GPOs Back Obama Order on Drug Shortages

John Commins, for HealthLeaders Media , November 2, 2011

The American Hospital Association and two hospital group purchasing organizations say they support President Barack Obama's executive order this week to reduce the nation's prescription drug shortage.  

Steven Lucio, director for clinical pharmacy solutions at Novation, told HealthLeaders Media that the federal government really can't go much beyond the president's order. "This is a free market and that is what we have to understand. The government can't force drug companies to make products. Unless we want to change that -- and there is a lot of sensitivity these days about what it is practical for the government to do -- I don't think it can be done and I don't think it is appropriate."

Lucio says that the Food and Drug Administration now has only about four people in its drug shortage division monitoring anything from 178 to 211 drug shortages."Four people can't manage that," he said. 

While there have been calls to ease restrictions on importing prescription drugs that are in short supply, Lucio says that probably wouldn't work all that well. "The problem is you can't find it," he said.

"If there is a product to be found they will go and try to get it. It's just [that] we can't take all the medication from Europe. However, if the FDA has greater notifications maybe they can do something with a foreign government that would have more time to respond. "

The executive order calls on the FDA to:

  • Press drug manufacturers to report as far in advance as possible on the potential shortages or discontinued product;
  • Expedite regulatory review of drugs; and
  • Review "certain behaviors" by market participants that could include hoarding drugs and reselling them at exorbitant prices

"The shortage of prescription drugs drives up costs, leaves consumers vulnerable to price gouging and threatens our health and safety," Obama said Monday in prepared remarks. "This is a problem we can't wait to fix. That's why today, I am directing my administration to take steps to protect consumers from drug shortages, and I'm committed to working with Congress and industry to keep tackling this problem going forward."

Blair Childs, senior vice president of Public Affairs at Premier healthcare group purchasing organization says that providers shouldn't wait on the government to supply all the answers to the drug shortage problem.

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1 comments on "GPOs Back Obama Order on Drug Shortages"

Phil (11/6/2011 at 12:20 PM)
Sorry, Mr. Lucio, but the U. S. market for healthcare supplies, devices and drugs is NOT a free market. That's the problem. It's a market that's distorted by the perverse incentives of the kickback-based GPO business model, which was created in 1987 when Congress enacted an obscure statute called the Medicare antikickback "safe harbor" exemption. This is the closest thing in the U. S. economy to the disgraced Soviet economic model. Under this pernicious arrangement, GPOs are able to take kickbacks from healthcare vendors (mostly dominant ones). In return, the vendors get exclusive access for their often inferior, obsolete and unsafe products to about 5,000 GPO-member hospitals. It is a pay-to-play scheme that harms (and even kills) patients and healthcare workers, discourages competition, medical innovation, and job creation, and inflates healthcare supply costs by tens of billions a year. When and if unbiased investigators look into the real reasons behind the recent drug price spike and shortages, I have no doubt they will find that GPO kickbacks are at the root of the problem. This is a monopsony in which a few giant GPOs contract with a limited number of large suppliers, excluding other existing and would-be suppliers, thereby resulting in a concentrated market and higher prices. So when there's a spike on the demand side, there are no other suppliers around able to fill the gap. Competition reduces prices, cartels (in this case purchasing cartels) inflate them. The only way to restore integrity and free market competition to this marketplace is for Congress to repeal the antikickback "safe harbor." For more information on this, see two Feb. 2005 articles by Michael Hiltzik in the Los Angeles Times on how GPOs grossly inflated cancer drug prices at UCLA Medical Center and "Cut Kickbacks to Hospital Group Purchasing Organizations, NOT Medicare and Medicaid," by Paul Danziger in Roll Call of Oct. 21, 2011. For more articles and documents on the GPO issue, see




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