How the Hospital Lobby Pummeling Hochul’s Budget Brought in a Billion Dollars

While the nonprofit Greater New York Hospital Association lobbied, a lucrative for-profit arm may have run up costs for hospitals.

Chris Bragg   ·   February 29, 2024
Greater New York Hospital Association President Kenneth Raske sits at a table and gestures with a pen in front of an American flag.
Greater New York Hospital Association President Kenneth Raske discusses the construction of a field hospital at the Jacob K. Javits Convention Center in March 2020. | John Lamparski / NurPhoto via Alamy

This is a two-part investigation into the influence of New York's medical lobbying apparatus. Read part two, on the role of former budget director Robert Mujica, here.

Two-thirds of New York hospitals and health systems are losing money. To Kenneth Raske, president of the Greater New York Hospital Association, one clear reason is that while drug, supply, and labor costs have climbed, the state government’s hospital spending has not kept pace.

In Raske’s view, Albany should — and can afford to — spend billions more.

“You’re sitting on a mountain of cash,” Raske told members of the state legislature during a January budget hearing.

Raske didn’t mention that his organization is sitting on its own. Over the past decade, the for-profit medical and drug supply business that has run up hospitals’ bills has also brought immense earnings to Greater New York — supercharging what is arguably Albany’s most influential lobbying group.

As a nonprofit, Greater New York lobbies on behalf of 280 hospitals, health systems, and continuing care facilities in New York and three nearby states. Its demands for more hospital funding have been highly effective. New York has spent more per resident on health care than any state in the country, which spends more than any high-income country on earth.

At the same time, from its office in Midtown Manhattan, the organization has operated up to eight for-profit companies. Aided by the nonprofit’s lobbying prowess, the state’s record-setting hospital spending helped the for-profit businesses to grow valuable. That value, in turn, has bolstered the nonprofit’s lobbying prowess.

According to tax records, Greater New York officers are permitted to fly first class on commercial airplanes and, on occasion, use private jets. Two officers have a chauffeured vehicle at their disposal. In 2016, Raske made $12.3 million from the association’s for-profit arm.

In the past decade, the for-profit arm has sold off many of its businesses, bringing in over $1 billion by the estimate of its decades-long leader, Lee Perlman. In 2016, he made $12.8 million — just a bit more than Raske.

The most lucrative of Greater New York’s for-profit businesses have been middleman companies that negotiate between hospitals and the vendors that supply them. When state spending on hospitals has gone up, a chunk has gone back to Greater New York. The money is used to “convince the world, and to convince the legislature, that they don’t have enough money,” said Bill Hammond, senior fellow for health policy at the fiscally conservative Empire Center for Public Policy.

According to Raske, 75 hospitals are currently in such dire fiscal condition as to be on a “financial respirator.”

According to OpenSecrets, between 2015 and 2023, the association spent vastly more on lobbying than any other organization in New York, and it has doled out tens of millions in campaign donations.

Emails obtained by New York Focus through a public records request offer a glimpse into the organization’s influence.

Last year, for instance, Greater New York lobbyist David Rich proposed a state budget measure to Governor Kathy Hochul’s office, sending several pages of draft legislative language.

The proposal, “Pay and Resolve,” would have required health insurers to pay a hospital’s claims before determining their medical necessity. A version of the measure appeared in Hochul’s budget proposal, with some passages that were highly similar or identical to Greater New York’s draft. (The legislature declined to include the measure in last year’s budget.)

With this year’s budget now in the works, Greater New York is again seeking to influence the governor. Hochul has argued that with Medicaid spending having climbed 40 percent over three years, she wants to cut costs and save the state $1 billion. Raske contends that, instead, the state could tap $23 billion in reserves to spend more.

Greater New York’s reserves, meanwhile, are at historic highs. Between 2013 and 2020, the sale of for-profit assets caused the lobbying arm’s bottom line to explode.

