What can FDA really do about drug shortages?

President Obama is reported to have issued an executive order for the FDA to fix the drug shortage.  But, what can the FDA do, realistically?  Giving advanced notice of an impending shortage won’t help, especially with the current shortage.  And, even if FDA had authority and power to force manufacturers to continue manufacturing, how do you do that if quality of manufacturing or lack of cGMP (current Good Manufacturing Practices) compliant active pharmaceutical ingredients (API) are the problems?

The drug shortage problem has been evolving over the past 5 years or so and was inevitable given the market pressures on generic drug pricing and a market expectation for FDA approved products to be manufactured under rigorous cGMP conditions affirmed by FDA facility inspections (remember heparin?).

First, I believe the root cause of most of the drug shortages is the lack of financial incentive (profitability) to ensure a continuous supply of product to the market.  This is mostly not a Big Pharma issue with high margin branded products.  The majority of drug shortages are for generic drugs and many are injectable products (difficult to manufacture).  Generic does not necessarily mean easy or cheap to manufacture.

So, why don’t generic drug companies just raise their prices?  Well, perhaps the biggest factor is Medicare pricing and the 6% price increase cap in any 6 month period but also the aggressive price negotiations by Pharmacy Benefits Managers, pharmacy chains, hospital purchasing groups, and wholesalers.   Besides the manufacturing logistic challenges, the Medicare price increase cap leaves little incentive to ramp up production in the face of a shortage.

If low profit margins accentuated by the challenges and expense of maintaining manufacturing quality are to be blamed for these shortages,  what can FDA do?

First, FDA could be more lenient about the expectations and enforcement of cGMP requirements.  This might be a reasonable option where compliance issues are minor administrative deficiencies that should be in place but may not be as tidy as FDA and cGMP regs might require.  If administrative record keeping and paperwork issues are keeping otherwise high quality products off the market, FDA could provide some relief, at least temporarily.  My guess is this is not the case in most current drug shortage situations with manufacturing quality and FDA concerns being of a more serious nature.  And, to ignore cGMP entirely (e.g., don’t inspect so you don’t find)  is not a viable option where patient safety is at risk.

A more reasonable option, if the manufacturer really wants to continue manufacturing, would be to have the FDA work closer on an expedited plan for resolving regulatory concerns about safety or quality manufacturing issues.  Similarly, the FDA could work with interested alternative manufacturers to facilitate an accelerated approval of facilities, processes, and drug application.

I’m somewhat skeptical about fixing manufacturing issues because the investment (accelerated cash spend in short period of time) to resolve the issues may be far more than the market might be willing to pay for in terms of higher prices.  And with higher prices, even if manufacturers could raise prices to sufficiently profitable levels, comes the potential for market criticism and resentment because you are charging more than they used to pay.  Raising prices on prescription drugs, even when warranted, is a “no win” for manufacturers.

FDA could require filing “continuity of supply” plans with new drug approvals, brand or generic.  No viable alternative plan, no approval.  Besides being difficult to enforce, it won’t help the near-term drug shortages.

I’ve also read about building government stockpiles of “critical medicines. “  I’m not sure about the practicality of this in terms of how much supply for how long.  Would you stockpile months or year supplies? This might provide some modest initial financial incentive to the chosen manufacturers and these stockpiled drugs would also need to be replenished once they expire.  Managing this process and determining which manufacturer will get the contract at what price for a particular product, however, could undermine the purpose and viability.

The problem with most of the proposed solutions is they don’t address the root cause …  lack of financial incentive to ensure a continuous supply.

If the products that are now on the shortage list were priced at or maybe even priced slightly below the historic branded prices, I’m certain most would not be in short supply.  Manufacturers would already have “continuity of supply” plans in place. They would be making absolutely sure they made the necessary investments to ensure cGMP compliance.  They would make sure their active pharmaceutical ingredient (API) suppliers were sufficiently incentivized to ensure a continuous supply.  And if there was an anticipated problem, they would be working diligently around the clock and making any necessary investments to ensure supply to the market.  The FDA can not fix these financial incentive issues, regardless of the regulatory authority the President or Congress might want to bestow on the agency.  mike@pharmareform.com

  • ken

    Very interesting post. But why couldn’t the FDA work with manufacturers to address regulatory concerns and even work with potential suppliers (essentially in an “extension agent” role) to raise quality levels, without this necessarily increasing prices? If having a stable supply of high quality drugs is a public good that the market alone is not providing, which is the clear take-away from this posting, then it makes sense for the government to step in and help supply the public good. I realize that may be infeasible, politically, in an era where everyone is obsessed with deficit reduction (and particularly deficit reduction by getting the government to spend less), but it strikes me as reasonable.

  • http://www.pharmareform.com Mike Wokasch

    Ken,
    Thank you for your comment. You raise two important issues. One is an appreciation for the expense of maintaining and fixing a prescription drug manufacturing process. The second is whether or not the government should financially subsidize the fix when critical medicines are involved.

    Keep in mind that many of these products are generic drugs and generic drug companies run on very thin profit margins. Maintaining the facility, process, and quality system requirements to manufacture prescription drugs to cGMP compliant standards is expensive, even for generic drugs and especially for sterile injectable products. Fixing manufacturing or quality problems, even for easy-to-manufacture products, is not a simple or inexpensive process. Diagnosing the problem, determining a fix, and then putting in place a solution followed by validation (practice runs to get it right and prove it works consistently, run after run) all take expertise, money, and time. This can be further compromised by older facilities and outdated equipment or machinery. I’m sure many of the products on the shortage list also probably have complex processes (not easily or inexpensive to fix) for making either the active pharmaceutical ingredient and/or the final finished product.

    Whether the government should help pay for these fixes to maintain a supply of critical medicines is more a political, philosophical issue. I personally see this as a market issue. If the market feels they are critical medicines and patients need them, the market and patients should be willing to pay a price that better represents their value. mike@pharmareform.com