[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
DRUG SHORTAGE CRISIS: LIVES ARE IN THE BALANCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF
COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 30, 2011
__________
Serial No. 112-102
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
----------
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Health Care, District of Columbia, Census and the
National Archives
TREY GOWDY, South Carolina, Chairman
PAUL A. GOSAR, Arizona, Vice DANNY K. DAVIS, Illinois, Ranking
Chairman Minority Member
DAN BURTON, Indiana ELEANOR HOLMES NORTON, District of
JOHN L. MICA, Florida Columbia
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
SCOTT DesJARLAIS, Tennessee CHRISTOPHER S. MURPHY, Connecticut
JOE WALSH, Illinois
C O N T E N T S
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Page
Hearing held on November 30, 2011................................ 1
Statement of:
Hudspeth, Michelle, M.D., division director of pediatric
hematology/oncology, Medical University of South Carolina;
Walter Kalmans, vice president of New Ventures, Whiteglove
Health; Ted Okon, executive director, Community Oncology
Alliance; Scott Gottlieb, M.D., resident fellow, American
Enterprise Institute; and Kasey K. Thompson, Pharm.D., vice
president, Office of Policy, Planning and Communications,
American Society of Health-System Pharmacists.............. 11
Gottlieb, Scott, M.D..................................... 25
Hudspeth, Michelle, M.D.................................. 11
Kalmans, Walter.......................................... 17
Thompson, Kasey K., Pharm.D.............................. 35
Okon, Ted................................................ 21
Letters, statements, etc., submitted for the record by:
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 9
Gosar, Hon. Paul A., a Representative in Congress from the
State of Arizona, prepared statement of.................... 53
Gottlieb, Scott, M.D., resident fellow, American Enterprise
Institute, prepared statement of........................... 27
Gowdy, Hon. Trey, a Representative in Congress from the State
of South Carolina, prepared statement of................... 4
Hudspeth, Michelle, M.D., division director of pediatric
hematology/oncology, Medical University of South Carolina,
prepared statement of...................................... 14
Kalmans, Walter, vice president of New Ventures, Whiteglove
Health, prepared statement of.............................. 19
Okon, Ted, executive director, Community Oncology Alliance,
prepared statement of...................................... 23
Thompson, Kasey K., Pharm.D., vice president, Office of
Policy, Planning and Communications, American Society of
Health-System Pharmacists, prepared statement of........... 37
DRUG SHORTAGE CRISIS: LIVES ARE IN THE BALANCE
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WEDNESDAY, NOVEMBER 30, 2011
House of Representatives,
Subcommittee on Health Care, District of Columbia,
Census and the National Archives,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:01 a.m., in
room 2247, Rayburn House Office Building, Hon. Trey Gowdy
(chairman of the subcommittee) presiding.
Present: Representatives Gowdy, Gosar, McHenry, Davis,
Murphy, and Cummings.
Staff present: Brian Blase, professional staff member; Will
L. Boyington and Noelle Turbitt, staff assistants; Molly Boyl,
parliamentarian; Christopher Hixon, deputy chief counsel;
Christine Martin, counsel; Jaron Bourke, minority director of
administration; Yvette Cravins, minority counsel; Devon Hill,
minority staff assistant; Jennifer Hoffman, minority press
secretary; Chris Knauer, minority senior investigator; Leah
Perry, minority chief oversight counsel; and Pam Dooley,
minority GAO detailee.
Mr. Gowdy. I want to welcome everyone to our hearing, Drug
Shortage Crisis: Lives Are In the Balance.
Mr. Davis will be with us shortly and I will recognize him
for his opening statement at that time. I will now recognize
myself for an opening statement and then the ranking member of
the full committee, the gentleman from Maryland, Mr. Cummings.
The drug shortage crisis in America has all the makings of
a national crisis. Doctors are frustrated; patients and loved
ones are worried. Lives are truly in the balance. Drugs are
being rationed. Doctors are forced to sometimes look for less
efficacious drugs. Clinical trials are being disrupted and,
perhaps unbelievably, doctors are sometimes asked to pick
between patients as to who will receive a drug.
For all those reasons and more, it is vital Congress
conduct oversight of the drug shortage to understand why the
problem exists and what can be done to remedy it. In order to
find solutions, we must have a clear understanding as to why
the drug shortages exist in the first instance.
Over the last decade, there were around 70 new drug
shortages identified each year between 2003 and 2006. And then
the number of drugs in shortage began to dramatically increase.
In both 2010 and 2011, there have been over 200 new drug
shortages identified. Typically, these drugs are used to treat
cancer, heart disease, and complicated infections. Dr. Michelle
Hudspeth, testifying before us today, will discuss how these
shortages affect the care plan she establishes for pediatric
patients.
The shortage shortages will also affect clinical trials and
whether or not the trials will actually go forward with
participating patients. If there is a drug shortage that
prevents participation, there will still be a cost associated
with the trial. Considering the importance of drug trials for
research, this is another reason identifying the cause or
causes of the drug shortages is so very vital. If the money has
been approved for trials, it is important to ensure the needed
drugs are available.
Let me say nearly at the outset if there is anything for
which there is no shortage of in this town, it is politics, and
I suppose every issue can theoretically be turned into a
political football if the notion strikes. One reason I enjoy
this committee and the Members on it is that we are, from time
to time, able to set aside politics and look for the root
causes of an issue and have a good faith conversation about the
remedy. And when it comes to sick patients, when it comes to
children, and when it comes to research for the diseases that
are or will impact very nearly every family here, my hope is
that politics will go away, and we can earnestly and honestly
identify the issues and suggest the remedies.
