subtitle: Bomb the Safe Harbor for Legalized Kickbacks
Marion Mass, M.D., PPA co-founder
In our first instalment of “Scrubs vs. Suits – the Battle Inside the Nation’s Hospitals,” we placed before the reader the existence of two classes in American medicine: on one hand, the scrubs, the physicians and bedside nurses trained to take care of patients; and on the other, the suits, the corporate executives in the C-suites who call the shots and add significantly to the enormous overhead Americans must carry in the cost of medical care.
In Part 2, we introduced you to a less-familiar suit—the executive leadership of the Group Purchasing Organizations (GPOs) that control the supply chain of essential medical equipment to American hospitals and nursing homes.
We also sketched the coziness that exists among the suits in the GPOs and C-suites.
In this final installment, we focus on:
· How patients, especially minorities, and healthcare workers have long been endangered by the dysfunctional supply chain the GPOs have created.
· What we can do about it.
Let’s review the ground we’ve covered.
First, the GPOs are led by suits who often have questionably cozy relationships with the suits among their client organizations— the large, corporatized, hospital/health systems and nursing homes. It is not unknown for a top hospital administrator to be on the board of directors of a GPO. A case in point: the president of the venerable Johns Hopkins Health System is also on the board of Vizient, a leading GPO. There should be no surprise, then, in seeing hugely lucrative, exclusive supply contracts being awarded in a way that invites question and suspicion.
Second, to protect their positions, both GPOs and the large, corporatized, hospital/health systems keep the money flowing, whether in lobbying efforts or campaign contributions, to those who shape policy at the national and state levels. It’s all part of the “overhead” that American consumers of medical care ultimately pay in one form or another.(1)
Third, there is a STRAIGHT LINE between the financial ground rules under which the suits operate and the difficulties nurses and physicians faced in recent months in obtaining personal protective equipment (PPE). The public heard quite a bit on the subject in 2020. What the public still may not know, however, is that life-threatening drug shortages and declines in the quality of and access to devices and supplies across many specialties have been a decades-long issue under those ground rules… which the actions of the United States Congress have warped.
Fourth, at the top of the list for most-warped rules is one granting GPOs the power to accept kickbacks from manufacturers as a condition of access to the buyers of their products. We can thank the 100th Congress (in session from January 3, 1987, to January 3, 1989) for this “Safe Harbor” legislation, which protects a practice that is otherwise illegal in the nation’s commerce.
Dangerous Impacts of Dysfunction in the Supply Chain
The oncologists who treat cancers must deal with shortages of chemotherapeutics.
A shortage of critical drugs is a vexing problem known well to frustrated emergency room physicians. The idea of giving those physicians added control over supplies has even been floated as a possibly attractive alternative to a pay raise.
But for greater detail, let’s consider a case we would find in the labor and delivery rooms.
An expectant mother experiences severe, pregnancy-induced hypertension.
The fetus will need betamethasone to accelerate lung development; the expectant mother will need magnesium to prevent seizures; and she may need labetalol to lower her blood pressure.
But there are decades-long shortages of betamethasone, magnesium and labetalol.
The likelihood that labor will have to be induced is high, requiring oxytocin (Pitocin), a drug with a history of being in short supply.
The situation may make delivery of this preemie by C-section unavoidable. If physician and patient choose a spinal block rather than general anesthesia, the anesthetic will, we hope, be bupivacaine, but that is a drug with a history of being in short supply.
Once the delivery is over, we will face shortages for the drugs and solutions needed to care for premature neonates.
In fact, there are shortages of much of the anesthetic toolkit, both drugs and devices.
Like the fictional MacGyver on television, obstetricians, anesthesiologists, and neonatologists will improvise and work around these shortages to improve the odds of a good outcome.
In the current climate of heightened awareness of disparities in how our large systems affect different racial groups, we note the following about African-American women.
· They are 60% more likely to suffer from pregnancy-induced hypertension.
· They are 50% more likely to have a premature birth.
