Hospital Deals Rival Wall Street on Kickbacks That Cost You Money

When Wall Street's house of cards came tumbling down and taxpayers had to write the bailout checks, we all learned the hard way what insider collusion, kickbacks and double-dealing can do to our collective pocketbooks. Senator Carl Levin colorfully highlighted just how much these "sh**ty deals" stank in Congressional hearings on Goldman-Sachs.

But taxpayers are getting an equally raw deal year in and year out from the health care industry.

The scheme works like this: A cartel made up of large Group Purchasing Organizations (GPOs) controls virtually all sales of medical devices to U.S. hospitals. The GPOs represent certain suppliers of products like neonatal heating pads, hypodermic needles, oxygen monitors, heart pacemakers, and other such devices. They go to the hospitals and negotiate "sole source" contracts, so hospitals agree to buy the products only from the GPO-sanctioned companies. It doesn't matter whether they 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? Not by making the most medically sound or cost-effective products. It's easier than that. They just pay a big fat fee to the GPO. Then their products, and onlyt heir products, get approved. Hospitals don't much care if they overpay, because insurance companies -- including Medicare and Medicaid (e.g. taxpayers) -- ultimately pick up the tab. 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.

It's a double whammy. Pay-to-play on the part of device manufacturers, and a bald-faced kickback arrangement between the GPOs and the hospitals. None of the parties even bothers to deny it. And it's all perfectly legal -- brought to you by the Reagan Administration in 1986, through changes to the Social Security Act that exempted GPOs from the Medicare anti-kickback statutes.

A new report released today in Washington D.C. by leading economists Drs. Hal Singer and Robert Litan tells us just how much we're paying for this sweetheart arrangement. Funded by the Medical Device Manufacturers Association, the researchers examined a database of 8,100 hospital transactions from 2001 through 2010. They found that when purchases were exposed to greater competition, hospitals were able to achieve average savings ranging from 10 to 15 percent. (Note to hospital bean counters: that beats the kickbacks of roughly 3 percent they're now getting.)

Clearly Congressional action is needed to stop this fleecing of health care consumers and taxpayers alike. A joint hearing of the Senate Special Committee on Aging (jurisdiction over Medicare/Medicaid) and the Senate Judiciary's subcommittee on Antitrust, Competition Policy, and Consumer Rights ought to be called right away. We need to repeal the so-called "safe harbor" provisions exempting GPOs from kickback prosecutions. (It won't be easy, because they have both money and lobbyists to fight it, and the hospitals are in effect shareholders in the operation.)

And just in case the occupants of this cozy little playhouse have stepped over the line into illegality, the Department of Justice and the Federal Trade Commission should open investigations of their own. What's happening is blatantly anti-competitive.

Challengers and incumbents alike are running their campaigns on cutting the deficit and reducing Medicare and Medicaid expenditures. According to the study, $37.5 billion a year can be saved if competition is enforced in hospital purchasing, and much of the savings will be realized by those two programs alone.

We're in the home stretch before the November 2 elections. Candidates will be stumping for every vote -- but how many are willing to buck the hospital corporations and medical device manufacturers in favor of you and me?

As they make the rounds this month shaking hands and kissing babies, ask them a simple question: If you're elected, would you vote to end this sh**ty deal?