GAO urges study of how hospitals report some fees

A government watchdog report says the U.S. Health and Human Services Administration should determine whether hospitals are properly reporting revenue they can receive from group purchasing organizations such as Charlotte-based Premier to make sure Medicare payments aren’t being affected.

The report, released Monday by the Government Accountability Office, also drew sharp criticism from a physicians group that said the findings did not address their allegations that GPOs are contributing to generic prescription drug shortages. GPOs contend manufacturing problems and other factors lead to shortages and that they are working to address the problem.

GPOs such as Premier are organizations that negotiate contracts for medical products and services, typically on behalf of hospital organizations such as Carolinas HealthCare System. In return, the GPOs receive fees from vendors, a source of operating revenues.

GPOs are allowed to collect these administrative fees if they meet certain conditions of an “antikickback” provision of the Social Security Act, which normally would prohibit such fees, according to the report. The fees are allowed for GPOs under the belief the organizations will help reduce healthcare costs by allowing hospitals to receive volume discounts from suppliers, according to the report.

In addition to using these fees to fund their own operations, GPOs can distribute a portion of these payments to the hospital systems that are their customers. Hospitals are required to report to the government fees they receive from GPOs as a reduction to their costs, so any under-reporting could affect Medicare rates, according to the GAO report.

The “potential under-reporting of administrative fee revenue presents an immediate risk that can be addressed,” the GAO said in the report. HHS agreed with the recommendation that it should review the issue, according to the report.

In a statement Monday, the Healthcare Supply Chain Association, a trade group that represents GPOs such as Premier, said its members “fully support hospital compliance with administrative fee reporting and we applaud the evidence cited in the report which demonstrates that the vast majority of hospitals have been reporting appropriately and transparently.”

A group called Physicians Against Drug Shortages, however, labeled the report a “travesty” because the group said it was “unresponsive” to a 2012 letter from five U.S. House members, including now-Sen. Ed Markey, D-Mass., asking for a GAO investigation into “the role of anti-competitive, exclusionary GPO contracting practices in causing the drug shortage crisis.”

The group, on its web site, says GPOs are responsible for a shortage of generic prescription drugs such as chemotherapy agents because GPOs award exclusive contracts to suppliers in return for administrative fees. Because of these practices, the group says there are now only one or two suppliers for some drugs, or none at all.

The group has urged Congress to repeal the “safe harbor” provision that allows GPOs to get around antikickback provisions. But Monday’s GAO report said that could be “disruptive to the health care supply chain at least in the near term.”

A GAO report in February found that the immediate cause of drug shortages can “generally be traced to a manufacturer halting or slowing production to address quality problems, triggering a supply disruption.” It said some studies suggested GPOs play a role but that the GPOs it contacted disagreed.

Asked in an interview earlier this month whether GPOs contribute to shortages, Premier CEO Susan DeVore told the Observer “it’s actually quite the contrary,” saying the company is “doing everything we can” to address drug shortages with its health system members. “We have been very proactive in trying to alleviate or reduce the impact of the drug shortages,” she said.