small Texas company settled a federal antitrust lawsuit yesterday that accused the nation's two dominant hospital buying groups, Premier and Novation, of preventing the sale of its hypodermic needles to many hospitals.

The company, Retractable Technologies, which figured prominently in the fight to reform hospital buying groups, said the terms of the settlement were confidential but that it included cash payments, as well as provisions to make it easier for the company to sell its needles in thousands of hospitals in the United States.

Retractable said its product helps prevent accidental needle sticks among health care workers and that Premier and Novation had essentially blocked its sale to many hospitals. Premier and Novation negotiate supply contracts worth about $35 billion a year on behalf of nearly two-thirds of the country's hospitals.

"We're hopeful that this exciting development will enable us to further fulfill our mission of protecting America's health care workers against potentially deadly accidental needle-stick injuries," said Thomas J. Shaw, the president and chief executive of Retractable, which is based in Little Elm, Tex.

The settlement also included Tyco International, which makes a competing needle and had also been sued by Retractable. A Tyco spokesman said the company was pleased with the settlement but declined to comment further.

The settlement did not include Becton, Dickinson & Company, the nation's biggest needle maker, which remains a defendant in the case, which was filed in federal court in Texarkana. Becton Dickinson, which is accused of conspiring with the buying groups to restrain trade, has denied it acted improperly.

Premier and Novation, which had vigorously disputed Retractable's charges, have vowed to change their buying practices after being sharply criticized by members of Congress, who accused them of conflicts of interest and self-dealing.

Premier said the settlement did not include any admission of improper conduct. Novation also said the settlement would have "no material impact" on its financial health. Premier and Novation are private for-profit companies.

In a related development, California has become the first state to take steps toward regulating the business practices of group purchasing organizations. In a vote on Tuesday, the state's Senate Judiciary Committee passed a bill that would require hospital buying groups to comply with a code of conduct.

Martha Escutia, a state senator who introduced the bill, said the legislation would help keep health care costs down by fostering competition among hospital suppliers and eliminating conflicts of interest within buying groups.

The bill would also require the buying groups to disclose whatever payments they receive from medical supply companies. Buying groups finance their operations through fees received from the companies they purchase supplies from. Critics of this practice, including Mr. Shaw of Retractable, said these payments corrupted the way contracts for supplies were awarded.

Premier and Novation defend this practice, a source of hundreds of millions of dollars for them, on the ground that their hospitals know of the payments and approve of them.

But a federal audit of Premier, conducted by the inspector general of the Department of Health and Human Services, found that the buying group had often failed to disclose these fees. "Our review found that 37 of the 107 responding members in our sample did not receive an advance agreement indicating that Premier would receive an administrative fee from vendors based on the member's volume of purchases," according to the audit, which was obtained through a request under the federal Freedom of Information Act.

The audit also found that Premier had not promptly informed hospitals that it had investments in supply companies.

Premier said it had found the inspector general's recommendations "reasonable" and said it would "commit to change its process and take responsibility for distributing" its fee agreements to hospitals.

Retractable's legal fight against Premier and Novation has been closely watched by other hospital suppliers, some of which have also said they did not have a fair chance to sell their products to hospitals.

Retractable makes a needle that automatically retracts into the barrel after an injection, reducing the chance that a health care worker might accidentally be stuck by a contaminated needle.

In New York, for example, Premier and Becton, Dickinson were recently named in a complaint to the Occupational Safety and Health Administration by a group of resident doctors at Montefiore Medical Center, based in the Bronx.

The residents gave OSHA data they had compiled that showed what appeared to be a rise in the number of needle-stick injuries at Montefiore over the last two years. They said hospital officials did not take "appropriate action."

The residents also asked OSHA to investigate whether Montefiore's membership in Premier was behind its widespread continued use of traditional needles, which have no safety features. The agency has begun an investigation.

Montefiore officials questioned the accuracy of the residents' statistics. They also said the medical center was replacing its hypodermic needles, which they said carried only a very small risk relative to other devices that can pass on diseases carried in the blood.

A Premier spokeswoman said the company continued to award contracts for traditional needles because they were inexpensive and could be used in certain procedures that do not involve human blood, like drawing liquids out of stoppered bottles. She said that Premier was not at fault if certain hospitals were permitting health care workers to use these needles on patients.