Advocacy groups press FTC to probe GPOs' role in supply chain shortages

Several patient and consumer advocacy groups are clamoring for the Federal Trade Commission (FTC) to examine the role of group purchasing organizations in exacerbating supply chain shortages.

The advocacy groups want the FTC to initiate a Section 6(b) study (PDF) surrounding GPOs that could lead to a deep dive into the industry’s practices. The agency has already initiated a study into supply chain disruptions caused by the COVID-19 pandemic. 

“We believe GPOs play a key and under-appreciated role in fostering and exacerbating shortages and the offshoring of production, while their influence on cost remains chronically under-analyzed,” according to the letter led by the antitrust group American Economic Liberties Project.

A GPO represents hospitals and other providers to procure contracts to buy drugs and supplies. The idea is that a GPO has greater buying power for the providers by representing their collective supply needs. 

But the groups charge that “decades of consolidation and regulatory exemptions have given them monopsony negotiating leverage, allowing them to obstruct the competition of a functioning market,” the letter said. “For example, GPOs accept what are effectively kickbacks from suppliers, creating a pay-to-play scheme in the medical equipment market.”

The COVID-19 pandemic exposed several flaws in the personal protective equipment supply chain, as demand for equipment surged while primarily overseas manufacturers had to shut down. 

The advocacy groups, which also include Public Citizen and Physicians Against Drug Shortages, charge that GPOs helped exacerbate this problem, which forced hospitals to fervently search for PPE. 

“We believe GPOs contribute to this by extracting fees from suppliers that they might otherwise be able to build up supply chains and keep them domestic,” said Sara Sirota, a policy analyst for the American Economic Liberties Project, in an interview with Fierce Healthcare.

Another concern is sole-source agreements between GPOs and their members, which can prevent hospitals from finding other sources of supplies if their main vendor is unavailable. 

The groups wrote that FTC should look into the effects of GPOs on medical supply prices as well as the effects of high market concentration in the industry. They also want the FTC to explore how the elimination of an anti-kickback safe harbor could alleviate any of the issues. 

GPO advocates argue that they play a critical role in the supply chain.

"GPOs operate in a voluntary, competitive environment where their members drive contracting decisions and portfolio development," according to a statement from the Healthcare Supply Chain Association, which includes GPOs among its membership. 

The association added that federal agencies ranging from the Justice Department to the Government Accountability Office have reviewed GPO practices "many times and have consistently reaffirmed their value to the healthcare system."

The FTC did not return a request for comment as of press time.

The agency has initiated similar studies recently, chief among them a Section 6(b) study into the impact of the pharmacy benefit manager industry.

Sirota said the problems with GPOs are like those of PBMs, another industry that has high market consolidation and serves as a healthcare middleman. The PBM industry is also being examined by Congress, where lawmakers have introduced legislation to install several reforms. 

“We would like to see a similar interest from lawmakers and regulators on GPOs, whether that is at the congressional level or state regulators get involved,” Sirota said.