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Markkula Center for Applied Ethics

Ethical Standards for Healthcare GPOs

Report’s recommendations to be implemented by Premier

SAN DIEGO, CA (October 23, 2002) – A new report by business ethicist Professor Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University in California, identifies the best ethical standards for the group purchasing organizations (GPOs) that serve most of the nation’s hospitals. The standards incorporate but go beyond those established earlier this year by the GPO industry and its leading companies.

The new report was provided last week to the Board of Directors of Premier, Inc. On behalf of Premier, the Board of Directors immediately accepted the report by Professor Hanson. Management and the Board committed to implement the report’s recommendations pursuant to a plan and timetable approved by the Audit Committee.

The Premier Board also publicly released the contents of Professor Hanson’s report to assist other participants in the multi-billion-dollar healthcare supply chain. The full report is available at Premier's Web site,

Committed to highest ethical standards

Richard A. Norling, chairman and chief executive officer of Premier, said, "Premier is committed to the highest standards of ethical conduct. With his report, Professor Hanson has given us a comprehensive definition of the specific best policies and practices that should guide Premier’s activities."

In his report, Professor Hanson noted that ethical analyses of the kind performed for Premier are rare in any industry and that Premier’s "courage and vision in commissioning a public study of this type demonstrates significant commitment to operating effectively and ethically in the years ahead."

Study commissioned by Audit Committee of the Board of Directors

In March of this year, Mr. Norling requested that the Audit Committee of Premier’s Board under the leadership of its chairman, Kester S. Freeman, Jr., commission an outside ethicist to conduct an independent analysis of the healthcare group purchasing industry and make recommendations for improvements in ethical policies and practices. The Audit Committee responded by commissioning Professor Hanson to conduct the independent study.

Professor Hanson was given full access to Premier personnel and records and sought input from a broad array of Premier’s employees, members and contracting companies, as well as from federal officials and others. He reviewed his findings with, and sought the advice of, a panel of four other independent ethics experts. From the outset of the project, Premier pledged to make the report public when it was completed.

Development of industry Code of Conduct

While the Hanson analysis was underway, the Antitrust Subcommittee of the U.S. Senate Judiciary Committee, chaired by Senators Herbert Kohl (D-WI) and Mike DeWine (R-OH), conducted its own examination of GPOs. At an April 2002 hearing, Senator Kohl proposed that GPOs develop a voluntary Code of Conduct under the auspices of an industry group – the Healthcare Group Purchasing Industry Association (HIGPA). Premier took part with other GPOs in the successful development of that Code and endorsed it fully. Subsequently, Premier also adopted additional ethical principles covering areas that the Code could not or did not address.

Some proposals already implemented

Premier already had in place a number of the practices as called for by Hanson’s report. In addition, because of the company’s commitment to both the industry Code of Conduct and Premier's additional principles, a number of the 50 proposals have already been executed at Premier, while implementation of others is underway. Among the best practices recommended in the report that are new to Premier are the following:

  • Requiring that contracting in the future set a standard administrative fee (paid as a percentage of total purchases under the contract) for each category of product or service;
  • Placing further limits on equity investments in contracting companies by Premier and its employees;
  • Prohibiting more strictly gifts and perks from seller companies to Premier employees, as well as such non-employees as advisors, that could influence contracting decisions; and
  • Adopting as the standard for financial disclosure by Premier the one used by not-for-profit organizations such as community hospitals, which includes disclosure of the salaries of the highest-paid employees and fees paid to corporate directors.

Goal: Managing "inherent tensions" in GPOs’ roles

Overall, the report recommends significant changes in the policies and practices of GPOs. "At the center of these recommendations is concern for the ethical conflict of interest which may arise if GPOs play multiple and conflicting roles in the contracting process for hospital supplies and services," the report says.

The report describes several inherent tensions present in the way GPOs operate. These include the tensions between the quality and the cost of goods used in medical care; unit price and cost-in-use; the benefits of standardization and the need to adopt superior technologies; and multi-year contracting and spot-market purchasing.

To help manage such tensions and serve as a foundation for the best ethical policies and practices, the report provides a set of general ethical principles for GPOs, beginning with the principle that a GPO should manage its ethical practices deliberately with responsibility shared by management and the board. "A GPO's first obligation is to serve its members’ interests, which include the twin goals of good medical outcomes and cost containment, and through its members, the ultimate customers, the patients," the report says.

Other principles are those related to: helping members with critical supply-chain issues such as product safety and efficacy; proper handling of conflicts of interests on the part of the company, employees and others involved with contracting; input into the contracting process from members and particularly from clinicians; transparency and accountability in operations; appropriate choice in clinical products; and the demonstration of the value provided by a GPO.

About Professor Hanson

Professor Hanson is a longtime researcher and writer on business ethics and a professor of organizations and society at Santa Clara. Before joining the Markkula Center, he taught business ethics in the Stanford University Graduate School of Business for 23 years. He was the founding president of The Business Enterprise Trust, a national organization created by leaders in business, labor, media and academia to promote exemplary behavior in business organizations.

About Premier

Premier, Inc. is a healthcare alliance enterprise entirely owned by leading not-for-profit hospitals and health systems that operate or are affiliated with approximately 1,500 hospital facilities and hundreds of other care sites across the country. In their behalf and in support of their local efforts to improve health services for their communities, Premier provides group purchasing, supply chain services, healthcare informatics and performance improvement resources, and insurance programs. Premier is headquartered in San Diego and has offices in Chicago, Charlotte, and Washington, DC. For more information, visit

Oct 23, 2002