Previously, this column has scrutinized the lack of accountability in hospital systems, health insurance companies, pharmaceutical manufacturers, pharmacy benefit managers (PBMs) and their negotiators for raising U.S. health care costs. However, far more financial incentives exist to overcharge consumers for medications and services, and scarcely discussed negotiators may be taking revenues at every stage of the supply chain.
Group purchasing organizations (GPOs) are unified contractors that use the combined leverage of many partnered hospitals to bargain health supply prices. Despite what the name implies, GPOs do none of the buying themselves. Instead, they negotiate for lower costs of care on behalf of their hospitals.
In theory, these contractors would be expected to allow health care services to decrease costs and increase accessibility. However, GPOs have been criticized for their anticompetitive practices and exploitation of loopholes in the Sherman Antitrust Act, a law that outlaws monopolization and attempts to preserve competitive markets.
These loopholes allow GPOs to demand excess fees from pharmaceutical companies and their PBMs — middlemen that negotiate drug prices with insurance companies — to carve out contracts. Effectively, what starts as only contracted hospitals paying GPOs becomes pharmaceutical producers also being bullied into paying them — and not just large companies like Pfizer.
Whether these leveragers are harmful to patient health costs or not, skepticism and additional review are sorely needed from sources outside GPOs themselves. Laws on anticompetitive practices of Medicaid and Medicare middlemen have been negligibly revisited, with the most recent laws tracing back to 1992. The exclusivity power large GPOs hold has earned them scrutiny from the Federal Trade Commission (FTC). Opaque contracting clauses delay time from prescription to drug delivery for patients, which has been speculated to be linked to the current drug shortage in the U.S.
Several articles online articulate the positive impacts of these organizations, but often lack published data or feature a buzzword-style “fact or myth” format. The majority of these publications appear to have conflicts of interest, being written by GPOs themselves.
Similar to GPOs, policy rarely targets pharmaceutical wholesalers. Wholesalers purchase drugs from manufacturers and distribute them to pharmacies and hospitals, especially those in their own supply chains. Just three entities control 90% of wholesales — AmerisourceBergen, Cardinal Health and McKesson Corporation. The wholesale market produced $18 billion in profit in 2016, indicating a point of analysis for policymakers trying to reduce health costs for patients.
Similar to PBMs, wholesalers have an incentive to obscure true prices from consumers. By differentiating the average wholesale price (AWP) from the wholesale acquisition cost (WAC), these entities can earn far greater revenues than the base price pharmacies contract them for. In this way, the wholesaler makes extra money that otherwise would have gone to subsidize lower drug costs for consumers, as pharmacies are otherwise able to offer higher discounts if their revenue allows them to do so.
None of this is to suggest that wholesalers do not at all positively influence drug supply chains for consumers. Having specialized distributors can amplify the speed dispensaries can carry rare, lifesaving medications for patients at. However, the key to holding these organizations accountable is transparency.
Wholesalers and GPOs primarily share two traits in common: consolidation and contractual opacity.
The centralized nature of middlemen means numerous systems back each entity, whether it be through manufacturers with wholesalers or insurers and hospitals partnering with GPOs. To break apart these large monopsonies, the typical policy is enhanced oversight from the FTC. Profit-reporting standards should be raised not only on paper, but in enforcement, with clear accounting at every stage of behemoth supply chains and for all contracted entities.
As for contract publicity, it is difficult for the government to insert itself into agreements that have long been made solely between private entities. A compromise must be reached with aggressive lobbyists to increase transparency of negotiations, such as subsidizing wholesalers if they publish contracts for sales of medications.
The ideal should be to amplify research on understudied entities like GPOs or wholesalers. These two operators represent just two of numerous players between drug producers, insurers, pharmacists, doctors and the patients they all theoretically aim to treat. This ideal will create a more transparent market that is more patient-centered.
