Medicare Fraud and the USAt. Firings, Part IV

Here's some perhaps more understandable take on what's happening in this story.>

• In 2000 Samuel Lipari of Kansas City, Missouri started the company Medical Supply Chain. It's purpose: to allow hospitals to buy supplies directly from manufacturers, thereby bypassing the huge health care Group Purchasing Organizations (GPO’s), primarily Novation and Neoforma, and saving health care consumers, by his estimate, $80 billion a year.

• In 2002 Lipari tried to get things going [Ed. Dang! That link was left out before. Updated 4/13/07]. But:

Samuel Lipari, CEO of the Missouri firm, said that his company’s troubles began in 2002. Lipari sought funding from US Bank to start MSC. The loan, which seemed like a sure thing, was denied. US Bank cited a money laundering provision of the USA PATRIOT Act as the reason, telling Lipari that his company “could not really give all the correct answers on the source and flow of money” for Medical Supply Chain. Lipari and his attorney, Bret Landrith, argued that the PATRIOT Act seemed irrelevant to a company in good standing with the state of Missouri and clearly traceable funds from U.S. citizens seeking a bank loan.

• Why did that happen?

But as they looked into the problem, Landrith and Lipari said they noticed that US Bank had a business relationship with Piper Jaffray, which in turn had a relationship with Novation and Neoforma. The only explanation for denying funding to MSC, which claims that it could save hospitals $80 billion, was that Piper Jaffray, US Bank, and Novation conspired to keep MSC out of the marketplace.

• Lipari filed suit against USBank, Piper Jaffray, and Novation (based in Irving, Texas) in October, 2002 (date based on article at .

• In August of 2004 the Justice Department in Dallas began an investigation into Novation. (Separate NYTimes article - pdf.)

An independent study by Harvard Law School Prof. Einer Elhauge brought together all the arguments against GPOs. He said that contracts requiring hospitals to purchase 90 percent or more of their supplies from large vendors exclude rivals and harm consumers and hospitals to the tune of $6 billion a year. The loyalty rebates, he said, act as penalties for hospitals that stray from the GPO. Beyond that, Elhauge concluded, the GPO process also stifles the development of even more innovative products.

The Justice Department is taking Novation’s role in the market seriously. In August of last year, shortly before the Senate subcommittee held hearings on tighter regulation for GPOs, federal prosecutors in Dallas opened a criminal investigation into the medical supply industry, with Novation at the center of it.

• Shortly before, and then shortly after the investigation was launched, two prosecutors at the Dallas (Ft. Worth?) Attorney's office died unexpectedly:

The investigation wasn’t helped when two federal prosecutors involved in the case died weeks apart from each other. Thelma Colbert, who headed a civil litigation unit of the Fort Worth DOJ office that prosecuted companies involved in defrauding government-funded programs, drowned in her swimming pool in July 2004. The Tarrant County medical examiner’s office determined the death was accidental. Then, on Sept. 13, 2004, Shannon Ross, the criminal chief for the U.S. Attorney’s office in Dallas, who reportedly had signed the GPO subpoenas, was found dead in her Rowlett home. In that case, the Dallas County medical examiner ruled the death to have been from natural causes.

This may be a sort of side note. It's about a U.S. Attorney.

About the same time federal prosecutors were launching their investigation of Novation, the company also came under scrutiny from Connecticut Attorney General Richard Blumenthal, whose office, he said, was “very interested in potential undue influence exerted by vendors and manufacturers on individuals in positions to make healthcare purchasing decisions.” No indictments have been returned in either the state or federal investigation, but Blumenthal’s office is continuing to serve subpoenas.

Connecticut Attorney General Richard Blumenthal is still going after the GPOs. Today - today - he was attacked by the conservative Competitive Enterprise Institute (CEI), the notorious right-wing think tank. (Here the CEI's activities are described, though they're are strangely called there a "NeoLiberal Thinktank." What?) Weird timing for them.

Still confused? Me too. I'll try to get more about today's news that Lipari has found memos relating to the firing of US Attorneys regarding this. Here's links to a NYTimes series looking into GPOs.