WASHINGTON, DC – As the saying goes, the road to hell is paved with good intentions and, according to Andrew Mangione, “an excellent example of good intentions gone awry is the Medicare Anti-Kickback Safe Harbor Statute. Originally intended to ensure fair marketing and reduce fraud for the Medicare and Medicaid programs, the safe harbor statute actually enables pay-to-play schemes.”
Mangione, a vice president at the Association of Mature American Citizens [AMAC], has an extensive background in healthcare, says “most hospitals belong to GPOs for the purpose of leveraging the combined purchasing power of multiple institutions when buying supplies, including medical supplies and prescription drugs. The mission of the GPOs was clear: save money for their member hospitals, and for approximately 80 years this “co-op” model worked as intended.”
Originally, the administrative expenses of GPOs were covered by their member hospitals. But, in 1991, when the statute was implemented, vendors began paying their expenses without the threat of being accused of engaging in bribery, as long as the fees paid did not exceed 3% of sales.
“In the ensuing years, the GPOs have circumvented the rules by playing a game of semantics, inventing other kinds of fees (a/k/a kickbacks), including advance payments and payments for marketing,” says Mangione. “In effect, the GPOs became de facto agents for their vendors.”
He believes that repealing the Anti-Kickback Safe Harbor Statute would generate tens of billions of dollars in savings for the hospital supply chain (which includes the Medicare and Medicaid programs). It would also promote free-market competition for the drug and medical supply marketplace at the same time.
But the patient advocacy group, Physicians Against Drug Shortages [PADS], estimates that “total kickbacks paid by suppliers to GPOs have sometimes exceeded half of the suppliers’ annual revenues for a single drug.” PADS says that group purchasing organizations currently control buying for more than $300 billion a year in hospital goods, including drugs, devices and supplies for about 5,000 acute care hospitals and many more outpatient clinics, surgery centers and long term care facilities.
Oversight has been lacking and so a pay-to-play system has emerged, Mangione alleges. “Medical suppliers and drug manufacturers can simply purchase market share by paying exorbitant fees to GPOs in return for contracts that give their products exclusive access to GPO-member hospitals.”
Meanwhile, in 2003 Pharmacy Benefit Managers [PBM] achieved protection under the statute. The PBM industry was created specifically to administer drug benefits for health plans, including commercial, employee and retiree plans and Medicare Part D.
Thus, Mangione contends, the safe harbor statute has created a system where purchasing agents, and not clinicians decide which drugs, medical devices and supplies physicians can use for their patients. “These decisions could be based largely on how much kickback revenue these products can generate for the GPOs and PBMs.”
Mangione says that repealing the safe harbor provision would create free market competition and foster innovation. He believes that it would result in potential cost reductions estimated at $100 billion, including savings for the Medicare and Medicaid programs. “These estimates were calculated through an analysis of a variety of sources, including government data and empirical studies.”
Repeal of the safe harbor provision has resonated with physicians. In addition to the Physicians Against Drug Shortages organization, the American College of Emergency Physicians (ACEP) chimed in when in late 2017 it formally adopted a resolution calling for repeal. ACEP has resolved to “work with other medical specialties and patient advocacy groups to seek Congressional legislative repeal of the Group Purchasing Organizations’ safe-harbor protection.”
The benefits of repealing the safe harbor provision have drawn the attention of Congress, Mangione notes. “If successful, repeal could be used as a catalyst for the Trump Administration to fix our broken healthcare system, rid it of Obama-era inefficiencies and finally provide Americans with care that is responsive to their needs.”
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