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According to a report by The American Prospect, the big three Group Purchasing Organizations (GPOs) – Premier, Vizent and HealthTrust use sole-source contracts to require hospitals to purchase virtually the same amount from suppliers every year. If a supplier cannot snag one of these contracts, they cannot sell to nearly all hospitals, and they cannot go forward as a business. This dramatically shrinks the manufacturers available for particular sterile injectable drugs, any of which can be thrown offline by the slightest imperfection.

The GPO structure therefore limits competition for these drugs, and exacerbates resiliency challenges. It also can increase prices, because the determining factor of getting a contract is often the highest fee a manufacturer can provide. These fees cut into supplier margins and induce them to take shortcuts to ramp up production, making the system even more vulnerable to supply shocks.

Hospitals have favored the scheme because they get paid too, through “share-backs” from the GPOs. This secures their participation and keeps the system stuck with supply challenges.

Ending the anti-kickback safe harbor would shift the GPO compensation model. They would be paid by hospitals as co-op purchasers, for finding the cheapest prices for medical supplies, rather than being paid by suppliers as for-profit operators, hunting the biggest fees for access. A market with suppliers competing for business rather than paying GPOs to get into hospitals would reduce what hospitals pay, studies have shown.

The Senate Finance Committee is releasing a bipartisan discussion draft this month that aims to tackle the epidemic of drug shortages, mostly in low-margin generic injectables used in hospitals. It attempts to reckon with the broken market structure that has created the most drug shortages in America on record.

The discussion draft uses Medicare and Medicaid payments to incentivize reform of contracting practices that put generic injectables and other drugs at heightened risk for shortages. In particular, Senate Finance Committee chair Ron Wyden (D-OR) has taken aim at group purchasing organizations (GPOs), three of which handle bulk purchasing for 90 percent of all hospitals. Sole-source contracts and profit-skimming by GPOs (and large wholesalers, which also have extreme concentration, with three controlling 90 percent of purchases) have been blamed for creating the conditions where low-margin drugs are no longer profitable to most manufacturers, thinning out the supply chain and opening it up to regular disruptions.

Yet the bill does not take what some have identified as the easiest path to breaking the power of GPOs: removing the safe harbor from anti-kickback laws that allows the companies to maintain their dominance by taking fees from hospital suppliers in exchange for inclusion in their guaranteed sale contracts.

Instead, it creates a new framework starting in 2027 called the Medicare Drug Shortage Prevention and Mitigation Program. Hospitals and other providers would be eligible for incentive payments under the program, but only if they commit to a variety of contracting reforms to ensure that certain generic drugs are no longer chronically in shortage. This includes injectables like saline, and chemotherapy drugs that have recently gone into short supply.

Some critics see that as a missed opportunity. “This draft is a convoluted, unworkable, nonsensical, overly complex mess,” said Phillip Zweig, co-founder and executive director of Physicians Against Drug Shortages, which has highlighted anti-competitive contracting practices and kickbacks as the source of the problem.

That there’s a draft at all reflects renewed attention to the problematic function of middlemen in the health care system, both on prices and the timely dispensation of treatment. Pharmacy benefit managers (PBMs), which play a similar role for prescription drugs purchased at pharmacies, have also come under scrutiny in Washington. Federal regulators are currently examining both GPOs and PBMs.

But solutions have been elusive, and while the committee is optimistic that they could really get something done, critics argue that there are much simpler alternatives available: in this case, making pay-to-play GPO schemes illegal again.