· As late as 2015-16, they were dying from preventable, pregnancy-related complications at about three times the rate of white women.
The mortality rate for African-American infants is twice that of infants born to non-Hispanic, white women.
While academics and the medical community continue to drill down to the roots of these disparities, we MUST, in the meantime, be able to treat these conditions.
All of these shortages existed long before COVID-19.
In total, over 300 medications have been on the list of those in short supply at one time or another. Some stay there for a long time. Some are known for making repeat appearances.
How can we NOT explore the effects of these drug and supply shortages on the known disparities?
Following that “STRAIGHT LINE”
How are the kickbacks protected by the “Safe Harbor” legislation of 1987 related to shortages?
Through supplier-side contracts conditioned on kickbacks of undisclosed amounts, GPOs control (1) whose products enter the pipeline, and (2) the market share enjoyed by the producers who can afford the kickbacks.
Through customer-side contracts, the GPOs lock in the right to be exclusive middlemen/wholesalers to hospitals and nursing homes.
The GPOs never handle the products physically; that’s left to other wholesalers—for example, AmerisourceBergen, Cardinal Health, and McKesson, each of which receives a cut of the action and has a secure spot in the Fortune 500.
The result of these arrangements? The physicians working in hospitals and nursing homes can’t shop around for medications, solutions, and other products. They can’t make the choices that are characteristic of a free, competitive marketplace—choices that exert discipline over the quality and prices of the products offered by manufacturers.
Over time, this pay-to-play process creates winners and losers, and tends to reduce the number of “winners” who remain in the business of manufacturing a product. In some cases, we have ended up with “sole suppliers.”
Quite apart from the inevitable inflationary impact on prices, we are then at far higher risk of shortages when a breakdown in production occurs. This is not uncommon, especially in the manufacture of sterile injectable medications and solutions—a complex undertaking in which the slightest contamination can shut down production, creating an acute shortage.
We now live in a world where many injectable medications are made by a single company that has bought the right to being a sole supplier.
Given this winnowing effect of the “Safe Harbor,” which has legitimized a pay-to-play mechanism for more than 30 years, it is not a surprise to discover that 90% of the drugs and solutions in short supply have a single manufacturer.
Manufacturers who must pay kickbacks to GPOs will naturally seek to cut costs also. For cheaper labor, they will turn to offshoring production to other nations, particularly China.
Too often, the results are not pretty.
In the last year, two common medications, Losartan and Zantac, have been recalled because of contamination by carcinogens.
The production of devices and supplies, including gowns and masks, has also been off-shored, making us vulnerable to importing the products of sketchy manufacturing processes. In late January, only weeks before the need for protective surgical gowns would explode, nine million units made in China were recalled because they had been produced under unsanitary conditions.
And as we continue to need our COVID-19 “shields,” the efficacy of Chinese-made masks has been called into question.
The conflicts of interest inherent in this legally protected scheme are a clear affront to the confidence that patients and physicians must have in the products sold by the GPOs to the nation’s medical facilities.
