Senate Subcommittee Proposes Bill To Allow HHS To Regulate Business Practices of Hospital Supply Purchasers
The Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights on Tuesday circulated a draft bill that would give HHS more authority to regulate the sale of medical supplies to hospitals to help "end abusive practices" after health care and antitrust experts testified at a hearing that the "industry should not be left to regulate itself," the New York Times reports. The legislation would require the HHS secretary to issue new regulations on contracts between medical supply companies and hospital supply purchasers -- for-profit companies established by groups of not-for-profit hospitals that negotiate the purchase of billions of dollars in medical supplies each year (Williams Walsh, New York Times, 9/15).
The Department of Justice recently launched a criminal investigation into whether hospitals and other providers have fraudulently overcharged Medicare and other public health insurance programs for products used in medical services. The investigation focuses on whether rebates, discounts, barter arrangements and refunds provided to hospital supply purchasers by medical supply companies have led to such overcharges. The investigation likely seeks evidence of health care fraud, conspiracy to defraud the United States, theft or bribery involving programs receiving federal funds, obstruction of investigations and other possible violations.
Under an exemption in federal antikickback law, hospital supply purchasers can accept payments from medical supply companies as long as they do not exceed the "safe harbor" limit of 3% of company sales (California Healthline, 8/23). Current law has "no mechanisms for oversight or enforcement," the Times reports. In recent years, some hospital supply purchasers have begun to develop questionable financial ties to medical supply companies and engage in allegedly improper business practices.
The hearing on Tuesday marked the third time in the last two years that the subcommittee has "heard accusations that some purchasing companies have favored suppliers willing to make the biggest payments, thereby reducing competition in the hospital supplies market," the Times reports.
The draft legislation circulated by the subcommittee would require the HHS secretary to work with the U.S. attorney general and the Federal Trade Commission to issue regulations that identify business practices used by hospital supply purchasers that violate federal antitrust law or other ethical standards. HHS also would review hospital supply purchasers annually to certify that they have complied with the new regulations.
The bill also would place more restrictions on, but would not ban, the payments that hospital supply purchasers can receive from medical supply companies. Under the legislation, hospital supply purchasers could accept payments for "those reasonable costs associated with the procurement of products and the administration of valid contracts." The legislation would ban payments to cover the cost of marketing certain medical supplies to hospitals; conversion fees, or payments to cover the cost that hospitals incur when they switch brands; and "any other payment intended to unduly or improperly influence the award of a contract, based on factors other than the cost, quality, safety or efficacy of the product."
"This hearing centers on perhaps the most important work of our subcommittee in the past few years," Sen. Herb Kohl (D-Wis.), ranking member of the subcommittee, said, adding, "Ensuring that physicians, patients and health care workers have access to the best and safest medical devices -- devices that can literally make the difference between life and death."
Subcommittee Chair Mike DeWine (R-Ohio) said that although some hospital supply companies have stopped engaging in improper business practices, others have not. He added, "There may be backsliding" without additional regulation.
Officials for hospital supply purchasers did not testify at the hearing. However, Robert Betz, president of a trade group that represents hospital supply purchasers, testified that the industry does not require additional regulation, which he said would lead to increased health care costs (New York Times, 9/14).