Stay ahead of the curve.

On one point we can all agree: the drug shortage problem is not getting any better. Incidence of newly identified shortages have nearly doubled in the past two years, with generic injectable drugs, commonly used in cancer chemotherapy, most likely to be scarce. Unfortunately, there is little agreement on a primary cause for drug shortages and even less so on how to stop them.

As is often the case with pharmaceuticals, the normal laws of supply and demand break down when it comes to shortages. The voice of demand is screaming at a fevered pitch, yet supplies only get shorter.  Why is this and what can be done about it?

The three commonly cited culprits for the drug shortage problem are:

The FDA, which has become much more stringent in enforcing manufacturing quality standards over the past two years. This renewed vigilance in enforcement is manifested by a high increase in warning letters, which causes manufacturing plants, particularly those of large generic drug companies, to limit or cease production of some drugs in order to make upgrades and meet regulations. Often, several large generic manufacturers are forced to interrupt production simultaneously.

Medicare by implementing price controls through the Medicare Modernization Act of 2003, which changed the way it reimburses providers for drugs from AWP-based to “ASP plus 6”.  AWP, or average wholesale price, was sometimes found to be much higher than the actual market price of a drug and Medicare was paying for the large profit margins enjoyed by the providers who were reimbursed for amounts far greater than the drug cost. The “ASP plus 6” formula reimburses providers at the average reported sales price plus 6 percent, which limits the amount of profit the provider can make, as intended. But critics assert that it also limits the amount of profit the manufacturers can make and discourages production of certain drugs by effectively controlling prices.

The Manufacturers because they skimp on quality standards, which forces the FDA to issues warnings and enforce well-established regulations, thereby interrupting production while forced improvements are made. Generic manufacturers are also blamed for being slow to increase capacity in a timely fashion, even though they know well in advance that a patent is expiring and they plan to produce a drug. And manufacturers are accused of putting high profits before patient care and deliberately allowing shortages of less profitable drugs, regardless of their life-saving potential.

Another potential, albeit less frequently cited, contributor is raw material shortages. When they exist, material shortages have their own complex chain of possible causes. Since the general consensus is that the lack of raw materials is a minor factor in drug shortages, we will leave the causes to be examined at another time.

Of course, none of these circumstances need stand alone as the sole cause of drug shortages. In fact, it is likely that some combination of them all is at play. Rebuttal arguments have been made by interested parties for each and the opinions of industry pundits vary widely. Universal agreement is highly unlikely ever to be achieved. What’s more, it is probably beside the point. In the case of drug shortages, the cause(s) need not be entirely understood to find a cure.

The FDA, Medicare (or Congress), and the relatively few generic pharmaceutical companies that manufacture injectable drugs could and should work together to make adjustments that would mitigate their contribution to drug shortages. A phased approach to regulation enforcement at the FDA, which considers and accounts for its potential to interrupt production, could be implemented. Medicare/Congress could modify reimbursement policy to allow a higher rate for those drugs that are expensive to produce and sell in low quantities. And the manufacturers could commit to producing a set quantity of essential drugs each year, as long as modest profits are assured. Together, these relatively small compromises could have a large and positive impact on patient care.


Tell us what you think

We would like to hear from you on the following questions regarding drug shortages:


Will the drug shortage crisis be resolved? If so, how?

If you had the power to direct and force change at one of the three entities blamed for drug shortages, the FDA, CMS, or the manufacturers, which one would you choose and why?

Do you believe that patients have died or been harmed due to drug shortages?

Is solving the drug shortage problem a sufficiently high priority in healthcare and government?

What role does the export of drugs to other countries play U.S. drug shortages?


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