by Marty Makary
Market Force
GPOs are behind-the-scenes organizations, yet they dominate health care. If you are treated in any American hospital or outpatient center today, chances are you have been treated with supplies or medications purchased through a GPO. According to the American Hospital Association, the percent of U.S. hospitals that purchase through a GPO went from 68% in 2000 to 98% by 2014. The nation’s largest GPO, Vizient Inc., claims to own 30% of the national market for all supplies, and collectively the four largest GPOs in the United States dominate 90% of the market.1,2
GPOs are like PBMs in how they operate in a fog of transactions, making value difficult for any buyer to ascertain. In the case of GPOs, hospitals may simply pass on high costs to patients in the form of a hospital bill.
Manufacturers are desperate to have GPOs list, and even favorably list, their products—just as a candy bar company is eager to have a convenience store put their products at eye level on their shelves. And GPOs are happy to offer manufacturers more favorable placement in their catalogs for a fee. As a result, manufacturers pay the GPOs to get access to the purchasers. For a much larger fee, the manufacturer can even be the sole supplier listed in the catalog. It’s a simple pay-to-play setup. What’s hard to believe is that it’s legal.
In 1972, Congress enacted the Anti-Kickback Statute as part of the Social Security Act amendments. Designed to protect patients and federal health programs from obvious conflicts of interest, it banned kickbacks, bribes, or rebates for furnishing products or services.
But in 1987, after intense lobbying by the industry, group purchasers were granted an exception to the antikickback law, known as a safe harbor exemption. It’s the same exemption that allows PBMs to receive kickbacks from the pharma companies they buy from. In the GPO world, that exemption opened the floodgates for creative strategies to increase their profits. Many GPOs began requiring manufacturers to pay them fees to be listed in their catalog. Over time, these fees kept going up, especially as competition among manufacturers increased and the number of dominant GPOs decreased. In 2018 alone, manufacturers and pharma companies paid GPOs billions of dollars in pay-to-play fees. Manufacturers and pharma companies then built those expenses into the price of the products they sold to hospitals.
Fees collected by GPOs are directly shared with GPO member hospitals. One of the nation’s largest GPOs, Premier Inc., was paid $557 million in these “administration” (pay-to-play) fees in 2017—35% of that got passed on to their member hospitals, according to its annual report.3 The rising cost of this web of kickbacks is all borne by America’s taxpayers, businesses, and patients.
As GPOs grow and gain more market share, they are in a stronger position to demand that manufacturers and pharmaceutical companies pay whatever fee the market will allow them to charge. In some instances, manufacturers have been shown to pay up to 94% of a product sale back to the GPO.4 That would mean that if a medical product costs a hospital $100, the manufacturer paid the GPO $94 to get it listed so prominently in the catalog. To create a more transparent supply chain and to address avoidable drivers of price inflation, pay-to-play payments should be ended, or, at a minimum, disclosed to hospitals and the public. Hospitals can play a lead role in changing the business model of medical supplies by refusing to work with GPOs that charge pay-to-play fees to manufacturers. For starters, hospitals should avoid exclusive contracts with GPOs so they can purchase products outside the GPO directly from manufacturers.
Shortages
I sat at my desk a few months ago and caught up on my backlog of 58,465 unread emails. I replied to an FYI email from about two years ago with a “thanks,” then noticed a new email warning me about a critical shortage of saline bags. Saline bags were in reportedly short supply because Hurricane Maria had damaged a factory that made them in Puerto Rico.5 I wondered how our country became so dependent on this one factory. Salt and water are the two most common elements on planet Earth. And now we had a shortage?
This was not the first critical supply shortage I’ve had come across my email. It happens dozens of times a year. Epinephrine, propofol, heparin, and other drugs that have been around for more than 50 years are suddenly rare-earth materials. In the case of heparin, a blood thinner given to almost every patient who has surgery, the drug had been adulterated from a source in China and led to the death of more than 100 Americans.
There are indications that the market power of GPOs could be associated with the shortages. Often, only one or two manufacturers are responsible for an entire regional or national supply chain. If a factory has production problems, this reliance on a narrow supply chain can have an adverse effect on hospital inventories.
A 2016 GAO study concluded that there was a strong association between critical drug shortages and a decline in the number of drug suppliers.6 Furthermore, GPOs were a significant focus in a U.S. House of Representatives report on drug shortages that stated, “The GPO structure reduces the number of manufacturers producing each generic drug.”7
As I spoke with more and more people in the field, it became clear to me that GPOs can make it difficult for manufacturers to enter the market. They may reward fewer, larger manufacturers, which increases health care’s dependence on a smaller number of drug producers. Conversely, I also found that there are “better” GPOs that do not demand kickbacks and choose to list as many options as possible in their catalogs. By doing so, they are eliminating barriers to entry for new products and promoting a healthy competitive marketplace.
Whenever we have a critical shortage, we blame a factory or a storm. But the real question is how we became so dependent on so few factories.