Six Things We Can Do About It
1. Bomb the Safe Harbor. The “Safe Harbor” for payments (kickbacks) from manufacturers to GPOs under 42 U.S.C. 1320a-7b(b)(3)(C) must be fully repealed. Merely restructuring the kickbacks would not achieve this end, but would make them permanent and leave huge power in the hands of the GPOs, undermining the public interest. A draft of a bill to achieve full repeal appears in a white paper made available to legislators in April 2019. That proposed legislation should become law. Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
2. Bring Back “Made in the USA.” The manufacture of medical supplies must return to America. HR 6930, introduced by Georgia’s Congressman Buddy Carter, along with a companion bill introduced by Senator Tim Scott will incentivize a “Made in the USA” movement by using tax credits for businesses in opportunity zones and by streamlining FDA procedures affecting the supply chain. That proposed legislation should become law. Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
3. Make Congress Do Its Job. Congress should use its oversight power to demand that the HHS Office of Inspector General (OIG) to mandate a study of (a) the contracts for every drug currently or previously in shortage, and (b) all previous contracts for these medications since the “Safe Harbor” for legalized kickbacks was first enacted in 1987. The contracts for PPE masks and gowns should also be examined. To keep the process honest, the study should involve several independent entities that have no conflicts of interest. The public must have full access to the findings. These steps were called for in a June 2019 memo from the Practicing Physicians of America to the Senate’s Help, Education, Labor and Pensions (HELP) Committee. Congress and the HHS OIG should get cracking on that long-overdue study. Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
4. Sting the Suits Where It Hurts. The possibility of reparative fines levied against suits for medical damages and for excess profits realized through kickbacks, market manipulation, and the gouging of the public should be explored. Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
5. Loosen the Suits’ Chokehold. Despite historical data showing that physician-owned hospitals offered better, more-affordable care than the so called “non-profits” run by suits, physicians are the ONLY class in America barred from owning hospitals. This prohibition was a “gift” to us all in the Affordable Care Act. The prohibition should be lifted. Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
6. Let the Sunshine… Let the Sunshine In. Thanks to Senator Chuck Grassley’s Physician Payments Sunshine Act, a light now shines, somewhat feebly, into the recesses where conflicts of interest lurk in setting drug prices. The source of the light is the Open Payments database/website, created by the Centers for Medicare & Medicaid (CMS).
If a disinfecting sunlight were to shine brightly into the system an unaware public has allowed to develop over the decades, we would likely be horrified.
We would see the bewildering welter of conflicts of interest in the relationships between the middlemen in the supply chains of American medicine and the suits on the administrative side of corporatized healthcare.
We would see the lubricating payments moving in all directions.
We would see our healthcare system for what it has become—an ever-more-complex network that (1) extracts more and more money from the healthy, the sick, and the taxpayer, and (2) protects itself against threats to its profitability.
The Open Payments database/website should be vastly expanded to shine light on funding provided by pharmaceutical manufacturers and the middlemen—including GPOs, Pharmacy Benefit Managers (PBMs) and other types of distributor, such as Cardinal Health, McKesson Corporation, and AmerisourceBergen. In the patterns of funding, we would almost certainly see a system riddled with conflicts of interest and self-serving influence—in “sponsorships” not only for physicians, but for nurse practitioners, physician assistants, physician advocacy groups, think tanks, patient advocacy groups, and hospitals.
This sunshine should be directed not only to present relationships, but also backward to expose the histories of conflicts of interest.
As a song in the pre-eminent counterculture musical of the 1960s put it: Let the sunshine in.
Nag the members of the Senate and House of Representatives about it, starting with those who represent you. Enlist other naggers to join you.
A Great Reformation
If the six things listed above as things we can do were actually done, we would see the beginnings of a Great Reformation in American healthcare.
The scrubs and the patients they treat would begin to be liberated from the medical risks and financial burdens created by the suits and their paid agents and well-meaning, bungling dupes in federal and state legislatures.
It’s even possible that some of the salvageable suits would themselves be protected from their worst tendencies, particularly the penchant for exposing others to risks from which they themselves are exempt (the very essence of moral hazard).
Who knows? It may even be possible that a few of them could be buffed to the point of becoming gems.
But it is lunacy to have the United States Congress and the suits of corporatized American health care spinning webs in which conflicts of interest are incentivized and thrive.
As a respected colleague, Jennifer Tang, M.D., of Santa Clarita, California, has put it: “Suits may have the power, but scrubs have the hearts.”
And united hearts can create a muscle of very great power indeed.
[A DISCLAIMER: Not every “suit” must necessarily be a villain. One would think that there must be potential gems among them. But curing what ails the American system of health care will be impossible without reductions in the number of suits, their influence, and the various forms of waste associated with them, including their extravagant levels of compensation. END of DISCLAIMER]
 In grand total, less than 30% of each dollar spent annually on “healthcare” goes to practitioners, of all kinds, who are actually involved in providing medical care. The rest is “overhead,” the money that flows to “Other.”