The Drug Shortage Crisis

Imagine finding out you have a type of cancer that can be cured with medication but that medicine is in short supply. So while your prognosis should be excellent, there is a chance you won’t survive if you can’t get the medicine. The problem is that this scenario isn’t imaginary. It’s happening all the time at an increasing rate in this country. It is estimated that between July 2010 and September 2011, there were 15 deaths due to drug shortages either because the right drug wasn’t available or because of dosing errors or other problems when administering or preparing alternative medications.¹

Between 2005 and 2010, the number of prescription drug shortages in the U.S. nearly tripled from 61 to 178. And, shortages are becoming more severe and more frequent.² What types of drugs are involved? They run the gamut from infectionfighting medications for tuberculosis, herpes encephalitis, neurosyphilis, etc., 3 to those used in surgeries and those prescribed to treat cancer, attention deficit disorder, blood pressure — you name it. As of January, drugs on the short supply list totaled almost 300.¹

Lawrence A. Solbert Jr., MD, PhD, chair of the American Society of Hematology’s Committee on Practice, called the increase in national drug shortages “a tsunami of medical risk.⁴ Because of the shortages, many hospitals are forced to buy medicines from the so-called “gray market vendors” that practice price-gouging sometimes to the tune of up to 4,500 percent of the standard cost of drugs — drugs that could be tainted because they are sold outside authorized channels.⁵

There are many reasons cited for shortages, with no single entity on which the problem can be blamed. What is certain, however, is the need to turn this growing tide around. In 2011, two pieces of legislation were proposed in Congress, which are still pending. And, most recently in October, President Obama issued an executive order to target critical drug shortages.

Why a Shortage? While there is general agreement on the different causes of drug shortages, those reasons vary depending upon the source. According to Commander Jouhayna Saliba, senior regulatory program manager for the U.S. Food and Drug Administration (FDA) Drug Shortage Program in the Center for Drug Evaluation and Research: “There are a number of different factors contributing to the current shortage of sterile injectables and other drugs, including manufacturing issues and economic factors. Some companies have decided to discontinue making their products for business reasons, others have had problems with their raw-material suppliers, and some have experienced manufacturing deficiencies that compromise the safety and efficacy of their products.”⁶

Saliba explained that, many times, companies voluntarily stop production or suspend production of critical drugs when manufacturing problems occur so that they can resolve them, and oftentimes this takes considerable amounts of time. In other situations, companies will continue to manufacture the product, but this depends upon the level of risk, and the FDA looks at the “risk-benefit balance on a case-by-case basis in order to be flexible in addressing shortages and to mitigate any risk to patients.” If a manufacturer is unable to resolve a shortage involving a critical drug, the FDA will search for overseas companies that are willing to import the drug until the shortage is resolved.⁶

But manufacturing is only part of the drug shortage problem. Almost all drug shortages are in the generics market, where profit margins are low. Many buyers are third-party payers, such as insurance companies, pharmaceutical benefit managers and government health programs, who have a strong incentive to drive the prices of these products down as low as possible. According to Mandy L. Gatesman, PharmD, of Virginia Commonwealth University of Richmond, and Thomas J. Smith, MD, of Johns Hopkins, “The main cause of drug shortages is economic. If manufacturers don’t make enough profit, they won’t make generic drugs.” With only a half dozen companies making the vast majority of injected generics, that means other companies are needed to fill the void. But those companies are discouraged by the lengthy and expensive process of setting up new manufacturing lines and getting FDA approval.^7,8

Compounding this economic problem is Medicare’s “statutory price inflexibility,” which has established a 6 percent ceiling on price increases in any six-month period. This provides little incentive for manufacturers to produce more of a drug when there is a shortage.And, as part of the Medicare Modernization Act, reimbursement was set at 6 percent above the average wholesale price of a drug, which makes reimbursement less than the cost of administration in some cases.⁷

A further reason for shortages is theft of prescription drugs from warehouses or during shipment, which is on the upswing. During 2010, approximately $185 million of prescription drugs was stolen in the U.S. These thefts, accounting for the rise in value of pharmaceutical products by 350 percent since 2007, are being sold on the street or repackaged and resold to medical suppliers with potentially dangerous consequences.⁹

The Gray Market Result

When a drug shortage occurs, so does price gouging, fueled by gray market vendors, part of the so-called “parallel market,” that sell drugs outside authorized channels. Drug manufacturers typically distribute medicines through authorized national suppliers. But,sometimes, third-party suppliers are able to buy drugs. While not all third-party suppliers are unscrupulous, this is where the bad ones enter the market to sell the drugs at an inflated cost to hospital pharmacists who are desperate for those drugs to treat their patients. This is also the practice of gray market suppliers who sell stolen pharmaceuticals.

A new study released by Premier, a North Carolina-based alliance of 2,500 hospitals and 73,000 other healthcare sites in the U.S., quantified the effect of price gouging amid the worstever drug shortage in U.S. history. In 2010, 211 vital drugs were reported in short supply, according to the University of Utah Drug Information Service, which tracks the problem. Then, at the end of July 2011, 180 drugs shortages were logged, and estimates had predicted that the number would double by the end of the year, which it has.

