Controversy over Potential Kickbacks to Hospital Execs
BY TODD BARTELS, JULY 18, 2006
An article in yesterday's New York Times provides a useful summation of the kickback controversy surrounding the Healthcare Research and Development Institute, or H.R.D.I., a for-profit consulting firm owned by about three dozen hospital executives that advises pharmaceutical, medical device, and financial services companies on how to most effectively sell their products and services to hospitals. Twice a year at luxurious resorts, H.R.D.I. hosts several-day sessions at which corporate members - such as Eli Lilly, Johnson & Johnson, Morgan Stanley and Citigroup - each convene for up to three hours with H.R.D.I. executives to discuss its strategies, services, and/or products. The corporate members pay around $40,000 per year for these consultations and, in turn, the hospital executives of H.R.D.I. are handsomely rewarded, both in terms of pay and perks. Each executive receives between $20,000 and $30,000 a year, and after their meetings, the executives are able to enjoy the resort, playing tennis or golf, eating at the G.E. Healthcare Barbecue, or even receiving a hot stone massage.
Those free massages - as good as they sound - are a perk of belonging to an organization that might in fact stifle competition, raise prices, and provide kickbacks, as the hospital executives of H.R.D.I. are receiving payments from some of the very same companies that those executives' hospitals buy from and hire. The hospital executives' potential conflicting interests have begun to raise eyebrows with lawmakers. In recent months the Connecticut attorney general Richard Blumenthal has begun to probe into the activities of H.R.D.I and has issued more than 100 subpoenas, with several dozen coming in the last week. Blumenthal stated, "At the very least it suggests insider dealings - an insidious, incestuous, insider system." He further commented, "These arrangements are more than just a bunch of corporate C.E.O.’s and health care executives enjoying golf games and cocktails."
Blumenthal's investigation into H.R.D.I. supplements an ongoing inquiry by the Senate antitrust subcommittee into hospital buying practices. The Senate has focused on the activities of group purchasing organizations (G.P.O.'s), which act as middlemen between groups of hospitals and suppliers and are often paid millions of dollars in "administrative fees" by such suppliers. Federal legislation to regulate G.P.O.'s is now under consideration. In fact, the inquiries of Blumenthal and the Senate antitrust subcommittee are indicative of larger industry frustration with the market structures that such entities as H.R.D.I. and GPO's create. Mark Leahey, executive director of the Medical Device Manufacturers Association (M.D.M.A.) stated in reference to GPO's, "These conflicts prevent innovative, cost-effective products from entering the market."
We believe that such organizations as H.R.D.I. and G.P.O.'s are worthy of intense scrutiny, and we applaud the steps being taken to ensure that such associations do not hinder market efficiency. However, in the current climate of staunch opposition to these entities, we must ask: are there benefits to the existence of H.R.D.I. and G.P.O.'s? Might H.R.D.I. provide a productive forum that fosters the exchange of ideas? Might G.P.O.'s enable considerable cost savings for hospitals? Do H.R.D.I. and G.P.O.'s serve a greater purpose, or should they be viewed solely as benefiting the vested interests of the parties involved? In order to address these questions, we will be publishing a report on the subject in the next few months. We urge those interested in all aspects of the healthcare industry - pharmaceuticals, medical devices, and financial services - to become aware of the issues surrounding H.R.D.I. - like companies and G.P.O.'s, as we believe that these issues will prove to be extremely significant in the industry for some time to come.