Several explanations for this crisis have been offered, but
a recent report issued by the Department of Health and Human
Services highlights pricing problems that limit the supply of
these drugs. Part of this problem could be changes made to the
Medicare Modernization Act in 2007 regarding the reimbursement
of injectable drugs. One of the provisions of this law sought
to increase price transparency and reduce the profit that
providers make from delivering intravenous drugs in their
offices.
In The New York Times recently, Dr. Ezekiel Emanuel,
Oncologist and Professor of Health Policy at the University of
Pennsylvania, discussed the issue thusly: ``In the first two or
three years after a cancer drug goes generic, its price can
drop by as much as 90 percent as manufacturers compete for
market share. But if a shortage develops, the drug's price
should be able to increase again to attract more manufacturers.
Because the 2003 act effectively limits drug price increases,
it prevents this from happening. The low profit margins mean
that manufacturers face a hard choice: lose money producing a
life-saving drug or switch limited production capacity to a
more lucrative drug.''
Another potential cause of the increasing number of
shortages could be the expansion of the 340(b) program. The
340(b) rebate program is a pricing program that requires drug
companies to provide rebates to hospitals and clinics serving
indigent communities. Although the 340(b) program is essential
for providers of indigent care, the 340(b) program could be
affecting the ability of manufacturers and suppliers to provide
required drugs because the rebates may reduce the price of
drugs to well below the cost it takes to manufacture them.
There have been proposals which would require drug
manufactures to alert the FDA of manufacturing problems or the
discontinuation of a drug. Although this has superficial
appeal, perhaps, simply knowing that a shortage is coming does
little to correct the situation. Merely having more time to
worry about whether the drug your doctor wants to prescribe for
you may or may not be available provides little comfort. Thus,
it is important to dig deeper into the actual causes of these
shortages. Again, quoting Dr. Emanuel, ``The FDA isn't able to
force manufacturers to produce a drug. And learning about
impending shortages, with little authority to alleviate them is
of limited benefit. Indeed, early warning could exacerbate the
problem. The moment oncologists or cancer centers hear there is
going to be a shortage of a critical drug, their response could
well be to start hoarding.''
In talking with folks like Dr. Hudspeth, and let me say at
the outset she is from South Carolina, but I do not represent
the district where she lives or works. Two of my colleagues,
Tim Scott and Jim Clyburn, have been very active in the Medical
University at South Carolina and have done many wonderful
things there, but I had the privilege of visiting the Medical
University recently and I was struck by the passion with which
Dr. Hudspeth laid out for me this crisis.
So I want to make sure that we have a full understanding of
what the challenges are and that we can equip ourselves with
the tools so perhaps we can do as the Good Book teaches and
take care of the sick, the poor, and the children. I am
concerned to hear that drug shortage is affecting the care and
ultimately the health of patients, especially pediatric cancer
patients.
If there is anything that can get the attention of every
member of this committee, it is to hear stories of children
with medical needs, and I have heard colleagues on both sides
of this committee speak with great eloquence and passion about
issues involving children and their health. So I look forward
to having a clear understanding of the issues surrounding the
drug shortages and what we can do to remedy it.
With that I would recognize the gentleman from Illinois,
the ranking member of the subcommittee, Mr. Davis.
[The prepared statement of Hon. Trey Gowdy follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you very much, Chairman Gowdy, for holding
this hearing. I want to thank all of the witnesses who have
come to share with us.
The drug shortage is a major concern to me, as it should be
to all who serve in this body. I happen to represent a
congressional district that has 21 hospitals, 4 large medical
center complexes, a number of research institutes, and we are
building a brand new Children's Hospital now. So there is
nothing more important to us than the provision and delivery of
health care.
Our constituents, mothers, fathers, and children, depend on
these drugs to survive and flourish daily. This body has
successfully increased access to health care for millions. It
would be a cruel irony for Members to now sit on our hands as
lifesaving drugs are becoming unavailable. We must take the
necessary steps and exhaust all available avenues to alleviate
these shortages. This hearing is a good initial first step.
It is important to hear from physicians about the barriers
they face in providing care and treatment. These doctors can
certainly testify and illustrate the impact drug shortages are
having on their patients. Their stories and, in particular, the
work-arounds in providing alternative medicines when shortages
occur illustrate not only the difficulty this problem poses to
patients, but also the cost involved to our health care
industry. Their stories are similar to those that have been
expressed by a host of health care providers interviewed in the
course of a lengthy investigation Mr. Cummings launched into
the issue of drug shortages and the impact they are having, and
illuminating those who seek to profit from these shortages. Our
ranking member had the foresight to open that investigation
several months ago.
Given our expertise, Mr. Chairman, I hope that this hearing
and subsequent ones are an opportunity for us to work together
to solve this problem, and I believe that we can. As I prepared
for the hearing today, I must say that I was disappointed and
puzzled by the absence of the Food and Drug Administration.
They are a critical piece of the puzzle. Their knowledge and
insight would have been invaluable today. Further, if we truly
seeking to delve into this issue, we must have all the relevant
players at the table. The drug manufacturers, the distributors,
and health care economists should all be here before us under
oath.