In 2012, the group’s main nonprofit branch held $243,000 in net assets. A decade later, that had jumped to $211 million — an 86,000 percent increase.

“When they ask for money, it doesn’t feel like they’re being greedy. It feels like they are speaking on behalf of the sick and the downtrodden,” Hammond said. “And that’s a very powerful combination: to be ostensibly representing the poor and disenfranchised and, at the same time, having just boatloads of money to distribute your message.”

In late January, Raske testified in Albany that the state’s Medicaid program pays hospitals 30 percent less than the cost of care, and it would cost $2.7 billion to close the gap this year. His four-year plan would “eliminate the disparities in health care” outcomes in communities of color served by “safety net” hospitals that disproportionately serve Medicaid patients. According to Raske, 75 hospitals are currently in such dire fiscal condition that they are on a “financial respirator.”

Hochul’s budget proposal “stinks,” Raske said. His plan, meanwhile, is like “going to the moon in a spacecraft.” And if Greater New York’s track record is any indication, his multibillion-dollar moonshot could land.

The medical middleman business began humbly. In 1910, several New York hospitals banded together to create the nation’s first known group purchasing organization, or GPO. As intermediaries, GPOs identified products and negotiated contracts with vendors on behalf of their members, leveraging the hospitals’ collective buying power to bring costs down. Their expenses were covered by the money hospitals saved.

Greater New York started a group purchasing company in 1978 under this now-dated business model. It was upended within a decade, to the association’s advantage.

A man dressed as Santa Claus addresses a child standing on a bed in a sepia photograph of an old hospital
Dated c. 1910, Santa Claus visits the children's ward at New York Nursery and Child's Hospital. | New York Nursery and Child's Hospital

Lobbyists convinced Congress that hospitals would save more if middlemen were paid through administrative fees charged to the vendors, rather than hospital savings. A 1987 federal law shifted the incentives: When hospitals paid more, middlemen now made more. This would normally be prohibited by federal anti-kickback laws, but Congress exempted GPOs from criminal prosecution.

For most of the country’s hospitals, GPOs evolved into buyers of a wide range of goods — from bandages and needles to pharmaceuticals and pacemakers — and began facing questions about whether they’d secured the best products or prices. Critics called the new model an oligopoly: a few corporate behemoths serving as gatekeepers to the nation’s medical market, determining what hospitals could buy, and, at times, holding financial interests in the vendors to whom they awarded contracts. This warped supply and demand, they argued, crowding out smaller companies’ innovative devices and creating crisis-level prescription shortages.

Among the most powerful group purchasing organizations was Premier Inc., which took over most of Greater New York’s buying service for hospitals in 1996. Premier’s contracts prohibited hospitals from retaining vendors outside Premier’s stable; as a result, sales surged for vendors with exclusive deals to sell to Premier.

A 2002 New York Times series detailed how Premier and the other national buying group, Novation, allowed favored vendors to crowd out smaller competitors. There were alleged kickbacks and conflicts of interest, and while Greater New York’s member hospitals spent $1.5 billion buying goods through Premier in 2001, hospital executives told the Times they’d found cheaper products elsewhere. In a 1997 study, Greater New York itself had found that Premier’s prices were not always the best.

While Greater New York promoted Premier, the purchasing organization paid the hospital association $11.9 million in commissions in 2001. Premier also invested in the association’s for-profit internet company — for which Greater New York executives could buy stock options — and lent marketing muscle to another Greater New York for-profit in exchange for a stake.

Perlman told the Times that the association’s ties to Premier did not affect his judgment. “There is no question in my mind that tens of millions of dollars have been saved,” he said.

Amid increased scrutiny, Premier agreed in 2004 to allow Greater New York to revitalize its own regional group purchasing arm and pocket administrative fees up to the legal limit of 3 percent of members’ purchases.

