November 19, 2012—Six influential House Democrats have asked the Government Accountability Office (GAO) to investigate whether group purchasing organization (GPO) contracting practices have caused drug shortages that, in turn, have forced hospitals and other providers to rely on compounding pharmacies to obtain medicines at reasonable cost.
The Nov. 15 request came amid hearings last week on the deadly nationwide meningitis outbreak linked to contaminated injectable drugs produced by a Massachusetts-based compounding pharmacy.[ms-protect-content id=”2799″] The GAO investigation is being sought by Reps. Ed Markey (D-Mass.), Henry Waxman (D-Calif.), John Dingell (D-Mich.), Frank Pallone (D-N.J.), Diana DeGette (D-Colo.), and Anna Eshoo (D-Calif.).
Hospitals and other health care providers enrolled in the 340B drug discount program cannot buy covered outpatient drugs through their GPOs. These include the generic sterile injectable medicines at the center of the drug shortage crisis. Hospitals and other providers not in 340B, however, can and do buy these drugs through GPOs. The lawmakers seeking the investigation cited data showing that “more than 70 percent of all hospital purchases are made through GPO contracts.”
The lawmakers asked the GAO to answer the following questions:
- What market factors contribute to the reliance of hospitals and other health care providers on compounding pharmacies?
- What impact have contracting practices by market participants such as manufacturers, distributors, [GPOs], and providers had on competition and innovation in medical devices and drugs, access to medical devices and drugs, including an impact on drug shortages, and pricing of medical devices and drugs?
- Do drug shortages drive hospitals and other health care providers to rely more heavily on purchases of drugs, including sterile injectable medications, from compounding pharmacies?
- Do the incentives in the current GPO model lead to inflated prices for drugs and devices? Put another way, what is known about the competitive and budgetary impacts on both hospitals and the Medicare program that could result from eliminating the GPO safe harbor exemption from the Medicare anti-kickback statute?
- What is known about the impact that GPO administrative fees have had on generic drug makers’ financial condition, their ability to maintain and upgrade plant equipment, and their ability to conduct quality control?
In their joint letter to the GAO, the representatives zeroed in on the fee that GPOs may charge manufacturers in exchange for including their products in supply contracts. “Current law allows GPOs to charge the drug manufacturer a fee that is based on a percentage of the total value of the purchase,” they explained in an accompanying news release. “Some experts consider this a ‘kickback’ that creates a perverse incentive structure, whereby the more the hospital pays for the products, the higher the kickback and profit for the GPO. Shut out of the lucrative GPO contract and unable to make a profit, other manufacturers cease production and leave the supply chain more limited, fragile, and vulnerable to shortage.”
“It is not clear from available evidence that this payment scheme results either in savings to the hospitals or benefits for the patient,” they said in their letter.
(UPDATED Nov. 21, 2012) The Healthcare Supply Chain Association (HSCA), the GPO trade association formerly known as the Health Industry Group Purchasing Association (HIGPA), took strong exception to the suggestion “that GPOs are in any way related to or responsible for” the meningitis outbreak linked to drug-shortage-driven overreliance on compounded medicines.
Such suggestions, said HSCA President Curtis Rooney, are “misguided and irresponsible and will only distract from efforts to solve these critical problems.”
“The true cause of drug shortages is manufacturing problems, disruptions, and barriers to entry in getting new suppliers on line when there is a disruption to supply,” Rooney said. “The fact is that GPOs are taking a variety of creative and innovative steps to reduce drug shortages,” adding that “as an industry, we are committed to mitigating this public health crisis, and we support recent regulatory and legislative activities aimed at solving the drug shortage problems.”
Private-practice oncologists and other members of Congress, meanwhile, have been focusing on the role that Medicare Part B reimbursement, Medicaid rebates, and 340B drug discounts might be playing in drug shortages.
Rep. Bill Cassidy (R-La.) is expected to introduce legislation soon that would change the Medicare Part B reimbursement rate for generic sterile injectable drugs with four or fewer manufacturers from the current 106 percent of average sales price (ASP) to wholesale acquisition cost (WAC) for single-source drugs and a weighted WAC for multiple-source drugs. He and other supporters of such a change in reimbursement say it would help incentivize continued production.
Rep. Cassidy is also expected to propose exempting generic sterile injectable drugs with four or fewer manufacturers from 340B drug discounts and Medicaid rebates for possibly up to seven years. He has argued that the discounts and rebates make drugs already prone to shortages that much less profitable.
However, there is broad consensus among industry groups, pharmacist organizations, and federal agencies that the 340B program is not contributing to drug shortages.[/ms-protect-content]