SEPTEMBER 11, 2014
EDITOR'S NOTE: An updated brief was published September 24, 2014.
Government and private-sector leaders have struggled to address persistent drug shortages driven by complex market forces.
|What's the issue?
From 2005 to 2010 the number of almost tripled. These shortages were especially acute with regard to generic sterile injectable drugs that can be critical and life-saving to patients fighting cancer, combatting an infectious disease, or undergoing surgery.
Drug shortages not only have the direct consequence of reducing the quality of patient care, but they also contribute to on the system by to be spent hunting down alternatives, rescheduling procedures, or modifying drug usage protocols. Some drug shortages have dire consequences for patients because there are no substitutes, while others may be less important. For example, certain vial sizes may be in shortage, but other measurements of the drug are available and can be substituted.
Recognizing these circumstances, health care officials and elected leaders have taken steps to mitigate drug shortages over the past few years. But recent news coverage of shortages of saline, chemotherapy drugs, and drugs used in death penalty executions has once again brought attention to the issue.
Furthermore, while newly reported drug shortages overall are decreasing, the total number of drug shortages continues to increase, reflecting just how long it can take to rectify a shortage. These trends call into question what additional steps can be taken by private industry, government, and other stakeholders to ensure sufficient drug supply in the future.
A wide variety of challenges have been identified in contributing to generic sterile injectable drug shortages, many of them stemming from manufacturing issues that disrupt production. These difficulties include the inability to obtain raw materials from foreign sources, discovering quality issues such as foreign particulate in the product, or prolonged efforts to upgrade and modernize factories. These types of situations particularly affect these drugs because of the low number of generic manufacturers in the market and their lack of surplus capacity.
While many problems in manufacturing pharmaceuticals can be concretely identified, other underlying factors that contribute to drug shortages may be more difficult to pinpoint. that delay the production of a drug and that have the potential to reduce profits and thereby change the production strategy of a company have both been identified as contributing to drug shortages but are less quantifiable in their effects.
Finally, drug shortages have been attributed to an unexpected increase in demand, such as when a product can be used to treat new conditions or when there is a shortage of an otherwise similar product.
One of the most cited reasons for generic sterile injectable drug shortages is that were initiated by a change in law in 2003. It is theorized that these lower payments incentivized both and manufacturers to switch to higher-cost drugs, thereby reducing investment in cheaper generic drugs, leading to "" and eventual drug shortages.
To reverse this policy, some have advocated increasing Medicare Part B rates, although there is limited evidence showing how much of a factor low reimbursement is in contributing to drug resources relative to other hard-to-measure factors. Legislation has been introduced to change Medicare Part B reimbursement policy, but it is unlikely that Congress will consider it.
Recent efforts by Congress and the Food and Drug Administration (FDA) to mitigate shortages have focused on regulatory matters, such as encouraging increased communication between stakeholders, expediting consideration of new drugs, and allowing drugs sourced from abroad.
Future action by Congress, the administration, and industry stakeholders remain ambiguous.
|What's the background?
FDA: The FDA, under the Department of Health and Human Services, is the governmental agency tasked with drug regulation and thus has played an instrumental role in mitigating drug shortages. The FDA enforces quality standards, inspects manufacturer facilities, and works with manufacturers to address anticipated issues with drug supply.
The agency also keeps a of medically necessary drugs. The agency also refers to the drug shortage list kept by the (ASHP) and the University of Utah Drug Information Service. The ASHP and the University of Utah Drug Information Service track all drug shortages and generally offer a more comprehensive resource than the FDA for health professionals, including recommendations for alternative therapies if one exists.
Manufacturers and critics contend that the FDA has also played a role in facilitating drug shortages due to excessive regulations, regulations that have been unevenly enforced, and bureaucratic approval processes.
2011 Government Accountability Office Report: In November 2011 the Government Accountability Office (GAO) issued a report indicating that the FDA needed more authority and better management practices in order to combat drug shortages. Specifically, the report noted that the agency did not have the authority to require that various actions be taken by manufacturers that would prevent or resolve shortages.
The GAO report further identified that drug shortages were not "an area of strategic importance" for the FDA and that the agency needed to have both more people and better metrics in place "to effectively evaluate its work and improve its ability to protect the public health."
Despite these deficiencies, the agency had been able to mitigate drug shortages it knew of in advance by communicating with drug manufacturers the need for increased production. However, active or pending shortages were usually relayed via information from the ASHP, providers, or consumers, and not from manufacturers.
