Pay-to-Play: The Impact of Group Purchasing Organizations on Drug Shortages

By DeRoo, Christian | American University Business Law Review, January 1, 2014 | Go to article overview

Pay-to-Play: The Impact of Group Purchasing Organizations on Drug Shortages


DeRoo, Christian, American University Business Law Review


Introduction

The United States is undergoing a critical shortage of certain prescription drugs. Although the impact of the shortage is undeniable, the cause of the shortage remains an issue of considerable debate.1 Commentators often point to manufacturing and production problems as the cause of the shortage.2 This Note, however, argues that insufficient production capacity is a symptom, not the cause, of the problem. Policy positions taken by antitrust enforcement agencies and legislation legalizing certain types of kickbacks as "administrative fees" have exacerbated the problem. Group Purchasing Organizations ("GPOs") have been granted free reign to legally engage in anticompetitive practices that depress pharmaceutical production capacity for certain drugs, creating shortages.

Part II of this Note provides background information explaining how GPOs contribute to the drug shortage crisis. Part II examines the drug shortage crisis generally, the role of GPOs in health care, the federal antitrust agencies governing GPOs, and the application of the Federal AntiKickback Statute to GPOs. Part III analyzes how federal policies and practices have allowed for, and in some cases, even encouraged, anticompetitive behaviors by GPOs. Part III begins by applying a traditional antitrust analysis to GPO practices. Part III then examines the safe-harbor provision of the Federal Anti-Kickback statute3 ("Safe-Harbor Provision"), as it relates to GPOs.

Part III argues that without the special protections afforded by the SafeHarbor Provision, the "administrative fee" system under which GPOs operate would constitute fraud. Part III concludes by arguing that current practices lead to anticompetitive behaviors that raise entry barriers for drug and medical device manufacturers and increases certain generic drug costs. Part IV recommends that the executive and legislative branches of the federal government reassess their policies to provide for stricter enforcement against anticompetitive behaviors by GPOs.

I. The Drug Shortage Crisis and the Role GPO ' s Play

The drug shortage crisis affects millions of Americans each day, whether in the form of substituted medications, delayed procedures, or higher costs. The role GPOs play in contributing to the shortage may not seem readily apparent, but the impact is fundamental-an underlying force which drives down manufacturing capacity and leads to shortages. Federal regulation via administrative agencies and congressional legislation has contributed to this problem by creating safe harbors that shelter anticompetitive practices by GPOs.

A. Drug Shortages Occur Because Only a Few Key Manufacturers Produce Certain Drugs, Leading to a Fragile Supply Chain

The first instance of serious drug shortages in the United States occurred in 1999, and the problem has grown substantially since that time.4 In 2011, the crisis peaked, with the United States suffering a record 251 drug shortages.5 Since 2011, the numbers have diminished slightly, but the problem remains serious. The Food and Drug Administration ("FDA") reported over 100 ongoing drug shortages as of December 2013.6 Certain classes of drugs are more susceptible to shortages than others.7 The majority of serious drug shortages occur in the market for sterile injectable drugs, which account for approximately eighty percent of such shortages.8 The most common major therapeutic classes of drugs in shortage are oncology drugs, antibiotics, and electrolyte/nutrition drugs.9 There have also been noticeable shortages in certain pain medications and anesthesia agents.10

There is no shortage of theories as to the cause of the drug shortage crisis.11 Both the United States Department of Health and Human Services ("HHS") and the FDA have suggested a variety of causes as factors leading to the drug shortage crises; however, their analyses have largely focused on issues relating to manufacturing and shipping.12 Although manufacturing and shipping problems can harm drug supply, the shortages caused by manufacturing and shipping issues are the symptom of a greater underlying problem: an unstable supply chain for certain types of drugs and medical devices. …

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