Yale New Haven Executive has Ties to Company in Probe

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August 24, 2004

Yale New Haven Executive has Ties to Company in Probe

By Mary E. O’Leary


NEW HAVEN — Yale-New Haven Hospital’s top executive is chairman of the board of the parent company of the medical supply purchasing group under investigation by the federal government, but a hospital spokesman said the board was never directly involved in the contracts under review.

The Justice Department is focusing on Novation of Texas, which negotiates contracts for drugs and supplies on behalf of thousands of hospitals across the country.

This includes all the hospitals in New London, Danbury, Hartford, Stamford, Bridgeport and Greenwich. The Hospital of Saint Raphael also uses Novation, according to state officials, but a spokesman there could not immediately confirm that.

The government is seeking to determine if hospitals and other care providers are overcharging Medicare and other federal programs for the goods they buy.

Novation is a limited-liability corporation formed in 1998 by VHA Inc. and University HealthSystem Consortium and was the subject of Senate antitrust hearings in 2002 and 2003.

Joseph Zaccagnino, president and chief executive officer of Y-NH, was elected chairman of the VHA Inc. board in April, and before that was a board member.

But Vincent Petrini, spokesman for Y-NH, said Novation makes its purchasing decisions independent of VHA and UHC, the two parent health-care networks for nonprofit hospitals.

"Board members are separated from purchasing decisions by Novation and are unaware of any of the details of the federal investigation since we have not been contacted by any of the federal or state agencies regarding the purchasing organizations," Petrini said.

"We are one of 2,200 health- care providers that are part of this system," said Petrini, which includes major institutions such as Massachusetts General, Johns Hopkins and New York Presbyterian Hospital, as well most big hospitals in the state.

State Attorney General Richard Blumenthal is also investigating the issue in Connecticut and said Novation sells to hospitals that account for 67 percent of the hospital beds here.

He said he has issued subpoenas to Novation and several medical supply companies and is also investigating potential conflicts of interest by top executives at a number of hospitals who have affiliations with Novation or the medical suppliers.

For the past year, Blumenthal’s office has been looking into whether the hospitals pass on the rebates and discounts they receive from Novation to the state, as well as antitrust issues.

"Novation has a position of very definite market dominance and potentially has misused that power to bundle products and force hospitals to buy supplies that perhaps they would not have done," Blumenthal said.

Blumenthal said his office expects to issue a "major subpoena" this week, but he would not say if that involved a supplier or a hospital.

A spokesman for U.S. Sen. Herb Kohl, D-Wis., co-chairman of the antitrust subcommittee of the Judiciary Committee, said a third hearing into the workings of the buying groups, of which Novation is the largest, is expected to be held in early September.

The committee is interested in whether Novation and others will continue to make improvements in how they operate, particularly around bundling, charging large administrative fees, sole- sourcing goods and demanding a high percentage of purchases before rebates kick in.

Several hospitals testified in previous hearings that they saved money when they withdrew from the purchasing groups, while medical suppliers have sued Novation over freezing them out of the market.

Mary E. O’Leary can be reached at 789-5731 or moleary@nhregister.

©New Haven Register 2004