The US relies heavily on the export of crucial pharmaceuticals from China and India (where 80 percent of active pharmaceutical ingredients originate). As a result of the COVID-19 coronavirus, US hospitals are beginning to suffer from medicine shortages. Since 1910, Group Purchasing Organizations, or GPOs have been on the rise. They buy pharmaceuticals from suppliers in China and India, then sell them in bulk to hospitals. In 1987 Congress passed “safe harbor” provision, “allowing the companies to be paid by the medical-supply vendors rather than the hospitals.”
Regulators then gave GPO’s antitrust exemption in the mid-1990s. All of this resulted in GPOs completely monopolizing the pharmaceutical trade, creating an economic system vulnerable to disruption. Smaller drug distributors in the US have been driven out of business due to impossible competition from GPOs. Even if hospitals wanted to buy from these smaller distributors, hospitals are typically locked into purchasing from a GPO due to their contracts.
Now four giant companies effectively control the market for hospital supplies and generic drugs in the US. “Self-preservation dictates that production of critical pharmaceuticals must diversify, and return to the U.S.,” David Dayen wrote. “But you can’t do that until you fix how the contracting works, which has generated this extreme concentration.”
Source: David Dayen, “Behind the Coronavirus Threat, a Middleman Destroying Prescription Drug Markets,” The American Prospect, February 25, 2020, www.prospect.org/health/behind-the-coronavirus-threat-a-middleman-destroying-prescription-drug-markets/.
Student Researcher: Ben Friedman (College of Marin)
Faculty Evaluator: Susan Rahman (College of Marin)