Group purchasing organizations and hospitals

In 2012, five large group purchasing organizations reported collecting about $2.3 billion in fees from the companies that sell to hospitals, the Government Accountability Office found in a 2014 report¹. Nearly 70 percent of that money was passed on to the purchasing groups' customers or owners.

Those fees are legal because Congress wrote an exception for them into the federal anti-kickback statute in 1987. Almost every hospital now buys through such a group. A February 2026 memo from House Energy and Commerce Committee majority staff⁵, citing a 2018 article in JAMA, said 68 percent of hospitals used a group purchasing organization (GPO) for primary purchasing in 2000, and 98 percent did by 2014.

GPOs matter most for generic injectables, the vials and bags of old drugs that dominate shortage lists. Of the 69 drugs FDA listed as in current shortage on Oct. 30, 2026, 49 were injections, according to GxRadar's analysis of openFDA shortage data¹² (see the shortage tracker). Several federal reports have tied GPO contracting to the low prices and thin supply behind those shortages.

How a GPO contract works

A GPO negotiates prices with manufacturers on behalf of member hospitals, clinics and nursing homes, but it does not buy or store drugs itself. A 2011 analysis by HHS's Office of the Assistant Secretary for Planning and Evaluation⁶ (ASPE) described the mechanics. A wholesaler takes possession of the drug at the wholesale acquisition price and sells it to GPO members at the GPO-negotiated price, and the manufacturer then issues the wholesaler a chargeback for the difference. The wholesaler's side of that transaction is covered in What drug wholesalers do.

Sellers pay the groups. Vendors pay administrative fees, typically a percentage of what members buy under the contract, and GAO said in 2012² that those fees are GPOs' main source of operating revenue. In its 2014 review, GAO found¹ that the five GPOs it studied awarded mostly three-year contracts in 2012 and that most of their contracts were dual-source or multi-source. ASPE's 2011 brief said GPO contracts typically include price adjustment clauses that give the incumbent manufacturer a right of first refusal to match a competitor's lower offer.

Few groups hold most of the market. ASPE⁶ put five GPOs at 85 to 90 percent of the market in 2011, and FDA's 2019 shortage task force report⁷, citing the 2018 JAMA article⁹, said the four largest accounted for about 90 percent of the US market for medical supplies by 2018. ASPE added a caution. Members are not compelled to buy from contracted manufacturers, it said, and some respondents reported that hospitals "not infrequently" source drugs outside the GPO structure.

Where the 1987 safe harbor came from

Federal law makes it a crime, under the anti-kickback statute, to pay anyone to induce purchases covered by Medicare, Medicaid or other federal health programs. A fee from a drug maker to a hospital's purchasing agent would ordinarily look like exactly that. The Medicare and Medicaid Patient and Program Protection Act of 1987 added an exception, now at 42 U.S.C. 1320a-7b(b)(3)(C)³, for amounts a vendor pays to a purchasing agent for a group of providers, provided a written contract specifies the fee and the agent discloses what it receives. The same law directed HHS to write regulations defining protected "safe harbor" payment practices. A GPO safe harbor was among the original set finalized in 1991, according to the House committee memo.

That regulation, now at 42 CFR 1001.952(j)⁴, sets two conditions. The GPO must have a written agreement with each member saying vendors will pay a fee of 3 percent or less of the purchase price, or else specifying the amount (or maximum) the GPO will be paid. It must also disclose to each member at least once a year, and to HHS on request, what it received from each vendor on that member's purchases.

GAO has twice questioned how closely the arrangement is watched. Its 2012 report² found that HHS's inspector general had not routinely asked GPOs for fee disclosures since 2004. Its 2014 report¹ noted that hospitals must report GPO fee revenue as a cost reduction on their Medicare cost reports, a point HHS had not reviewed since 2005. CMS responded in December 2015 by directing its Medicare contractors to verify the offsets.

What federal reports link to injectable prices and shortages

FDA's 2019 report⁷ placed GPO contracting inside its first root cause of shortages, a lack of incentives to make less profitable drugs. Consolidated GPOs "have been able to negotiate low prices, especially for multi-source generics," the task force wrote, and prevalent contracting practices "often constrain the ability of manufacturers to raise their prices, while leaving them open to price challenges from competitors." In some cases, it said, manufacturers face "a race to the bottom" that ends with a drug sold at or below its cost to manufacture.

FDA's task force also described a disconnect. A drug buyer "typically bears only a small portion of the costs of a shortage," while hospitals, payers and patients bear more, so a buyer may pick the cheapest supplier even when a more reliable one costs only a modest premium.

ASPE's 2011 brief looked at the contract terms meant to protect buyers. Failure-to-supply clauses, which make a manufacturer that cannot deliver cover the price difference when the GPO has to buy elsewhere, were generally limited to 60 days, and respondents told ASPE that GPOs recovered on average just 10 percent of losses from supply failures. Using Medicare data, ASPE found⁶ that injectable cancer drugs that went into shortage had fallen in price from $56.17 to $37.88 per unit between early 2006 and early 2011 (in 2011 dollars), while drugs that never went short held relatively stable prices.

HHS's 2024 white paper⁸ returned to both points. It cited "low-price clauses that allow middlemen to unilaterally walk away from a contract if they find a lower price from another manufacturer," and said "the erosion of failure-to-supply clauses in GPO contracts may be associated with drug shortages."

Peer-reviewed research on GPO contracts specifically is thin. The concentration figure most often repeated comes from a short 2018 JAMA article by Johns Hopkins researchers. The empirical studies FDA summarized look at price more broadly. One, published in 2017, found that after the 2003 Medicare Modernization Act cut provider payment for Part B drugs, shortages rose more for drugs with larger drops in manufacturer prices. Another, from 2018, found low-priced generics at higher risk of shortage than medium- and high-priced ones, though its authors noted the findings might not generalize to drugs commonly used in hospitals.

What the evidence does not settle

None of these reports isolates GPO contracts as the single cause of shortages. FDA's own analysis of 163 drugs that went into shortage from 2013 to 2017 found that 62 percent did so after manufacturing or quality problems. ASPE's December 2024 analysis of generic injectables¹⁰ found that 70 percent of products launched between July 2018 and July 2021 had not turned a profit within three years under its middle cost estimate, and it counted an average of five manufacturers per injectable molecule, compared with nine for oral generics. Purchasing terms are one input to those economics, alongside complex sterile manufacturing and overseas ingredient supply.

More on each piece is in Why sterile injectables dominate shortage lists, The 2023 cancer drug shortage, Why some generics have only one maker and The economics of making a generic.

What federal agencies are asking now

The FTC and HHS request for information¹¹, issued Feb. 14, 2024, asked directly about the effects of anti-kickback protections for GPOs, failure-to-supply clauses, exclusive or near-exclusive contracts with suppliers, and how GPOs are paid through administrative fees, rebates and chargebacks. Two years later, the House Energy and Commerce health subcommittee took up GPOs alongside wholesalers and pharmacy benefit managers at its Feb. 11, 2026, hearing⁵ on the prescription drug supply chain.