by Marion Mass, M.D., PPA co-founder
In Part 2 of this three-part blog entry, I continue putting a spotlight on some “suits” (executives) in America’s corporate healthcare complex.
[A DISCLAIMER: Not every “suit” is a villain. Without question, there are gems among them. Curing what ails the American system of healthcare will be impossible without reductions in the number of suits, their influence, and their wasteful levels of compensation. I wish that this piece did not have to be so long. But if you care about making health care affordable, please persevere in reading so that you can be informed about an important part of the problem. END of DISCLAIMER]
At no time in our history has the issue of supply chains for medical equipment been so prominent in our national discourse as it has been in recent weeks. The public has learned the difference between ventilators and respirators and added “PPE” (personal protective equipment) to the list of widely known abbreviations.
Medical personnel at all levels who deal personally with the sick during this COVID-19 pandemic have been justifiably up in arms over the inadequate stocks of the PPE so essential to keeping them uninfected and able to do their jobs. The pandemic has exposed not only medical workers to a rampaging contagion, but the rest of America to a few embarrassing truths about our national healthcare economy and the predicament it has created.
First, as a sovereign nation, we have become dependent on an unsympathetic, sometimes openly adversarial, China for the manufacture of supplies we desperately need in a time of national emergency.
Second, sitting at the “control panel” in all of this is another type of corporate “suit,” the Group Purchasing Organization (GPO), an entity the general public is not aware of, and one that has strayed far from its original mission as a bulk-buying, cost-restraining, middleman-wholesaler of medical supplies to hospitals and nursing homes. The GPO of our time is a cost-inflating, scarcity-managing, kickback-collecting, Washington-lobbying, campaign-contributing, pay-to-play gatekeeper toward which billions of dollars flow in the country’s dysfunctional healthcare economy.
Third, as part of what they do, GPO suits and the suits in the C-suites of corporatized hospitals have built relationships with each other.
Fourth, these suits work together to pour money into the nation’s political apparatus in the interest of protecting their dominance and enhancing their profitability.
We cannot cure the wealth-wasting sickness that has taken root in American healthcare until we expose its drivers.
This is why the language used in Part 1 of this blog entry was so strong: “… [a] corner of a healthcare economy that has been emitting a stronger and stronger stench with the passing years… [a] fetid complex … developed out of lobbying aimed at a receptive political class and at bending government agencies toward the service of very private interests.”
Remember—corporations, with their huge
managerial and administrative overheads
, are now the big players in medicine. They suck in vast amounts of money, and they spend part of that money making sure the rules of the road in American healthcare favor their executive class, their business practices, and their shareholders—not
patients, not physicians, not nurses.
Follow the Money
Remember that general principle.
When something makes little sense in American healthcare policy and shows every sign of adding to the nation’s annual tab for “healthcare” while ensuring that the public will have less access to medical care and fewer choices when seeking it, never lose sight of that principle.
FOLLOW THE MONEY.
What kinds of huge, corporate, healthcare-related entities have positioned themselves in America to enhance their power to suction dollars from the public—either (a) directly or (b) indirectly through money raised through taxes and then dispensed by the political/bureaucratic complex?
· Pharmacy chains? You bet; they’re in the mix.
· Pharmacy Benefit Managers? Ditto. In fact, the PBMs enjoy the same legally sanctioned “rebates” (aka kickbacks) as GPOs.
· Health insurance companies? Of course.
· The increasingly consolidated hospital industry? Obviously.
· Healthcare data miners? Are you depressed yet?
Most of these entities are “for profit;” some large hospital corporations have de jure
status as “nonprofits”… although no impartial observer would likely mistake their executive class
with people who have taken vows of poverty. In 2018, a study of average, inflation-adjusted compensation
for the top suits in the C-suites at nonprofit hospitals found that it had almost doubled
, a sixth entry on that list of the kinds of huge healthcare corporation, are a case study in what has gone wrong over a period of decades. Until the widely reported Protective Personal Equipment shortages among hospital personnel, most of the public, including physicians were oblivious to the existence of GPO. But they are enormously powerful players in American Healthcare. A report in 2012 from the congressional Government Accountability Office noted that as far back as 2007, the purchasing volumes of only six GPOs (out of more than 600) “accounted for nearly 90% of the GPO market.”
Group Purchasing Organizations (GPOs) 101
Here are important facts about the GPOs to bear in mind.
