Group Purchasing Organizations: An Undisclosed Scandal in the U.S. Healthcare Industry

Cover......Page 1
Contents......Page 8
List of Exhibits and Tables......Page 12
Preface......Page 14
Acknowledgments......Page 16
Prologue: Hearing of the U.S. Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights......Page 18
1 Healthcare Industry in the United States......Page 26
Characteristics of a Good Healthcare System......Page 27
Comparative Analysis of Healthcare Expenditures......Page 28
Health Indicators by Country......Page 29
The Rising Cost of Insurance......Page 30
Preventive Healthcare......Page 31
The Plight of the Uninsured......Page 32
2 Industry Structure of Group Purchasing Organizations......Page 34
Ownership Structure of GPOs......Page 35
Emergence and Growth of GPOs......Page 36
Sources of Revenue......Page 37
Brief Descriptions of Major GPOs......Page 38
GPOs: Industry Size, Concentration, and Market Power......Page 42
Oligopolistic Structure and Diminution of Intra-Industry Competition......Page 43
GPO Defense of Market Domination and Large Size......Page 45
Bargaining Power of Suppliers and Buyers......Page 46
Principal Agency Dilemma, Moral Hazard, and Unintended Consequences......Page 48
Perfect Paradise......Page 49
The Safe Harbor and Safety Zone Exemptions......Page 52
Safe Harbor in the GPO Industry......Page 53
Disclosure of Fees to Members and the Government......Page 54
Antitrust Concerns......Page 55
Financial Burden of GPO Activities on the Healthcare Industry......Page 56
Administrative Fees......Page 57
Deductibility of Operating Costs......Page 58
Return on Shareholder Equity......Page 59
5 GPO Activities, Conflict of Interest, and Their Adverse Consequences for the Healthcare Providers......Page 62
Anticompetitive Behavior, Discouraging Innovation, and Incurring Higher Cost for the Member Hospitals......Page 63
Conflicts of Interest, Nepotism, and Beneficial Business Practices......Page 71
Incurring Higher Costs for Member Hospitals: Failure to Deliver Best Available Products......Page 72
GPOs Push and Pull......Page 76
Acceleration of Government Initiated Investigations......Page 79
First Hearing: Hospital Group Purchasing: Lowering Costs at the Expense of Patient Health and Medical Innovations?......Page 82
Second Hearing: Hospital Group Purchasing: Has the Market Become More Open to Competition?......Page 87
Third Hearing: Hospital Group Purchasing: How to Maintain Innovation and Cost Savings?......Page 91
Fourth Hearing: Hospital Group Purchasing: Are the Industry's Reforms Sufficient to Ensure Competition?......Page 93
S. 2880: Medical Device Competition Act of 2004......Page 94
Hospital Group Purchasing Organization Reform Act......Page 96
Ensuring Competition in Hospital Purchasing Act......Page 97
Conclusion......Page 99
Appendix 7.1......Page 100
Appendix 7.2......Page 103
Appendix 7.3......Page 107
8 The GPO Industry's Efforts in Creating a Voluntary Code of Conduct: The Hanson Report......Page 110
Premier's Report "Best Ethical Practices for the Group Purchasing Industry"......Page 111
Professor Kirk Hanson's Investigation and Recommendations Leading to the Creation of HGPII......Page 112
Appendix 8.1: Recommendations for Best Ethical Practices......Page 118
General Structure, Governance, and Intended Outcome of the Healthcare Group Purchasing Industry Initiative ("Initiative")......Page 124
A Generalized Theoretical Framework for Analyzing Industry-Based Codes of Conduct......Page 126
Overcoming the Problems of Adverse Selection, Free Rider, and Diminution of Best Business Practices......Page 128
Private Law Character of CSR-Related Voluntary Codes of Conduct......Page 129
Creating Internal Cohesiveness and a Commonly Shared Vision......Page 130
Positive Aspects of Industry-wide Voluntary Codes of Conduct Dealing with Societal Issues......Page 131
Preconditions for Creating an Effective Industry-wide CSR-related Voluntary Code of Conduct......Page 132
10 Healthcare Group Purchasing Industry Initiative (HGPII)......Page 134
Principles 1, 3, and 4: Core Values of the Initiative......Page 136
Industry Structure and Its Relevance in Creating an Effective Voluntary Industry-wide Code of Conduct......Page 137
Structural Flaws in the HGPII......Page 138
Principle 2: Employee Training Principle......Page 140
Principle 6: Accountability to the Public......Page 141
Implementation Process......Page 142
Governance Structure......Page 144
The Money Trail......Page 145
Principal–Agency Conflict......Page 146
When All Is Said and Done, It's Mostly Said Than Done......Page 147
Concluding Remarks......Page 148
Appendix 10.1: The Healthcare Group Purchasing Industry Initiative Code of Conduct Principles......Page 150
Epilogue: A Whistleblower Files a Law Suit against Novation......Page 154
Notes......Page 166
Bibliography......Page 186
C......Page 196
H......Page 197
K......Page 198
S......Page 199
Z......Page 200