Mr. Chairman, again, I thank you for this hearing, but this
is a very complicated and complex issue and requires a broader
panel of witnesses than what we have here today. Therefore, I
am requesting that a followup hearing with the manufacturers of
these drugs, and I think we should strike while the iron is
hot, and I hope that we could schedule that hearing for maybe 2
weeks from now. I have alist of several drug manufactures that
should be requested to testify about the drug shortages and,
with your indulgence, I would like to share this list with you
and your staff. And I would say let's get these manufacturers
here so we can understand the nature of this problem and move
toward solutions to it, and I hope that you could accommodate
this request. And I would like to give you this list of
manufacturers and ask that we seriously look at asking them to
come before us.
So with that, Mr. Chairman, and I will say who they are.
They are Bedford Laboratories, APP Pharmaceuticals, Hospira,
Teva Pharmaceuticals, Sandoz, the Generic Pharmaceuticals
Division of Novartis, Abbot, Takeda, Baxter Oncology, and
Johnson & Johnson. And with that, Mr. Chairman, I thank you and
yield back the balance of my time.
Mr. Gowdy. I thank the gentleman from Illinois and would
let the gentleman from Illinois know what he may already know.
If he doesn't, the Energy and Commerce Committee had a hearing
in September on drug shortages with the FDA and drug
manufacturers present. And the gentleman from Illinois' point
is well taken with respect to single committee hearings and
then letting issues drop, and I will commit to him that that
will not be the case with this.
I would recognize the distinguished gentleman from
Maryland, the ranking member of the full committee, Mr.
Cummings.
Mr. Cummings. Thank you very much, Chairman Gowdy and
Ranking Member Davis. I want to thank you for holding today's
hearing. Given the impact that the ongoing drug shortage is
having on patients and health care providers, this is exactly
the type of issue this committee should be examining.
In 2010, the FDA reported 178 drug shortages, and that
number has increased in 2011. In October, President Obama
issued an Executive order urging manufacturers to notify FDA of
potential drug shortages so they could work with health care
providers and patients to prevent or mitigate shortages before
they become a crisis.
It is unclear exactly what is causing the drug shortages.
Experts believe there may be a number of causes, ranging from
inadequate financial incentives for manufacturers, problems
with production lines, and challenges in obtaining needed
supplies. I look forward to hearing the perspective of today's
witnesses on these very significant issues.
Although today's hearing is a step in the right direction,
unfortunately, we do not have the benefit of hearing testimony
from any of the drug manufacturers, and I echo what Mr. Davis
said: these folks are the ones that produce these critical
drugs that are now in short supply. If we had them here, we
could have asked what they believe are the causes of the crisis
and we could have asked their opinion about specific factors
that contribute to the insufficient supply of these drugs.
Mr. Chairman, I was very pleased to hear what you just said
with regard to looking forward to future hearings where perhaps
we could call some of those folks so we might do what you said
even earlier, and that was that we would lay our political hats
down at the door and attack this crisis with everything that we
have, and on a bipartisan basis.
Finally, let me note that I began my own investigation this
summer into a related issue, which is the sale of gray market
drugs. When hospitals and other providers cannot obtain drugs
on the shortage list from their authorized distributors, they
sometimes turn to so-called gray market distributors. These
companies mysteriously always seem to have the product
available, but at wildly exorbitant prices. We are still in the
initial stages of this investigation, so I will withhold
comment for now, but I think we can all agree that nobody
should be allowed to profiteer at the expense of cancer victims
or other patients who are in dire need of these lifesaving
medications.
So, Mr. Chairman, I hope that we will be able to address
some of these issues at a later hearing as well. With that, I
thank you for your indulgence and I yield back.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. I thank the gentleman from Maryland.
We are pleased and delighted to have such a wonderful panel
of experts.
There are other Members who may wish to submit their
opening statements or other extraneous material for the record.
It is my pleasure now to introduce our panel. I will
introduce you from my left to right. I will introduce you en
banc and then you will individually give your opening
statements. The lights in front of you, I hope they are
visible, mean what they traditionally mean in society: green is
go; yellow means speed up, try to get under the light as quick
as you can; and red mean start putting on the brakes.
Dr. Michelle Hudspeth is the division director of pediatric
hematology/oncology at the Medical University of South
Carolina. And, as a point of personal privilege, the first
person to bring the issue to my attention on a recent tour of
MUSC. Dr. Walter Kalmans is vice president of New Ventures at
White Glove Health; Mr. Ted Okon is executive director of the
Community Oncology Alliance; Dr. Scott Gottlieb is resident
fellow at American Enterprise Institute; Dr. Kasey Thompson is
vice president of policy, planning and communications for the
American Society of Health System Pharmacists.
Pursuant to committee rules, all witnesses will be sworn in
before they testify, so I would respectfully ask you to stand
and raise your right hands.
[Witnesses sworn.]
Mr. Gowdy. May the record reflect all witnesses answered in
the affirmative.
You may be seated.
With that, I would recognize Dr. Hudspeth.