Raising Costs
Independent studies have suggested hospitals could find better deals when working around their group purchasers. A 2011 study of 8,100 hospital purchases not mediated by GPOs found hospitals saved money in three out of four transactions compared to GPO purchases, with an average savings of 10%.8 The authors of the study concluded that GPO kickbacks inflated health care costs up to $37.5 billion annually, including $17.3 billion in government payments for Medicare and Medicaid.9 These inflated costs ultimately fell upon patients and taxpayers.10
As hospitals merge into even larger systems, they increasingly use their purchasing power to negotiate around the GPOs. In most instances, the GPO price is the starting point for negotiation. Trying to rein in runaway costs associated with some drugs sold through GPOs, Intermountain Health and a group of partnering hospitals are seeking to bypass GPOs altogether for select drugs by directly acquiring generic drugs from manufacturers and vertically integrating their supply chain.11 These endeavors aim to cut the waste associated with pay-to-play fees and kickback schemes. They also have the potential to reduce both prices and critical drug shortages. This direct purchasing model represents a prime opportunity for Amazon and other big retail sellers to disrupt the hospital supply market, including drugs.
Implications for Inventors
In some instances, a GPO’s sole supplier contracting arrangements stifle innovations in medicine. The technology company Masimo discovered this firsthand when they developed a new type of pulse oximeter but it was excluded from GPOs. Tyco International, the industry giant that had a lock on the pulse oximeter market at the time, was paying pay-to-play fees to GPOs to ensure market dominance. The GPOs stayed loyal to Tyco and would not include Masimo’s product. Masimo eventually sued the GPOs for violating antitrust laws and won.
Despite multiple lawsuits and several hearings from the Senate Antitrust Subcommittee, little has been done to shine light on GPO practices. The conflicts of interest inherent in the modern GPO business model continue to limit innovation, drive up prices, and cause unacceptable shortages for the most basic drugs and medical supplies.12
In learning about GPOs, the one thing that blew me away the most is that GPOs are not selling anything. They are simply providing a catalog for hospitals to buy directly from a supplier. In a sense, GPOs are just writing contracts.
After all my research, I concluded that GPOs can serve a valuable role in the free market of medical drugs and supplies; however, several important reforms are needed to protect free market rules of engagement.
First, Congress should repeal the 1987 safe harbor law that exempts GPOs and PBMs from antikickback laws. This reform will end opaque drivers of price distortion.
Second, hospitals should avoid GPOs that use sole supplier contracting and pay-to-play games that give manufacturers market dominance. Hospitals should also avoid GPOs that prevent them from purchasing outside their catalog. More choices with honest prices will ensure an open marketplace, so that the high cost of these money games will stop getting passed on to patients. The problem is not GPOs. The problem is that GPOs are dominated by insider payments and kickbacks, the cost of which gets passed on to ordinary Americans.13
It’s time we banned all kickbacks in medicine.
CHAPTER 16
Diagnosis: Overwellnessed
Most workers across America have been introduced to the workplace wellness industry. Sometimes it can be a little awkward, as when employees arrive at their office and find the breakroom filled with strangers in quasimedical garb. They wear white jackets, brandish blood pressure cuffs, carry clipboards, and have stethoscopes dangling from their necks. In most cases, employees are there to meet this small army of wellness workers because their boss has warned them that if they don’t join the program they’ll pay higher insurance premiums—hundreds of dollars higher.
What’s an employee supposed to do? Besides, it doesn’t seem like much trouble. It’s just a trip to the breakroom. They usually go to the breakroom for coffee and a doughnut. This time it’s to give the company some blood and answer personal questions to be screened for mental health.
My friend Tina got lured into her company’s wellness day because of her love for animals. The company poster featured adorable puppies and promised free food at the meeting. Tina showed up to a bowl of apples and two adult Doberman Pinschers. That was too much, even for a dog lover like Tina. She ran from the people holding clipboards and tried to pretend the whole thing never happened. The meeting had promised “wellness,” but Tina said the experience made her feel “less well.” The bait and switch made her anxious and upset.
The “wellness” industry is in full swing. Isn’t more health care always a good idea? Unfortunately, too often these programs throw aside the best practices of medicine in favor of pseudoscience. When your boss decides to don a white doctor’s jacket, it’s time to step back and ask questions.
“Wellness” sounds like the type of thing everyone favors, like education. But America’s love affair with workplace “wellness” is costly and dangerous. Employers want to lower health care costs by helping their employees stay healthy—a good thing. We all should eat sensibly, exercise, stop smoking, moderate our alcohol consumption, drop excess weight—you know, take care of ourselves. This common sense is affirmed over and over by science.
That’s not what I’m talking about. Today’s wellness movement is a $6 billion industry run amok. More than half of small employers and 85% of large employers offer health and wellness programs, according to a 2017 survey by the Kaiser Family Foundation.1 There’s an army of companies and consultants who can’t wait to get their hands on American workers. Their paydays depend on it. But these so-called experts offer health advice that isn’t always accurate. They’re screening healthy people for diseases they likely don’t have, which often leads to false positives and harmful medical procedures. They’re forcing employees to answer extensive questionnaires that invade their privacy. Does your employer have a right to know how much alcohol you consume, or whether you’re depressed, or if you are thinking about getting pregnant? In many cases, they’re even selling the data they gather.