Executive and Congressional Action: On October 31, 2011, the White House released , which enhanced early notification requirements by manufacturers. Congress also addressed the issue in , which codified enhanced early notification, reduced the time to approve generic drug applications, and increased inspection of drug manufacturing facilities. These actions have led to greater communication between stakeholders and, accordingly, greater ability to stem drug shortages.
Drug Shortage Task Force: As required by FDASIA, the FDA convened a drug shortage task force and released the , which outlined steps the agency would be taking in the short and long term to prevent drug shortages.
The plan also identified the limitations of its jurisdiction in confronting other issues in the drug marketplace and indicated steps other stakeholders could take to align incentives in the market to prevent shortages. Specifically, it indicated that payers should consider "financial or other economic incentives"; hospitals, pharmacies, and group purchasing organizations should use public data in making drug purchases; and manufacturers should create "redundant capacity."
2014 Government Accountability Office Report: The GAO reexamined the drug shortage issue earlier this year and recommended that the FDA strengthen internal protocols to ensure the accuracy of the drug shortage database. It also indicated that the FDA should conduct analysis on the database to identify trends in drug shortages and subsequently use that information to prevent future shortages.
Sterile injectable manufacturers face complex production challenges that manufacturers producing pharmaceuticals in pill form do not. Not only does it take more time to create injectable pharmaceuticals, but they also require sterile conditions and frequently need to be isolated from other production lines.
One of the aspects of the sterile injectable drug market that has been purported to exacerbate drug shortages is the small number of manufacturers in the business and, in particular, the lack of redundant capacity in their manufacturing facilities. "Redundant capacity" simply means that another line or facility would be available to manufacture the same product if active lines or facilities were deemed inoperable.
In addition to the disruption of manufacturing supplies, drug production has been influenced by companies choosing to produce new generic drugs from recently expired brand-name patents. Given limited capacity, this has the effect of reducing production of other drugs and contributing to wider-spread drug shortages.
Generic Pharmaceutical Association: The Generic Pharmaceutical Association (GPhA) is the trade association that represents the manufacturers, distributors, and suppliers in the generic pharmaceutical arena. In the flurry of activity over the past few years to address drug shortages, the GPhA developed an industry-led initiative called the (ARI) to improve communication between manufacturers, the FDA, and other stakeholders. To date, however, it has failed to get off of the ground because of a lack of manufacturer participation.
The imbalance in drug markets during shortages has the effect of emboldening gray-market actors and exacerbating market distortions.
In a standard drug supply chain, the manufacturer produces drugs that are sold to a distributor, which then sells the drugs to a hospital, pharmacy, or physician's office. Gray-market vendors, or secondary wholesalers, are unauthorized sellers of drugs in short supply. It is not always clear where these vendors obtain drugs in shortage. Stockpiling is frequently suspected in these cases, but proving this is difficult.
Gray-market interactions cause concerns on several fronts. Price gouging is the primary concern because gray-market sellers are selling drugs in shortage at exorbitant prices. The quality of the drug is also a concern because while secondary wholesalers may be registered legitimately at the state level, they may not be familiar with the storage requirements of these pharmaceuticals. Finally, gray markets can become an entry point for bad actors that may emulate lawful secondary wholesalers.
The FDA's 2013 Strategic Plan noted that because of gray markets' illegitimate nature, the agency does not have much data on participants and is unable to influence the activity of those participants. The Department of Justice and the Federal Trade Commission can investigate reports regarding gray-market activities to determine if behavior is occurring outside of legal avenues.
Some industry experts have indicated that gray-market participants may help alleviate shortages because they are willing to pay higher prices to get the drugs to the people who need them most.
is another result of anticipated drug shortages. Health care providers may order an excessive amount of drugs in an attempt to ensure supply. Although this behavior is frowned upon, it is not illegal, except in cases where collusion occurs and drugs are sold at a higher price. Thus far, government agencies have not documented any cases of widespread hoarding.
Some health care providers have turned to compounding pharmacies to try to prepare drugs that are copies of commercially available products. However, this behavior has resulted in questions regarding the quality of the product and questions regarding intellectual property violations. It is unclear if compounding pharmacies are well equipped enough to make a wide variety of complex products and, separately, how much they can make before they begin to function as a drug manufacturer and not a pharmacy.
|What's the debate?|
Despite actions discussed above, drug shortages are still occurring at high rates, leading many to declare that underlying market forces are the culprit for the persistent problems in the supply of these drugs.