· They conduct no medical research.
· They develop and manufacture no medicines or palliatives.
· They are not constrained by a Hippocratic Oath in any of its forms, ancient or modern.
Their original purpose at their beginning in 1910 was as middlemen wholesalers of supplies and medicines to groups of hospitals, amplifying their buying power, and driving down cost.
But in 1987, a change to the federal law for the Medicare and Medicaid programs provided legal cover for these middlemen wholesalers to take kickbacks, a practice forbidden to businesses in the rest of the economy. They could charge manufacturers and supply vendors for the privilege of having their products placed into the supply chain where they would be bought by the GPO’s customers. As a consequence of that legislative tinkering, GPOs mutated from being “buying co-ops” into something far different—the leading corporate gatekeepers in “a corrupt pay-to-play scheme
Certain economic effects, the outcomes of what economists call “vicious circles,” then became as baleful as they were predictable. We could call them “marketplace pathologies.”
· Creeping consolidation of market share and control by the GPOs.
· Shortages of medicine and solutions.
· Artificially escalating prices.
· Higher failure rates among manufacturers and supply vendors that could not pony up the “market entrance fee” (a euphemism for a kickback) demanded by the GPOs.
What are GPOs Riding on the Back of a Cash Cow to Do?
What are GPOs—among the most powerful players in the healthcare marketplace—to do with all of that cash accumulated by being altruistically helpful to the hospitals and nursing homes that care for the nation’s sick and aging? Does a respectable portion of the “rebate” money go for the purposes claimed
by the people who speak on behalf of the industry association?
At high levels
. (The reader is urged especially not
to skip the last few links provided as documentation.)
Given the flaccid federal oversight, it is not easy to accept the claims of the industry’s paid apologists at face value.
We can identify seven activities made possible by riding the cash cow: (1) living large; (2) lobbying hard; (3) networking shrewdly; (4) grooming the uneven playing field; (5) rewarding decision-makers among the client base; (6) merging/acquiring; and (7) keeping the proverbial “revolving door” in good working order.
Each of these activities could be documented at great length. Below, we provide only the barest examples.
1. Living Large
That is merely a single dot in the vast galaxy of overhead for which the American public ends up paying in the name of healthcare.
2. Lobbying Hard
Another dot in that vast galaxy is the lobbying dollar.
In 2018, five of the top 20 industries
that spent big money to lobby Washington were related in one way or another to healthcare. The GPOs make their contribution to the lobbying carried out under that umbrella.
Here are a couple of general principles of lobbying:
· The legislators serving on the committees with responsibility for laws most affecting an industry will tend to be the recipients of the most attention and financial support.
· Money is dispensed to both sides of the political aisle, but the majority party in any legislative assembly (which translates into majorities on committees) will tend to be the recipient of the most attention and financial support.
Here are snapshots of how the two biggest GPOs—Premier
, headquartered in Charlotte, North Carolina, and Vizient
, headquartered in Irving, Texas—have spread money around the United States Congress since 1990 by the legally permitted means. (NOTE: The four line graphs that follow have all been harvested from OpenSecrets.org
, the website of the Center for Responsive Politics.)
3. Networking Shrewdly
American business runs on networking.
Industries have techniques for managing conflicts of interest that networking can sometimes create. One of those techniques includes concealing those conflicts of interest, and then denying that they exist when someone has the audacity to point to the evidence and suggest otherwise.
In the world of the middlemen/GPOs, effective networking naturally involves relationships with the leading decision-makers among medical product manufacturers and supply vendors on one side and among the hospitals and nursing homes (the client base) on the other.
When it is helpful, ways are found to distribute rewards to decision-makers who make the most-agreeable decisions when it comes to entering contracts.
One form such rewards can take is compensated membership on corporate boards of governance. When it is regarded as unseemly that these board memberships be compensated monetarily because of the conflict of interest that they create (or appear to create), the compensation can take forms other than the obviously monetary.
If one listens to the spokesperson for Vizient
, one of America’s largest GPOs , Vizient’s most-powerful competitor, Premier, does not
consider it unseemly to pay board members who are also executives in “member companies” or “providers” (terms GPOs use to refer to clients).
“Vizient spokeswoman Angie Boliver wrote in an email that… Vizient has never paid its provider-based board members. Premier, by contrast, pays handsomely for the work. Banner Health CEO Peter Fine, for example, received $221,000 for his role as a director, according to the company’s most recent proxy filing. Adventist Health’s Scott Reiner scored $191,750 in total compensation for serving on the board.”