STATEMENTS OF MICHELLE HUDSPETH, M.D., DIVISION DIRECTOR OF
PEDIATRIC HEMATOLOGY/ONCOLOGY, MEDICAL UNIVERSITY OF SOUTH
CAROLINA; WALTER KALMANS, VICE PRESIDENT OF NEW VENTURES,
WHITEGLOVE HEALTH; TED OKON, EXECUTIVE DIRECTOR, COMMUNITY
ONCOLOGY ALLIANCE; SCOTT GOTTLIEB, M.D., RESIDENT FELLOW,
AMERICAN ENTERPRISE INSTITUTE; AND KASEY K. THOMPSON, PHARM.D.,
VICE PRESIDENT, OFFICE OF POLICY, PLANNING AND COMMUNICATIONS,
AMERICAN SOCIETY OF HEALTH-SYSTEM PHARMACISTS
STATEMENT OF MICHELLE HUDSPETH, M.D.
Dr. Hudspeth. Chairman and members of the subcommittee,
thank you for inviting me to testify today. I am the Chief of
the division of pediatric hematology/oncology and the director
of pediatric blood and marrow transplantation at the Medical
University of South Carolina in Charleston, South Carolina. I
care for close to 75 newly diagnosed cancer patients each year
who are children, as well as 30 patients who undergo bone
marrow transplant for the best chance of survival from
childhood cancer.
The National Cancer Act in 1971 officially declared the war
on cancer. Since that time, the overall survival rate of
childhood cancer has dramatically improved from 10 percent to
almost 80 percent. However, the incidence of childhood cancer
has continued to increase over the past 20 years, and cancer
remains the leading cause of death from disease in children. In
23 days, we will mark the 40th anniversary of the National
Cancer Act being signed into law. Today, unfortunately, we mark
the largest number of chemotherapy drugs ever in shortage. The
war on cancer has been reduced to a mere skirmish with no
weapons and no clear battle plan.
Just a few days ago, I was with a family in crisis in our
pediatric emergency room. I had to tell the parents of a 2-
year-old little boy that he has high risk acute lymphoblastic
leukemia. This type of leukemia is the most common childhood
cancer. For his first month of treatment, he needs four drugs
plus another two chemotherapy drugs injected into his spinal
fluid. Five of these six drugs are in shortage. Each of these
drugs in shortage is a generic drug. Mercifully, we have the
drugs right now. I held his mother's hand and told her that we
will do everything humanly possible to cure her son. He needs
3\1/2\ years of chemotherapy treatments. Will I be able to tell
her the same thing next month, in 6 months, or even in a year?
The scope of the problem continues to intensify. Between
2005 and 2010, the number of prescription drug shortages nearly
tripled in the United States. Currently, 21 chemotherapy drugs
are in shortage, as well as 2 essential chemoprotectant drugs.
The vast majority of drugs in shortage are generic and are used
to treat curable childhood cancers. Clearly, the most critical
problem is a child being denied curative cancer treatment
because of a drug shortage.
Furthermore, the additional downstream effects of
chemotherapy shortages have significant ramifications as well.
Research cures cancer. The major advancements in pediatric
cancer have occurred through the Clinical Trials Cooperative
Group funded by the NCI. The majority of clinical trials
incorporate elements of standard treatments into one or more
treatment groups in the trial. Clinical trial enrollment is not
currently allowed if you do not have access to the standard
treatment.
As a result, clinical trial enrollment is declining. Not
only does this undermine the advancement of cancer treatment,
but it comes with a significant financial cost as well.
Cooperative group clinical trials have regulatory costs that
add up. Consequently, up to $1.2 million could be spent in 1
year alone for pediatric cancer clinical trials that are not
able to enroll a single patient.
A recent study published in the American Journal of Health-
System Pharmacy reported the overall personnel costs associated
with managing these drug shortages costs an estimate of $216
million each year. Regrettably, most institutions have had to
institute a review board, often with an ethics committee, to
develop harrowing plans of how to ration chemotherapy drugs,
most of which are generic drugs that have been available for 30
years or more. How do you decide who should be given a chance
to live?
In an effort to maintain some semblance of adequate
chemotherapy treatment, drug substitutions are being made with
less familiar products. Additionally, pharmacies are stocking
multiple concentrations of the same drug. This can easily lead
to dosing errors, either underdosing or overdosing, when one
concentration of the drug is mixed as if it is the other
concentration. Chemotherapy agents are high-alert drugs. They
have a very narrow therapeutic index, meaning there is a very
small difference in the amount that gives benefit and the
amount that causes death. Over a year ago, a national survey by
the Institute for Safe Medication Practices noted that 35
percent of respondents reported a near miss error due to drug
shortages. Twenty-five percent reported actual errors that
reached the patient. One-third of physicians reported an
adverse patient outcome due to drug shortages.
As with any issue, there are multiple reasons for the
current drug shortage. However, the timing is notable. In 2003,
the Medicare Modernization Act was put into place. In 2004, the
FDA reported 58 drug shortages; in 2011, the number skyrocketed
to over 200. The intent of the MMA was to create more
transparency in pricing. However, generic prices are driven
down by market competition and the current model under the MMA
makes it difficult for companies to raise prices more than 6
percent per year. Product margins have fallen significantly for
many generic drugs, leaving companies with no incentive to
continue manufacturing the drug or to increase production.
The current situation is nothing short of a massive
national emergency. The burden is on us to resolve the crisis
to protect our children. None of my patients' families ever
thought they would be faced with a diagnosis of childhood
cancer. Today alone, in the United States, the parents of 36
children will be told your child has cancer. Let's act to
ensure these parents can also be told we have drugs available
to cure your child.
Thank you.
[The prepared statement of Dr. Hudspeth follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. Thank you, Dr. Hudspeth.
Mr. Kalmans.
