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cost of medical supplies from gauze to heart implants, disappears into an opaque realm of byzantine contracts, confidential rebates and fees that would be considered illegal kickbacks in many other industries. IV bags can function like cheap milk and eggs ina high-priced grocery store, or like the one-cent cellphone locked into an expensive service contract. They serve as loss leaders in exclusive contracts with “preferred manufacturers” that bundle together expensive drugs and basics, or throw in “free” medical equipment with costly consequences. Few hospitals negotiate these deals themselves. Instead, they rely on two formidable sets of middlemen: a few giant group- purchasing organizations that negotiate high-volume contracts, and a few giant distributors that buy and store medical supplies and deliver them to client hospitals. Proponents of this system say it saves hospitals billions in economies of scale. Critics say the middlemen not only take their cut, but they have a strong interest in keeping most prices high and competition minimal. The top three group-purchasing organizations now handle contracts for more than half of all institutional medical supplies sold in the United States, including the IVs used in the food-poisoning case, which were bought and taken by truck to regional warehouses by big distributors. These contracts proved to be another black box. Debbie Mitchell, a spokeswoman for Cardinal Health, one of the three largest distributors, said she could not discuss costs or prices under “disclosure rules relative to our investor relations.” Distributors match different confidential prices for the same product with each hospital’s contract, she said, and sell information about the buyers back to manufacturers. A huge Cardinal distribution center is in Montgomery, N.Y. — only 30 miles, as it happens, from the landscaped grounds of the Buddhist monastery in Carmel, N.Y., where many of the food-poisoning victims fell ill on Mother’s Day 2012. Among them were families on 10 tour buses that had left Chinatown in Manhattan that morning to watch dragon dances at the monastery. After eating lunch from food stalls there, some traveled on to the designer outlet stores at Woodbury Commons, about 30 miles away, before falling sick. The symptoms were vicious. “Within two hours of eating that rice that | had bought, | was lying on the ground barely conscious,” said Dr. Elizabeth Frost, 73, an anesthesiologist from Purchase in Westchester County who was visiting the monastery gardens with two friends. “I can’t believe no one died.” About 100 people were taken to hospitals in the region by ambulance; 5 were admitted and the rest released the same day. The New York State Department of Health later found the cause was a common bacterium, Staphylococcus aureus, from improperly cooked or stored food sold in the stalls. MYSTERIOUS CHARGES The sick entered a health care ecosystem under strain, swept by consolidation and past efforts at cost containment. For more than a decade, hospitals in the Hudson Valley, like those across the country, have scrambled for mergers and alliances to offset economic pressures from all sides. The five hospitals where most of the victims were treated are all part of merged entities jockeying for bargaining power and market share — or worrying that other players will leave them struggling to survive. The Affordable Care Act encourages these developments as it drives toward a reimbursement system that strives to keep people out of hospitals through more coordinated, cost-efficient care paid on the basis of results, not services. But the billing mysteries in the food poisoning case show how easily cost-cutting can turn into cost-shifting. A Chinese-American toddler from Brooklyn and her 56-year-old grandmother, treated and released within hours from the emergency room at St. Luke’s Cornwall Hospital, ran up charges of more than $4,000 and were billed for $1,400 — the hospital’s rate for the uninsured, even though the family is covered by a health maintenance organization under Medicaid, the federal-state program for poor people. HOUSE_OVERSIGHT_028633