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2022 | Book

Caution: Entering Dark Territory Read chapter Read first chapter

The Healthcare Value Chain

Demystifying the Role of GPOs and PBMs

Author: Lawton Robert Burns

Publisher: Springer International Publishing

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

This volume analyzes group purchasing organizations (GPOs) and pharmacy benefit managers (PBMs) in order to better understand the significant roles that these entities play in the healthcare supply chain. It examines who they contract with, on what terms, and who they represent and answer to while charting their historical development. The analysis reveals that the current roles of both players have historical roots that explain why they behave the way they do. Finally, the book reviews the evidence base on the performance results of these two players. This work fills a void in our understanding about two important and controversial players in the healthcare value chain. Both organizations are cloaked in secrecy — partly by virtue of the private sector contracts they negotiate, partly by virtue of the lack of academic attention. Both play potentially important roles in controlling healthcare costs, albeit using contracting strategies and reimbursement mechanisms that arouse suspicion among stakeholders. This timely text explicates how these organizations arose and evolved to shed more light on how they really operate.

Table of Contents

Frontmatter

Introduction

Frontmatter
Chapter 1. Caution: Entering Dark Territory
Abstract
My son analyzes industries and companies for a hedge fund. The first industry he covered was the railroads. According to that authoritative research source, Wikipedia, “Dark territory is a term used in the North American railroad industry to describe a section of running track not controlled by signals.” There are several elements here. First, there is no central control or centralized administration.
Lawton Robert Burns
Chapter 2. The Challenge of Complexity: Chains, Channels, Customers (and Value Too)
Abstract
In 1997, blues artist Delbert McClinton (along with John Prine and Lyle Lovett) released a song called, “Too Much Stuff.” The tune opens with some catchy “boogie-woogie” piano and then chronicles the junk that piles up around people—including the fat around their waist. It is an apt description of the challenge facing researchers, analysts, and students who want to understand U.S. healthcare.
Lawton Robert Burns

Group Purchasing Organizations (GPOs)

Frontmatter
Chapter 3. Group Purchasing Organizations (GPOs): An Overview
Abstract
Group purchasing organizations (GPOs) have been long-term players in the healthcare ecosystem for over a century, but have gained some unwelcome notoriety in the last two decades. During the early 2000s, they were the subject of (in turn): several exposé articles in The New York Times, four Antitrust Subcommittee hearings sponsored by the U.S. Senate Judiciary Committee, and several reports by the Government Accountability Office (GAO). They were named or unnamed co-conspirators in several lawsuits brought by small product manufacturers alleging restraint of trade and anticompetitive practices.
Lawton Robert Burns
Chapter 4. The GPO Chronicle, Part I: 1910–2000—The Players, Market Structure, and Market Conduct
Abstract
There is little documentation on the history of the GPO sector. Most discussions open with a brief (i.e., one paragraph or less) mention of the “Hospital Bureau” in 1909 and then skip to the present day.
Lawton R. Burns, David Cassak
Chapter 5. The GPO Chronicle, Part II: 2000–2010—New Judges of GPOs: The Press, the Senate, and the Courts
Abstract
In 1982, Paul Starr published his seminal work on the history of the U.S. medical profession, The Social Transformation of American Medicine. The latter half of his book described how physicians (and providers in general) came under attack toward the end of the twentieth century for the cost and quality of the care they rendered. Such attacks came in the form of “performance challenges” (were physicians practicing cost-effective medicine?) and, more importantly, “value challenges” (were physicians acting according to ethical standards and in society’s interest?).
Lawton Robert Burns
Chapter 6. GPO Performance: A Review of the Literature
Abstract
It is difficult to summarize the performance of GPOs and group purchasing. As noted in prior chapters, there is no national database on the GPO sector and no readily available and comparable information to analyze. The same holds true for supply chain management in hospitals. These are all rather opaque areas.
Lawton Robert Burns
Chapter 7. Summary: GPOs’ Pro-competitive and Welfare-Generating Benefits
Abstract
Chapters 3–6 have analyzed (in turn) the roles played by GPOs, their historical development, their recent controversies, and their performance track record. This chapter draws on much of the preceding material to articulate the GPOs’ pro-competitive and welfare-generating benefits.
Lawton Robert Burns
Chapter 8. GPOs: Differentiated or Commoditized?
Abstract
The preceding chapter makes the case for the pro-competitive and welfare-generating impacts of GPOs. As stated earlier, “GPOs are certainly not be as bad as their critics say they are.” This chapter makes a different point. GPOs are intermediaries in the healthcare value chain performing contracting and supply chain functions. Such functions are largely “back office” and opaque. Like other intermediaries—such as insurers and product distributors—it is hard to get excited about the GPOs. Moreover, given their back-office role, it is hard to distinguish one from another and talk about excellence. The point here is that “GPOs may not be as good as they think they are.” Perhaps Larry David had it right: curb your enthusiasm.
Allison D. Briggs, Lawton R. Burns

