The basis of the fraud is the improper payments or fees that vendors, manufacturers, distributors and suppliers make to GPOs to influence the hospital purchasing companies' contracting decisions. The GPO contractors might make straight kickbacks to the GPO or pay kickbacks in another form, such as paying higher administrative fees to the GPO than are permissible under the "safe harbor" provisions of the Anti-Kickback Statute. GPO contractors also might pay a "marketing fee" to the hospital purchasing companies as another form of a kickback.
A 2005 HHS OIG report, "Review of Revenue from Vendors at Three Group Purchasing Organizations and their Members," found that (1) hospital members of GPOs didn't fully account for GPO revenue distributions in their Medicare cost reports and (2) GPOs only distributed 69 percent of their net revenue to their hospital members, retaining 31 percent for themselves "to provide reserves and venture capital for new business lines."
GPO practices can violate both the federal False Claims Act and state false claims laws for Medicaid fraud. The case against Novation is filed under the federal False Claims Act and the Texas false claims act. Under the False Claims Act, whistleblowers are entitled to 15 percent to 25 percent of the amount the government recovers as a result of their qui tam lawsuits.
The New York Times ran an excellent series of articles about hospital purchasing organizations, which brought public attention to GPOs' purchasing practices.
If you are aware of improper payments being made to a GPO and would like to discuss your concerns with our attorneys, please contact us.