According to the Premier study, during a two-week period in 2011, 42 of Premier’s acute care hospitals reported receiving 1,745 unsolicited offers from drug suppliers selling vital medications that were in short supply. “The marketing offers were often in the form of emails and fliers that contained language such as: ‘We only have 20 of this drug left and quantities are going fast,’” says the Premier report. Eighteen gray market providers offered the drugs, 96 percent of which were double the normal price, 45 percent of which were 100 times the normal price, and 27 percent of which were at least 20 times the normal price. The drug with the highest markup was labetalol, a blood pressure medication that has been in shortage since 2010. Normally priced at $25.90 per unit, it was being offered for $1,200 a unit, a 4,533 percent increase. “It did sort of surprise us,” says Mike Alkire, Premier’s chief operation officer. “There are a lot of people who take advantage of issues like this in the market.”⁵

Who sells to gray market suppliers and who buys from them? According to Amanda Forster, a spokeswoman for Premier, it’s not clear. But, many hospitals contend they won’t buy from these sources.

Legislation in the Works

Currently, there is a bill pending in Congress called the Preserving Access to Life-Saving Medications Act (S. 296 and H.R. 2245). The bill defines a drug shortage as a “period of time when the total supply of such drug available at the user level will not meet the demand for such drug at the user level.” Specifically, the bill would “require all drug manufacturers, including those who share the market with others, to notify the FDA of any discontinuance, interruption or adjustment in the manufacture of a drug that may result in a shortage.” And if the manufacturer plans to discontinue the drug, it must notify the FDA at least six months in advance. In addition, the FDA must be notified of other disruptions in manufacturing or in the supply chain as soon as the manufacturer becomes aware of the problem, but within six months. Manufacturers who do not comply with the reporting requirements are subject to civil monetary penalties of up to $10,000 for each day the violation continues, not to exceed $1.8 million. The bill also would require the FDA to publish information relating to manufacturing problems and drugs experiencing an actual shortage on its website. And it would require the FDA to implement evidence-based criteria for identifying drugs vulnerable to a shortage. For medically necessary drugs deemed vulnerable to a shortage, the FDA would be required to collaborate with manufacturers to establish continuity of operations plans to address drug shortages. Last, the bill would require the FDA to provide an annual report to Congress followed by a report every five years on the actions taken to address and prevent drug shortages. As of this writing, the bill has been referred to the Subcommittee on Health.¹⁰

Another pending bill attempts to bring medical theft under the Racketeer Influenced and Corrupt Organizations (RICO) law, which was originally developed to prosecute organized crime. Introduced by six Democrats, the bill would increase penalties for stealing medical products, give police extra tools, including wiretaps, to track thieves, and give law enforcement officials more leeway to pursue and punish criminals who steal prescription pharmaceuticals.⁹

In October, President Obama issued an executive order to help stem the nation’s shortage of lifesaving drugs. The order, the first since 1985 by a president to affect the functions of the FDA, directs the FDA to broaden reporting of potential shortages of certain prescription drugs and to expedite regulatory reviews that can help prevent or respond to shortages. Under the order, the FDA will work with the Department of Justice to examine whether potential shortages have led to illegal price gouging or stockpiling of lifesaving medications. The order also directs the FDA to expand its current efforts to expedite review of new manufacturing sites, drug suppliers and manufacturing changes to help prevent shortages. President Obama also announced that he supports bipartisan legislation that addresses the prescription drug shortage.¹¹

Is There Hope?

Is there hope for patients whose survival depends upon getting the scarce medication they need? Unfortunately, there is no sign that drug shortages will disappear in the future. Despite President Obama’s executive order, many of the problems with drug shortages are outside of the FDA’s authority, which the president has acknowledged. In short, says Scott Gavura, a pharmacist who works in the Ontario (Canada) cancer system and author of the Science-Based Pharmacy blog, no one “owns” the supply issue…, and there is no single organization responsible for ensuring this complicated supply process, once started, isn’t interrupted. “The supply chain that links the chemical synthesis to the administration to the patient is intricate, to put it mildly,” explains Gavura. “This process involves companies that manufacture the active pharmaceutical ingredient, to the company that packages it for administration, to the pharmaceutical company that sells and distributes the product,” the regulators who verify manufacturing standards, the wholesalers who distribute the drug, and the group purchasers who consolidate purchasing among hospitals or HMOs, insurers and public payers.¹²

Addressing such a complicated problem requires a variety of considerations, including regulatory changes, manufacturing adjustments and ways to hinder theft, hoarding and diversion to the gray market. Current legislative proposals alone are likely not enough, and the possibility of the Centers for Disease Control and Prevention stockpiling critical-care drugs as it does for many other drugs is an alternative. It appears that a multipronged approach on several fronts will bring about the most effective solutions to the escalating drug shortage crisis.