Introduction

Over the past decade, there has been an increasing amount of drug shortages in the U.S. This increasing trend has brought much needed light to this issue, and has government officials and scholars working diligently to try to find its cause.

Background

The FDA reports that the majority of supply problems are caused by problems at manufacturing sites, delays in manufacturing and shipping, API shortages, and business decisions that lead to discontinuation of a drug. There are some professionals who say GPOs are the source of shortages. A group purchasing organization’s (GPO) purpose is to leverage the purchasing power of a group of establishments; for example, hospitals to obtain discounts from vendors based on the collective buying power of the GPO members. Most hospitals and outpatient/long term care organizations are members of GPOs. GPOs often collect administrative fees that are paid by the sellers to be able to sell their drug to GPO members, and these fees are usually set as a percentage of the purchase.

Issue

Are GPO practices at the source of drug shortages?

Rule

GPOs are a cause of drug shortages if determined by the Government Accountability Office investigation.

Analysis

The “Safe Harbor” provision in the Medicare and Medicaid Patient Protection Act allows GPOs to collect fees from sellers as long as they disclose to their member hospital or other establishment at least annually what those fees were. Experts argue that GPOs offer their contract preferences to drug sellers based on the fees that they collect from them. Under normal circumstances, this would be a violation of anti-trust and anti-kickback laws, but the Safe Harbor provision safeguards them. According to some experts, it is this specific GPO practice that has negatively affected the amount of generic drug suppliers. Physicians Against Drug Shortages accuse the GPOs of being the underlying cause for the drug shortages because they have created an artificial market situation for drugs and other medical tools. By edging out certain suppliers based on fees paid, they diminish generic drugmakers’ profits on selling their drugs and consequently discourage them from producing drugs. The results are prices that are pretty much driven by monopoly instead of genuine supply and demand.

These are all speculations that have not been proven yet. Experts are making these conclusions based on their working understanding of GPO contracting processes. The common influence on their worries is that GPOs aren’t transparent about the different offers and fees that they collect from sellers. An HSCA representative has stated that “the group purchasing industry is the most transparent sector in healthcare, and we have a longstanding commitment to promoting openness, accountability, and the highest ethical standards in business practices.” In a letter to the Government Accountability Office, six congressmen have asked the office to investigate the role of GPOs in prevalence of drug shortages; especially the effect that current contracting practices have on drug shortages, pricing, innovation, and competition of drug and medical devices.

Conclusion

Experts point to GPOs as the underlying cause of drug shortages because their practices apparently diminish competition in the market. At this time, experts have made allegations against GPOs, but the Government Accountability Office hasn’t released any conclusive information on this matter. Until new evidence shedding light onto these accusations is released, GPOs can’t be blamed for the current drug shortage problem.

For more information on this issue, contact the Kulkarni Law Firm.