Quorum’s group purchasing plans challenged in legal cases

By COLIN MURPHEY
In 2002 and again in 2009, the corporate healthcare industry was investigated by Congress for “practices of companies that represent big networks of hospitals, nursing homes and other institutions,” according to articles published in the New York Times.
“These group purchasing organizations select ‘preferred’ manufacturers and negotiate prices of medical products, which are a closely held secret,” the NYT reported.
And while Quorum Health Resources, the company that has managed Franklin Foundation Hospital for 27 years, was not specifically named in Congress’ investigation, the company was found guilty in 2006 in federal court of firing an employee who raised concerns about a QHR subsidiary which was a group purchasing organization.
The company was also sued in federal court in 2009 by a hospital board in Natchez, Mississippi which alleged that QHR “pressured workers to buy through a QHR group purchasing organization ‘even though prices charged by the Quorum purchasing plan vendors were higher than Natchez Regional would have been able to obtain on its own,” according to an article in the Billings Gazette.
According to the NYT article published in 2009, lawmakers were attempting to learn more about a $60 billion dollar industry and that the “senators are concerned that these groups’ practices may be inflating health costs at taxpayer expense.”
Specifically in regards to the group purchasing plan available through QHR to employees at FFH, CEO Craig Cudworth, in a previous article published in the Banner-Tribune, said, “If there are other options that are more appropriate, they will be used. That’s the purpose of the purchasing program.”
While Cudworth acknowledged other group purchasing organization options for FFH employees could exist, he did not say whether they were being actively examined as a more “appropriate” option.
According to court documents filed in the Sixth Circuit United States District Court of Appeals in 2012 and obtained by the Banner-Tribune, former Quorum-placed hospital CEO Mark Thompson successfully sued his company for wrongful termination. Thompson, a Quorum employee and then CEO of Monroe County Medical Center (MCMC), was fired after he began to raise questions about Quorum’s group purchasing organization (GPO) among other issues.
According to the documents, “shortly after he began working at MCMC, Thompson began having concerns about the manner in which his supervisor, Taylor Cook, was representing certain aspects of the management agreement to MCMC’s Board of Directors (the ‘Board’). Specifically, Thompson was concerned with Cook’s representation to the board that MCMC was switching GPOs, without disclosing to the board that the decision regarding which GPO to use was one that the board could make.”
The documents further state that Thompson, in 2004, filed a lawsuit under the False Claims Act. The False Claims Act is a federal law that allows people not affiliated with the government to file actions claiming fraud otherwise known as “whistleblowing.”
The court documents continue, “The complaint alleged that Quorum had defrauded the federal government by unnecessarily driving up MCMC’s costs-which were in turn passed on to Medicare-by improperly selecting hospital vendors and GPOs.”
Thompson was subsequently suspended by Quorum and then fired by the company for “insubordination” and for violating the company’s code of conduct and for “failing to cooperate with Quorum’s subsequent investigation.”
According to the court documents, “Thompson filed a retaliatory discharge lawsuit on October 25, 2006, alleging that Quorum terminated him in retaliation for his protected conduct of filing a False Claims Act suit.”
On February 5, 2010, the jury found that Quorum had violated the law when it fired Thompson and awarded him over $900,000. Quorum moved for a new trial and was denied. Quorum appealed the decision and was again denied in 2012.
In Mississippi, Quorum employees, specifically the CEO and CFO, were accused of a wide variety of misconduct and fraud. And, just as in the Thompson case, some of the alleged misconduct surrounded the use of Quorum’s group purchasing plan and affiliated organizations. In the Natchez Regional Medical Center (NRMC) case, the alleged conduct of Quorum employees not only enriched the company and themselves, but reportedly led to the downfall and bankruptcy of the hospital.
Documents filed in the U.S. District Court for the Southern District of Mississippi in 2009 state, “Bankruptcy protection was sought only after the Quorum defendants, who purportedly specialized in healthcare and hospital management and who touted Quorum as a ‘national leader in hospital management’ having served ‘nearly 1,000 hospitals,’ enriched themselves with fees while economically destroying the hospital.”
The court documents further state, “Rather than purchase supplies directly from vendors or from a hospital association group purchasing plan, which offered reduced costs for supplies, the Quorum defendants sought and directed the hospital to purchase supplies from companies with whom Quorum had existing relationships and from whom Quorum received payments on account of the purchases.”
The documents continue, “The Quorum defendants put pressure on Natchez Regional personnel to buy supplies only from vendors in the Quorum group purchasing plan because the purchases would provide Quorum additional income from Natchez Regional in the form of rebates, even though prices charged by the Quorum purchasing plan vendors were higher than Natchez Regional would have been able to obtain on its own, and the hospital would not be able to enjoy rebates it would have received from an independent hospital association purchasing plan.
“Additionally, even though the hospital was qualified to participate in the federal Section 340(b) drug discount program, the Quorum defendants delayed the hospital from obtaining significant cost savings by participating in such program and instead directed that pharmacy and other hospital supplies be purchased through Quorum strategic partner vendors.”
The case in Mississippi was settled out of court for an undisclosed sum and the details sealed as per Quorum request.
Quorum corporate representatives and/or legal representatives were not contacted for comment on this story as previous attempts by the Banner-Tribune to do so have failed.