Washington, D.C. — In response to new actions announced by the Biden administration yesterday to use the Defense Production Act to boost domestic manufacturing of essential medicines in order to protect patients from shortages—as part of a broader effort to strengthen supply chain resilience—the American Economic Liberties Project released the following statement.

“The Biden administration’s new actions to expand domestic manufacturing of essential medicines mark a commendable step toward strengthening our national pharmaceutical supply chain,” said Sara Sirota, Policy Analyst at the American Economic Liberties Project. “Yet to fully protect Americans from drug shortages, the government must also tackle the oligopolistic hospital buying agents clogging up the supply chain and profiting off of the market’s dysfunction: group purchasing organizations. As gatekeepers, GPOs extract so much money from the makers of low-cost drugs—and put up so many market barriers—that manufacturers simply do not want to make them despite the high demand. We urge the White House to rein in these middlemen and to put pressure on Congress to eliminate GPO’s dangerous exemption from the Anti-Kickback Statute.”

As a recent Economic Liberties policy brief explains, GPOs are middlemen who set up exclusionary 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 effectively take bribes from suppliers, 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 positions.

Read “The Dirty Secret of Drug Shortages,” here.

Learn more about Economic Liberties here.

###

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.