Pharmacy Benefit Managers (PBMs)

Frontmatter
Chapter 9. PBMs and the Ecosystem of Prescription Drug Benefit Contracting
Abstract
Chapters 3–8 dealt with the role of GPO intermediaries in the institutional supply chain—i.e., the channels that lead from product manufacturers down to the institutions the provide healthcare (e.g., hospitals). These products include medical-surgical supplies, medical devices and other physician preference items, and certain types of pharmaceuticals (e.g., drugs that deal with sepsis, large molecule biologics that must be infused)..
Lawton Robert Burns
Chapter 10. The PBM Chronicle in the Twentieth Century
Abstract
Depicting the rise of the PBMs is not easy, given the paucity of historical accounts. This explains why I recruited two co-authors who had already done a lot of the early analysis. This also explains why the volume needed two chapters, this one and the next, to (hopefully) do the job. Just chronicling the history in the twentieth century entails this very long chapter.
Lawton Robert Burns, David Cassak, Roger Longman
Chapter 11. PBM Tailwinds in the New Millennium: Specialty Drugs, Specialty Pharmacies, and Insurance Expansion
Abstract
PBMs have undergone several significant changes since the start of the new millennium. First, PBMs benefitted from long-term underlying trends that fueled demand for pharmaceuticals, including population aging and growing chronicity.
Lawton Robert Burns, Adam J. Fein
Chapter 12. PBM Headwinds in the New Millennium: Court Challenges, Merger Scrutiny, and Congressional Hearings
Abstract
Chapter 11 shows that, as in the prior century, recent PBM growth has been shaped by several environmental changes in technological innovation and insurance coverage. Unlike the past millennium, however, recent PBM growth has been preceded, accompanied, and conditioned by major lawsuits brought by U.S. Attorneys and State Attorneys General. Such lawsuits prompted changes in how the PBMs conducted business.
Lawton Robert Burns
Chapter 13. Looking Under the Hood: PBM Contracts
Abstract
The prior chapter discussed the intertwined issues of rebates, administrative fees, and transparency in the relationships between pharmaceutical manufacturers and PBMs. The chapter also discussed the related issue of how these rebates and fees are passed along to health plan clients and how PBMs are compensated for their efforts. These upstream and downstream contracts (and funds flows) lie at the center of the controversy surrounding PBMs.
Lawton Robert Burns

Summary and Conclusion

Frontmatter
Chapter 14. Conclusion
Abstract
Chapter 1 alerted readers that they were about to enter “dark territory.” The allegations leveled against GPOs and/or PBMs included: monopoly power and anticompetitive behavior, collusion with manufacturers, exclusive contracts, market foreclosure of small and innovative firms, impeded patient access to needed technologies, conflicts of interest, excessive fees and outsized profits, kickbacks and secret rebates, lack of transparency and full disclosure, artificially high product prices, reduced provider discretion in decision-making, harms to patient care and quality, and higher consumer costs.
Lawton Robert Burns
Backmatter
Metadata
Title
The Healthcare Value Chain
Author
Lawton Robert Burns
Copyright Year
2022
Electronic ISBN
978-3-031-10739-9
Print ISBN
978-3-031-10738-2
DOI
https://doi.org/10.1007/978-3-031-10739-9