The GPO debate: Retractable Technologies' Viewpoint
BY ARIELLA P. GOLOMB, MD, SEPTEMBER 20, 2006
HealthpointCapital has recently published a research report on Group Purchasing Organizations (GPOs). In order to highlight the charged nature of the GPO debate, we have invited a guest blogger, Thomas J. Shaw, CEO of Retractable Technologies, to share his point of view on the GPO industry. His call to action on this topic is included below.
The Case for Repeal of the Medicare Anti-Kickback Safe Harbor Exemption
By Thomas J. Shaw
President & CEO
Retractable Technologies, Inc.
As the founder, president and CEO of Retractable Technologies, a leading maker of safety needle devices, I awakened to the Kafkaesque world of hospital group purchasing organizations in December 1996, when Becton Dickinson (BD), the dominant syringe manufacturer, signed a 7 1/2 year, $1.8 billion exclusive contract with Premier, one of the two largest GPOs. Shortly thereafter, Presbyterian Hospital in Dallas (now part of the Texas Health Systems), where our VanishPoint devices had received highly favorable clinical evaluations from healthcare workers, reneged on its commitment to purchase our product because of its membership in the Premier network. Our revolutionary automated retraction syringes and blood collection devices, which virtually eliminate potentially deadly accidental needlestick injuries among healthcare workers, have since received the highest possible ratings from ECRI, the leading independent healthcare rating agency.
A decade later, we continue to be blocked from marketing our products to some 5,000 private acute care hospitals because of the stranglehold that these cartels and their big supplier partners exert on the U.S. healthcare supply chain. Regrettably, that is still the case despite a prize-winning New York Times investigative series; the $155 million settlement of our antitrust lawsuit against BD, Premier, Novation and Tyco Int'l; four U.S. Senate Antitrust Subcommittee hearings; a Justice Department criminal investigation; and numerous other government and private studies and media reports attesting to the destructive effects of the current GPO system on patient care, healthcare worker safety, and competition and innovation in the medical supply and device industry. Contrary to GPO claims of cost savings, several of these studies also demonstrate that the current system inflates, rather than lowers, America's healthcare costs. Guess what? Competition really works.
In contrast, we have made important strides in marketing our products to public facilities and agencies in the U.S. and abroad. Our U.S. customers include countless state and local health departments and clinics, including the New York State and Texas health departments; the New York City Health and Hospitals Corp. and Corrections Department; VA hospitals; the U.S. military. The U.S. Centers for Disease Control selected our devices exclusively for their anthrax testing program. Retractable Technologies is the only supplier of safety needle devices under the President's Global HIV/AIDS initiative. We've been able to gain access to these agencies because they operate according to open and competitive bid systems based on quality and price. What's more, we recently signed a marketing agreement with a company designated by China CDC to manufacture 400 million of our devices annually for Chinese workers. Ironically, free market competition is alive and well in China, but moribund in the U.S.!
It should now be obvious that the $100 billion+ U.S. healthcare purchasing industry is little more than a corrupt pay-to-play scheme in which monopolistic suppliers buy exclusive access to these hospitals by paying huge kickbacks---in the guise of administrative fees, rebates, prebates, marketing fees and the like---to the GPOs and executives of major GPO shareholder hospitals.
In my opinion, the only way to restore open and honest competition in the healthcare supply industry is to eliminate the perverse financial incentives that now drive this system. Thanks to a bizarre 1980's-era provision of the Social Security Act called the Medicare anti-kickback safe harbor exemption, the GPOs are able to receive kickbacks from medical suppliers, a practice that would be illegal in virtually every other American industry. As a result, the suppliers, not the GPO member hospitals, are the GPOs' real customers. Vendor kickbacks to GPOs must be prohibited and criminal penalties for paying and receiving them reinstated. To the extent that hospitals choose to use GPOs, they should pay them only for services rendered. The only way to accomplish this is for the U.S. Congress to pass reform legislation that would repeal the ill-conceived anti-kickback safe harbor exemption, which gave rise to this horrendous mess in the first place.
