August 14th, 2009

Reports the New York Times:

Lawmakers eager to broaden health care coverage while holding down costs are examining the institutional market for medical supplies, a largely unseen $60 billion-a-year realm where things like bedpans and heart implants change hands.

Senators from committees like finance, judiciary and aging are investigating the practices of companies that represent big networks of hospitals, nursing homes and other institutions. These group purchasing organizations select “preferred” manufacturers and negotiate the prices of medical products, which are a closely held secret. They then use a variety of carrots and sticks to make sure their hospitals buy those brands at the contracted price.

The senators are concerned that these groups’ practices may be inflating health costs at taxpayer expense. Much of the cost is borne by the government, as it reimburses hospital expenses through the Medicare program.

On Wednesday, the senators sent letters to the seven biggest group purchasing organizations, known as G.P.O.’s, demanding detailed information about their business practices, including how they are paid, what services they perform besides picking brands and negotiating prices, and how their revenues are affected when an affiliated hospital buys supplies on its own instead of using the group contract.

The senators also asked for copies of contracts, something not normally made public.

For years, there have been complaints that the buying process is opaque and unfair. The purchasing companies’ operating expenses are usually paid by the manufacturers sitting across the bargaining table, leaving them open to accusations of steering huge blocks of institutional business to the vendors willing to pay the most.

Find out much more at the NYT.