STATEMENT OF WALTER KALMANS
Mr. Kalmans. Chairman and members of the subcommittee, good
morning. My name is Walter Kalmans, and I am currently employed
as vice president of New Ventures at WhiteGlove Health, a
venture-backed company in Austin, TX. This testimony is not
related in any way to my current employer. Rather, it is based
on work independently developed as a result of 20 years of
experience working as a consultant and commercial operations
executive in the pharmaceutical industry.
Of particular relevance to this hearing is experience
gained while serving as vice president of business development
for Oncology Therapeutics Network [OTN], from 2003 to 2008. OTN
was the 2nd largest specialty drug distributor in the United
States until its acquisition by McKesson Corp. in 2007. The
popular press, as well as recently publications by ASPE, FDA,
and IMS Health, do a good job characterizing the generic drug
shortage and tend to cite manufacturing and supply chain issues
as chief culprits. As citizens, we are led to believe that over
time, industry will fix the problem by investing in additional
capacity, improving quality control, and identifying more high-
quality suppliers of raw materials.
However, there is much more to this issue. Why, all of a
sudden, would the pharmaceutical industry, one of the most
sophisticated industries on earth, be experiencing an
unprecedented growth of shortages, and why, in particular,
shortages of generic injectable drugs? Manufacturing and supply
chain issues certainly play a role, but it is my opinion that
the Medicare Modernization Act of 2003, MMA, is the core
culprit as to why generic injectable drugs are in growing
shortage.
To most Americans, MMA is known as the act that expanded
the prescription drug coverage for Medicare patients; however,
another part of this legislation drastically altered how
Medicare reimburses community-based oncologists who administer
drugs in their offices, under Medicare Part B, B as in boy.
Oncologists are one of the few specialists who make a margin on
buying a drug for price X and receive Medicare reimbursement of
price X plus Y.
Prior to MMA, Medicare reimbursed community-based
oncologists based on a price called AWP, average wholesale
price. MMA introduced a new price called ASP, average selling
price. Calculating ASP required significant pricing
transparency from pharmaceutical manufacturers and resulted in
lower Medicare reimbursement payments to community oncologists
and, notably, a more rapid price decline for many generic
injectable drugs.
In addition, because the legislation set Medicare
reimbursement for Part B drugs at ASP plus 6 percent, it
established thinly veiled price controls, making it unpalatable
for a pharmaceutical manufacturer to raise price more than 6
percent a year. For example, if a manufacturer were to raise
the price on a $100 drug by more than 6 percent during a year,
an oncologist would likely be faced with the scenario of buying
the drug for $106 and receiving Medicare reimbursement of $104.
Now fast-forward to today. If you were a generic injectable
manufacturer with finite capacity, would you focus your
capacity on manufacturing generics for products that have just
lost patent protection, reaping high profits for the next few
quarters, or would you manufacture lower priced generics, drugs
whose patents expired long ago? Under normal economic
circumstances, if there are shortages, prices adjust upward to
reach a new equilibrium until additional product comes online,
basic supply and demand economics. However, because MMA limits
price increases to 6 percent annually, prices do not reach an
equilibrium; even worse, because the profit potential of these
drugs is so low, new entrants decide to stand on the sidelines
or focus on more profitable products.
In conclusion, it is my opinion that we will experience
generic drug shortages until legislation is passed to change
the way generic injectable drugs are reimbursed by Medicare.
Like any piece of legislation, MMA provided many citizens with
benefits, but also like any piece of legislation, it had flaws.
Unfortunately, these flaws took several years to become exposed
and, for a variety of reasons, it may take quite some time to
fix them.
Thank you.
[The prepared statement of Mr. Kalmans follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. Thank you, Mr. Kalmans.
Mr. Okon.
STATEMENT OF TED OKON
Mr. Okon. Chairman Gowdy, Ranking Member Davis, and members
of the committee, I thank you for the opportunity to share my
views on the drug shortages crisis relating to cancer care.
I am not a medical oncologist but serve as executive
director of the Community Oncology Alliance, a non-profit
organization dedicated to community cancer care. In my
position, I hear from cancer patients and their providers how
treatment has to be delayed, changed, and in cases stopped
because low-cost, but potentially life-saving, generic
infusible drugs are not available. Unfortunately, escaping the
crisis is next to impossible for me as my wife is an oncology
nurse who voices the frustrations of all cancer care providers
when she asks, how can this be happening in the United States?
The drug shortage situation is very complicated; however,
the root cause is not. The problem is grounded in economics and
goes back to the way that Medicare reimbursement for cancer
care was changed in the Medicare Modernization Act of 2003. The
reason for the change was well intended: better balance
Medicare payment for drugs and services to market rates.
However, the policy change, exacerbated by poor implementation,
has had unintended consequences. The first consequence has been
a consolidation of oncology providers, including clinic
closings and mergers into large hospital systems. The second is
a severe reduction in the number of manufacturers supplying
low-cost, generic cancer drugs.
Let me briefly explain the evolution of drug shortages.
The MMA changed Medicare Part B drug reimbursement from
average wholesale price set by the manufacturer to average
sales price, a market-based price. Oncology clinics
administering chemotherapy are reimbursed by Medicare at ASP
plus 6, which is intended to cover drug cost, overhead, staff,
and materials. In actuality, reimbursement is lower than ASP
plus 6 due to manufacturer-to-distributor prompt pay discounts
included in the ASP calculation. It is also important to
understand there is a perpetual lag of 6 months in updating
ASPs each quarter, which results in providers subsidizing
Medicare for drug price increases.
