Reduced competition, shortages, and unaffordable options in healthcare are symptoms of middlemen running amok. These middlemen are the healthcare administrators, who rarely touch the product or interface with patients, yet control significant healthcare dollars behind the scenes.
Lawmakers must keep these middlemen in mind as they seek to address the inflation of drug prices. A proposal by Sen. Chuck Grassley (R-IA), for example, would promote more transparency within the healthcare system and outlines a proposal that elected lawmakers should be eager to adopt.
In the bill, Grassley identifies the root cause of inflated drug prices: “Pharmacy benefit managers and other intermediaries in the pharmaceutical supply chain must be held accountable for increasing the cost of healthcare in the United States,” he said. A co-sponsor of the bill, Sen. Maria Cantwell (D-WA), adds, “The increasing cost of prescription drugs has a devastating effect on the pocketbooks of American consumers.” These “other intermediaries or middlemen” are rightly cited by the senators.
Another group often unmentioned when discussing the increasing costs of healthcare are group purchasing organizations. Grassley is no stranger to these types of organizations. In a 2010 Minority Staff Report from the Senate Finance Committee on GPOs, it was concluded that “Congress established the safe harbor provision for GPOs in 1986 on the presumption that these organizations would reduce costs for the healthcare system. Almost 25 years later, however, Congress and the American public do not have the data evaluating the success or failure of this provision.”
As a result of the inquiry, the United States Government Accountability Office produced a report in October 2014 titled “Group Purchasing Organizations: Funding Structure Has Potential Implications for Medicare Costs.” The GAO recommended that there be appropriate reporting, and the Department of Health and Human Services also responded to the report with recommendations to add steps to the audit process so that administrative fee revenues, rebates, allowances, and refunds of expenses would be reported properly and in accordance with the law.
Middlemen with the kind of influence that GPOs and PBMs have are able to manipulate supply and demand by favoring one manufacturer over another through sole-source or dual-source agreements. These types of agreements are also behind many of the shortages we have seen for both medications and supplies throughout the supply chain. This was highlighted in a highly acclaimed episode of 60 Minutes titled “Medical Middlemen: Broken system making it harder for hospitals and patients to get some life-saving drugs.”
As we look at the reports and anecdotes presented, it is important to examine peer-reviewed studies on the matter also. In the 2011 research focused on the impact of GPOs in the marketplace, the authors concluded that “GPOs have been poor bargaining agents because they are compensated not by their principals, the member hospitals, but instead by medical suppliers. The greater the compensation to the GPOs, the greater the exclusivity concession received by dominant firms, and a diminished market access for new market entrants.”
As PBMs are now using GPOs as a way to shield themselves from scrutiny and accountability, it is incumbent upon anyone who is concerned about the increasing costs of healthcare to look into increasing transparency and accountability of the middlemen in the healthcare supply chain. A 2005 audit by the Office of Inspector General for HHS discovered that six major GPOs charged over $2.3 billion in fees, of which $1.6 billion exceeded their operating expenses. The audits confirmed concerns that excessive administrative fees existed.
It has been nearly 20 years since the last audit, and it should be a priority for HHS and Congress to resume regular audits and hearings for middlemen in healthcare.