Bad Science
A friend invited me to sit in on a company’s wellness class. I can sum up the instructor’s message in three words: “Avoid fatty foods.” There are a few problems with that message. First, it was about the only thing the health “coach” said to the 20 or so bored people in the room. But second, I cringed because it has absolutely no scientific basis.2 This class risked making people less healthy; it was loaded with misinformation.
As the wellness coach hammered us to eat low-fat food, I couldn’t help but wonder how much money the employer was spending for this class. It’s usually a few hundred dollars per employee per year. That sounds like a generous company benefit until you realize it’s ineffective and the boss pays for it out of the money earmarked for employee compensation. That’s a few hundred dollars that could instead be added to workers’ paychecks.
At one point, the wellness coach randomly called on me during an exercise to tabulate calories. I couldn’t help myself. I responded with a detailed explanation of how sugar acts as a hormone, activating the pancreas to produce insulin levels that quickly direct fat into storage. I finished my mini-physiology lecture by recommending the book Good Calories, Bad Calories by Gary Taubes, which explains why calories are the wrong thing to measure. She smiled, said “Thank you,” and moved on.
I love the concept of wellness—who wouldn’t?—but this program was akin to requiring people to click the “I understand the terms and conditions” box before purchasing a song on iTunes. The attendees were going through the motions, merely executing a required task.
With her repeated calls to “avoid fatty foods,” the wellness coach seemed blind to the new science of nutrition and deaf to its leaders, like Dr. Dariush Mozaffarian, dean of Tufts University’s Friedman School of Nutrition—the nation’s leading nutrition school. He recently wrote in the Journal of the American Medical Association, “We really need to sing it from the rooftops that the low-fat diet concept is dead, there are no health benefits to it.”3
As a gastrointestinal surgeon and advocate for healthful foods, I’m well aware how this low-fat teaching is based on the medical establishment’s embarrassing, outdated theory that saturated fat causes heart disease. A landmark 2016 article in the Journal of the American Medical Association found that the true science was actually being suppressed by the food industry.4
Highly respected medical experts like my former Johns Hopkins colleague Dr. Peter Attia are now correcting the medical establishment’s sloppy teachings. He and many other lipidologists know that the low-fat bandwagon has damaged public health. It was driven by an unscientific agenda advanced by the American Heart Association and the food industry, which sponsored the misleading food pyramid. These establishment forces spent decades promoting addictive, high-carbohydrate processed foods because the low-fat foods they endorsed require more carbohydrates to retain flavor. That 40-year trend perfectly parallels our obesity epidemic.
Medical leaders like Dr. Attia have been trying to turn this aircraft carrier around, but it’s been a challenge. Despite the science, the dogma remains pervasive. In hospitals today, the first thing we do to patients when they come out of surgery, exhausted and bleary-eyed, is to hand them a can of high-sugar soda. Menus given to hospitalized patients promote low-fat options with a heart next to those menu items. And when physicians order food for patients in electronic health records, there’s a checkbox for us to order the “cardiac diet,” which hospitals define as a low-fat diet.
Despite science showing that natural fats pose no increased risk of heart disease and that excess sugar is the real dietary threat to health, my hospital still hands every patient a pamphlet recommending the “low-fat diet” when they’re discharged from the cardiac surgery unit, just as we have been doing for nearly a half century. But nowhere is that now debunked low-fat recommendation propagated as much as in wellness programs.
The Hunt for Disease
At the J.P. Morgan Healthcare Conference in San Francisco, I met Susan, whose company pitches employers on the health benefits of gene-testing their workers. For only $100 per person, Susan told me excitedly, 23andMe offers a battery of genetic tests that can estimat
e your risk of contracting certain diseases.
“What’s the most useful piece of information this test could tell me about my health?” I asked.
“Well, it could estimate your chances of developing Alzheimer’s.”
“But there’s no preventive treatment for Alzheimer’s, so I’d rather not know,” I replied.
“But don’t you want to know?”
I again affirmed that I did not.
Susan did not mention that her company, 23andMe, was planning to sell this genetic data to a Big Pharma company, which they did several months after our conversation. The company clarified that their sold data is deidentified so as not to reveal the identity of the individual tested, but I’m still concerned by such deals. From there, it’s not a stretch to sell personal information, as many wellness companies already do. As The Atlantic reported in 2018, 23andMe’s $300 million deal with GlaxoSmithKline, a large British pharmaceutical company, may be just a sign of things to come.5
Months later, I had a similar interaction when attending a health benefits conference in Montana. A young wellness coordinator responsible for government county employees boasted to me that the state’s benefits plan now covers full “biometric screening.”
Biometric screening is a mainstay of workplace wellness programs. These tests measure blood pressure, height, and weight and use blood samples to hunt for disease. More than half of large employers offer biometric screening to their employees, according to the Kaiser Family Foundation.
“What is biometric screening?” I asked, playing dumb.
She explained that it was a panel of tests yielding a cornucopia of personal health information.