There are two key points to note about ASP reimbursement.
First, the system substantially reduced Medicare provider
payments for cancer drugs. However, CMS never balanced this
shortfall by increasing payment for non-reimbursed, essential
services such as treatment planning. Instead, CMS put into
place two demonstration projects in 2005 and 2006 to provide
stopgap funding for the shortfall in services payments. A study
by Avalere Health found that by 2008 Medicare covered only 57
percent of the cost of just the services associated with
chemotherapy infusion. The overall shortfall in Medicare
reimbursement has forced community cancer clinics to close, 199
over a 3\1/2\ year period, and an increase in mergers of
clinics into hospitals, 315 over the same time period.
Second, the AWP reimbursement system allowed generic
manufacturers to compete on the margins they established by
setting a drug's AWP and then selling the drug at a discounted
price. The ASP system changed the generic manufacturers' means
of competing to solely on actual sales price. That and the 6-
month lag in updating Medicare reimbursement has resulted in a
system that is effectively price capped.
There has been a steady downward pricing pressure on most
generics since 2005, the year ASP was first implemented. For
some of the top cancer drugs in short supply the ASPs have
dropped approximately 50 percent since 2005. You should also
understand that ASP masks the true decline in prices for
manufacturers because they do not reflect discounts and rebates
exempt from the calculation of ASP.
Generic manufacturers have felt additional pricing pressure
from an increasing volume of 340(b) discounts, which they are
required to extend to 340(b)-eligible hospitals and other
institutions treating a disproportionate share of low-income
and uninsured patients. As more oncology practices under
reimbursement pressures have been acquired by hospitals
eligible for 340(b) pricing, the volume of these discounts have
increased. Furthermore, Medicaid rebates exert further downward
pricing pressure on manufacturers.
Although, on the surface, declining prices are a positive
for both payers and patients, the problem is that many generics
have reached severely low prices. Consider if manufacturing a
$1 sterile infusible cancer drug is economically viable in the
long run. In a market that is highly regulated, both in terms
of pricing and manufacturing, normal market forces are not in
effect.
Faced with the prospect of diminishing returns from low-
priced, discounted, and rebated drugs, the incentive to stay in
the market is reduced. This has led to fewer manufacturers
producing these products. As a result, any manufacturing,
regulatory, or quality problem that shuts down a production
line has significant impact on the supply of product.
In closing, I implore the Congress to work with the cancer
community in fixing this crisis. Next month will mark the 40th
anniversary of when our Nation declared war on cancer. We have
evolved our cancer care delivery system into the best in the
world, as documented by survival rates. Americans battling
cancer today and for generations to come should have access to
quality, accessible, and affordable cancer care. We stand ready
to provide you with supporting data and to work on immediate
solutions.
Thank you for listening.
[The prepared statement of Mr. Okon follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. Thank you, Mr. Okon.
Dr. Gottlieb.
STATEMENT OF SCOTT GOTTLIEB, M.D.
Dr. Gottlieb. Mr. Chairman, Mr. Ranking Member, thank you
for the opportunity to testify today before the committee. I am
a practicing hospital-based physician and a resident fellow at
the American Enterprise Institute. Previously, I served as
Deputy Commissioner at the Food and Drug Administration and as
a senior official at CMS during implementation of MMA.
The causes for these scarcities can be complex and
multifactor. Each episode typically has unique characteristics
that make it distinct from other drug shortages. There are,
however, some common problems that are, to a varying degree,
threaded through each of these episodes. I believe these common
factors should be the focus of our attention.
I group these common factors into three categories. The
first are regulatory challenges that have made the
manufacturing of these products safer and more reliable, but
also, in some cases, more challenging and expensive The second
are mechanisms that make the prices sticky, limiting
profitability and precluding new investment in additional
supply and better and more efficient manufacturing. And the
third and final category is market structures that prevent
firms from branding their products and reflecting by how they
price them legitimate improvements in manufacturing that allow
drugs to be produced more reliably and in scalable facilities.
The first challenge is the way the manufacturers of these
drugs are being regulated. In recent years, the Food and Drug
Administration has gotten tough on potentially dangerous snafus
that have long plagued the production of some injectable
generic drugs. These include problems with sterility and
particulate matter getting into the solutions.
The FDA has real concerns, but if we want to maintain high
standards, we need policy measures to accommodate the economic
impacts. This begins with making sure regulations governing
drug manufacturing, FDA's good manufacturing practices, are as
efficient as possible. Manufacturers have long complained that
these policies are outdated and at times inflexible.
Another regulatory issue that plays in these shortages
relates to the backlog that FDA currently has for generic drug
manufacturing supplements. The backlog in reviewing
manufacturing supplements can add as much as a several-year
delay to the approval of manufacturing changes. Because of
remediation now taking place at many plants, FDA is about to
get hit with a deluge of supplements related to the manufacture
of these shortage drugs.
The increased regulatory scrutiny presents a more immediate
challenge also because of the way these generic parenteral
drugs are being reimbursed by Medicare and private payers. The
current system prevents manufacturers from adjusting prices to
reflect the higher cost of goods as a result of the
manufacturing upgrades that they are required to undertake.
A 2003 law sets the price Medicare will pay for physician-
administered drugs to the average sales price that is at least
6 months old at any given time. This means even if a generic
raises its price to reflect increased production cost, Medicare
won't pay the new price for about 6 months later, so purchasers
lose money on these drugs for months at a time.