This idea is buoyed by various government reports documenting generic sterile injectable market deficiencies such as manufacturer consolidation and lack of redundant capacity, in addition to the finding that many of these drugs in shortage , where drug makers are compensated differently.
These assessments have led to calls for both government and private solutions that would include greater compensation for manufacturers either by higher reimbursements or by increasing the exclusivity of certain pharmaceuticals.
MEDICARE PART B REIMBURSEMENTS
One of the most-cited reasons for generic sterile injectable drug shortages is low reimbursement rates from Medicare Part B, stemming from changes via the that reduced payment rates for outpatient physician-administered drugs, which includes chemotherapy drugs.
This change is theorized to have incentivized both physicians and manufacturers to switch to higher-cost drugs, thereby reducing investment in cheaper generic drugs, leading to "growing market concentration," and eventual drug shortages.
Many have called for changes in Medicare Part B reimbursement, advocating that this would increase provider payments and incentivize use of these generics and perhaps influence manufacturers' profit margins. However, the GAO noted that the majority of manufacturers asked about this point disagreed that Medicare Part B reimbursements were a main cause of shortages, especially considering that reimbursements are not directly paid to manufacturers but, rather, to physicians.
Several legislative proposals to change the basis of Medicare Part B payments have been introduced, although none is anticipated to be taken up in the near future by a Congress unwilling to take on the politically difficult decision to increase costs to the government or reduce reimbursements elsewhere.
OTHER GOVERNMENT DRUG PRICING PROGRAMS
Some health policy analysts have also asserted that government-mandated discount programs such as Medicaid and the act as price controls, negatively influencing the profit potential of drug manufacturers, inhibiting their ability to invest in factory upgrades and thus contributing to drug shortages.
Supporters of Medicaid and the 340B program point out that there is no evidence to suggest that these federal programs cause generic drug shortages, especially considering that industry groups and government reports have not named these government pricing programs as a cause for drug shortages.
GROUP PURCHASING ORGANIZATIONS
Group Purchasing Organizations (GPOs) are entities that negotiate pharmaceutical contracts on behalf of health care providers. Some in the industry assert that because of their significant market power, GPOs force manufacturers to accept low prices and thus encourage a weak market that creates drug shortages.
One suggestion to avert drug shortages has been to include "failure-to-supply" clauses in the privately negotiated contracts between GPOs and manufacturers that would require higher prices in exchange for secured drug supply. To date, such an approach has not been implemented.
Others have suggested influencing the demand side of the market by creating national stockpiles of certain drugs, thereby ensuring that manufacturers have sufficient incentives and resources to maintain robust production.
Critics of this idea not only that supply disruptions, and thus specific drug shortages, are difficult to predict, but that without increased capacity by the industry as a whole, any efforts to change demand would only crowd out legitimate and immediate pharmaceutical needs.
It is largely agreed that innovation in brand-name drug markets has been encouraged as a result of laws that protect intellectual property and manufacturing rights, thus ensuring a profit stream to manufacturers. Similar exclusivity rights to manufacturing generics have been suggested to improve generic drug supply.
Creating a fair policy for exclusivity for generic drugs is challenging, however, because the very idea of extended patent exclusivity is antithetical to the price-reducing objective of generic drugs. An exclusivity policy might also create a perverse incentive by which manufacturers would actually be rewarded for keeping a drug in short supply instead of manufacturing it. Progress on exclusivity has been stymied by these concerns.
Some economists have predicted that over time, given various market trends, including manufacturer-reported investments in facilities, increases in generic drug approvals, and thus the overall sale of generic drugs, the market will correct itself so that shortages will not be as acute as they are today.
Some industry experts caution against basing large-scale changes to the system on extreme cases of drug shortages. Before pursuing major remedies, policy makers need more information about the typical impact of drug shortages on outcomes such as cost or patient health.
In the meantime, Congress seems unlikely to undertake changes in Medicare Part B reimbursements or dictate contract requirements between private entities--in this case, pharmaceutical companies and GPOs or payers. Other efforts to address shortages would have to be undertaken in the private market among GPOs, payers, and manufacturers.
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Cite as: "Health Policy Brief: Drug Shortages," Health Affairs, September 11, 2014.
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