February 11, 2014—Halts or slowdowns in manufacturing to address quality problems are the leading immediate cause of drug shortages, especially among generic sterile injectable products, the Government Accountability Office (GAO) concluded in a long awaited report yesterday. It recommended that the Food and Drug Administration (FDA) strengthen its internal controls over its drug shortage data and conduct periodic analyses to assess drug shortage information routinely and systematically.[ms-protect-content id=”2799″]
Congress mandated the report in a 2012 law that expanded the FDA’s authority to prevent and alleviate shortages. It was released during a House Energy and Commerce Health Subcommittee hearing. During their questioning of GAO and FDA officials at the hearing, some Republican committee members asked about potential underlying economic causes of shortages, including 340B drug discounts, Medicaid drug rebates, and Medicare Part B drug reimbursement. For example, Rep. Renee Ellmers (R-N.C.) expressed concern that the Medicare reimbursement system and 340B discounts might be discouraging drug manufacturers from remaining in the generic sterile injectable market and continuing investments in production facilities.
“It appears [GAO is] only addressing the symptoms and not the causes,” she said. The “explosion of the 340B discounts is reducing margins for generic manufacturers” and “pushing them to stop producing low-cost generic injectables,” she added.
In the body of its report, the GAO identified several potential underlying economic causes of shortages cited in other research. These did not include either 340B discounts of Medicaid rebates, however. In an appendix, it summarized recently proposed incentives to alleviate or prevent shortages, including a bill sponsored by Rep. Bill Cassidy (R-La.) in 2012 that would have exempted most generic sterile injectable products from 340B discounts and Medicaid rebates through 2020. Sen. Orrin Hatch (R-Utah) circulated but never introduced similar draft legislation.
“Proponents state that this incentive may help influence manufacturer margins, thereby providing revenue to invest in production capacity to ensure demand is met,” the GAO said. It noted that it also interviewed representatives of stakeholder groups whose members would be affected by the proposed 340B pricing exemption. It said these groups “caution that these exemptions would increase costs to patients and the government (including increasing drug costs and administrative costs to the government for tracking such an exemption).”
The GAO said representatives from one stakeholder group it interviewed told it that, “according to its inquiries, the majority of generic sterile injectable drugs are manufactured by three or fewer manufacturers, in which case nearly all such drugs would be subject to this exemption, whether the drug had ever been in shortage or not.”
“Further, stakeholders noted that generic sterile injectable drugs are often administered in hospital inpatient departments and are therefore not subject to Medicaid rebates, which only apply to outpatient drugs,” the GAO continued. “One stakeholder stated that for the few drugs in this group that are subject to Medicaid rebates, the cost of these drugs is already low, which would result in a minimal financial impact of such an exemption. Finally, one stakeholder stated that 340B discount exemptions would have a minimal influence on drug shortages.”
The GAO found that the number of newly reported shortages has been declining from a record 255 in 2011, to 195 in 2012, to 73 through June 30, 2013. That progress, however, has been offset by annual increases in the number of ongoing shortages (those that started in a prior year and remained unresolved) from 184 in 2011, to 261 in 2012, to 288 through mid-2013.
Echoing previous studies, the GAO noted that recent shortages have been concentrated in the generic sterile injectable market. About half of the 219 drug shortages deemed “critical” from the middle of 2011 through the middle of 2013 involved generic sterile injectable medications.
“Quality problems resulting in supply disruptions coupled with constrained manufacturing capacity were frequently cited as the immediate causes of recent drug shortages,” the GAO said. “However, we also identified multiple potential underlying causes of shortages, all of which were related to the economics of the generic sterile injectable drug market.” In a footnote, the agency said it intends to further explore what causes shortages in subsequent research.
The GAO said some of the potential underlying economic causes of shortages cited in other research were:
- that competition in the generic market focuses primarily on price;
- the possible role of group purchasing organizations; and
- changes in Medicare Part B reimbursement policy.
These studies generally suggested that these economic factors led to low profit margins, which in turn limited investment in infrastructure or led some manufacturers to quit the market.
The GAO reported, however, that drug manufacturers it interviewed for the study often downplayed these suggested underlying economic causes. For example, the agency asked manufactures for their views on whether price competition in the generic market ultimately reduces incentives to invest in maintenance or quality improvements. “Five of the six drug manufacturer representatives that responded to this claim reported that manufacturers continue to invest in upgrading existing establishments and building new ones,” the GAO reported. “One manufacturer representative stated that some generic products in manufacturers’ portfolios are highly profitable and prompt investments in manufacturing facilities. Another manufacturer representative said that they continue to invest in making improvements to their sterile injectable facilities. For example, they said that they have invested in spare capacity on some of their lines, and as a result, are now better equipped to ramp up production in response to a shortage.”[/ms-protect-content]