Get Shortage

  • by: |
  • 02/12/2014

Think governments can set prices and interfere in markets with no consequences? Think again.

According to a just released analysis by the United States Government Accountability Office, the FDA is doing a better job preventing drug shortages.

Per CDER Deputy Director, Doug Throckmorton’s Congressional testimony, new shortages declined in 2012 for the first time in a number of years and 2013 data indicated a similar downward trend. He said the agency’s new authorities (granted under a 2012 law) have allowed the FDA to manage shortages more aggressively.

In addition to new actions, the FDA has been more willing to demonstrate regulatory flexibility.

For example, in some cases where particles were found to be contaminating a drug that was in short supply, the agency allowed the company to filter the drug to avoid disrupting supplies instead of shutting down the production line altogether.

But, according to the New York Times,

Economic factors are also a contributing factor. Narrow profit margins are making some drug companies reluctant to invest in fixing old production facilities. Changes in Medicare reimbursement and the role of group purchasing organizations, which buy drugs on behalf of hospitals, could also be contributing, by further reducing prices that producers get for the drugs.

(This is almost a direct citation from the June 2012 Center for Medicine in the Public Interest, "Fixing Drug Shortages.")

While the FDA’s new authorities are both timely and important, there are many pieces to the drug shortages problem – not the least of which is that (when it comes to hospital injectables) 30% of manufacturing capacity is off-line due to FDA inspection issues.

That’s a lot of capacity. In fact, according to the agency, 43% of reported potential shortages were due to manufacturing problems. Safety is non-negotiable and alleviating a shortage by shorting GMPs is a bad and dangerous pathway. Expediency causes as many problems as it solves.

That being said, regulatory discretion must be part of the solution – and per Throckmorton, it is. With 30% of production capacity off-line because of FDA issues, the agency must continue to work with manufacturers to find creative, science-based solutions. If you create a "science- and risk-based action plan," industry can often address quality issues without disrupting supplies of essential drugs.

But who inspects the inspectors? Per that 30% of manufacturing capacity off-line due to FDA issues, perhaps the FDA should undertake an agency audit to see why there’s been such a jump in GMP issues. It’s hard to believe that year-over-year, production quality control has suffered such a significant lapse. Is there something wrong in the way FDA inspectors (many of them still wet behind the ears and eager to please) are doing their jobs? It’s a question worth asking – and answering.

But the real headline (alluded to but not directly addressed in the New York Times article) is that artificially low prices are the major cause drug shortages.

Most of the drug shortages that occur in the U.S. arise in the generics market, where profitability is fairly low For many of these drugs the market can only sustain a handful of manufacturers -- sometimes just one or two. So, when supply disruptions occur -- caused by manufacturing violations, production delays, shipping problems or ingredient issues -- there aren't a lot (or in many cases any) additional producers in the market to pick up the slack.

But the key factors behind drug shortages are perverse economic incentives. Consider the October 2011report by the US Department of Health & Human Services, Economic Analysis of the Causes of Drug Shortages.

HHS (the Obama HHS) mostly blames a dysfunctional marketplace for drug shortages. In fact the HHS report does more than blame a 'dysfunctional market', it explains what is behind the problem:

"...drugs that subsequently experienced a shortage are those in which the volume of sales was declining in the 2006-2008 period prior to the shortages."

It goes on to note that, "Analysis of average sales prices shows that shows that oncology sterile injectable drugs that experienced shortages since 2008 decreased in price from $56.17 per unit in Q1 2006 to $37.88 per unit in Q1 2011. Oncology sterile injectable drugs that have not experienced shortages have had relatively stable prices over this period."

In plain English: artificially low prices caused the manufacturing decline of the drugs that are in shortage and a variety of perverse government regulations (ranging from Medicaid reimbursement rates to the benighted 340B program) are causational.

Where there is still a profit left, you rarely see shortages.

Congrats to the FDA for a job well begun. But the issue of drug shortages (and particularly the economic issues that must be addressed) mustn’t be left half done.


Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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