In order to make long-term capital intensive investments
needed to bring on new manufacturing capacity for these
parenteral drugs, generic firms would need to know that they
can take and sustain price increases over a reasonable period
of time.
The bigger issue with the way Medicare reimburses these
drugs, however, is the way it sets a single flat price for each
broad category of medicines, rather than paying for these drugs
individually. Medicare assigns a single billing code to each
category of medicines.
Since FDA's enforcement of facilities is often uneven, one
firm might be facing significantly higher manufacturing and
regulatory costs while others are getting by with older and
perhaps less safe facilities. Lumping all the drugs in the same
billing code creates a race to the bottom on the costs of
goods, with the price reflecting the lowest cost producer.
The result is that prices can't rise to reflect change in
demand or the need for investments in manufacturing. Any
capital requirements are hard to recoup given the way Medicare
pays for these drugs. When higher costs of goods erode slim
profit margins, more manufacturers are choosing to exit product
lines entirely rather than invest to meet higher standards.
To fix these problems, we should lift existing price
controls when it comes to critical injectable drugs that are
generic.
These drugs should also get a holiday from other price
control schemes that serve to distort market prices and reduce
incentives to invest in new product, such as the 340(b)
discount program.
Medicare can also allow these drugs to have individual
billing codes rather than paying for each class of drug
according to the same billing code. This would allow
manufacturers to price their drugs individually, eliminating
the race to the bottom on the cost of goods.
Finally, we should consider policy constructs that would
give manufacturers a financial incentive to develop
intellectual property that improve the manufacturing
characteristics of generic medicines, even if these changes
didn't change the clinical properties of the drug. Recent
policies have systematically eroded the ability of firms to
earn returns on these products and make investments. The only
way to mitigate these shortages is to make it profitable for
firms to invest in manufacturing that enables safe, stable, and
more scalable supply.
Thank you.
[The prepared statement of Dr. Gottlieb follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. Thank you, Dr. Gottlieb.
Dr. Thompson.
STATEMENT OF KASEY K. THOMPSON, PHARM.D.
Dr. Thompson. Good morning and thank you, Chairman Gowdy,
Ranking Member Davis, and distinguished members of the
subcommittee for holding this hearing. My name is Kasey
Thompson and I am vice president of policy, planning and
communications for the American Society of Health System
Pharmacists. I am here today to talk about the problem of drug
shortages and the impact shortages are having on the ability of
health care providers to care for our patients.
For the last 10 years, ASHP, in collaboration with the
University of Utah Drug Information Program, has been tracking
and studying drug shortages and making that information
available free to the public on our Web site. Since that time
we have seen the number of shortages increase, almost tripling
since 2006. As a result, hospital pharmacists and other health
care providers have had to go to heroic lengths to find needed
medications, spending time tracking down the product rather
than caring for patients. In some cases we are told why there
is a shortage. For example, there may be a quality issue with
the production of the product. In other cases we simply have no
idea.
Our analysis of shortages over the last 10 years has shown
that most drug shortages are the result of quality issues in
the manufacturing process. However, we recognize that there is
no one cause to this problem, nor is there one solution. For
example, it has been suggested that Medicare reimbursement
policies may be partially to blame for drug shortages. While we
believe this is an area that should be explored further, we do
not currently have the data to confirm that this is in fact the
case. We do know that drug shortages are not confined to
oncology medications.
Other significant shortages affect anesthesia, pain
management, nutrition support medications as well. These other
drug classes have experienced increases since 2006, in addition
to oncology drugs. This suggests multiple reasons for drug
shortages, both quality assurance and economic. We are pleased,
however, to see that other facets of drug shortages, including
economic factors, are being considered, but would warn against
rushing to any conclusions, given the limited data at this
time. It will be important to learn from other stakeholders in
the supply chain, including pharmaceutical manufacturers, in
order to fully assess the causes and solutions to this public
health crisis.
Fortunately, the Food and Drug Administration has been able
to take steps to address drug shortages when they had access to
certain information from drug manufacturers. For example, in
2010, FDA was able to prevent 38 shortages when drug
manufacturers notified the agency when a product was
discontinued or a manufacturing problem occurred. That number
has increased to 101 shortages averted for 2011.
For this reason, ASHP supports bipartisan legislation in
both the House and Senate that would require manufacturers to
confidentially notify the agency when they experience
production problems or discontinue a product. We know that
confidential notification by drug manufacturers to the FDA is
not a complete solution, nor does it prevent drug shortages
from occurring, but it is a proven solution based on FDA's
experience that can be implemented immediately while we look to
examine other potential causes of drug shortages, including
economic factors.
Hospital and health system pharmacists have been
collaborating with other clinicians and members of the supply
chain to work with FDA to address the problem. For example, we
believe FDA should have the necessary resources to speed up the
regulatory process to help resolve drug shortages. Other
alternatives include improved communication between FDA field
personnel in the drug shortages program to assess the risk of
public harm when potential enforcement action may worsen a drug
shortage; exploring incentives for manufacturers to continue or
reenter the market; a generic user fee program to speed
approvals; and, last, ensuring the agency has the funding it
needs to carry out its mission.
In conclusion, drug shortages continue to be a very serious
public health threat not just for oncology drugs, but also for
pain medications, anesthesia drugs, and nutrition products.
