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Are GPOs, PBMs part of the drug cost problem or the solution?


The middlemen of group purchasing organizations and pharmacy benefit managers remain a central part of the drug pricing and shortage debate.

Like Premier, other GPOs and wholesale distributors have created private drug labels. They contract directly with a manufacturing company to make a generic drug under their own brand—just one of the ways they can affect the supply of drugs.

When a shortage occurs, GPOs say they work closely with pharmaceutical manufacturers to find other sources, said Todd Ebert, CEO of the Healthcare Supply Chain Association, which represents GPOs—organizations that claim to save hospitals money by extracting volume discounts from suppliers.

Each GPO works with the Food and Drug Administration to expedite applications for therapies in short supply or ones that have jumped in price, he said.

“With the most recent shortage of injectable products, we went to Pfizer to ask them what the real time frame was and worked with other manufacturers,” Ebert said. “We also worked with policy groups and the FDA and the (Drug Enforcement Administration) to get more allocations.”

But while GPOs claim they help providers work around drug shortages, others argue that they are part of the problem.

The “pay-to-play” fees that GPOs charge to gain placement in their supply catalogs contribute to drug shortages, according to a recent paper from a trio of Johns Hopkins University professors.

GPOs are exempt from a federal law forbidding kickbacks in return for providing items or services. The pay-to-play fees could drive up the cost of supplies, as well as narrow the number of manufacturers that can pony up the money, according to the paper published in JAMA in October.

If only one or two suppliers are responsible for an entire region, one production snag can collapse the entire supply chain, evidenced by the shortage of intravenous saline after Hurricane Maria hit Puerto Rico.

The safe-harbor clause should be eliminated in healthcare, said Dr. Martin Makary, an author of the paper and a professor of surgery, health policy and management at Johns Hopkins. The JAMA article cited an antitrust lawsuit Masimo filed against Premier and what is now Vizient after they allegedly refused to offer the technology company’s new pulse oximeter. Tyco International was paying GPOs to protect its monopoly, according to the lawsuit, which Masimo ultimately won.

“Market domination, which encourages a more flimsy supply chain, is propagated by the pay-to-play fees by GPOs as well as the limited formularies offered by pharmacies and pharmacy benefit managers,” Makary said.

PBMs—the gatekeepers that negotiate prices between drug manufacturers, health plans and employers—can work out deals that promote the use of a certain therapy, handcuffing the sales of competitors, Makary said.

“That’s not good for the shortage problem or prices,” he said.


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