Beginning in 2002, the U.S. Senate’s antitrust subcommittee held a series of hearings examining GPOs. By 2006, the organizations had adopted an industry code and created a voluntary system of self-regulation. Since then, purchasing organizations have submitted annual, publicly available questionnaire responses to an industry association that Greater New York helped found. In those responses, the groups attest that they’ve avoided conflicts of interest and curbed exclusionary contracting practices.

An 2009 industry-funded study, which found group purchasing saved the U.S. health care industry $38 billion annually, is difficult to verify, because there’s a lack of public data about GPO pricing. And academic research, based on the rare data that has emerged, has concluded the opposite.

A 2010 study published in the Harvard Business Review and funded by the Medical Device Manufacturers Association, which has long argued to reform GPOs, concluded that the organizations were inflating health care costs up to $37.5 billion annually — including inflating taxpayer-funded Medicare and Medicaid costs by up to $17.3 billion. The co-authors called the conclusions “inconsistent with the notion that GPOs are securing competitive prices for their member hospitals.”

Robert Litan, one of the authors, is a former associate director of the U.S. Office of Management and Budget and is currently a fellow at the Brookings Institution.

He told New York Focus that although it had been over a decade since he conducted his research, he has not seen any “evidence that things have changed — namely, no convincing evidence of which I am aware that GPO save hospitals money.”

The Times series drove public outrage and spurred interest from Congress, but the industry’s self-policing initiative helped keep the government from taking action. During the more than two decades since, GPOs have operated largely unchecked.

In 2013, Premier decided to go public and sell stock in its company. Ahead of the public offering, Greater New York and Premier revamped their agreement once more, making Greater New York a significant shareholder in the company.

To Phillip Zweig, a former Wall Street Journal reporter who became an advocate for reforming group purchasing, the stock ownership posed a new conflict of interest for Greater New York.

Senator Chuck Schumer called criticism of GPOs “ridiculous” in 2006. Greater New York has donated over $23 million to the Senate Majority PAC.

“As a public company — whose goal is to increase shareholder value — they can do that and in a limited number of ways,” Zweig said of Premier. “One is by increasing price” of medical products sold to hospitals, he said.

Under the agreement, when Greater New York member hospitals purchased supplies through Premier, Greater New York would receive 30 percent of the gross administrative fee, according to a filing with the Securities and Exchange Commission. When the hospital association’s own purchasing organization received fees from members, 70 percent went to Premier.

In a later earnings call with investors, Premier Chief Administrative Officer Craig McKasson explained that, with minor exceptions, the two companies “actually shared fees on all of their contracts,” so “there was aligned incentives.”

By 2014, Greater New York owned about 12 percent of Premier, making it the company’s largest owner. Over seven years, Greater New York had the option to sell off a seventh of its stock in Premier annually, and it began to do so — earning a combined $105 million in sales in 2014 and 2015.

The association’s path to $1 billion culminated with the sale of four for-profit arms. Premier bought two purchasing organizations from Greater New York for $325 million in 2016, then another purchasing organization and a consulting firm for $291.5 million in 2020. The deal got Greater New York out of the group purchasing business while expanding Premier’s massive portfolio.

While purchasing organizations were originally intended to send savings back into hospitals, a chunk of the $1 billion made from the Premier transactions has gone into Greater New York itself, its efforts to gain more taxpayer funding, and its executives.

Raske’s and Perlman’s compensations started to soar in 2013, thanks to equity payments that coincided with Premier’s public offering. Between 2013 and 2022, the equity payments, combined with salaries and bonuses, brought Raske a total of at least $60 million and Perlman at least $54 million, according to tax filings.

According to a 2019 state financial disclosure form, that year Perlman owned two homes, one apartment, and one condo worth a total of between $12 million and $13 million, in addition to an investment portfolio worth a minimum of $16.9 million. (He has since reported no longer owning the two homes.) Raske is a longtime resident of Westchester County, but in 2020, his wife purchased an additional $1.8 million home in Montauk, according to property records.

In response to detailed questions about Greater New York’s business history, hospital association spokesperson Brian Conway offered a brief statement to New York Focus.

