National group purchasing organization Medbuy is ultimately responsible for 1,202 cancer patients in Ontario and New Brunswick receiving diluted chemotherapy drugs in 2012, an Ontario legislative committee has concluded.

The company didn't do its due diligence in arranging a $2.6-million contract with Marchese Health Care, which provided the diluted drug mixtures, the all-party committee said in a report released late Tuesday.

Extra saline in the bags containing cyclophosphamide and gemcitabine, which were prepared by its subsidiary Hamilton's Marchese Hospital Solutions, effectively watered down the prescribed drug concentrations by up to 10 per cent.

The hospitals that received the drugs weren't aware that the bags contained extra saline and didn't adjust the doses accordingly.

Medbuy, which arranged the contract on behalf of the hospitals, didn't specify the drug concentration in the finished product, which led to the confusion between the hospitals and Marchese.

There is no doubt we have all learned from this painful incident. —Marita Zaffiro, president and CEO, Marchese Hospital Solutions

The problem was only caught when a pharmacy assistant at a Peterborough, Ont., hospital that had just started using the Marchese products noticed that the label only listed the amount of the drug in the bag, not the final concentration of the drug per millilitre of saline.

In a written statement, Marita Zaffiro, Marchese's president and CEO, said she's "pleased" with the outcome of the Queen's Park report.

"Neither [an external report from investigator Dr. Jake Thiessen] nor the Standing Committee report singled out Marchese as being responsible for what occurred," said Zaffiro.

"However, there is no doubt we have all learned from this painful incident. Marchese is committed to working collaboratively to make the health care system that we all rely on as safe as it can be."

It was 'hard to follow the money' at Medbuy: NDP health critic

Medbuy had a whole stable of licensed pharmacists who oversaw the contract process, but failed to notice the contract's lack of clarity, the report said.

The document also raised concerns about the financial practices of group purchasing organizations like Medbuy, saying it was unable to follow the public money that went to the company.

Medbuy works under contract to health care organizations which make up both its membership and its shareholders, the report said.

Hospitals don't pay Medbuy directly for its services, said NDP health critic and committee member France Gelinas.

Rather, Medbuy gets a "rebate" — what Gelinas called a kickback — from the pharmacy based on how much is spent on their contracts. It "helps themselves to whatever they need," which is supposed to offset its operating expenses, and gives the rest to the hospital.

"We tried really hard to follow the money," she said. "It was impossible to see where the money went back, was it used for patient care — I have no idea."

In 2012, Medbuy's members spent $647 million on contracts, the report said. Medbuy's annual budget is in the range of $7 million.

The committee said it was skeptical that Medbuy operates like a not-for-profit and doesn't retain earnings.

It was told by Medbuy that the company had five employees that made more than $100,000 a year, the report said. In fact, it was 17 employees and the committee was "disturbed by the discrepancy."

Medbuy said Tuesday it has "always operated as though we were a not-for-profit despite our legal incorporation."

Report revealed a $20,000 donation from Marchese to Medbuy fund

The board of directors is "in the process of reviewing changes to our legal status to bring it in line with our long-standing practice of retaining no profits or earnings," CEO Kent Nicholson said in a statement.

The report revealed that Marchese's offer — which was substantially lower than the more experienced company that had previously held the contract — included a $20,000 donation to a Medbuy fund for "healthcare industry initiatives."

Such contributions were encouraged by Medbuy in its request for proposals and were used in scoring the company's submission, the committee found.

Medbuy told the committee that it chose Marchese because it had better labelling, Gelinas said. But she believes the decision was money driven, as Marchese was offering to provide the product for a lower price.

Among its six recommendations which also include standardized labelling, the committee is urging the Ontario government to provide oversight of group purchasing organizations like Medbuy, such as salary disclosure and audits by Ontario's auditor general.

Health Minister Deb Matthews said she's introduced legislation that would authorize the College of Pharmacists to inspect, license and set standards for hospital pharmacies.

But Gelinas said the bill doesn't provide oversight to the part of the system that failed those cancer patients — the group purchasing organizations — or change the way they do business.

"This idea of having public money being kicked back to a private organization did not sit well with any of the committee members," she said.

Rather than using a rebate system, hospitals should pay group purchasing organizations directly for the services they provide, she said.

"Those are pretty substantive changes to the way business is done," Gelinas said.

"But what happened — this incident with 1,200 people — I think requires that kind of change so that we can look those people in the eyes and say it won't happen again."