Connecting the Dots: How Anticompetitive Contracting Practices, Kickbacks, and Self-dealing by Hospital Group Purchasing Organizations (GPOs) Caused the U. S. Drug Shortage

Brian’s Note: This piece found its way to me yesterday and, with the author’s permission, I’m republishing it in its entirety. It is a very long but worthwhile read, mostly because it clarifies what we’re up against. Kudos to Ms. Earl and Mr. Zweig for having the courage and tenacity to document this.

Patricia Earl and Phillip L. Zweig

Authors Note: Because of widespread misinformation on the causes of this public health emergency and the extreme urgency of resolving it, we have written this paper in a timeline format. We thank Bill Bandy, retired CEO and founder of United Medical Supply, a Dallas-based medical supplies distribution firm, for his invaluable research assistance.

COPYRIGHT © 2012 by Patricia Earl and Phillip L. Zweig

Abstract:
Recent reports by the Department of Health and Human Services (HHS) Office of Planning and Evaluation (ASPE)1, the Food and Drug Administration (FDA)2 and other sources on the acute shortage of generic drugs have attributed the shortages to everything from raw materials shortages and manufacturing problems to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and FDA drug approval delays. Based on these analyses, President Obama on October 31 issued an Executive Order instructing the FDA to require manufacturers to notify the agency of impending shortages, to expedite regulatory reviews, and to increase staff in its drug shortages program.

In this white paper, the authors argue that these explanations, and President Obama’s Executive Order, miss the point entirely. These reasons are ancillary to the root causes of this crisis. In fact, it is the direct result of the anticompetitive, exclusionary contracting practices, self-dealing, collusion, kickbacks and conflicts of interests of giant hospital group purchasing organizations (GPOs), which have undermined free market competition in drugs, medical devices, and supplies in the U. S. These purchasing cartels, which contract for $200 billion+ in hospital goods each year for about 5,000 non-profit, acute care hospitals, have rigged this market in favor of a handful of dominant suppliers and distributors, thereby making it unprofitable for other companies to make or sell these inexpensive, hard-to-manufacture drugs.

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