“Serving our members has always been GNYHA’s ultimate mission,” Conway said. “The time was right to further secure GNYHA’s long-term financial stability by monetizing valuable assets. Most important, the transaction greatly strengthened our core mission — member advocacy — for years to come.”

Conway did not answer questions about how much of Greater New York’s excess revenue had gone to directly defraying hospital costs, nor whether hospitals had saved money by having Greater New York as their group purchasing agent.

Since taking over Greater New York’s regional group purchasing empire, Premier has disclosed that it holds an ownership interest in six vendors that seek to offer products through the middleman. Records show that as of January, five of them did have Premier contracts, ranging from a pharmaceutical company to a manufacturer of personal protective equipment. Those companies for the most part are required to bid competitively, the disclosure states.

From left: Senator Kirsten Gillibrand, Senator Chuck Schumer, and Governor Kathy Hochul at the July 2023 I-81 groundbreaking in Syracuse.
From left: Senator Kirsten Gillibrand, Senator Chuck Schumer, and Governor Kathy Hochul at the July 2023 I-81 groundbreaking in Syracuse. | Office of Governor Kathy Hochul

As the sales deepened its coffers, Greater New York significantly increased its campaign donations through its for-profit arms. While federal and state laws restrict corporate donations to candidates’ campaigns, the association has found other ways to influence elections.

Between 1995 and 2015, the group donated $669,000 to all efforts related to federal elections. Since 2016, it has donated $31.8 million, according to records maintained by the Federal Election Commission.

Since New York Senator Chuck Schumer became the US Senate Democratic leader in 2016, Greater New York has donated more than $23 million to the Senate Majority PAC, which is the main supplier of outside funding for Democrats in Senate races — and, as a super PAC, can take unlimited sums from corporations.

A longtime ally of Greater New York, Schumer called the criticism of group purchasing organizations “ridiculous” in a 2006 antitrust hearing. In 2009, Perlman collected and bundled $131,700 for Schumer’s campaign fund, according to Newsday. When GPOs came under scrutiny again in 2011 — this time for their potential role in creating shortages of life-saving prescription drugs — Premier released a study concluding that “gray market” resellers were to blame. Two months later, Schumer called for a Federal Trade Commission investigation, citing the Premier report.

Schumer, now the Senate majority leader, did not respond to a request for comment.

Greater New York spent $2.53 million on federal lobbying in 2019, according to OpenSecrets, placing it fifth in the country among all hospital lobbying spenders, and first among local organizations.

In 2020, when then-President Donald Trump tweeted that he favored price transparency language in a Covid-19 economic stimulus bill, the association strongly opposed those efforts. In an email to members after the language was carved out, Greater New York reportedly stated that it was “pleased that extraneous measures supported by the Trump Administration, such as surprise billing and price transparency provisions, were not included in the final legislation.”

Instead, most of the publicly available information about group purchasing organizations depends on what they choose to self-report.

As Greater New York helped keep regulation at bay, the voice of a powerful one-time adversary went silent.

In 1998, then-president of the Service Employees International Union, Andy Stern, said GPOs were a “medical supply cartel, a deadly one that is killing nurses, doctors, and other health care workers,” through practices preventing hospitals from buying a small manufacturer’s device preventing needle stick injuries. Six years later, SEIU submitted testimony to the Senate antitrust subcommittee, continuing to encourage reform.

The service workers were “full-bore allies in the effort to get the GPOs,” recalled Zweig, who was working at that time for the needle manufacturing company. “And then suddenly, they stopped.”

SEIU’s criticism of group purchasing had been notable because the most powerful local union within SEIU — 1199, the New York-based health care workers’ chapter — was simultaneously working closely with Greater New York.

Despite the fact that 1199 represented hospital workers, and the hospital association represented their employers, 1199’s then-President Dennis Rivera saw the value in speaking as one.

The service workers were “full-bore allies in the effort to get the GPOs,” recalled Zweig. “And then suddenly, they stopped.”

