Dr Martin Makary Outlines Advantages, Disadvantages of Group Purchasing Organizations

June 2, 2019

Group purchasing organizations have an important purpose in healthcare, but there are some concerns, explained Martin Makary, MD, MPH, a surgical oncologist and chief of the Johns Hopkins Islet Transplant Center.

Group purchasing organizations have an important purpose in healthcare, but there are some concerns, explained Martin Makary, MD, MPH, a surgical oncologist and chief of the Johns Hopkins Islet Transplant Center.

Transcript

Why do hospitals use group purchasing organizations for getting medications, medical devices, and devices? What are some of the pros and cons or using these organizations?

I recently summarized what I believe to be the advantage and disadvantages of GPOs [Group Purchasing Organizations] in an article in JAMA, and in my research, I learned a couple of things. Number 1, GPOs serve an important purpose in healthcare. They save hospitals all of the legal and contracting work of going out there and writing contracts with hundreds of different vendors. Just like they would buy supplies from an Office Depot or Home Depot catalogue, similarly, GPOs make many products available.

Where I have significant concerns is in a pay-to-play fee system that GPOs have adopted through a loophole or an exemption that’s been passed into law of the Sherman Anti-Trust Act. That exemption to the Sherman Anti-Trust act allows them legally to demand fees from manufacturers and pharma companies to be listed in the catalogues or to have premium listing or even sometimes sole supplier listing in a catalogue. It’s generally anti-competitive, it’s not good for patients, and when the GPOs are sharing back some of the profits to the hospital who is left holding the bag? Those high costs that the manufacturers build into the price of the medication or device gets passed all the way through to the patient.

So, we have stories of individuals patients paying absurd amounts of money for a medication in a hospital setting that’s been around for a long time. How do you explain a sudden shortage of a certain medication that’s been around for 50 years? Sometimes it’s the sole supplier contracting that allows monopoly dominance in certain markets that allows that supply chain to get flimsy.

There are a lot of complex issues around GPOs. I don’t think GPOs are bad. I think they serve a valuable purpose in healthcare. But, I do personally and philosophically believe that we should get rid of kickbacks in GPO industry, which are called administrative fees, and we should get rid of kickbacks that are in the PBM [pharmacy benefit manager] world that are called rebates, and we should get rid of all kickbacks in healthcare.