Yale New Haven Faces Price Probe

NEW HAVEN - State Attorney General Richard Blumenthal is investigating whether Yale-New Haven Hospital and other state nonprofit hospitals are overcharging Medicare and other government agencies for medical supplies.

Blumenthal’s investigation centers on the practices of a Texas company that coordinates purchasing of medical supplies for Yale-New Haven Hospital and other nonprofit hospitals in the state.

The company, Novation, negotiates contracts that hospitals use to buy everything from sutures and rubber gloves to X-ray machines.

The company is also under investigation by the federal Justice Department, which is also trying to determine whether hospitals who do business with Novation are overcharging Medicare and other government agencies for medical supplies.

The overcharging centers on whether hospitals are failing to report rebates, discounts or other payments given to them if they meet certain purchasing targets, meaning that Medicare and Medicaid would be charged higher prices for the products than the hospitals are actually spending.

In Connecticut, Novation sells to hospitals that account for 67 percent of the state’s hospital beds, Blumenthal said.

"Our priority is to assure that patients receive the best quality medical care and equipment at fair and affordable prices and that taxpayers receive the full benefit of discounts or rebates or other payments made in connection with purchases of medical supplies," Blumenthal said.

Blumenthal’s probe, which he said has been going on for about a year, also is looking into whether Novation is using its dominance in the market to favor certain medical suppliers and stop competition by smaller manufacturers, he said.

There are also questions related to the possible conflicts if rebates or payments to Novation skew their decision to a certain product or brand, regardless of whether it is the most safe or effective for patients, Blumenthal said.

Part of Blumenthal’s investigation concerns potential conflicts of interest involving hospital executives who have ties or affiliations to Novation and related companies, including top executives at Yale-New Haven.

Blumenthal did not name the executives.

"They may be on both sides of the sale transaction involving Novation and their hospital," Blumenthal said. "At the very least, the appearance concerns us."

Blumenthal said his investigation stemmed from his office’s ongoing inquiry into Yale-New Haven’s use of free bed funds and its potential impact on Medicare funding.

Yale-New Haven Hospital spokesman Vin Petrini said Yale New Haven is one of more than 2,200 organizations represented in the Novation health care system.

"We are entirely unaware of any action by the AG office. We have not received a subpoena in this case at all," he said.

"Since Yale New Haven has no role whatsoever in decisions made at Novation, there is absolutely no conflict of interest that is apparent," Petrini added.

Novation is owned by two associations of nonprofit hospitals, VHA Inc., based in Texas, and University Health System Consortium in Illinois. Some of the largest hospitals in the country are involved in the two consortiums, such as New York-Presbyterian, Massachusetts General in Boston and the University of Pennsylvania Health System. Yale-New Haven is a member of VHA.

Other Connecticut hospitals affiliated with Novation include Hartford and Stamford hospitals.

About $20 billion a year in medical products and services are sold under contracts arranged by Novation. The company’s Web site, citing the American Hospital Association, says Novation serves health care organizations that represent almost 90,000 of the nation’s staffed beds.

Blumenthal said his office is preparing subpoenas and the investigation has been broadening. He said he has also been working closely with federal authorities and authorities in other states.

Natalie Missakian can be reached at 789-5726 or nmissakian@nhregister.com.

©New Haven Register 2004