Thinking readers will make their own decision about how persuasive they find Vizient’s claim regarding its payment practices to board members. After all, that is not an area in which transparency reigns.
However, it is clear that neither Premier
troubles itself to avoid populating its governing boards with executives from its “member companies” (client base). Avoiding even the appearance of a conflict of interest is not quite that
important to their business model.
4. Grooming the Uneven Playing Field
In 1987, when the United States Congress created a legal cover for kickbacks (again, politely euphemized as something else) to GPOs from manufacturers and supply vendors, a path opened to the transformation of the GPOs. They now had a powerful tool for shaping their marketplace. Once a company purchased the right to be the only manufacturer of a device or a drug, a startup company, a little guy, would have almost no way in.
The problem was dramatized in a little-known movie called Puncture
released in 2011. The movie was based on real events.
When you ponder the bizarre controversy surrounding hydroxychloroquine
in the current pandemic, it is useful to remember that it is an inexpensive, generic drug that can be administered orally. In contrast, the vaccines and other medicines that have been touted as “hopeful” by the government, some doctors, and representatives of the pharmaceutical industry would be enormously profitable for everyone involved in their development, manufacture, and delivery.
Any intravenous medication must be delivered in a hospital or clinic. New IV drugs are thus cash cows for GPOs. Hospital corporations would make out extremely well also. The GPOs, as the middlemen who supply all of the accessories that go with the intravenous administration of medicines to patients, would enjoy increased sales of the products they first buy and then turn around and sell; and the hospitals would collect “facility fees” for any patient encounter involving the hospital’s facilities to administer the drug to a patient.
Remember the principle: FOLLOW THE MONEY.
It influences what people will choose to say, how they will frame it, where they will say it, and whom they will say it to.
The hospitals that collect “facility fees” make sure that their lobbying dollars speak in the right places; and the American Hospital Association makes very sure that its message does not go unheard.Despite the fact that four large GPOs control 90% of hospital and nursing home supply, few have heard of them until recently.
Individual health systems, such as Banner Health, headquartered in Phoenix, Arizona, are also permitted to contribute to political campaigns; and they do so, heavily.
(The OpenSecrets.org website of the Center for Responsive Politics is the source for the bar chart immediately above the table that preceded it, and the other two graphs embedded in the text.)
It is nothing short of astonishing the way the “playing field” tends to favor outcomes that intensify the powers of certain corporations to suck more cash out of the rest of the country.
5. Rewarding Decision-Makers Among the Client Base
We have already mentioned memberships on GPO corporate boards for executives in the hospitals who influence whether the same GPOs will supply those hospitals. As members of corporate boards, they are compensated openly
in some cases. Some GPOs claim not to follow that practice, but one must be wary of wordplay when it comes to the forms in which compensation is offered. After all, we live in a high-stakes world where it sometimes depends on what the definition of “is” is.
There are “board retreats,” the well-appointed professional symposia, stock options, and various other forms in which “perqs” materialize.
One is called a “shareback,” a percentage of the kickback
collected by the GPOs from the product manufacturers that is passed to the CEO of the hospital.
Somebody should write a book about it. Wait a second; someone did
When a thoroughly modern GPO has accumulated enough cash, it has the ability to grow in ways that would have amazed the people who founded the first GPOs more than a century ago.
For example, in addition to all of the other things one can do with profits from a cash cow, it becomes possible to acquire not only other GPOs or entire hospitals, but an entire region of associated hospitals
The corporatization of healthcare has tended to shift the business of healthcare toward behaviors that are, of course, distinctly corporate. One such behavior is the gradual creep toward hugeness, toward vertical integration that owns everything from the rawest inputs to the most refined output offered at the highest price the traffic will bear. The corporate organism’s instinct is toward the goal of monopoly.
Along the way, in a context where profitability, share price, and dividends become the measures of effectiveness, other things tend to fall between the cracks.
Consequently, the business of mergers and acquisitions, of branding and rebranding, has become a prominent feature of America’s healthcare. “FKA” (for “formerly known as”) is an initialism one must recognize quickly to keep up with the world in which GPOs operate.
7. Keeping the “Revolving Door” Working
The “revolving door” is a term that captures the movement of people from the government into the private sector to assume positions in the very industries for which they once had lawmaking or regulatory authority. To do this, they rely on the networks of friends and associates mentioned earlier.
