Friday, July 5, 2013

Follow-up (drug shortages)

This blogger has a number of previous entries on the topic of drug shortages (see below) since an entry over eleven years ago (in March 2002) that still has the most complete list of actual reasons for drug shortages that he has seen, complete with actual examples from 2002... (Note: the drug shortage issue was just becoming a problem in 2001/2002, though it has escalated significantly since)

Well, according to 'Some MDs Blame GPOs for Chronic Drug Shortages' a group called 'Physicians Against Drug Shortages' (PADS) made up mostly of anesthesiologists, apparently think they have the answer. They blame group purchasing organizations. Phillip L. Zweig, MBA, the (pro bono) executive director of PADS explains in a white paper. Quote:

"... The reason: Giant hospital group purchasing organizations (GPOs), which control the purchasing of an estimated $200+ billion in drugs, devices and supplies for about 5,000 private acute care member hospitals, have rigged the entire healthcare supply chain, not just for generic drugs but also medical devices and supplies. The list includes everything from chemotherapy medications to cotton balls and syringes. In a throwback to the disgraced Soviet economic system, these purchasing cartels have undermined market competition and the laws of supply and demand using a myriad of anticompetitive abuses. Make no mistake: this is an artificial shortage that was entirely preventable. It was created by bad government policy and lack of regulatory oversight, healthcare industry collusion and self-dealing, and massive lobbying and campaign contributions by GPOs and other healthcare special interests to key members of Congress. It will take smart, honest government policy to remedy it... 

GPO executives and contracting officers not clinicians dictate which drugs, devices, and supplies are used in these hospitals, and which companies are allowed to sell the...

The GPOs use a variety of anticompetitive, exclusionary practices that favor dominant manufacturers that can pay them the largest kickbacks... Exclusionary, sole source, long-term contracts...  Forced compliance programs that impose stiff penalties on hospitals and wholesalers if the volume of their purchases from manufacturers on contract drops below 95%, in many cases, for a particular product or product line... A Byzantine system of manufacturers’ rebates to large, favored distributors that ensures that only those distributors can sell to GPO member hospitals..."

In a word, nonsense! One could also say 'tripe', 'codswallop', 'swill', etc., because that's exactly what it is.  Clinicians (and if not them then it is the hospital administrators) decide what drugs and supplies are used; these days contract awards are multi-source (unless the hospital in question has signed up for a standardization or commitment program, again a hospital decision); the "stiff penalties" do not exist; and the rebates, or rather administrative fees (whether you like them or not, whether you approve of them or not - and this blogger does not) are clear and applied equally to all manufacturers and distributors.

Some legislators (Markey, Waxman, Dingell et al.) appear to be jumping on this bandwagon... and have asked the GAO to investigate "the role" of GPOs in the drug shortage situation in the country...They also piggyback on the 'safe harbor exemption' criticism of the PADS/Zweig group (though one must note that they apparently have other 'experts' that level similar criticisms).

Apparently the safe harbor exemption and administrative fees charged by GPOs are the nefarious mechanism which has resulted in drug shortages. Quote: "... Incredibly, an obscure federal statute, the 1987 Medicare antikickback “safe harbor” provision, exempted GPOs from criminal prosecution for taking kickbacks from healthcare suppliers. Under this “pay-to-play” arrangement, suppliers buy market share by paying GPOs steep “administrative,” marketing and other fees (a/k/a kickbacks) in return for contracts giving their products exclusive access to GPO-member hospitals. This system has dramatically reduced the number of suppliers of vital generic drugs and discouraged potential competitors from entering the marketplace. What’s more, these practices have forced many firms to stop making these inexpensive drugs rather than produce them at a loss. They’ve also crippled the ability of others to maintain their plants, equipment, and quality control, resulting in tainted drugs, adverse FDA inspections, and plant closings..." 

Let's parse this out. According to PADS/Zweig, thanks to their 'get out of jail free' card the GPOs charge administrative fees and have steered business to favored manufacturers. However, at the same time they apparently are also gouging their favored manufacturers, as some of them have had to exit the business rather than take a loss! Simultaneously, according to PADS/Zweig, by taking administrative fees that are based on some percentage of the business, the GPOs are incentivized to make sure that prices are higher ("... decisions are based largely on how much kickback revenue these products can generate for the GPO..." and "... instead of saving money for hospital... actually inflate healthcare cost..."). OK, so which is it - are the GPOs pushing the manufacturers out of business via low pricing and 'kickbacks', or are they causing higher prices (which presumably is good for the manufacturers)? Clearly both can't be true at the same time. Yet PADS/Zweig cheerfully level these criticisms simultaneously...

(Note: this 'administrative costs lead to higher hospital cost'  argument is echoed by Markey et al.)

Other studies have suggested that the increasing number of problems at the few manufacturing facilities (especially of generic injectables, where the greatest shortages are occurring) are due to the fact that low pricing and low profitability on these items are causing the manufacturers to cut costs by "... insufficient maintenance of production facilities and equipment..." and "... suboptimal quality control testing and oversight and lack of timely responses to indicators of quality problems..."  This also would seem be contrary to the 'GPOs are actually raising drug prices' argument!

Finally, on the principle that one should never waste an opportunity to leverage any issue in the news, no matter how tangential it is to your subject, the PADS/Zweig folks tie the 'GPO and drug shortages' issue to the recent compounding deaths, implying that these are also due to the GPOs - by causing the drug shortages the GPOs have forced hospitals to turn to the drug compounders for items in shortage...  Note: It is true that PADS/Zweig are not the only ones that see this tragedy as an opportunity to advance their interests - for another example see the recent blog entry 'Deliberate conflation'.

Excellent articles on the subject:
The Drug Shortage Crisis in the United States Causes, Impact, and Management Strategies
Study on the Structural Roots of Drug Shortages and The Shortages Effects on Kids
FDA Drug Shortages: Fundamental Problem is the Inability for the Market to Observe and Reward Quality

Previous blog entries on drug shortages:
Random charts - drug shortages - Jan 31st, 2013
Random charts - drug shortages - Jul 25th, 2012
Diagnosis - muddled thinking - Jan 21st, 2012
Polarization? - Dec 2nd, 2011
Help on the way? - Jul 31st, 2011
Random charts - Apr 6th, 2011
The why's of drug shortages - Mar 30th, 2011

Previous blog entries referencing GPOs:
Un dialogue de sourds -Dec 21st, 2010

All previous healthcare-related blog entries:

P.S. One must say that anyone who buys these theories wholesale implicitly must take all the hospitals in the country (and their physicians, administrators, supply chain professionals, etc.) to be either chumps or complicit in a massive (we are talking about ten of thousands of people given the approximately 5,000 hospitals in the U.S.) conspiracy - allowing themselves to be dictated to re what drugs and supplies they use; allowing themselves to be conned into paying higher costs; allowing themselves to be forced to bear significant additional operational costs due to the drug shortages; allowing their patients to be put at additional risk (up to and including increased deaths); etc. Seems rather unlikely, don't you think?

P.P.S. One has to wonder about these anesthesiologists.... One hopes they have a better understanding of their trade than they do (and are exhibiting) on this issue! Perhaps folks who are scheduled for surgery should check if their anesthesiologists are PADS members, and steer clear of those that are....

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