Congressional Hearing Held on Medical Supplies Companies’ Bundling Practices

The Senate Judiciary Committee Subcommittee on Antitrust, Competition, and Business and Consumer Rights on July 16 held a hearing on whether large medical supply companies are bundling products -- a practice under which various products are sold as a single package -- in violation of antitrust laws, the New York Times reports. The committee heard testimony from witnesses about Johnson & Johnson's bundling practices and reviewed contract changes made by Premier and Novation, which purchase medical supplies for about two-thirds of the nation's hospitals. The congressional hearing came as the General Accounting Office issued a study on the way large contracts for hospital supplies are negotiated, including the bundling practice. The study found that Premier and Novation relied on bundling "for a notable portion of their business," up to 40% of sales volume. The companies last year pledged to make it easier for other medical supply companies to compete for large hospital purchasing contracts (Williams Walsh, New York Times, 7/17). The Times raised questions about the business practices at Premier and Novation in a series of articles last year. According to the Times, medical supply companies -- not hospitals -- finance the purchasing companies. Each year, medical supply companies pay Premier and Novation hundreds of millions of dollars in fees that represent a percentage of hospital purchases. As a result, the more hospitals spend on medical supplies, the more Premier and Novation receive from medical supply companies. According to critics, the conflict of interest in the business relationships may prompt Premier and Novation to award contracts to medical supply companies not based on price or quality (Kaiser Daily Health Policy Report, 3/4/02).

Further Investigations
Connecticut Attorney General Richard Blumenthal (D) July 16 announced that his office has expanded its investigation into the business practices of medical supplies purchasers to include several large medical supplies companies, including J&J. Blumenthal said, "This effort is part of a larger investigation that relates to bundling abuses, which violate not only, potentially, our antitrust laws but also health care regulations and statutes." The announcement comes after J&J in April received subpoenas from the New York attorney general's office and the Federal Trade Commission seeking information about the company's practice of requiring negotiating companies to purchase its sutures and endomechanical devices as a single package. In addition to the J&J inquiry, the FTC is also examining Premier and Novation's contracts and their impact on the market, according to sources familiar with the investigation. Stephen Meagher, an attorney involved in several Medicare fraud cases, said the bundling practices may also involve Medicare fraud as the increased costs of the bundled products are passed along to the federal government.

Response
J&J spokesperson Susan Odenthal said the company is responding to the various government inquiries. While J&J does not deny the existence of the bundled contracts, it said it does not believe the contracts violate anticompetitive laws. Odenthal said the company's contracts are awarded after a competitive bidding process that reflects the company's effort to "respond to customer demand for the highest quality product at the best price," the Times reports. Novation President Mark McKenna told the subcommittee that the company had omitted certain anticompetitive language from its bundled contracts and was working on additional changes. Premier President Richard Norling said that the company had already agreed to stop bundling products, adding that it had only awarded bundled contracts in the past because "large companies have traditionally insisted upon it." Sen. Herb Kohl (D-Wis.), ranking member on the subcommittee, urged HHS Secretary Tommy Thompson to create an office dedicated to supervising medical supply contracts (New York Times, 7/17).