Bloomberg News

U.S. Senators Offer Bill to Limit Hospital Purchasing Groups

October 01, 2004

U.S. Senators Mike DeWine and Herb Kohl introduced a measure to impose government oversight on hospital purchasing practices, a move that could affect drug and device makers and pharmacy-benefit managers.

Hospitals pool their purchasing power through groups such as Novation LLC and Premier Inc. to obtain discounts on supplies from bandages to drugs. Some manufacturers have said that companies such as Becton, Dickinson & Co., the world's largest maker of syringes, unfairly received favorable treatment from purchasing groups, leading to congressional hearings in 2002.

The bill would require the U.S. Department of Health and Human Services to ban purchasing-group payments to vendors such as Becton that exceed 3 percent of the price of the good or service sold. The measure also would prevent buyers from accepting fees from suppliers, with exceptions approved by HHS.

``Our goal is to ensure that physicians and patients have access to the highest quality medical products at the lowest prices, and to prevent improper barriers to competition among hospital suppliers,'' the senators said in a joint statement.

The National Venture Capital Association, which represents investment firms including Warburg Pincus, supports legislation. The Health Industry Group Purchasing Association, which includes Premier and Novation, opposes it.

Kohl, a Wisconsin Democrat, led an investigation of hospital group purchasing practices in 2002 when his party controlled the Senate. In July 2002, the industry wrote a code of conduct for itself that required buying groups to address suppliers' grievances. DeWine is the Ohio Republican who now chairs the antitrust subcommittee.

Novation and suppliers including drugmaker Merck & Co. are among companies that in August reported receiving subpoenas from the U.S Attorney's office in Dallas for transaction records.

Novation procures $22 billion a year in supplies for 2,400 medical facilities, according to its Web site. Premier procures about $17 billion in supplies for 1,500 hospitals and clinics, according to its 2003 annual report.

To contact the reporter on this story: Kristen Hallam in Washington at khallam@bloomberg.net

To contact the editor responsible for this story: Robert Simison at rsimison@bloomberg.net


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