Washington, D.C. — In response to news that the Federal Trade Commission and Department of Health and Human Services (HHS) have launched a request for information on how pharmaceutical middlemen known as group purchasing organizations (GPOs) and wholesalers contribute to shortages of crucial drugs, the American Economic Liberties Project released the following statement. As mentioned in the Wall Street Journal, Economic Liberties previously sent a letter to the FTC urging them to investigate the role of GPOs in drug shortages and rising healthcare costs in 2022, and recently detailed the market power of these middlemen in a policy brief, “The Dirty Secret of Drug Shortages.”

“Following calls from advocates, patients, and healthcare professionals across the country, we’re glad to see the Biden administration scrutinize how consolidated GPOs are driving shortages of chemotherapies and other crucial treatments,” said Morgan Harper, Director of Policy and Advocacy at the American Economic Liberties Project. “These little-known, kickback-driven middlemen use their market power to disincentivize the production of generic drugs, fueling drug shortages and endangering the lives of countless patients, including children. We are pleased the FTC and HHS are now gathering more information and hope they will take swift action soon after.”

In 2021, the White House published a report, following an Executive Order, reviewing and analyzing key industries to strengthen supply chain resiliency across the economy, including generic pharmaceuticals and shortages in the sector. Today’s action not only takes a step toward delivering relief to patients suffering from shortages, but also addresses how GPOs threaten medical supply market resilience and national security.

As Economic Liberties’ policy brief detailed last October, GPOs are middlemen who set up contracts with suppliers, which hospitals can use to buy drugs and other medical supplies with little oversight. 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 safe harbor 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 price gouging as surviving firms are left in with a near-monopoly position.

Economic Liberties also submitted comments to House Energy and Commerce Chair Cathy McMorris Rodgers last summer urging her to eliminate GPOs’ safe harbor from the Anti-Kickback Statute.

Read Economic Liberties’ 2022 letter to the FTC here. 

Read the “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.