Hospital supply buyer vows to alter process

Novation is second group to pledge reforms after probe by antitrust panel


Hoping to appease congressional critics, the nation's biggest hospital group said yesterday that it was fundamentally changing its contract process to make it easier for new, life-saving medical products to reach hospitals faster.

The company, Novation of Irvine, Texas, said it would begin contracting with more medical supply companies, shorten the length of its contracts, and limit how much money it accepts from suppliers. Critics had charged that its current contracting practices are anti-competitive.

Last year, Novation negotiated nearly $20 billion in supply contracts for a third of the nation's hospitals.

The group's reform plan is similar to, but less specific than, the one offered earlier this week by the nation's other big buying group, Premier Inc. Both plans followed a series of articles in The New York Times that examined, among other things, how the groups had discouraged competition among medical suppliers and slowed the adoption of new medical technologies.

In a joint statement issued yesterday in Washington, the two ranking members of the antitrust subcommittee of the Senate Judiciary Committee expressed appreciation of Novation's pledge but emphasized they would closely monitor it. That subcommittee held a hearing in April on the buying groups.

"While Novation's pledge does have its shortcomings, we believe that Novation's desire to improve its practices are sincere," said those lawmakers, Sen. Herb Kohl, a Wisconsin Democrat, and Sen. Mike DeWine, an Ohio Republican. "It is imperative that Novation implements these and other reforms fully and vigorously."

Larry R. Holden, president of the Medical Device Manufacturers Association, a trade group that represents small medical supply companies, expressed less support for Novation's reforms than for Premier's.

"Novation has been dragged, kicking and screaming, into this process," Holden said. Novation's new code of conduct was long on generalities, he said, and short on specifics. "It doesn't lock them into any real change, and that's a huge problem."

Novation is the purchasing arm of two hospital groups, VHA Inc., representing nonprofit community hospitals, and University HealthSystem Consortium, made up of leading university hospitals.

"We're going to aggressively begin implementation of this as soon as possible," said Jody Hatcher, Novation's vice president of marketing.

Unlike other purchasing agents, buying groups for hospitals are paid by the medical supply companies whose products they are supposed to evaluate objectively. Under a special congressional exemption from federal anti-kickback laws, the groups are permitted to receive sales fees from manufacturers.

Novation said that it would reduce the fees that it collects from manufacturers, if manufacturers lowered their prices.

Novation also said it would stop issuing exclusive contracts to single suppliers when other products offered "incremental patient care benefits or incremental safety benefits" to hospital workers.

In addition, Novation said it would rebid existing contracts when improved medical products became available. The group said doctors and other medical personnel would make those decisions, rather than business executives with no medical training.

The group also said that, in many cases, it would no longer force hospitals to buy different products bundled into the same contract in order to get price discounts.

Such policies, doctors and medical experts have said, discouraged hospitals from buying new medical technologies.

In addition, Novation said it would limit stock holdings by employees and executives in medical product companies with Novation contracts.

Under the agreement reached yesterday, Novation will make periodic reports to Congress to make sure that it is adopting its new policies in good faith, said congressional staffers.

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