From the New York Times: A Region’s Hospital Supplies, Costly Ties

The New York Times released the most recent installment of its Medicine’s Middlemen series investigating the links between high medical costs and buying groups.

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Struggling hospitals in the New York area may be overpaying millions for medical supplies because their trade group promotes a purchasing agent with financial ties to the group and at least one of its top executives, according to records and health care officials.

Some area hospitals say they usually obtain better prices by not buying through the agent, Premier Inc. And a study by the trade group, the Greater New York Hospital Association, once found that Premier’s prices were not always the best. The association will not release that 1997 study, nor will it say whether it has been updated.

When told of Greater New York’s business ties to Premier, two legal experts said that relationship might compromise the hospital association’s judgment in recommending supply companies.

Premier paid the hospital association $11.9 million last year in commissions — a third of the group’s total revenue — for helping it sell medical products to member hospitals. Premier has also provided financing or marketing help to for-profit ventures from which the association and several of its executives stood to profit.

Lee Perlman, who oversees the Greater New York association’s business ventures with Premier, denied that local hospitals overpay for supplies and added that revenue from Premier helped support the group’s services to members. He said the association’s ties to Premier were not improper and did not affect his judgment or that of his colleagues. “There is no question in my mind that tens of millions of dollars have been saved,” he said.

The office of the New York State attorney general, Eliot Spitzer, recently disclosed that it was conducting an inquiry into the business practices of buying groups like Premier.

Joseph Baker, chief of that office’s health care bureau, said that while Premier and the Greater New York Hospital Association were not specific targets, the inquiry would examine the financial dealings among the trade group, its executives and Premier. “We are interested in looking at the web of relationships,” Mr. Baker said. “I am interested in looking at if there are any real conflicts and any real dereliction of duties.”

When told of Greater New York’s business ties to Premier, Geoffrey Hazard, a professor specializing in ethics at the University of Pennsylvania Law School, said they could create potential conflicts of interest.

“That certainly potentially colors their judgment,” Mr. Hazard said. For example, he said, Greater New York officials might be less inclined to search for better purchasing agents. “How do you know you are getting the best prices unless you have informed yourself of other possibilities,” he added.