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FTC to probe the role of middlemen in worsening drug shortage crisis

The Federal Trade Commission is launching a probe into the extent to which group purchasing organizations and wholesalers may contribute to ongoing shortages of key medicines at hospitals and other facilities across the country.

The agency will explore how these companies — which are responsible for brokering and distributing countless medicines — might misuse their market power to influence pricing and availability. Three group purchasing organizations, or GPOs, buy drugs on behalf of most hospitals in the U.S., while three leading wholesalers supply about 90% of medicines to hospitals, clinics, and nursing homes, among others.

The move comes amid growing anxiety over shortages of numerous medicines — from chemotherapies to antibiotics — in recent years. At times, generic drugmakers have blamed falling prices and dwindling profits for their decisions to walk away from some markets. The FTC probe reflects concern that GPOs and wholesalers are causing this chain reaction that, ultimately, endangers patients.

“When you have markets with outsized intermediaries that have dominant power, that gatekeeper role can create a whole set of problems,” FTC Chair Lina Khan said at a meeting with the American Medical Association on Wednesday. The FTC is working with the Department of Health and Human Services on this investigation.

Shortages have become a huge problem for hospitals and health care providers in the U.S. The rate of ongoing and active shortages is currently at the highest level in a decade and more than 300 medicines have been in short supply for each of the past four years, according to data from the American Society of Health-System Pharmacists, which maintains a database of shortages.

The issue has been particularly acute for injectable medicines, notably chemotherapies, over the past year. To illustrate the extent of the problem, one key supplier that committed numerous manufacturing violations was told by the Food and Drug Administration last year that its medicines could not be shipped to the U.S. — except for several chemotherapies in short supply.

In what amounts to a complicated game of connect-the-dots, the FTC is now trying to determine how GPO and wholesaler contracting practices may force drug prices so low that, ultimately, generic manufacturers abandon some markets. So the agency issued a request for public comment on negotiating tactics, the use of rebates, and typical contract terms, among other things.

For instance, in a request for public comment, the agency asked for information about instances in which hospitals, pharmacies, or health care providers have been contractually prohibited or “disincentivized” from purchasing either lower-cost or higher-quality medicines as a result of contractual policies or restrictions put in place by a GPO or wholesaler.

GPOs and wholesalers fit the bill for the type of market the FTC tends to scrutinize under Khan’s leadership. The FTC is a small agency with limited resources and a big job of protecting consumers and competition across the entire economy. She is particularly interested in markets with highly concentrated middlemen that have enormous power over prices.

An industry group, however, disputed some of the contentions.

In a statement, Todd Ebert, who heads the Healthcare Supply Chain Association, maintained that GPO’s are “critical partners” that help hospitals “prevent and mitigate the impact of drug shortages.” GPOs also “take a comprehensive approach to sourcing and contracting that not only accounts for the competitive price offered, but also the reliability and stability of supply.”

Ebert added that GPOs “help stabilize the market for generic drugs by working with manufacturers on contracts that provide the certainty and predictable demand they need to remain in the market.” And when market conditions change, he maintained that GPOs “take a comprehensive approach to contracting and pricing … [and] work with suppliers to adjust contracts.”

The probe is part of a wider effort by the Biden administration to address two issues that have vexed the U.S. health care system — the rising cost of prescription medicines and ongoing drug shortages. Toward that end, the administration has directed different government agencies to explore business practices that stifle competition and, consequently, throttle proper health care for Americans.

The FTC, for instance, has been probing pharmacy benefit managers — which broker lists of medicines covered by health insurance — and expanded that to include GPOs owned by some of these companies, such as CVS Health. Khan said she hopes to release the results of the PBM investigation “in the coming months.”

The agency is also investigating improper or inaccurate patents listed in an FDA registry over concerns that these patents thwart generic rivals from marketing lower-cost alternatives. On a similar note, the FDA and the U.S. Patent & Trademark Office are working together to bolster approaches for reviewing questionable patents.

The latest FTC probe was hailed by the American Economic Liberties Project, a nonprofit that has been critical of GPOs. “These little-known, kickback-driven middlemen use their market power to disincentivize the production of generic drugs, fueling drug shortages and endangering the lives of countless patients, including children,” said Morgan Harper, policy and advocacy director.

One Wall Street analyst, though, does not expect the probe to amount to much. In a note to investors, Elizabeth Anderson of Evercore ISI wrote that the PBM inquiry is “potentially more likely to make its way into regulatory changes, [but] we see the impact of the latest FTC probe on GPOs and wholesalers as potentially more benign.”

Correction: An earlier version of this story misspelled Lina Khan’s name.

Read More at Stat News.