From New York Times
One recent sun-splashed afternoon, executives who run some of
America’s leading nonprofit hospitals met at a stately Colorado resort for an
unusual mission: to advise companies confidentially on how best to sell their
drugs, medical devices and financial services to hospitals.
The hospital
executives were rewarded with more than a chance to indulge in a “harmonic” hot
stone massage or mountainside golf.
They were also paid thousands of
dollars for the advice they offered to dozens of companies, like Eli
Lilly, Johnson
& Johnson, Morgan
Stanley and Citigroup.
The hospital officials and their spouses received a free trip to the luxury
resort, where they could join the Morgan Stanley Tennis Tournament or the GE
Healthcare Barbecue. All of this came courtesy of the Healthcare Research and
Development Institute, a for-profit company that is owned by about three dozen
hospital executives, but underwritten by 40 or so of its handpicked corporate
members, all suppliers to hospitals.
While the financial relationship
between doctors and drug companies has come under intense scrutiny, much less is
known about how hospital executives interact with companies that sell products
as varied as syringes and financial services. In the case of the Healthcare
Research and Development Institute, executives benefit from payments made by
companies their hospitals do business with.
Founded five decades ago,
the company, known as H.R.D.I., has maintained a low profile, despite an elite
membership that one government official calls “the health care titans of
America.” Earlier this year, the institute declined to even say who belongs to
it. But that is changing.
The Connecticut attorney general, Richard
Blumenthal, is investigating whether the organization allows certain vendors
to buy access to hospital leaders who are in a position to influence what
supplies or services their institutions purchase. As a result, Mr. Blumenthal
said, hospitals may not be getting the best deals, either in terms of cost or
quality.
“At the very least it suggests insider dealings — an insidious,
incestuous, insider system,” said Mr. Blumenthal, who has issued more than 100
subpoenas, mostly to hospital suppliers, including several dozen last week.
H.R.D.I. officials say they are cooperating with Mr. Blumenthal’s
investigation and deny any sinister motives. Its members are merely “trying to
improve products and services in health care — not more complicated than that,”
said Gary A. Mecklenburg, the group’s chairman and a former chairman of the
American Hospital Association, the industry’s largest trade group.
But
Mr. Mecklenburg’s own background highlights the overlapping interests that he
faces.
Mr. Mecklenburg not only runs a large nonprofit hospital,
Northwestern Memorial in Chicago, but he also serves on the board of Becton,
Dickinson and Company, a major supplier of medical devices to hospitals around
the world, including his own. Becton, Dickinson pays the institute for marketing
advice, and the institute pays Mr. Mecklenburg $50,000 a year, mostly for
participating in two national conferences, according to the group.
A
spokeswoman for Northwestern Memorial, Holli Salls, said that hospital board
members had approved Mr. Mecklenburg’s positions at both Becton, Dickinson and
H.R.D.I., and that “he reviews his involvement with them annually.” But those
financial entanglements anger one of Becton, Dickinson’s smaller rivals, a
Texas-based manufacturer of syringe needles called Retractable
Technologies, which sees them thwarting competition.
“This is not
the kind of club that is likely to invite us to become a member, nor is it one
that we’d care to belong to,” said Thomas J. Shaw, Retractable’s chief
executive. “As a matter of policy, we do not engage in pay-to-play
schemes.”
Two years ago, Retractable reached a $100 million settlement
with Becton, Dickinson after accusing it and several other companies of freezing
Retractable out of many hospitals. The healthcare institute did not figure in
the lawsuit, but several of its members ran companies that did.
If
Retractable is not interested in joining the group, many others are. “We have a
long waiting list of companies,” said Diane P. Appleyard, the president of the
organization, which is based in Pensacola, Fla.
Only two competing
companies in any specific field are generally allowed to join, according to the
group. Mr. Blumenthal said limiting membership raised antitrust concerns, adding
that his office was investigating whether companies used their membership to
improperly divide sales territories. “These arrangements are more than just a
bunch of corporate C.E.O.’s and health care executives enjoying golf games or
cocktails,” he said.
Mr. Blumenthal’s inquiry builds on a lengthy
examination of hospital buying practices by the Senate antitrust subcommittee.
Rather than focus on consulting firms like H.R.D.I., the Senate has looked at
companies or consortiums that buy supplies on behalf of groups of hospitals.
Witnesses have described how vendors paid millions of dollars in “administrative
fees” to the buying groups, prompting some critics like Mr. Shaw of Retractable
to call them kickbacks.
