Loggerheads, Wiser Heads and Troubled Intermediaries

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  • 05/08/2012

When it comes to addressing and solving the drug shortages, what are the most important variables to consider?

According to Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads? -- a new white paper by the American Antitrust Institute, a key question “is whether high levels of consolidation in intermediary markets and potentially exclusionary conduct have caused or exacerbated shortages.”

“One major protection against shortages is a stable supply chain, which is largely determined by the number and diversity of suppliers. The concept of supply chain “fragility” is increasingly relevant in operations research, marketing, economics, and even sociology. Supply chains featuring only a few competitors and high entry barriers at critical junctures are excessively exposed to the risk of disruption and collapse following an exogenous shock … but a fragile supply chain can also be inefficient when it “fails” because of excessive consolidation that leaves few suppliers.”

Intermediary conduct can, “threaten to impair the achievement of healthcare policy goals such as affordable healthcare, choice in medical products, a stable supply chain, and diversity of supply.”

The paper points out that sterile injectables. In 2010, 60 percent of sterile injectables (which accounted for 80 percent of the drugs in shortage) were sole-sourced. Markets for specific drugs are likely to be even more concentrated because only one or two firms produce them. Markets for generic drugs – which accounted for 60 percent of sterile injectables and 50 percent of all shortages – are also concentrated. In 2010, the top three firms accounted for about 70 percent of the generic sterile injectable market and 90 percent of the generic sterile injectable oncology segment of the market.

Indeed, the FDA notes that while demand in the generic and oncology segment of the market is robust, the supply system is “vulnerable to drug shortages because a large supply disruption is difficult to make up with alternative suppliers.” This is compounded by low demand and supply elasticities for certain drugs, stringent product manufacturing quality controls, dedicated production lines, and “just-in-time” manufacturing and inventorying practices.

Among other suggested next steps, the paper recommends that regulatory initiatives designed to address drug shortages “should focus less on reporting requirements and more on the analysis of competition in intermediary markets and upstream markets for drugs, and medical devices and supplies.”

A paper worth reading with conclusions worth debating.


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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