A handful of advocacy groups – including the American Economic Liberties Project, Center for Economic and Policy Research, Demand Progress Education Fund, and Practicing Physicians of America – wrote a letter to the Federal Trade Commission (FTC) asking the agency to “investigate the monopolistic middlemen in the healthcare supply chain known as group purchasing organizations (GPOs).”
A GPO helps hospitals, nursing homes, and other healthcare providers procure contracts to buy drugs and other medical supplies, with the idea that by purchasing in “bulk,” the providers are getting a better deal. However, the organizations disagree, stating their belief that GPOs “play a key and under-appreciated role in fostering and exacerbating shortages and the off-shoring of production, while their influence on costs remains chronically under-analyzed.”
“Three GPOs – Vizient, Premier, and HealthTrust – manage procurement for 90 percent of medical equipment today, leaving health care providers and small producers with little bargaining power,” the letter said.
Another concern the groups have is “sole-sourced” agreements between GPOs and their members, locking the members into fixed prices and rendering them unable to make organic adjustments in response to either their own costs or health care needs. This can prevent hospitals from finding supplies from other sources if their main vendor is facing a shortage or otherwise unable to provide the supplies.
The letter also highlighted a White House report that said GPO contracting methods – especially the sole-sourced agreements – may lead to reduced competition among medical suppliers.
The groups ask the FTC to investigate the impact GPOs have on medical supply prices, the impact of high market concentration in the industry, and how eliminating the anti-kickback safe harbor may alleviate the problems. Specifically, they ask that the FTC investigate:
- The impact of concentration in the GPO industry
- The effect GPOs have on competition in medical supply markets
- The effects of GPOs on medical supply prices and reliability of medical supplies
- The impact of GPO purchasing and contracting practices on medical supply shortages
- The frequency and effects of GPOs’ use of sole sourced or exclusive contracts
- The connection between GPO concentration and the offshoring of medical supply production
- Whether eliminating the anti-kickback statute safe harbor would alleviate any of the problems
- Whether the “antitrust safety zones” for joint purchasing arrangements should be eliminated
As one might expect, GPO organizations disagree with the way the letter is painting the situation. “GPOs operate in a voluntary, competitive environment where their members drive contracting decisions and portfolio development,” read a statement from the Healthcare Supply Chain Association, which includes GPOs among its membership. The Healthcare Supply Chain Association further noted that various federal agencies have all previously reviewed GPO practices and have “consistently reaffirmed their value to the healthcare system.”
It will remain to be seen as to whether the FTC acts on this request, but the agency has started similar studies recently, including a Section 6(b) study on the impact of the pharmacy benefit manager (PBM) industry.