Revolving doors disgorge people in the other direction also. Prominent people in private industry, having supported politicians in their electoral campaigns, sometimes run for Congress and end up on committees that make the laws governing behavior in the economic sectors from which they came, or they assume posts in departments of the Executive Branch that have regulatory authority over those industries. Here are two prominent examples: Andy Slavitt, a former Goldman Sachs executive, who became CEO of Inginex (United Healthcare’s pharmacy benefit manager that rebranded itself as Optum after being cited for fraud in its information technology practices), and later became the head of the Centers for Medicare and Medicaid Services; and Wisconsin’s Tommy Thompson, who, after running the Department of Health and Human Services, took a position on the board of directors for the huge (Fortune 100) Centene Corporation, which operates very profitably in the “managed-care” space, having found a way to tap into the vast rivers of healthcare payments flowing from both government programs and private insurance.
Those leaving government are a source of effective lobbying by the effectively networked; and lobbying is considered an especially good use for extra cash. At the very least, it ensures that, one way or another, the uneven playing field remains both uneven and well-groomed.
The volume of traffic through this revolving door is remarkable to the point where it is statistically noteworthy. The OpenSecrets.org
website of the Center for Responsive Politics (one of the more drily amusing coinages of our time… responsive to whom?) offers numbers for sectors of the economy that rely heavily on the revolving door
. The healthcare industry with its GPOs are behind only “Miscellaneous” and the combined finance, insurance, and real estate sectors when it comes to revolving-door types. We can even find precise numbers for Premier
, and other GPOs. Who knew?!The Government/Bureaucratic Complex
If you have an inkling that some politicians have probably been affected by these concentrations of money in healthcare-related corporations and the use of that money in the political arena, you may be on to something.
It is not as if there has never been a public admission by the political class that something is “rotten in the state of” American healthcare; but between the talk and doing something about it there is a chasm.
In any case, financial support is hard to forsake. The members of the Congressional committees and subcommittees with responsibility for the nation’s healthcare policies have had their sensibilities formed and nurtured by the generosity of lobbyists and donors. The extent of that generosity has been quantified on the OpenSecrets.org
website of the Center for Responsive Politics mentioned earlier. If one is curious, for example, about the attention given by political action committees (PACs) from the healthcare industry to members of the Senate’s Health, Education, Labor and Pensions (HELP) Committee, one will learn that the attention has been admirably robust
A compromised Congress has its counterpart in the regulatory bureaucracy that administers the law by generating the reams of regulation that dictate the precise steps required to obey the law.
For a taste of how the position now occupied by the GPOs is protected by a fog bank created through a mix of bureaucratic doublespeak and buck-passing, consider a report from late March
that referenced the “opaque payment pipeline” through which enormous sums of money flow. Melissa Rumley, a spokesperson for the Office of Inspector General in the Department of Health and Human Services emitted this confidence-inspiring gas cloud.
“We continue to prioritize work that informs efforts to promote drug affordability so that cost is not a barrier to patients receiving needed medications… Our agency’s recommendations in the area of drug spending have informed significant legislative and programmatic changes in drug reimbursement methodologies across programs of HHS. Under the Inspector General Act, OIG may conduct oversight over certain GPO… conduct to prevent fraud, waste, and abuse in the Medicare and Medicaid programs, including conduct which involves illegal kickbacks to referral sources.”
What the spokesperson did not clarify was whether the HHS OIG has ever conducted any serious oversight of “certain GPO conduct.”
Notice also the term “illegal kickbacks.” Would it be a perverse interpretation of those words to suggest that they are perhaps an unconscious confirmation of the existence of “legal kickbacks,” “kickbacks under cover of law,” which the GPOs prefer to call “contract fees?”
Pork in the Recent Government Stimulus
One could be excused for thinking that an industry in which huge corporations like the GPOs, with their handsomely compensated executive class, ride upon one of the American economy’s great cash cows would not be short of the odd $100 billion in a pinch.
The suits weren’t asked to take a cut, or to redirect some of their lobbying dollars, or even warned that they would eventually have to explain their roles in creating the shortages exposed by the pandemic.
The GPO’s Defense
There is a standard line of defense offered by the GPOs.
A year ago, a letter to the editor of a newspaper in the Philadelphia suburbs from the outgoing head of the Health Care Supply Association (HSCA) expressed it well. Read it closely. Note the techniques employed.
