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Are We Getting the Most from Our Medical Vendor Relationships?

Updated: Nov 15, 2023

Of the four components that support a balanced medical care environment (doctors, hospitals, payors and universities/vendors), the universities/vendors are the ones least credited with the concept of patient well-being.

However, their contribution is critical to achieve rebalance. Because they offer such a diverse component, they can be thought of as having an inner core consisting of the universities that train the workforce and an outer periphery that participates in medical research and business development. The outer periphery includes vendors of biotechnology and biopharmacy, known collectively as the medical-industrial complex. This sector is responsible for over $1.1 trillion of the more than $3 trillion annual spend for healthcare in America. Approximately 18% of our economy. It is impossible to think about balancing the medical care environment without including the medical-industrial complex.

When balanced, the medical-industrial complex gives back and supports patient well-being. That is not to say that the medical-industrial complex should not make a profit, but it should also be willing to nurture the environment that generates that profit.

“Giving back” might include the geographical alignment of stakeholders to create Academic Health Centers (AHCs). The American Association of Academic Health Centers (AAHC) defines an AHC as a university with an osteopathic or allopathic medical school, one other health professions program, and one or more affiliated hospitals. Most successful AHCs geographically co-locate their stakeholders and operationally embed members of the medical-industrial complex within the model. In return, the medical-industrial complex synergistically promotes innovation and cutting-edge patient care.

One of the largest such AHCs is the Texas Medical Center (TMC) located in Houston and Galveston. It is a conglomeration of hospitals, physicians, universities, scientists, private health industry innovators, hotels, and restaurants that synergistically advance medical care for Texas and beyond. TMC is the eighth largest business district in the country with more than 120,000 full-time employees and nearly $6 billion in annual economic contribution to Houston and South Texas. In addition to providing more than 10 million patient encounters and performing 180,000 surgeries per year, TMC supports 211 health-tech accelerator companies and 305 life science startups. It is a massive economic engine that demonstrates how alignment of medical care components, including the medical-industrial complex, can benefit a community. In other words, when embedded within an AHC, the medical-industrial complex “gives back” to support the medical care environment.

“Giving back” might also look like partnerships where the medical-industrial complex leaders partner directly with doctors and hospitals to help make patient well-being the priority. Today those relationships are drying up.

Instead, direct-to-consumer advertising for prescription drugs on television and in social media has become a massive business for the pharmaceutical and biotechnology industry, $6.58 billion in 2020. For every 10% increase in spending for direct-to-consumer advertising, prescriptions written by doctors increase 5% to 6%. Of interest, the amount spent on direct-to-consumer advertising by pharmaceutical companies in 1996 was only $550 million.5, 6 Curiously, the 12-fold increase over the past 25 years correlates exactly with the increase in number of doctors employed by hospitals over that same time. It also roughly correlates with the increased use of Group Purchasing Organizations (GPOs) by hospitals. GPOs are for-profit companies that align hospitals for the purpose of negotiating with industry as a single “group” for medical care products. Medical care products include everything needed to run a hospital such as drugs, medical devices, bandages, masks, gowns, IV tubing, soap, gloves, etc., all the way down to toilet paper. The lowest bidder with acceptable quality gets the business. GPOs have saved significant money for hospitals, but they have also had significant consequences for the interface between doctors and industry. Consequently, what we have in 2023 is a situation where 70% of doctors are employed by hospitals that relate with the medical-industrial complex only through GPOs. As a result, the medical-industrial complex has bypassed the providers to market directly to patients.

This is sad. Relationships between doctors and pharmaceutical reps not only used to keep doctors informed of the latest treatments, but also produced some amazing synergies.

For example, in 1997, the academic vascular surgeons at the Greenville Health System (GHS) in Greenville, South Carolina, possessed the desire, need, and expertise to start a vascular surgery training program that would graduate one to two vascular surgeons per year. Unfortunately, they did not possess the financial resources to start and maintain the program. To the rescue came representatives from W.L. Gore & Associates, a biotechnology company that manufactures vascular grafts. They saw the vision and endorsed the opportunity for a new training program in Greenville. Senior executives from Gore made available company grant support — completely detached from any expectation that W.L. Gore products would be used by any of the surgeons — to start and sustain the vascular residency in its early years. The result was training of more than two dozen vascular surgeons, who have entered practice and saved thousands of lives and limbs. The vascular residency in Greenville would never have happened had there not been a professional and personal relationship between the surgeons and their colleagues at W.L. Gore—a relationship that is uncommon today.

Are we getting the most from our medical vendor relationships? Unfortunately, the answer seems obvious. And so is the unbalanced nature of the medical care environment where patient well-being is no longer the priority.


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