In 1999, the union and Greater New York together spent $10 million on an Albany campaign, smashing lobbying records — and winning a major expansion of health programs for the uninsured. Their joint campaigns have since dented the poll numbers of multiple New York governors, and their collective bargaining agreements have set aside tens of millions of dollars for such advertising, while also bringing steady raises to hospital workers.

Rivera left the local union in 2007 for a position at the international SEIU. When he testified before Congress in 2009 about rising health care costs, he did not mention group purchasing reform, an SEIU priority five years earlier.

Rivera worked as a consultant for SEIU through 2018, when he also began consulting for Greater New York, records show. In 2021 and 2022, Greater New York paid a Puerto Rico-based company Rivera runs $300,000 a year for strategic advice on health care policy.

Hochul’s proposal “stinks,” Raske said. His is like “going to the moon in a spacecraft.”

SEIU’s press office did not respond to a question about why it stopped advocating for group purchasing reform. Rivera did not respond to multiple attempts to contact him.

When former Governor Andrew Cuomo took office in 2011, he headed off an attack from the sector by appointing Rivera as co-chair of a commission charged with redesigning the state’s Medicaid system and making Raske a member.

Greater New York’s campaign donations spiked during Cuomo’s tenure. During his first re-election campaign in 2014, the association gave $100,000 to the state Democratic Party’s ”housekeeping” account, a vehicle that, under state election law, can take uncapped corporate donations. During his second re-election bid, in 2018, those donations jumped to $1.25 million. When Hochul ran for her first full term in 2022, Greater New York gave $942,000.

Under Cuomo, Greater New York had significant sway over consequential health policy decisions in Albany, including a controversial bill granting hospitals and their workers immunity from Covid-19-related lawsuits — which Greater New York itself drafted. And, as emails obtained by New York Focus show, the influence has continued under Hochul.

Governor Kathy Hochul stands at a podium, flanked by staff, in a room with two high, arched windows and two screens that read "Our New York, Our Future."
Governor Kathy Hochul presents her budget in Albany on January 15, 2024. | Mike Groll / Office of Governor Kathy Hochul

A year ago, when Greater New York and 1199SEIU started a joint ad campaign to hike the Medicaid reimbursement rate for hospitals, Rich, the Greater New York lobbyist, emailed Hochul’s office to assure that it “does not mention the Governor.” In the fall, when both groups launched a campaign demanding more Medicaid funding for hospitals, the ads were again trained on “Albany,” rather than singling out the governor.

But pressure is amplifying. Medicaid cuts are unpopular, as Rich pointed out when he emailed internal polling results to the governor’s office last year. Raske said that in late 2023, he sat down with the Hochul administration and attempted to sell Greater New York’s four-year plan to fully fund hospitals’ Medicaid costs, to no avail. Since Hochul released her own plan in mid-January, Greater New York and 1199SEIU have been running a new joint television ad that does criticize Hochul and her proposed budget.

On February 22, thousands of hospital and nursing home workers, from Long Island to Buffalo, rallied outside their institutions and called on Hochul to “reverse $1 billion dollars in proposed budget cuts and to properly fund Medicaid reimbursements to hospitals and nursing homes,” according to the 1199SEIU press release. In another rally on Wednesday, New York City councilmembers joined the call.

New York is expected to have the “largest reserve balance of any state in U.S. history,” Raske told legislators in Albany — the $23 billion “mountain of cash” he wants to tap to fund Medicaid. Speaking to New York Focus, he mentioned that he’d been advised on this by the state’s former budget director, Robert Mujica.

As usual, Raske is being heard in the halls of the Capitol. In late January, the day before Raske formally presented his Medicaid plan, Greater New York announced that a majority of Democrats in the legislature had already signed on.

Chris Bragg is the Albany bureau chief at New York Focus. He has done investigative reporting on New York government and politics since 2009, most recently at The Buffalo News and Albany Times Union.
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