LTE: Don’t lump GPOs in with PBMs
Posted Apr 26, 2019 at 5:12 AM
In her recent op-ed, Marion Mass conflates group purchasing organizations (GPOs) with pharmacy benefit managers (PBMs) in order to provoke undue scrutiny of GPOs. In so doing, Mass has aligned herself with the anti-GPO efforts of conspiracy theorists and fringe groups such as the Association of American Physicians and Surgeons (AAPS) and Physicians Against Drug Shortages (PADS), groups that, among other positions, have previously suggested that President Barack Obama hypnotized voters, that vaccines cause autism, and that the government may have played a role in the San Bernadino shootings. However, the facts are not on Mass’ side.
GPOs are distinct from PBMs and play different roles in the healthcare supply chain. GPOs serve healthcare providers by negotiating contracts from suppliers. PBMS serve third-party payers—including organizations in the outpatient and retail market—by negotiating supply and reimbursement arrangements for pharmaceuticals. GPOs are the most transparent sector in healthcare, operating under a federal GPO Safe Harbor with specific regulatory requirements regarding reporting and fee arrangements. GPOs do not keep rebates. All rebates are passed back to the appropriate customers as a direct cost reduction.
GPOs save hospitals, Medicare, Medicaid, and taxpayers up to $55 billion annually. GPOs are also voluntary; virtually all of America’s hospitals—including hospitals throughout Pennsylvania—use a GPO. Congress has long recognized that GPOs help reduce healthcare costs and provided clear legal protection to safeguard those savings. At a time when hospitals and physicians are asked to do more with less, GPOs are critical partners, providing the best products at the best value, enabling healthcare providers to practice medicine and provide first-class patient care.
Todd Ebert, R.Ph.
Healthcare Supply Chain Association (HSCA)
The Defense Dissected
Here are the key points of the argument in defense of the GPOs.
· You’ve confused us with Pharmacy Benefit Managers (PBMs), who also receive kickbacks.
· You must be a nut out there on the fringe because you have written things that make me think of other nutty things said or written by other nutty fringe types.
· Conspire? Us? Are you a nutty conspiracy theorist?
· GPOs are the most transparent sector in healthcare because we disclose fee arrangements and issue reports on them.
· All of the so-called “kickbacks” we collect are actually “rebates” and are returned to customers, reducing their costs and saving hospitals and taxpayers on items that what would otherwise cost $55 billion or more each year.
· We supply the best products at the best value for first-class patient care.
The mind boggles at the openings for rebuttal.
But perhaps the experience of the nation’s healthcare supply chain of the last two months is the best rebuttal. That experience certainly gives the lie to HSCA’s boast in the late summer of 2018
that the GPOs would likely be heroes in a future natural disaster.
The author of the letter to the editor has since moved on
and is now wearing a different suit as a preacher of the GPO gospel to the nation’s remaining independent pharmacies.
The current head of HSCA
has not skipped a beat in singing the praises of the GPOs. After all, it’s her job.
For an even more impressive statement, couched in marketing-speak, of the value added to the nation’s healthcare economy by the GPOs, click here
. But do NOT
neglect to read the comments below
How Far to Downtown Dystopia?
Could a world more oddly upside-down, inside-out, and backward be imagined?
And nearly all of it is sanctioned and made possible by the state of the law. It is perfectly legal.
It is only to be expected that giant corporate interests would go to great lengths and spend lavishly to influence the giant government and regulatory bureaucracies that set the ground rules under which they strive.
It is against that Olympian backdrop—where the corporate giants compete, acquire, and merge as they strive to profit and prosper under the conditions imposed by a giant government and its regulatory bureaucracies—that patients come to physicians, bound by the Hippocratic Oath, for help in small, quiet, private examination rooms.
And it is only to be expected that the concerns of the patient and physician in that examination room would eventually be crushed under the weight of the entangled and grappling giants outside the room.
Truth be told, it is increasingly the case in American healthcare that one of the giants owns the building, the room, and the physician (or with increasing frequency the physician’s assistant or nurse practitioner) who greets the patient… Hippocrates be damned.
Until next time—Part 3, in which we will discuss what can be done to untangle this mess—be safe.
Protect each other and yourselves.
Keep on being scrubs. Or an honest suit, if that’s what you are.
It’s the honorable thing to do.