GPOs Back Obama Order on Drug Shortages

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

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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