Hospitals may pass the cost onto payers and patients in turn, said Dr. Martin Makary, a professor of surgery, health policy and management at Johns Hopkins University and an author of the paper.
"The "pay to play" administrative fees are a money game that are essentially costing the American public a lot of money," he said.
The fees also can narrow the number of manufacturers that can afford to appear in catalogs to only a few well-capitalized companies. And if one or two suppliers are responsible for an entire region, it can cause more problems if there are production issues. GPO fees likely contributed to the shortage of intravenous saline bags after Hurricane Maria in Puerto Rico, according to the JAMA report.
"When you have a supply chain that becomes fragile because of market domination, that is, when there is sole supplier contracting, which we're seeing at high rates, it makes hospitals susceptible to something going wrong in the supply chain," Makary said.
The problems have prompted some health systems to launch their own GPOs or generic drug companies. Intermountain Healthcare, Ascension Health and Trinity Health formed their own generic drug company that will focus first on 14 hospital-administered drugs. Ninety percent of more than 600 hospitals and clinics who responded to a Reaction Data survey said they would buy drugs from the new entity.
Makary said he's learned that when hospitals negotiate for supplies or drugs outside of their GPO, they often use the GPO's price as a starting point for negotiations, which indicates there's room for better pricing from GPOs.
Leslie Hirsch, CEO of the St. Peter's Healthcare System, said even with the use of a national GPO, his system has found pharmaceutical costs are very difficult to control.
"Even if we purchase inventory and do everything we can as effectively as possible, our pharmaceutical costs are going up well beyond our control," he said.
Hirsch said he appreciates Intermountain's effort to remove the middle man.
"We're not in a business where, because one aspect of the supply chain goes up in price, we have the ability to increase our price," he said. "We're controlled by the contracts we have with insurers and managed care organizations."
In some cases, the high price of entry into GPOs' catalogs could mean small, innovative players can't enter, according to the JAMA article. In one case, the technology company Masimo developed a new type of pulse oximeter but couldn't break into GPOs because Tyco International was paying GPOs to ensure its market dominance, according to the article. Masimo successfully won an antitrust lawsuit, enabling it to sell its product through GPOs.
Todd Ebert, CEO of the industry trade group Healthcare Supply Chain Association, wrote in a statement that the article is "fundamentally flawed and relies on outdated, widely debunked research funded by fringe elements within the medical device community."
With respect to drug shortages, Ebert wrote that the U.S. Food and Drug Administration has repeatedly cited quality control problems, manufacturing issues and barriers to getting new suppliers on line.
"GPOs are on the front lines of the drug shortage fight working vigorously with healthcare providers, manufacturers and distributors to help prevent and mitigate drug shortages and ensure a safe and reliable supply of products," he wrote.
The JAMA article noted that GPOs have taken steps to improve transparency. The industry created a voluntary membership association in 2005 that developed a code of conduct that defined ethical business practices. However, participation is voluntary and no formal mechanism is in place to ensure industry-wide compliance.
Ebert wrote that GPOs disclose all administrative fees in writing to their members.
"There are no undisclosed fees that result in better listings in GPO catalogs," he said.
Makary said he feels his group's message about GPO is important to spread, as there's a lack of research on how GPOs contribute to healthcare costs. A lot of attention has been focused—for good reason—on pharmacy benefit managers lately, but that's more of an outpatient medication issue, whereas GPOs mostly affect the inpatient drug market, he said.
"We've seen enormous scrutiny on the PBMs as of late, but little awareness that the same 'pay to play' perverse incentives create waste and price inflation in the GPO world," Makary said.
