In this series on the outrageous cost of American health care, we’ve described certain shadowy corners of the business. After all, only 27% of our health care dollar goes to practitioners, those who treat us. The other 73%? If you only knew.
Have you ever heard of Group Purchasing Organizations (GPOs)?
They’re gigantic corporations, middlemen, that control the health care supplies of the hospitals and nursing homes in the United States, including masks, drugs, medical devices, and solutions. The cost of these supplies can be as high as 40% of a hospital’s overhead.
That overhead is passed on to you.
A report in 2012 from the congressional Government Accountability Office noted that six GPO middlemen “accounted for nearly 90% of the market.” These middlemen are among America’s Fortune 500; they’re some of the fattest cats you’ve never heard of.
The pandemic of 2020 has now unmasked the ugliness behind the shortages in America’s health care supply chain.
When COVID-19 first surged in the United States in March, the public heard reports that health care workers didn’t have enough N-95 face masks and other personal protective equipment (PPE).
Incredibly, even when PPE was donated, GPO middlemen blocked the donations from getting into hospitals. In some cases, physicians were terminated if they used their own PPE.
Reports have surfaced also of shortages of common drugs, like dexamethasone — a generic steroid, now a mainstay in treating COVID-19 — and of desperately needed drugs used to intubate patients and treat depression.
Yes, the mask is now off, and we can see “the problem” in the supply chain of America’s health care industry.
GPO middlemen have been around for over 100 years. But the beginnings of their stranglehold over the supply chain go back to 1987.
That year, the United States Congress created a “Safe Harbor” provision in the Social Security Act, allowing the GPOs to extract kickbacks from manufacturers of medical supplies. The kickbacks, an unpleasant word — the industry-preferred term is “rebates” — are like recurring tolls that manufacturers pay to get their products into the hospital and nursing home markets.
How are these kickbacks related to the shortages exposed by COVID-19?
For one thing, the burden of kickbacks has tended to reduce the number of manufacturers for supplies and medicines. The wealthiest manufacturers can afford the kickbacks. Smaller competitors have tended to disappear.
To carry the load of the kickbacks, the surviving manufacturers have reduced labor and other costs by pushing production to places like China, where problems with quality control are chronic, and where masks, gowns, and equipment that are too often unusable have originated.
After decades of the “Safe Harbor’s” operation, when it comes to many products, we’re down to single (“sole”) suppliers that have sent their production capabilities offshore. Those suppliers must pay the GPO toll collectors, who have also locked the hospitals and nursing homes into exclusive buying contracts.
Reliance on “sole suppliers” leads inevitably to shortages. Hundreds of drugs and solutions — chemotherapies, antibiotics, and anesthetics — have been on the list of known shortages for years in some cases. Most are common, generic medications.
When we’re down to “sole suppliers” and their manufacturing capacity is outside the United States, our ability to respond to sharply increased demand or to compensate for breakdowns in the manufacturing process is severely limited.
Economics 101.
When buyers can’t make choices among competing suppliers, what happens to cost and quality?
The cost goes up; the quality goes down.
Competition in the health care supply chain? It’s on life support or altogether kaput.
The “Safe Harbor” for kickbacks to the GPO middlemen has helped to cripple the marketplace.
Physicians have fewer choices when treating you, the patient.
You, the patient, pay more and get less.
How much more do you pay? How much less do you get?
The contracts are secret.
What can you do about it?
- Call your lawmaker and demand the repeal of the “Safe Harbor” for kickbacks.
- Insist that the Department of Health and Human Services use its authority to examine the contracts between GPO middlemen and suppliers and between GPO middlemen and the hospitals and nursing homes.
A Great Reformation can begin with you.