Bill Nelson and other powerful hospital executives agreed last week to stop the practice and replace a Florida for-profit consulting group with a nonprofit that no longer funnels payments from vendors to hospital CEOs.
Connecticut Attorney General Richard Blumenthal said the settlement agreement with Healthcare Research and Development Institute (HRDI) "shatters an anti-competitive secret society" of hospital executives and handpicked vendors who huddled at Ritz Carltons and resorts to discuss, among other things, product development and marketing strategies. These practices, said Blumenthal, "threatened to inflate health costs to patients and taxpayers, stifling competition in almost every health care supply and services market."
Nelson and Intermountain trustees defended the association as a valuable forum for feedback and for tapping health care's best minds, saying it would have been inappropriate for Nelson not to take part. Nelson, an HRDI member since 2000, attended meetings on his own time, and participating vendors never received preferential treatment from Intermountain, chairman Merrill Gappmayer said.
Nelson, noting there have been no charges filed or admissions of wrongdoing, accused Blumenthal of "creating the illusion of impropriety" where none exists. Still, the investigation is ongoing, and HRDI has agreed to pay a $150,000 fine, exclude vendors from joining the new group, and restrict CEO compensation to $2,500 a year.
In addition to consulting fees, vendors had paid the travel expenses for hospital officials and their spouses and sponsored golf and tennis outings, among other events.
Such revelations are sure to feed the perception that Utah's most powerful health conglomerate behaves more like a for-profit corporation than a tax-exempt charity. A legislative panel spent two years and $300,000 studying the issue. It looked at whether Intermountain's size and might - the managed care company owns 19 of Utah's 53 hospitals and is the state's largest insurer - restrains competition. An independent consultant hired by the panel concluded it does not.
But the panel did not discuss purchasing practices or Nelson's affiliation with HRDI.
The company was founded 50 years ago as an educational group. It is owned by about three dozen powerful health care executives and underwritten by a similar number of hospital suppliers. The group has long insisted its mission was to share ideas with colleagues, improve their hospitals and systems, educate companies so their products meet patient and provider needs, and enhance the quality and productivity of the industry. Nelson said Monday there was nothing clandestine about the group or its business model.
Vendors paid $40,000 a year for private audiences with hospital CEOs, and membership was limited to two vendors per industry sector. The so-called "Rule of 2" gave those vendors a "stranglehold" on their respective markets, shutting out potential competitors, Blumenthal said.
Each CEO was assigned to be a "liaison" to individual companies and vendors were entitled to host confidential panel discussions at HRDI's semiannual meetings. Most recently, Nelson was the liaison to Heidrick & Struggles, a company that specializes in executive job searches, and Owens and Minor, a surgical supply network.
Although HRDI's rules prohibited vendors from using its forum for sales, many of the presentations included pitches, Blumenthal said, and the meetings often resulted in increased business for the vendors.
Mark Leahey, executive director of the Medical Device Manufacturers Association, condemned HRDI for its lack of transparency. Leahey, whose board includes executives of Utah companies, said he had no clue about HRDI or its business model until Blumenthal began investigating. Up until a few months ago, Leahey said, a pass code was needed to access any information on the group's Web site.
"These guys were making $30,000 and $50,000 a year to rub shoulders with top pharmaceutical and medical device companies," Leahey said. "They had fiduciary duty to their hospitals and they were essentially getting kickbacks from suppliers."
Nelson, however, said the information he has gathered from colleagues and vendors, from emergency preparedness to Medicare regulation, has saved Intermountain "millions." He called his compensation appropriate - Gappmayer agreed - and the resort accommodations reasonable.
"In any industry, if you are going to have your leaders come together, you're not going to meet at Motel 6," Nelson said.
Not all of the trustees were comfortable with Nelson's compensation, which executive committee member Kem Gardner called "modest."
"The vendors were paying to have these top executives come and consult with them and we knew that. We didn't like the consulting fee, but we didn't require him not to take it," Gardner said. "We thought it had value and it has more value now that there is less payment involved."
Blumenthal said many hospital boards were unaware of the nature of the consulting work and the fees being earned by their executives, and "they conceded there were problems with HRDI even if [Intermountain] believes otherwise."
lfantin@sltrib.com
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* Tribune reporter BOB MIMS contributed to this report.
Vendors with the Healthcare Research and Development Institute:
*Abbott
*Accenture / formerly Cap Gemini
*Amgen
*Aramark
*Baxter Healthcare
*BD Healthcare
*Boston Scientific
*Cardinal Healthcare
*CB Health Ventures
*Cerner
*Citigroup
*CR Bard
*Dion Durrell
*Eclipsys
*Eli Lilly
*Ernst & Young
*Excel Medical
*First Consulting Group
*Gandner, Carton & Douglas
*GE Healthcare
*Governance Institute
*Heidrick & Struggles
*Herman Miller
*Hill-Rom
*Hospira
*Johnson & Johnson
*Kimberly-Clark
*Lillibridge Health Trust
*3M
*McKesson
*McManis Cousulting
*MedAssets
*Modern Healthcare Magazine
*Morgan Stanley
*NBBJ
*NRC/Picker
*Owens & Minor
*Press Ganey
*Roche Labs
*Sanofi-Aventis
*Siemens Medical
*Smith & Nephew
*Sodexho Healthcare
*Solucient
*Stockamp & Associates
*Team Health
*Tiber Group, a Navigant Co.
