Identifying the Root Cause of Drug Shortages - A Call to Action

  • Brock-Utne, John, MD
| Dec 17, 2018

Dr. Brock-UtneHow could drug shortages happen in a free enterprise country like the U.S?

In my opinion it’s pretty simple. I believe a system of perverse incentives has been created as a result of legislation approved by the U.S. Congress that seems to have undermined competition and profitability in the drug/IV fluid market. 

How? Because many drug makers and other suppliers have been locked out of the hospital marketplace by group purchasing organizations (GPOs), which contract for most of the drugs and supplies used in 5,000 American hospitals and other facilities. Since GPOs award exclusive, often sole-source contracts to preferred drug/IV suppliers in return for confidential “fees” and rebates, companies that don’t get contracts can’t compete and often decide to halt production. 

GPOs mandate that their member hospitals (most U.S. hospitals are members of at least one GPO) buy virtually all of their drugs/IV fluids from contracted suppliers. They’re generally not permitted to buy these and other supplies from companies that don’t have GPO contracts.  There is unfortunately no transparency on GPO contracts and financial arrangements, which include rebates for GPOs and “share backs” “for hospitals. Not surprisingly, hospitals don’t want to discuss this obvious conflict of interest. 

Under this system, many suppliers enjoy a protected market with little or no competition.  GPOs make large profits, CEOs of major GPO shareholder hospitals may get a piece of the action and everyone is happy. Except, I think for the unfortunate patient who may not get the preferred medications due to drug shortages, and the frantic physicians who may have to get creative to optimize care. 

This situation was created by a well-intentioned statute in 1987 known as the Medicare anti-kickback safe harbor, which exempted GPOs from criminal penalties for taking kickbacks and rebates from suppliers. It’s like having a “Get Out of Jail Free Card” from the United States Congress!

In 2003, the Inspector General of the Department of Health & Human Services (HHS) extended the GPO safe harbor to cover pharmacy benefit manager (PBM) rebates, driving up prices of drugs. The Trump administration has proposed rescinding this safe harbor administratively. For more on that, see this Washington Post August  28 , 2018.

But full repeal of the GPO safe harbor requires an act of Congress. So please, Congress, repeal 42. U.S.C. 1320a-7b(b)(3)(C)

Drug shortages in an advanced country like the United States are extremely troubling, but they can easily be ended by those in power. Some members of Congress may receive campaign contributions from the GPO and hospital, decreasing their motivation to act.

So what can you do?

  1. Go to this link and fill in the petition to stop artificial shortage and skyrocketing drug prices.
  2. Contact your members of Congress and tell them you’re fed up with the shortages and skyrocketing prices of medications. Insist that they stop the GPO/PBM kickbacks and rebates by repealing the unsafe safe harbor statute.
  3. Help get this message out by contacting family, friends, and colleagues via email and your social media pages. 

More information on GPO and drug shortage see

  1. Journal of the American Medical Association (JAMA) October 2018:

Group Purchasing Organizations, Health Care Costs, and Drug Shortages

This Viewpoint explains how group purchasing organizations (GPOs) – companies that purchase devices, supplies, and medication from multiple manufacturers and serve as single supply sources for hospitals and medical centers – contribute to supply shortages, higher prices, and limited product...


2.  You can also check out  this article in Modern Healthcare of Oct. 18 on the JAMA Viewpoint piece by Dr. Martin Makary et al

GPOs' 'pay to play' fees drive up healthcare costs ...

Hospitals may pass the cost onto payers and patients in turn, said Dr. Martin Makary, a professor of surgery, health policy and management at Johns Hopkins University and an author of the paper.

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