An association of group purchasing organizations
has since adopted an industry code of ethics, but some suppliers say it does not
go far enough in ensuring competition in the marketplace. The Senate antitrust
subcommittee is considering whether legislation is needed.H.R.D.I. is not alone
in using hospital executives to advise suppliers. Ms. Appleyard says that a
number of imitators have emerged in the last few years.
W. Hays Waldrop
of Franklin, Tenn., said he arranged for hospital executives to advise suppliers
through a company called the Institute of Healthcare Executives and Suppliers.
Mr. Waldrop said he sold corporate memberships to vendors for about $30,000 a
year. “It’s about nothing else but education and peer networking,” Mr. Waldrop
said.
Becton, Dickinson, which is based in Franklin Lakes, N.J., is a
member of a division of the institute called the Council of Supply Chain
Executives. According to that council’s Web site, it offers suppliers “a unique
environment to learn and gain direct access with leading supply chain
executives, in both formal and casual settings.”
Mr. Waldrop said his
groups differed from H.R.D.I. in that he, not hospital executives, owned them.
He said hospital officials got only a small honorarium for consulting, though he
declined to say how much. In addition, Mr. Waldrop said, he donates money in the
names of those executives to their hospitals’ foundations.
Until
recently, H.R.D.I. discouraged media coverage of its affairs. In April, Ms.
Appleyard declined to name her organization’s members, saying she did not want a
reporter bothering them. The company had earlier restricted access to its Web
site after a reporter began questioning those members.
But after
Connecticut’s attorney general called the group a “secretive” network of
“ethically questionable business arrangements,” during testimony in March before
the Senate antitrust subcommittee, the company recently reopened its Web site to
the public. “We decided we needed to stop not commenting,” Ms. Appleyard
said.
The institute’s new policy of openness is apparently not shared by
all of its members. Nearly a dozen corporate members either declined to comment
or did not respond to requests to discuss their involvement. “I can’t respond
for them,” Mr. Mecklenburg, the group’s chairman, said. “They are independent
corporations and that’s their decision.”
Last May, more than 130
representatives from 40 health care companies were scheduled to attend
confidential consulting sessions at the Broadmoor, a Colorado Springs hotel.
When not attending the sessions, hospital chief executives and suppliers mingled
at company-sponsored tennis, golf and social events.
Each year, H.R.D.I.
holds two gatherings like the one in Colorado, where each corporate member gets
a meeting of up to three hours with five or six chief executives, according to
Mr. Mecklenburg..
“The range of those discussions can be very, very
wide,” he said. “I would call this market research. What do you think of our
strategy? What do you think of our product?” The hospitals’ leaders also serve
as a sounding board for products or services under development, the group
said.
Each company is also assigned a specific hospital executive, called
a liaison. “The typical organization is paying $40,000,” Mr. Mecklenberg said.
“It can be more, but that would not be typical.”
Additional access to
hospital executives and their institutions can cost companies $55,000 a year or
even more. For example, a special two- to three-day visit to a specific hospital
costs $2,000 a person, according to H.R.D.I., which says most of that money is
eventually passed on to the hospital.
The group’s Web site also states:
“Other forms of individual or group training may be tailored to the corporate
member’s specific needs and conducted at the place and time
requested.”
It is unclear exactly how much hospital executives, who are
the shareholders of the healthcare institute, earn annually for consulting at
the two conferences. Asked to verify a report that some members earned as much
as $50,000, Mr. Mecklenberg initially denied it. “Our observation and
recollection is $20,000 to $30,000 a year,” he said. “It may be more than that
but we don’t have data in front of us, but it’s certainly not
$50,000.”
Days later, the organization said in an e-mail message that Mr.
Mecklenberg himself had been paid $50,000, $18,000 of which was for his
administrative work as chairman. The group said that for years he had donated
his consulting income to his hospital’s foundation.
Mark Leahey,
executive director of the Medical Device Manufacturers Association, said he was
troubled by the fact that H.R.D.I. members had included leaders of organizations
that negotiate major purchasing contracts on behalf of hundreds of nonprofit
hospitals.
“These conflicts prevent innovative, cost-effective products
from entering the market,” said Mr. Leahey, whose group has been a frequent
critic of these large buying groups.
H.R.D.I. began a half-century ago
when several hospital administrators started meeting informally at professional
conferences “to share innovations and experiences,” according to the group’s Web
site.
The organization’s mission changed, however, when a manufacturer
complained in the early 1960’s that he had no reliable place to turn for
impartial advice on product research. “Concerned that products and services
sometimes arrived at the hospital without thoughtful evaluation and input from
providers and patients, they recognized an opportunity to influence the
development process,” the Web site states.
The institute’s Web site added
that members had agreed that the group’s purpose was solely for education and
the sharing of ideas “and is not for direct solicitation.”