Congress Should Puncture This Cartel

Congress exempted Group Purchasing Organizations from anti-kickback statutes in the 1980s, in what critics say was a direct violation of anti-trust law. In the past three decades there has been no serious effort to correct this gross fleecing of patients and taxpayers.
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It's the scary season at the movies, and I don't mean the usual spate of Halloween films that bombard us every October.

Now playing in theaters nationwide is Contagion, the fictitious account of a mysterious and fast-spreading virus that's killing millions around the world. There's no vaccine in sight -- until the heroine steps in and injects herself with an experimental antidote that works. Meanwhile civil order breaks down when misguided seekers of an herbal remedy storm pharmacies as police, fire, and health care workers go on strike out of fear. It's an entertaining and slightly scary fantasy that comes out all ok in the end.

Much more frightening is Puncture, already playing in New York and opening around the country next week. Unlike Contagion, Puncture is no fantasy. It's based on the true story of a Houston emergency room nurse who died of AIDS after suffering a needlestick while giving an injection to a patient. The movie has plenty of villains, and most of them are wearing suits and ties. You may even recognize some of the types -- they bear an uncanny resemblance to members of Congress.

What does Congress have to do with movies, injections, and AIDS death? Plenty, as it turns out. Puncture exposes a very real medical cartel that's not only needlessly taking lives like the one depicted in the film, but costing you (yes you, the taxpayer) a lot more than the price of a theater ticket. Millions of dollars in fact. All perfectly legal, courtesy of your elected representatives on Capitol Hill.

It's a real life horror story, and here's how it works. Hospitals of course use a lot of medical devices -- everything from hypodermic needles and heating pads to cardiac stents, artificial hips, and pacemakers. They buy from a variety of manufacturers. And they want to get the most effective devices possible and at a fair price, right?

Not exactly. Virtually all sales of medical devices to U.S. hospitals are controlled by a cartel made up of large Group Purchasing Organizations (GPOs). The GPOs represent a select group of suppliers, and only that select group. They go to hospitals and negotiate "sole source" contracts -- meaning the hospitals agree to buy the products from the GPO-sanctioned companies -- and no others. It doesn't matter whether the chosen few actually provide the best devices for the intended purpose, or whether their products cost many times what the competition would charge. All that matters is that these anointed suppliers are on the GPO "list."

How does a company get on the list? You would think by making the most medically sound or cost-effective products. But you'd be wrong. It's easier than that. Manufacturers that can afford it just pay a big fat fee to the GPO. Even if their "approved" devices cost a lot more, hospitals don't much care, because insurance companies -- including Medicare and Medicaid (e.g. taxpayers) -- ultimately pick up the tab. (Insurance premiums have almost doubled in the last decade, and this crummy arrangement has got to be a big contributor.)

And here's the deal sweetener: at the end of the year, the GPO returns a dollar percentage of the contracts back to the hospital.

If this scam sounds like a bald-faced kickback scheme, that's what it is. Pay-to-play from the device manufacturers, followed by kickbacks to hospitals, resulting in bilking insurance companies and ultimately consumers. Nobody even tries to deny it, because Congress exempted GPOs from anti-kickback statutes in the 1980s, in what critics say was a direct violation of anti-trust law. In the past three decades there has been no serious effort to correct this gross fleecing of patients and taxpayers, event though research shows that $37.5 billion a year could be saved -- much of it from Medicare and Medicaid -- if competition were opened up.

Right now the little guys can't get past the GPO gatekeepers, even though they may have better devices. Puncture highlights one real-life example of a manufacturer with a safer, cheaper hypodermic that would have saved the nurse's life and many others (worldwide, needlesticks result in 1,300,000 deaths annually). He was shut out, threatened and intimidated. When none of that worked, the big boys tried to buy him out to shut him up. But the larger story is not just about needles -- hundreds of faulty devices continue to be used in thousands of hospitals.

Congress fiddles while people die.

If our elected representatives don't care about safety they ought to at least consider the bottom line, which many worship. Thirty-seven billion a year in savings is more than chump change, and it's something the Congressional "super committee" to cut the deficit should take seriously. And candidates of all stripes are running hard on transparency and accountability. This is one way they could boost both -- if they care more about real people than the corporate fat cats that contribute the big bucks.

Wouldn't hurt to ask them at the next town hall.

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