Identifying the Root Cause of Drug Shortages

How could drug shortages happen in a free enterprise country like the United States?

Actually, it’s pretty simple: There is a kickback system approved by Congress that has undermined competition and profitability in the drug/IV fluid market.

How? Because many drugmakers and other suppliers have been locked out of the hospital marketplace by group purchasing organizations (GPOs), which contract for most of the drugs and supplies used in 5,000 American hospitals and other facilities. Since GPOs award exclusive, often sole-source contracts to favored drug/IV suppliers in return for steep (but secret) “fees” and rebates, companies that don’t get contracts can’t compete and are forced to halt production.

When you attempt to investigate this appalling situation, you hit a stone wall. There is no transparency on GPO contracts and financial arrangements, which include kickbacks and rebates for GPOs and “share backs” and “patronage fees” for hospitals. Not surprisingly, hospitals don’t want to discuss this obvious conflict of interest.

Under this perverse system, dominant drug and IV fluid suppliers enjoy a protected market with little or no competition. GPOs, which do nothing more than write exclusive contracts, are making huge profits. The CEOs of major GPO shareholder hospitals often get a piece of the action. Everyone is happy—except the unfortunate patient who may have to endure a very painful operation and side effects due to the lack of suitable analgesics and high hospital/insurance expenses.

This debacle was created by an obscure 1987 statute, known in shorthand form as the Medicare anti-kickback “safe harbor,” which exempted GPOs from criminal penalties for taking kickbacks and rebates from suppliers. This is the only industry in America I know of that has gotten a “Get Out of Jail Free” card from the U.S. Congress!

If that wasn’t enough, in 2003, the Inspector General of the Department of Health and Human Services (HHS) extended the GPO safe harbor to cover pharmacy benefit manager (PBM) rebates, driving up prices of drugs sold by these predatory middlemen. The Trump administration has proposed rescinding this safe harbor administratively. For more on that, see the Washington Post article from Aug. 28, 2018.

But full repeal of the GPO safe harbor requires an act of Congress. So please, Congress, for heaven’s sake, repeal 42 US Code 1320a-7b(b)(3)(C) and direct HHS to revoke any and all rules and regulations that protect these “legalized” kickbacks and rebates!

Drug shortages in an advanced country like the United States are a disgrace, but they can easily be ended by those in power. The trouble is members of Congress get paid by the GPO and hospital industries and their cohorts to preserve the kickbacks and rebates. Those payments are called “campaign contributions.”

So what can you do?

Cite the extensive documentation on this national scandal on the website of Physicians Against Drug Shortages (PADS), which for six years has been leading the charge in trying to reform this corrupt system: see www.physiciansagainstdrugshortages.com.

Contact your Congress members and tell them you are fed up with the shortages and skyrocketing prices of medications. Insist they stop the GPO/PBM kickbacks and rebates by repealing the unsafe safe harbor statute.