HOUSE OVERSIGHT 019424 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 in a 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 victim