GPOs tout victory in C.R. Bard's lawsuit win
August 27, 2010
by Astrid Fiano, Heather Mayer and Brendon Nafziger, DOTmed News reporters
Medical device makers C.R. Bard won a suit against a Missouri hospital accusing it of violating antitrust laws in its deal with a group purchasing organization, in a ruling touted by GPO groups as a vindication of their business model.
The Eighth Circuit Court upheld an earlier verdict ruling in favor of Murray Hill, N.J.-based device giant Bard in a suit by St. Francis Medical Center. The hospital accused the company of using discounts and contracts offered through Novation, a GPO, to price out competition for its catheters.
GPOs make deals with suppliers on behalf of hospitals, who can then purchase goods through the suppliers under the GPO-negotiated contracts. Because hospitals, on average, pay 16 percent less using GPO contracts, virtually all hospitals in the country are affiliated with at least one GPO, according to the court.
But they don't lack for critics. An article in Washington Monthly earlier this month accused GPOs of thwarting innovation and being more interested in harvesting fees from sellers than haggling discounts for hospital buyers.
In the case, St. Francis, a Cape Girardeau-based hospital, argued that Bard's sole-source contracts, tiered pricing and bundled discounts for catheters and other products, in effect, discouraged competition from other sources, because Bard's prices were too low, and being so low, hospitals would have to accept them.
But the appellate court upheld the lower court's decision that St. Francis failed to meet the tests for violation of antitrust laws that have been established by previous court cases, largely because the discounts did not put the prices below cost. Antitrust cost levels would be at a "predatory" low level, meaning one market player drives out others or prevents others from competing.
"When prices are not predatory, any losses flowing from them cannot be said to stem from an anti-competitive aspect of the defendant's conduct," Judges Diana E. Murphy, C. Arlen Beam and William Duane Benton wrote in their judgment. "It is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition."
St. Francis' main arguments targeted Bard's bundled discounts, rebates for buying bundles of different medical products together. The hospital said these discounts put the products below cost, as other competitors could not offer the same bundled discount.
One way to prove this is through the "attribution test," which applies the discount for all bundled product to just the disputed product - in this case, the catheter. The court didn't necessarily adopt the attribution test, but said that even if it were used, St. Francis was not able to prove their claims.
The expert's report, which St. Francis used to bolster its argument, was "fatally flawed," the court said, as it applied the discount to all the products in the bundle. Further, the test can't be used when competitors offer all of the products in the bundle, which three of Bard's competitors do.
And because of the nature of GPO contracts, the hospitals are still free to buy from other sources and even use other GPOs. The St. Francis director of materials management clearly stated that he could have bought the products from Tyco, but liked Bard's products better. Since they are free to negotiate with other companies, they have not suffered any injuries.
The Health Industry Group Purchasing Association, a GPO trade group, lauded the decision.
"The court in Southeast Missouri Hospital has affirmed what the U.S. Department of Justice, Government Accountability Office, the Federal Trade Commission, and virtually all of the 5,000+ American hospitals have already found - GPOs reduce costs for hospitals," said HIGPA president Curtis Rooney in a statement. "As hospitals across the country continue to face down budget crises, they are increasingly relying on GPOs to reduce operating costs and to bring the best technology to market at the best value."
St. Francis is appealing the decision, the hospital's president and CEO Steven C. Bjelich told DOTmed News in prepared remarks.
Bard did not return calls for comment.
Medical device makers C.R. Bard won a suit against a Missouri hospital accusing it of violating antitrust laws in its deal with a group purchasing organization, in a ruling touted by GPO groups as a vindication of their business model.
The Eighth Circuit Court upheld an earlier verdict ruling in favor of Murray Hill, N.J.-based device giant Bard in a suit by St. Francis Medical Center. The hospital accused the company of using discounts and contracts offered through Novation, a GPO, to price out competition for its catheters.
GPOs make deals with suppliers on behalf of hospitals, who can then purchase goods through the suppliers under the GPO-negotiated contracts. Because hospitals, on average, pay 16 percent less using GPO contracts, virtually all hospitals in the country are affiliated with at least one GPO, according to the court.
But they don't lack for critics. An article in Washington Monthly earlier this month accused GPOs of thwarting innovation and being more interested in harvesting fees from sellers than haggling discounts for hospital buyers.
In the case, St. Francis, a Cape Girardeau-based hospital, argued that Bard's sole-source contracts, tiered pricing and bundled discounts for catheters and other products, in effect, discouraged competition from other sources, because Bard's prices were too low, and being so low, hospitals would have to accept them.
But the appellate court upheld the lower court's decision that St. Francis failed to meet the tests for violation of antitrust laws that have been established by previous court cases, largely because the discounts did not put the prices below cost. Antitrust cost levels would be at a "predatory" low level, meaning one market player drives out others or prevents others from competing.
"When prices are not predatory, any losses flowing from them cannot be said to stem from an anti-competitive aspect of the defendant's conduct," Judges Diana E. Murphy, C. Arlen Beam and William Duane Benton wrote in their judgment. "It is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition."
St. Francis' main arguments targeted Bard's bundled discounts, rebates for buying bundles of different medical products together. The hospital said these discounts put the products below cost, as other competitors could not offer the same bundled discount.
One way to prove this is through the "attribution test," which applies the discount for all bundled product to just the disputed product - in this case, the catheter. The court didn't necessarily adopt the attribution test, but said that even if it were used, St. Francis was not able to prove their claims.
The expert's report, which St. Francis used to bolster its argument, was "fatally flawed," the court said, as it applied the discount to all the products in the bundle. Further, the test can't be used when competitors offer all of the products in the bundle, which three of Bard's competitors do.
And because of the nature of GPO contracts, the hospitals are still free to buy from other sources and even use other GPOs. The St. Francis director of materials management clearly stated that he could have bought the products from Tyco, but liked Bard's products better. Since they are free to negotiate with other companies, they have not suffered any injuries.
The Health Industry Group Purchasing Association, a GPO trade group, lauded the decision.
"The court in Southeast Missouri Hospital has affirmed what the U.S. Department of Justice, Government Accountability Office, the Federal Trade Commission, and virtually all of the 5,000+ American hospitals have already found - GPOs reduce costs for hospitals," said HIGPA president Curtis Rooney in a statement. "As hospitals across the country continue to face down budget crises, they are increasingly relying on GPOs to reduce operating costs and to bring the best technology to market at the best value."
St. Francis is appealing the decision, the hospital's president and CEO Steven C. Bjelich told DOTmed News in prepared remarks.
Bard did not return calls for comment.