Coronavirus

“The Costco Model on Steroids”: Massive Corporate Deals Are Making Hospitals’ PPE Shortages Worse

Amid shortages of PPE to fight coronavirus, some hospitals aren’t taking donations because they’re contractually obligated to exclusive suppliers. “[We’re] like fucking sitting ducks,” said one doctor. “Everything in health care is meant to benefit those who control the system.”
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Photo Illustration by Alicia Tatone; Photos from Getty Images.

The internal memo was circulated among staff at a California hospital on April 8. “All...clinicians and staff shall be issued one surgical mask to wear at all times while at work,” it read. “It is important that every clinician and staff member protect this mask, and utilize it for at least a week or longer, in order to help preserve our precious supply of PPE.” More than a month later, the memo is still in effect, said a doctor who received it and is treating COVID-19 patients. The PPE situation at that doctor’s hospital has not improved. What’s more, the hospital sent around a separate form that medical workers were encouraged to sign. It read, in part, “Any harm or loss to any other party as a result of infection caused by my actions shall be my sole responsibility, which I accept and assume. I expressly agree to indemnify and hold harmless the company, its client(s), and its contractor(s) against any and all claims, demands, damages, rights of actions, or causes of action, of any person or entity, that may arise from such infections caused by my actions.”

“Basically, ‘If you get COVID [due to lack of PPE] and die, you can’t sue us,’” the California doctor said. “It would be like a firefighter trying to sue a fire department for sending him into a burning building without appropriate gear, and the firefighter having to sign off before they walk into the fire. I didn’t sign it.”

At this point stories of PPE shortages are par for the course; multiple reports have emerged of hospital workers expressing concern over insufficient personal protective equipment, which puts them and their patients at risk. I’ve reported extensively on the topic. And yet the California doctor said the hospital system has not accepted donations of PPE. Its hands are tied—the doctor told me that the hospital has an exclusive contract with Medline, the largest privately held manufacturer and distributor of medical supplies in the United States. Even with Medline running short on PPE, the hospital isn’t turning elsewhere for necessary equipment. “We sat like fucking sitting ducks,” the doctor said. “Everything in health care is meant to benefit those who control the system...It is only about [corporations] and stockholders.”

Over time the health care industry has come to rely on group purchasing organizations, or GPOs—legal entities that negotiate contracts with supply vendors on behalf of their members. According to JohnMatthew Douglas, founder of consulting company iPressForward, LLC, GPO members “may include, however may not be limited to, hospitals, health systems, home care companies, long-term-care facilities, physician groups, ambulatory care sites, etc.” GPOs are powerful because they can negotiate directly with suppliers to achieve “remarkable savings that impact the collective bottom line of U.S. health care.” In return GPO members—hospitals—may offer to buy exclusively from certain vendors “with up to 85% of purchasing contract commitments,” Douglas explained, potentially ensuring vendors’ bottom line in turn. A May 2019 study showed that GPOs save the health care industry up to $34.1 billion annually.

“The more a GPO member spends with a particular vendor, the greater their savings may be, and the greater too is the administration-fee sum to the GPO,” Douglas said. “Sole-source contracts, a noncompetitive agreement that allows one entity to be the single provider,” as with Medline, “also come into play. The theory is that if a hospital or health system [can] control procurement and consolidate vendors...they are better positioned to obtain the lowest price point on the products and/or services procured for day-to-day operations.”

“The contract serves a couple purposes: One, it keeps business flowing as usual, and two, it keeps the cost of goods down because of the economy of scale,” the California doctor said. “The more you buy, the lower the rate—Costco model on steroids.”

Problems kick in when supply runs short, or when a supplier that’s been awarded an exclusive contract inflates prices artificially. “Imagine if iced tea companies were allowed to pay convenience stores,” said Dr. Marion Mass, a Philadelphia physician. “You’d have one iced tea company who would pony up enough to become the only supplier. And that tea company could charge what they like. The fact that the hospitals are not crying out means there’s something in it for them. You need to be able to see where the money is going, [but] the contracts between GPO and manufacturers and GPO and hospitals are hidden from the public.”

At times that opacity can hide apparent conflicts of interest. For instance, Kevin W. Sowers was named president of the Johns Hopkins Health System on February 1, 2018. (He’s also the executive vice president of Johns Hopkins Medicine.) He has also served on the board of Vizient, a group purchasing organization, since 2017. Roughly a year after naming Sowers president, the Johns Hopkins Health System switched to Vizient as its group purchasing organization. At the time Johns Hopkins said Sowers had disclosed his board membership and recused himself from the selection process, which was conducted by a third-party consultant. A spokeswoman for Vizient noted that the group “has never paid its provider-based board members,” meaning, in theory, that the choice to use Vizient would not benefit Sowers financially.

A CEO of a medical technology company said Vizient’s connection to Sowers is “in the weeds, but not in the public spectrum in a way that creates transparency and accountability.”

Ultimately, said the California doctor, these types of arrangements negatively impact the people at the bottom of the totem pole: patients and frontline workers. “Until those at the head of corporate health care recognize that the business practices of a capitalistic model fundamentally conflict with the practice of medicine, we will fail to see a positive change,” the doctor said. “PPE is the tip of the iceberg and our health care system, the Titanic, is on a voyage to sink.”

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