit side of drug sales. In our upcoming issues we will be following The Time’s series with a synopsis of the series.

The Times’ articles examine potential conflicts of interest that exist in medical-supply commerce where billions of dollars worth of goods and services change hands each year with buying groups functioning as middlemen in negotiating contracts with suppliers with little public oversight. The Times reports that these purchasing groups, “unlike most other purchasing agents are not financed by hospitals that buy products, but by companies that sell them and raises questions about whose interests buying groups really serve.”

Addressing that concern, the article reports that: “In 1986 the hospital groups convinced Congress that money could be saved if legislators allowed suppliers to pay their costs. As a result, Congress exempted the groups from prosecution under federal anti-kickback laws. The agency now called the Centers for Medicare and Medicaid Services was supposed to monitor the fee payments for possible abuse, particularly those in excess of 3 percent of sales.”

However, the purchasing group Novation acknowledged to The Times that about 30 percent of its contracts exceed 3 percent of a sale and it has been reported that some of the fees are in the “teens.” Premier, another purchasing group, does not accept fees over 3 percent, but the Times reports that they: “…at times accept stock in supplier companies in lieu of, or in addition to cash payments.” They also have invested in more than two dozen companies in the medical field and individuals of these companies have profited personally through stock options.

“It’s just like payola,” said Paul Lombardi, head of contracts for the Swedish Medical Center in Seattle. According to Lombardi, buying groups are “getting paid” to buy certain products. Lombardi’s hospital system dropped Premier in 1996 as reported in the New York Times article.

Perhaps the most haunting questions the Times’ pieces raise are what happens when a superior medical product is overlooked for a similar product that is provided from a contracted supplier, and what happens to the quality of medicine when a purchasing group is has a financial stake in the success of a pharmaceutical company? Are the health and welfare of patients in hospitals that are affiliated with general purchasing groups at risk?

If you’d like to read the Times’ articles in their entirety, they are available on line at www.nytimes.com/business. Next month we will be giving a synopsis of The Times’ next two articles, “Hospital Group’s Link To Company Is Criticized,” published Saturday, April 27, 2002 and “Hospitals Find Big Buying Groups May Not Come Up With Savings,” published April 30, 2002.

Quick Rinse - News From Around The World

Advance Discount Registration Opens for IHMRS 2011

WHITE PLAINS, N.Y. — Advance registration is open for the 96th annual International Hotel, Motel + Restaurant Show® (IHMRS) being held November 12 – 15th at New York City’s Jacob K. Javits Convention Center. A discounted registration fee of $30 is available through October 7, 2011, with the rate increasing to $50 on October 8. The IHMRS present more than 700 hospitality industry suppliers and attract some 30,000 trade attendees The IHMRS website is located here.