GPO Paper Trail: The Contract You Can't Read Because It's Overseas
Updated: Aug 21
In recent years, it has become increasingly clear that America’s corporate insurers have exploited patients, employers, government healthcare programs and the prescription drug chain through one powerful tool: the “middleman-model”. A seemingly endless web of subsidiary arbitrage aimed at one goal – hiding dollars that could lower healthcare costs for American taxpayers. We've watched PBMs sit between manufacturers and patients, collecting billions, and claiming to lower costs. Thankfully, scrutiny of PBMs has increased and investigations have led to an obvious conclusion – savings intended for American citizens have been lost for the benefit of corporate profit. With increased scrutiny came the corporate insurers need for yet another middleman to help hide profits, inflate costs, and evade accountability.
Enter PBM-affiliated Group Purchasing Organizations (GPOs) or what some have already deemed, “the middleman's middleman.” Now among the most consequential parts of vertically integrated insurers, GPOs add another layer of value extraction on top of PBMs' rebates and spread pricing, but with even less visibility. Critics across the market – independent pharmacists, advocates, and regulators say the result is a structure engineered to generate profit while hiding it from view. In recent years a series of investigations, lawsuits and audits have demonstrated that it is the GPO intermediary where much of the supply chain’s potential savings is siphoned off for benefit of the parent insurer.
Insurers’ logic is absurdly simple: if the PBM doesn't hold the contract, it doesn't have to pass along promised savings and therefore provides an ability to say, “we have delivered on our commitment”. So, insurers built affiliated GPOs to hold the contracts instead, rebranding rebates as "administrative fees" and routing money outside the pass-through obligations in most PBM contracts. Plan sponsors never see it - even though it ultimately lands with the same conglomerate.
Some went further still, taking these entities offshore entirely, beyond the reach of U.S. auditors and regulators – which raises an obvious question: what kind of GPO operates that way? Not a traditional one. Traditional GPOs exist to aggregate purchasing volume for hospitals and clinics. PBM-created GPOs have no independent members – they are affiliates of the PBMs that built them, performing a narrow set of contracting functions from outside the U.S., where U.S. rebate rules do not reach and auditors cannot easily follow.
Two examples make the point: Emisar Pharma was created by UnitedHealth Group's OptumRx in 2021 and is headquartered in Ireland, according to the House Oversight Committee; Optum maintains the entity is Delaware-domiciled with employees in both countries. Ascent was created by Cigna Group's Express Scripts in 2019 and is headquartered in Switzerland. In each case, the destination is an area where U.S. rebate rules do not reach, and U.S. auditors cannot easily follow.
These business models have been working. A 2023 Nephron Research report cited by the FTC estimates that PBMs earned $7.6 billion in fees related to their GPOs in 2022. That figure doubled from $3.8 billion in 2018, extracted from drug manufacturers through additional fees since PBMs spun off their rebate aggregators.
Congress has noticed. A House Oversight Committee report found that GPOs create another layer of pricing opacity and complexity, particularly GPOs headquartered overseas, which the Committee said may be used to retain additional revenue and fees and to sidestep U.S. legislative and regulatory reforms.
The FTC has also weighed in. As part of its landmark settlement with Express Scripts, regulators required the company to "reshore its group purchasing organization Ascent from Switzerland to the United States, which will bring back to the United States more than $750 billion in purchasing activity over the duration of the order."
The money was always there. Now there is a paper trail.
Learn more about GPOs via this one pager, and see what others are saying in this recent blog.