Experts from industry and academia and lawmakers reached consensus around the dangers and the drivers of drug shortages but clashed over approaches to solving the problem during a Senate Finance Committee hearing on Tuesday.
Drug shortages tend to impact older, low-cost generic medicines. Because of shortages, millions of patients are forced to ration their medications or use a less safe or less effective alternative, explained committee chairman Ron Wyden (D-Ore.).
In an ironic twist given the firestorm over the high cost of prescription drugs, the low cost of generics is part of what’s driving the problem. “You have in effect a ‘race to the bottom’ price war for generics that leads to quality control problems and factory shutdowns, which leads to a shortage of generic drug products that are, of course, in high demand,” Wyden said.
Faulty System Drives Shortages
Inmaculada Hernandez, PharmD, PhD, a pharmacist and professor at the University of California San Diego, explained that regardless of what generic they choose, providers and pharmacies are reimbursed the same amount.
Since they have no incentive to choose a manufacturer with “more resilient and dependable” supply chains, they naturally choose whatever has the lowest acquisition cost, which drives prices down and threatens the sustainability of the market, she said.
Sen. Mike Crapo (R-Idaho), the committee’s ranking member, pointed out prices for generic drugs have dropped “in excess of 50%” since 2016, and the number of manufacturers exiting the generic drug market has eclipsed their rate of entry.
Because of what Crapo described as “razor thin ” profit margins, Hernandez said manufacturers may skimp on factory maintenance or choose to off-shore manufacturing, increasing the risk of quality problems. Quality issues then trigger shortages because manufacturing has to be stopped to address them. And given that these are less profitable drugs, manufacturers enduring such headaches may leave the market entirely, causing market concentration that worsens supply disruptions, Hernandez said.
Made in America?
To fix this broken system, Hernandez said, the federal government could fund the “re-shoring” — returning to the U.S. — of generic manufacturing and link funding to “supply guarantees” and the “resilience” of the supply chain.
She also stressed the need to encourage providers and pharmacies to purchase their drugs from manufacturers who have developed more dependable supply chains.
Sen. Thom Tillis (R-N.C.) also spoke about re-shoring manufacturing. He likened the drug shortage challenge to the supply chain resiliency issues in the semiconductor space. In 2022, Congress passed the CHIPS and Science Act, which provides government funding to boost production of semiconductors in the U.S. Tillis asked whether a similar solution could be used to address drug shortages.
Marta Wosińska, PhD, a health economist and senior fellow at the Brookings Institution in Washington, pointed out that there are roughly 20,000 approved drugs and around 16,000 drug manufacturing facilities, while semiconductor production involves many fewer products and manufacturing sites. But “the framework is good,” she said, citing her written testimony and a proposal she and other colleagues developed that centers around which elements of the supply chain to prioritize.
Manufacturing everything in the U.S. isn’t possible, but the government could think about “friend-shoring” and “near-shoring,” she said. That’s important because if the federal government, for example, moved active pharmaceutical ingredient facilities to the U.S., but upstream manufacturing remained in China, then problems would continue.
Incentivizing Use of Stable Manufacturers
Wosińska also expanded on the idea of incentivizing purchasers to stabilize the drug supply, especially generic sterile injectable (GSI) drug shortages — including “crash cart” drugs, oncology drugs, IV antibiotics, and saline, which she said account for two-thirds of all shortages.
GSI shortages often occur in U.S. sites where the final GSI products are made. To address them, Wosińska argued, the Centers for Medicare & Medicaid Services (CMS) “will need to pay hospitals differently, incentivizing them to consider reliability of supply in their purchasing decisions.”
Under a pay-for-performance program proposed by Wosińska and her colleagues, CMS would retroactively score hospitals against their peers on two measures: whether they buy from reliable manufacturers and whether they “buffer” their inventory. Hospitals would be rewarded for “buying reliably” and “buffering before shortages happen,” she said. Hospitals would not have to determine this reliability themselves; instead, they could lean on group purchasing organizations that already track related measures.
The catch: CMS doesn’t have the authority to set up such a program, particularly if it isn’t budget-neutral, Wosińska said, adding, “This committee, however, can grant that authority.”
Buffering to Prevent Shortages?
The committee also heard from Allan Coukell, BSc (Pharm), a pharmacist and senior vice president of public policy for Civica Rx, of Lehi, Utah, a non-profit drug company founded by health systems and philanthropies specifically to address drug shortages.
Civica Rx works to supply “safe, stable, and affordable” essential medicines by leveraging long-term purchase and supply contracts, keeping a 6-month buffer inventory of every drug, and relying on U.S. sourcing whenever possible. “Twenty of our top 25 products are currently on national shortage, and yet we’re supplying member hospitals without interruption,” Coukell said.
He stressed that incentivizing providers to contract for “buffer inventory” from manufacturers who are less likely to have quality failures can help address shortages, and he called on Congress to create an “insurance policy” at a cost of $4 million per essential drug to ensure “backup domestic manufacturing capacity.”
Coukell also expressed support for a provision — which was eventually dropped — in a draft hospital payment rule that involved CMS paying hospitals more for keeping a “buffer stock” of certain drugs, or contracting with a company to do it for them. Wosińska said she opposed the “buffer inventory idea,” both because she didn’t think it was “enough of an incentive” to drive change, and also because it’s the small hospitals that hurt the most in a shortage.
“What we need to be doing is buffering those that usually get left behind,” Wosińska said.
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Shannon Firth has been reporting on health policy as MedPage Today’s Washington correspondent since 2014. She is also a member of the site’s Enterprise & Investigative Reporting team. Follow
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