Washington, D.C. — As shortages of basic drugs and treatments, for everything from lead poisoning to cancer, reach record levels in the US, the American Economic Liberties Project today released a new policy brief, “The Dirty Secret of Drug Shortages,” to shed light on the primary driver of the problem: consolidated middlemen known as group purchasing organizations (GPOs).

“While Congressional attention to drug shortages has focused on global supply chains, the true culprit is hiding in plain sight: consolidated GPOs and their kickback-driven business model,” said Sara Sirota, Policy Analyst at the American Economic Liberties Project. “GPOs put so much financial pressure on the makers of low-cost drugs that manufacturers simply do not want to make them, despite the high demand. Congress can issue reforms to allow the market to function effectively and incentivize much-needed production. Our new policy brief lays out how to do so.”

As the brief explains, GPOs are middlemen who set up contracts with suppliers, which hospitals can use to buy drugs and other medical supplies. After decades of mergers, just three GPOs control most of of the industry. The largest, Vizient, alone serves over 60% of U.S. care providers, including 97% of academic medical centers; the yearly value of its contracts equals the Department of Defense’s entire 2020 procurement budget.

GPOs have changed their funding structure to capitalize on their dominance, thanks to a government-sanctioned exemption from the federal Anti-Kickback Statute. Instead of collecting dues from member hospitals as in the past, they now make money by charging fees to suppliers—essentially selling access to the market to the highest bidder. This pay-to-play system ruins small suppliers who can’t afford the price of entry. The result not is only a dangerous lack of supply chain diversification, but also more pharma price gauging as surviving firms are left in near-monopoly position.

The policy brief provides practical steps for reining in their power. These include repealing the anti-kickback safe harbor, requiring multi-source contracts for GPOs, prohibiting minimum purchasing volumes and bundled rebates, breaking up the largest GPOs, and more.

Economic Liberties has already submitted comments to Chair McMorris Rodgers urging her to repeal the GPO safe harbor from the Anti-Kickback Statute. Last November, Economic Liberties also led a group of organizations representing doctors, patients, and activists in requesting the Federal Trade Commission to launch a 6(b) investigation into the GPO industry.

Read the full policy brief, “The Dirty Secret of Drug Shortages,” here.

Learn more about Economic Liberties here.

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.