Attorney General Richard Blumenthal today announced a settlement that disbands an anticompetitive, exclusive "club" of health care industry vendors and chief executives from the nation's premier hospitals and health care institutions.
Healthcare Research and Development Institute, LLC (HRDI) has agreed to completely change its organizational structure and membership makeup under an antitrust settlement with Blumenthal's office, and to pay Connecticut $150,000. The Florida Attorney General's office - in HRDI's home state - has joined Connecticut in the agreement.
HRDI is a for-profit company owned by the CEOs of many of the nation's leading hospitals and health care institutions. It claims to provide health care consulting services to vendors serving the health care field. In reality, Blumenthal said the organization was an anticompetitive club where only select corporations from the health care supply industry were permitted membership.
Vendors paid $40,000 for membership privileges in HRDI, enabling them direct access to the hospital CEOs who wielded immense purchasing power. The CEO members - who were each owners of HRDI - were paid an average of $20,000 to $25,000 annually to attend conferences with luxury accommodations for them and their spouses, and to provide consulting services to vendors.
Under the settlement, HRDI will dissolve its organization and create an entirely new one made up of only the hospital CEOs and other health care industry professionals, excluding any vendors and their representatives.
"HRDI is history," Blumenthal said. "It is replaced by an organization that returns to its fine roots and goals of improving health care. The new network will have a drastically different dynamic and culture, as well as formal structure.
"Today's settlement shatters an anticompetitive secret society - an elite and exclusive club - of premiere hospital executives and select health care supply businesses," Blumenthal said. "Healthcare Research and Development Institute would have been better named Healthcare Titans of America - an organization where the most powerful vendors and hospital CEOs enjoyed lucrative marketing opportunities, and lavish accommodations.
"HRDI claimed to offer health care consulting services to industry players. In reality, it was an exclusive network that shut out potential competitors in various health care markets - everything from pharmaceuticals, syringes, medical devices and financial and consulting services.
"These practices threatened to inflate health care costs to patients and taxpayers - stifling competition in almost every health care supply and services market. When confronted with the facts - from our investigation and published reports - HRDI agreed to cooperate and ultimately do the right thing, adopting the significant reforms contained in this agreement.
"In the meantime, our investigation is active and ongoing into vendors and others."
HRDI's stated goals have been to share the best in new ideas and strategies with their colleagues; improve hospitals and health systems; educate companies so that their products will better meet patient and provider needs; and enhance quality and productivity in the health care industry.
In reality, vendors intentionally exploited the opportunities provided by HRDI, resulting in an uneven playing field and less competitive selling environment. Vendors gained direct access to hospital CEOs who potentially wielded influence over service and supply purchasing decisions at their respective hospitals.
For example, each vendor was entitled an opportunity to host a two-hour "confidential" panel session at HRDI's semi-annual meetings - at which the vendor would have a private audience with five or six CEOs. HRDI also assigned a hospital CEO to serve each vendor as a "liaison" - purportedly to help prepare the panel session.
But some liaisons provided more than that: referring vendors to purchasing personnel within their hospital, or providing vendors with introductions to other CEOs that were targeted for sales opportunities. Some vendors have lobbied HRDI staff, or their liaison, to "influence the selection" of specific CEOs - CEO's whose hospitals were a sales target - on that vendor's panel.
HRDI's "Rule of 2" also bolstered vendors' leverage. HRDI claimed the rule - allowing only two vendors in a particular line of commerce, for example, two pharmaceutical companies - was intended as a pro-competitive measure by ensuring more than one vendor access to CEOs.
But the Rule of 2 worked more to exclude than include - giving only one - or at most two, powerful vendors stranglehold grasps on their respective markets, shutting out potential competitors and giving the vendor a "competitive edge."
HRDI's rules supposedly prohibited vendors from using its forum for sales, but HRDI's enforcement was inconsistent and inadequate, Blumenthal said, and there was an element of sales at many of these presentations. In fact, the investigation revealed evidence that, in many cases, a vendor's sales to a hospital affiliated with a CEO who attended that vendor's panel presentation increased - often significantly - after the presentation.
Under the settlement, HRDI is dissolving and will recreate itself to achieve its stated goals.
In HRDI's new form, vendors will be completely excluded for at least three years; the membership will only include health care industry professionals who are not representatives of vendors. Additionally, the new entity will make annual disclosures to its affiliated hospitals about its financial condition, as well as information on the makeup of its membership, their activities, the dues for participation, and any corporate affiliations of officers and directors.
If HRDI decides to permit vendors membership after three years, it will trigger various additional restrictions limiting vendors' ability to influence hospital purchasing decisions, and to eliminate the compensation to CEOs from the vendors for the CEOs participation in HRDI. Any decision to readmit vendors will also require notification of the attorneys general.
Blumenthal thanked those in his office who worked on the investigation - Assistant Attorneys General Christopher Haddad, Steven Rutstein and Karla Turekian, Paralegal Lorraine Measer, Supervising Accounts Examiner Stephen E. Eaton, CPA and legal interns Anthony Bianco and Georg Hellmich, under the direction of Assistant Attorney General Michael Cole, Chief of the Attorney General's Antitrust Department.
View the Healthcare Research and Development Institute Settlement - (PDF-4KB)