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Hospital Chiefs Get Paid for Advice on Selling to Hospitals    [

    Bush Administration Plans Medicare Changes
    By Robert Pear
    The New York Times

    Monday 17 July 2006

    Washington - The Bush administration says it plans sweeping changes in Medicare payments to hospitals that could cut payments by 20 percent to 30 percent for many complex treatments and new technologies.

    The changes, the biggest since the current payment system was adopted in 1983, are meant to improve the accuracy of payment rates. But doctors, hospitals and patient groups say the effects could be devastating.

    Federal officials said that biases and distortions in the current system had created financial incentives for hospitals to treat certain patients, on whom they could make money, and to avoid others, who were less profitable.

    Michael O. Leavitt, the secretary of health and human services, said the new system would be more accurate because payments would be based on hospital costs, rather than on charges, and would be adjusted to reflect the severity of a patient's illness. A hospital now receives the same amount for a patient with a particular condition, like pneumonia, regardless of whether the illness is mild or severe.

    Medicare pays more than $125 billion a year to nearly 5,000 hospitals. The new plan is not expected to save money, but will shift around billions of dollars, creating clear winners and losers. The effects will ripple through the health care system because many private insurers and state Medicaid programs follow Medicare's example.

    Dr. Alan D. Guerci, president of St. Francis Hospital in Roslyn, N.Y., said the new formula would cut Medicare payments to his hospital by $21 million, or 12 percent. "It will significantly reduce payments for cardiac care and will force many hospitals to reduce the number of cardiac procedures they perform," Dr. Guerci said.

    A coalition of patient organizations, including the Parkinson's Action Network and the Society for Women's Health Research, told the government in a letter that the new system "could have a devastating impact on payment for critical treatments for seriously ill patients, with reimbursement for some essential procedures cut as much as 30 percent."

    The basic payment for surgery to open clogged arteries, by inserting a drug-coated wire mesh stent, would be cut by 33 percent, to $7,590. The payment for implanting a defibrillator, like the one used by Vice President Dick Cheney, would be cut 23 percent, to $22,000, while the payment for hip and knee replacements would be reduced 10 percent, to $14,500.

    "This is a bit of a catastrophe," said Dr. Herbert Pardes, president of NewYork-Presbyterian Hospital. In its zeal to cut the profits of doctor-owned specialty hospitals, including cardiac hospitals, Dr. Pardes said, the government has inadvertently hit many nonprofit academic medical centers.

    Drug and device makers have been lobbying Congress and the Bush administration to delay the changes to allow further analysis. Device makers are scheduled to meet with top White House officials this week. More than 200 members of Congress have signed letters supporting a one-year delay.

    Peter L. Ashkenaz, a spokesman for the Medicare agency, said officials had received the letters but could not comment because they were working on a final regulation, to be issued in a few weeks.

    Hospitals and members of Congress are also complaining about the role of a government contractor that helped develop the new payment system and now stands to profit from it.

    The new system is based on a commercial product developed by 3M Health Information Systems, a unit of 3M, the Minnesota-based technology company. In July 2005, the Bush administration awarded a "sole source contract" to 3M, to analyze whether it was feasible for Medicare to use a payment system modeled on the 3M product. The company said yes.

    Influential members of Congress, including Senator Charles E. Grassley, Republican of Iowa, the chairman of the Finance Committee, have objected to Medicare's reliance on a proprietary system controlled by a single company.

    A competing company, Ingenix, said, "The contract was awarded to 3M without the solicitation of competitive bids." Moreover, Richard H. Anderson, chief executive of Ingenix, a unit of UnitedHealth Group, said that 3M had a conflict of interest because it was evaluating its own proprietary software as the basis for a new Medicare payment system.

    The software analyzes the characteristics of each patient and assigns the case to a "diagnosis related group," which in turn determines how much the hospital will be paid.

    In recent weeks, 3M has sent out marketing materials that urge hospitals to buy 3M software and use 3M experts to help them "make a successful transition" to the new Medicare payment system.

    Richard F. Averill, research director of 3M Health Information Systems, said the sole-source contract was justified and denied that his company had a conflict of interest. As an inventor of the 1983 payment system, Mr. Averill said, he and his colleagues at 3M know more about it than their competitors.

    Moreover, Mr. Averill said in an interview: "The contract required us to use the 3M system in our analysis. There was no evaluation of alternatives."

    The goal of the new payment system is to pay hospitals more accurately for the cost of care. But Jayson S. Slotnik, director of Medicare policy at the Biotechnology Industry Organization, a trade group, said that payments would, in many cases, be less accurate because the government had relied on old hospital cost reports and claims data that did not reflect the use of new technology.

    Without a delay, Mr. Slotnik said, hospitals can expect to see a 35 percent reduction in Medicare payments for stroke patients treated with clot-busting drugs. The basic payment for such cases is now $11,578.

    It is no surprise that the Greater New York Hospital Association, which represents many teaching hospitals in a high-cost area, objects to the new system. But hospitals in North Dakota are also concerned.

    Arnold R. Thomas, president of the North Dakota Healthcare Association, said the new system would cause "radical shifts" of money among the state's 52 hospitals. "The effects would be rather random and inequitable," Mr. Arnold said.

    When hospitals lose Medicare revenue, they often seek higher reimbursement from private insurers. J. Brian Munroe, vice president of WellPoint, one of the largest private plans, said he feared that the Medicare changes "will introduce a significant amount of disruption to the commercial health insurance marketplace, driving up health care costs and causing marketplace confusion."

    Go to Original

    Hospital Chiefs Get Paid for Advice on Selling to Hospitals
    By Walt Bogdanich
    The New York Times

    Monday 17 July 2006

    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 ó 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 ó 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."

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    Mary Williams Walsh contributed reporting for this article.