I’m heartened to see the FDA publicly acknowledge investment incentives and market failures, although there is a distinct “blame the healthcare buyer” view embedded in the FDA’s perspective. The FDA's new view also contains a not-so-subtle rebuke of Congressional critics who have blamed drug shortages on overzealous FDA inspections. Oddly, the FDA omits any discussion of gray markets, which distort incentives during drug shortages. Read on for my overview.
BTW, I’ll be delivering the keynote at next week’s HSCA/HISCI 2013 Pharmacy Forum, where I’ll be talking in part about drug shortages. Say hi if you attend!
HOW SHORTAGES HAPPEN
According to University of Utah data (as cited here), the number of shortages dropped slightly in 2012, but remains disturbingly elevated.
The FDA highlights the link between drug shortages and “the failure of quality management in facilities that produce the finished dosage form of the drug (rather than the active ingredient).” According to the FDA’s data (reproduced below), these failures accounted for more than half of all 2011 record number of shortages.
Unfortunately, the generic injectable supply chain is very fragile. Any supply shock to the system, such as a manufacturing problem, can rapidly create a shortage because: (1) there are very few manufacturers for any individual injectable drug, and (2) alternative capacity can’t ramp up quickly enough to meet demand. IMS Health found that four out of ten products with shortages had one or zero (!) suppliers. See Drug Shortages and Our Fragile Supply Chain. Figure 4 in the FDA paper also provides additional data.
DON’T BLAME ME?
The new FDA paper does a decent job of summarizing the economic market factors that create such a narrow supply base. As I pointed out in What’s Behind the Drug Shortage Epidemic, investment incentives matter because the FDA cannot compel a company to manufacturer a generic injectable drug.
However, the FDA blames the buyers for this situation, noting:
“We postulate that at the heart of the quality problem is the fact that generic manufacturers compete on price. Intense price competition is a reflection of the generic drug framework—that is, generic versions of the same drug are designed to have the same efficacy and side-effect profiles. Buyers—in this case, hospitals and clinics—consider any given generic products as perfect substitutes, giving manufacturers little room for differentiation. Therefore, buyers have not been attuned to differences in the quality of production.”This is a powerful, but unsupported, assertion that lacks any factual basis. Given the drug shortages of the past few years, I doubt many buyers would agree that the “US drug supply has generally been reliable and of high quality in recent decades,” as the FDA states.
Naturally, the FDA pooh-poohs excessive enforcement and overregulation as a cause of drug shortages. This seems to be a direct rebuttal to reports such as FDA’s Contribution to the Drug Shortage Crisis, last June’s report from the U.S. House of Representatives’ Committee on Oversight and Government Reform.
The FDA also dismisses low reimbursement as a contributing cause, thereby also rejecting legislative solutions such as the ones I highlight in Ending Drug Shortages by Fixing Reimbursement and Drug Channels News Roundup: November 2012.
50 SHADES OF GRAY MARKETS?
I’m surprised that the FDA’s new paper completely ignores gray markets.
Lightly-regulated gray market wholesalers speculate on products in limited supply, driving up prices to healthcare providers (a la Drug Shortages and Gray Market Profiteering and New Senate Report IDs Gray Market Players, Including Some Surprising Names. The manufacturers of generic injectable drugs don't receive these higher prices, so there is no clear profit signal to encourage potential manufacturing entrants.
All in all, this is a worthwhile article, as long as you read between the FDA's spin.