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GOLDEN STATE

A Valuable Drug Discovery at UC

February 17, 2005|Michael Hiltzik

John A. Glaspy is a world-class expert in the treatment of cancer and a rank novice in the bulk purchase of pharmaceuticals. Or rather, he was a novice until recently.

Then he discovered how to save UCLA several hundred thousand dollars a year on chemotherapy drugs.

Instead of winning praise for his resourcefulness, he got pummeled by infuriated University of California bureaucrats. "I thought it was a win-win for everybody," he told me recently. "Nothing prepared me for the maelstrom."

Glaspy's discovery may well have ticked off UC because it raised questions about whether the university has gotten the best value from a contract it reached several years ago with a big nationwide group purchasing organization. It also shed a glimmer of light on a deal whose key terms, at the insistence of the contractor, are secret.

The saga began early last year, when a cut in Medicare reimbursement rates for cancer therapy hammered the budgets of the four community cancer clinics that Glaspy runs as a professor of medicine at UCLA Medical Center. (He is also medical director of UCLA's Bowyer Oncology Center.)

The clinics aren't based at the medical center, but they are staffed by UCLA faculty members, and they're important training sites for medical students, residents and fellows. There's no question that UCLA and its patients would suffer if they had to shut down.

Desperate to save money, Glaspy called around to pharmaceutical distributors, hoping to cut his $13-million annual bill for chemotherapy drugs. He didn't expect much because the existing purchases were made through UC's systemwide bulk discount deal with Novation and Cardinal Health Inc., two national firms that presumably leveraged the vast buying power of the five UC medical centers to obtain enormous discounts.

It's fair to say that Glaspy was astonished to discover with a few phone calls that he could beat the Cardinal/Novation price by roughly $800,000 a year. Then came a bigger shock: Instead of congratulating him for unearthing a promising source of savings, UC officials told him to back off.

What followed were months of conflict between UC headquarters and UCLA, where campus purchasing agents were sufficiently intrigued to wonder whether they too could do better without Cardinal/Novation. UC told them to back off, as well, on the grounds that they were locked into the contract.

When UCLA officials asked to see the contract to make their own judgment about the potential for savings, they hit another absurd roadblock: UC refused to let them see the pact because key provisions, including pricing formulas, were said to be hush-hush.

UC did give UCLA the bottom line, however: Removing the oncology purchases from the contract would threaten discounts for the whole system. Thus, even if the clinics saved money on their own chemo drugs, the UC system would give up so much in price breaks, the net result would be a loss.

Or so they said.

The truth is, there seem to be problems with UC's math. Cynthia Lee, the contract supervisor at university headquarters, explained to UCLA purchasing officials that subtracting the clinics' $15 million to $20 million in chemo from the total $194-million pharmaceutical bill would cost the system a volume discount of three-tenths of 1% on all remaining purchases.

Lee calculated that discount at $1.2 million. If she was right, UCLA's savings of $800,000 would indeed produce an overall loss for the UC system.

But 0.3% of $174 million comes to only $522,000. Using that figure, the system would still come out more than $275,000 ahead if Glaspy's clinics bailed out.

No one has ever reconciled these numbers. When I asked William H. Gurtner, UC's vice president for clinical services development, to explain the discrepancy, he told me that Cardinal's pricing formula is proprietary and that the information available to UCLA is "slightly different than what's available here." (In other words, UCLA doesn't know the whole story and isn't going to know.)

When I observed that the issue was Lee's arithmetic, not the formula per se, he said the whole thing boiled down to "an honest disagreement over value."

In any case, the university recently gave the clinics the green light to buy their own chemo after all. They have now received bids that approximate Glaspy's original findings. If the bids pass formal reviews, the university says, a new purchasing arrangement can start as early as next month.

But that isn't the end of the story.

For the question remains: Has the University of California been overpaying for all its chemo drugs for the last four years? Glaspy observes that the Bowyer center buys about as much each year as the community clinics, which suggests that another $700,000 to $800,000 annually may be left on the table by the cancer program at UCLA alone. And what about the other pharmacy purchases at the five UC medical centers, which total about $200 million a year?

"How is it," Glaspy asked in a pointed letter to Gurtner last year, "that a dabbling amateur was able to easily find better pricing for $13 million worth of drugs than the full-time professionals negotiating on behalf of the University?"

How, indeed, can taxpayers be sure they're getting their money's worth when public institutions enter into confidential deals with private firms? We'll consider that in an upcoming column.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.

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