Paying for Health Care -- Will Congress Have the Guts to Bust This Trust?

Group Purchasing Organizations negotiate "sole source" contracts with hospitals, amounting to bald-faced kickbacks that save taxpayers not a dime.
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It's a sweet deal -- real sweet if you're a big medical device manufacturer or hospital executive on the take. And it's been flying under the health care cost radar for years. What is it?

Depends on who you ask. If you ask the CEOs of the big Group Purchasing Organizations (GPOs) that have a virtual cartel when it comes to selling medical devices to U.S. hospitals, it's a way for those hospitals to save money. But if you ask small manufacturers who are left out of the process and may have cheaper and more efficient products the hospitals won't look at, it's a big-time kickback scheme that costs health care consumers over $100 billion a year.

Here's how it works. The GPOs represent certain suppliers of products like neonatal heating pads, hypodermic needles, oxygen monitors, and other medical devices. They go to the hospitals and negotiate "sole source" contracts, so hospitals agree to buy such products only from the GPO-sanctioned suppliers. At the end of the year, the GPO returns a certain percentage of the of the contracts back to the hospital.

It might be easier to ignore the bald-faced kickbacks if the arrangement saved any money. But it doesn't. How does a company get in the GPO stable? Not by making the most medically sound or cost-effective product. It's easier than that. They just pay a big fat fee to the GPO. Then their product, and only their product, goes on the "approved" list. Hospitals buy it, and they don't much care what they pay, because insurance companies and Medicare and Medicaid (that's you and me, sister and brother taxpayers) reimburse the cost.

And one other little thing -- many of the hospital executives have very cozy setups with the GPOs and their trade groups and approved suppliers. These guys have interlocking board relationships, get wined and dined by manufacturers in a closed setting, and get paid up to $50,000 a year for giving "medical advice" while hobnobbing with company hucksters at conferences held at resorts and high-dollar playgrounds.

It's a regular Augusta National of the health care world.

And it's not just consumer and taxpayer dollars that are at stake. Patients are poorly served when they don't get the best devices because those devices are not on "the list." And health care workers are sometimes unnecessarily put at risk. In what is undoubtedly not an isolated case, Karen Daley, a Massachusetts nurse, got the AIDS virus from a needle-stick because the manufacturer of a safer hypodermic was shut out of the process for lack of payola.

GPOs are exempt from Medicare anti-kickback statutes, but the reasoning behind allowing the creation of cartels with full-blown pay-to-play schemes as a way to save money is lost in the mist of the 1980s. Critics say it's a direct violation of anti-trust laws, and they're making the rounds on Capitol Hill this week, urging Congress to bust up this little party. It remains to be seen whether they'll have the guts to do it, but there is a glimmer of hope.

Two members of the Senate Finance Committee recently sent a letter to six GPOs asking for details on how they conduct business. Charles Grassley, Republican of Iowa, and Bill Nelson, Democrat of Florida, may smell a way out of the impasse on paying the health care reform tab ($880 billion over 10 years) by opening up competition. $100 billion a year ought to just about cover it, and bring along free-market Republicans who purport to bleed for small business and Blue Dog Democrats alike.

And it would still be a pretty sweet deal -- only this time for the taxpayers.

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