Buyer Power and Health Care, A Summary of Conference Breakout Session

Jul 23 2004

June 22, 2004, Buyer Power Conference of the American Antitrust Institute




Facilitator: Ellen Cooper, Assistant Attorney General, Maryland


Robert Bloch, Mayer Brown Rowe and Maw

Barbara Bergmann, University of Maryland

William Comanor, UCLA and UCSB

Rapporteur: Bernard Ascher

The facilitator introduced the panelists and kicked off a discussion of buyer power in the health care field. Robert Bloch addressed Group Purchasing Organizations (GPOs); Barbara Bergmann, hospitals and nurses; and William Comanor, pharmaceutical benefit managers (PBMs).

Bloch stated that hospitals purchase 72% of their medical equipment through GPOs. Over 900 GPOs account for about $200 billion in purchases of goods and services annually in the United States. Most of these hospitals are non-profit institutions. Many of the GPOs to which they belong are cooperatives. GPOs act as buyers’ agents, entering into contracts with manufacturers for deep discounts. These contracts save their clients 10-15% through increased efficiency and competition, thus benefiting consumers. GPOs are under attack by small manufacturers, who charge that GPO practices favor large manufacturers, an issue that has led to two Senate hearings in 2002 and 2003.

Bergmann is seeking reasons why nurses’ wages are not rising enough to relieve recurring shortages in the supply of nurses. Hospitals are ideally situated to exercise market power on both the buying side and selling side. On the buying side, she suspects that hospitals play a role in preventing wages from rising, which leads to short staffing and poor working conditions, which further discourages nursing employment. Fragmentary evidence suggests that hospitals in some localities share information on nurses’ salaries and other compensation, which tends to depress wages. Although collusion is difficult to prove, she points to evidence cited in a court case in Utah ten years ago, which was settled by consent decree. Antitrust relief would benefit nurses and, in turn, would help the public through better quality nursing care.

Comanor stated that drug companies are not considered victimized by monopsonies. The great majority of drugs are purchased by insurance companies or employers who use PBMs. Consumers, who co-pay with their health insurance companies, don’t care what PBMs pay the drug company for their medications. PBMs have an effect on prices paid by consumers. Cash prices paid at the counter do not reflect the prices paid by PBMs, which are much lower. Years ago drug companies tried to buy up PBMs. A current issue relates to efforts by PBMs to get doctors to switch from prescribing Drug A to Drug B, manufactured by another drug company. A recent case involved a settlement by Medco with Maryland, Pennsylvania and others over similar practices.

Members of the audience engaged in a lively discussion with the panelists which raised the following points and questions, most of them on nurses and hospitals:

· What percentage of nurses, don’t practice? How do nurses’ wages compare to wages of other professions that require the same education and training? Are low wages for nurses in the interest of doctors, particularly those who work in doctors’ offices?

· Another factor to consider in examining nurses’ wages is the effect Registered Nurses’ salaries have on salaries of Advance Practice Nurses. The fear is that if APN salaries get too high, they will compete with doctors’ salaries in some fields.

· The American Nurses Association (ANA) is dominated by nurse administrators who work for hospitals and do not want to see high salaries for nurses.

· The California Nurses Association seceded from the American Nurses Association because it is dominated by administrators.

· Collusion requires lots of participants (lots of employees, lots of hospitals). It would be hard to keep secret. Aside from the Utah case, what evidence points to collusion?

· A hospital group in Washington DC compiles nurses’ salary information from its members and distributes the results.

· Agencies that supply nurses as fill-ins get higher pay, a case of different prices for the same commodity.

· Nurses in countries with socialized medicine earn higher wages than U.S. nurses.

· The ANA’s collective bargaining unit is very efficient in gaining wage increases. They are trying to get the non-collective unit more interested.

· Why did Congress pass a law that requires the best price given for private care be given to the U.S. Medicare program, which resulted in overall discounts shrinking to 15%, rather than permitting greater use of bargaining power to put pressure on sellers? Politics?

· Rebates from pharmaceutical companies to PBMs range on average from 12 to15 to 20%, but can be higher on individual drugs. Does the consumer benefit from these rebates? How much gets passed on to the consumer?

· How transparent are the operations of PBMs? Should the FTC require that they operate in the sunlight?

· HMOs are starting their own PBMs now.

· Bundling of unrelated products as part of a loyalty rebate program may be a potential antitrust issue in circumstances where one or more of the products in the bundle has a very high market share, e.g., 80% and is coupled with a high purchase requirement to get the discount(s) being offered as part of the program. Competitors with only a single product could have a difficult time competing under some circumstances if they must match the discount being offered for the entire bundle in order to sell their single product.

· Getting drugs off patent would introduce more competition, but opponents assert that this might create a barrier to innovation.