While some causes are known, others are not as clear. ASHP
supports more examination of these other factors to help
identify causes of drug shortages currently plaguing our health
care system.
Again, thank you, Mr. Chairman, Mr. Ranking Member, and all
members of the committee, for this opportunity to provide input
on this urgent public health crisis.
[The prepared statement of Dr. Thompson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gowdy. Thank you, Dr. Thompson.
I will recognize myself for questioning.
Dr. Hudspeth, what percentage of drugs used to treat
childhood cancer are generic?
Dr. Hudspeth. Over 90 percent of the drugs that we use to
treat and cure childhood cancer are generics. And I understand
we have to be good stewards, just like you all, of the budget,
and I can imagine your concerns. We are talking about our
concern about prices and increasing costs. But you have to
understand if you look at generic injectable cancer drugs, they
represent only 2 percent of the entire budget spent each year
on cancer chemotherapy drugs. So even by improving this, you
are only looking at a very small overall increase. They make up
0.5 percent of the total cost for cancer care each year.
I have a young man who is an honors college student whose
leukemia has relapsed. He needs a drug to start tomorrow. But
we have an adult in our institution who is also due to start a
regimen that needs the same drug. I don't know who we are going
to be able to treat tomorrow. And that is real. That is me
getting off the plane yesterday calling, emailing back with my
home institution. So this is real.
Mr. Gowdy. Are there particular types of incentives that
would encourage manufacturers to enter the market and stay in
the market?
Dr. Hudspeth. There have to be incentives, I believe, for
production capacity. If you notice, the drugs primarily in
shortage are injectable drugs. They are typically more complex
to produce than a pill and typically, in a company, they have
to dedicate an entire production line to, say, that one drug.
So there are some real things about injectables that are
different.
So I think there has to, at the end of the day, be some
form of incentive for the companies to be able to run 24/7
production lines. Have a contingency plan. That is a current
problem, they really do not have contingency plans, and there
are some measures in H.R. 2245 that do recommend that the FDA
require contingency plans for single makers of critical drugs.
Mr. Gowdy. Dr. Hudspeth, you were good enough this morning,
and again in response to a question, to mention the untenable
choice that a physician would have to pick among patients.
Without violating the confidences of any of your patients, has
the drug shortage caused you to change the way you practice
medicine in any other regards?
Dr. Hudspeth. Yes. We have had to start chemotherapy
regimens sooner than normal. Typically, we require that a
patient recover from their prior chemotherapy regimen to a
certain level to be safe enough to start the next cycle. We
start a patient sooner than normal just out of fear that if we
wait another week there simply won't be drugs available. And
this has come up. Cytarabine has been a drug that is mentioned
a lot in the press. There is absolutely no substitution for
Cytarabine. It is in every single regimen in order to cure AML.
The other issue is medical errors. When the pharmacists--a
cardinal rule of pharmacy safety is you stock one concentration
of a drug. That way everybody that makes that drug day in and
day out, they understand this is what we are working with.
Well, now people are scrambling. We are just happy to have the
drug. So you have five different concentrations. People are
unfamiliar. You are going to absolutely increase the amount of
errors.
Mr. Gowdy. If the pricing problems are not remedied, what
do you see the future of drug crises being? Drug shortages.
Will they be exacerbated?
Dr. Hudspeth. Absolutely. Right now it feels like
practicing medicine in a Third World country. I never dreamed
of a day where I would have to spend hours on end that I should
be at the bedside talking to the families or with the kids, but
now I am on the phone with our pharmacists and the other
oncologists trying to figure out alternative treatment plans
and who gets what. It is taking up time that could be used in
so many other ways. And at the end of the day, if it is your
family member being treated for cancer, do you want me worrying
about if we have drug or not, or do you want me thinking about
taking care of you?
The other drug shortages that are mentioned are
antibiotics, antivirals, nutrition solutions. Well, my patients
all need those too, right? So one of the consequences of
chemotherapy is you can't eat and you get a heck of a lot of
infections. So we have had significant issues, too, where we
simply haven't even had the support of care drugs to treat
them, to support them through the therapy when we do have the
therapy.
Mr. Gowdy. I want to ask a question, and I will give the
other four gentlemen a chance to answer with respect to
negatively impacting clinical trials. I only have 30 seconds,
so if you could give a quick response if this is an area that
you feel comfortable talking about. Dr. Hudspeth already told
us in the actual practice, with respect to research, the drug
shortage, how is it impacting clinical trials?
Mr. Okon. Mr. Chairman, I can just say that, hearing from
oncologists all across the country, it is a real problem
because the problem is the trials in many cases, and I
understand in talking to some of the manufacturers trials have
actually had to be stopped because of the unavailability of a
particular drug.
Mr. Gowdy. My time is up. I would now recognize the
gentleman from Illinois, the ranking member of the
subcommittee, Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman. With your indulgence, I
know that the ranking member of the full committee has another
assignment that he needs to be engaged in. I would like to
switch places with him.
Mr. Gowdy. Of course. The ranking member of the full
committee, Mr. Cummings.
Mr. Cummings. Thank you very much. I want to thank the
gentleman for yielding.
As most of you know, since this summer I have been looking
into the role of so-called gray market during drug shortages.
My investigation has focused on determining where some of the
companies obtain drugs in critically short supply and how much
they mark up the drugs that they sell to hospitals and other
health care facilities.
My staff has heard from countless health care providers
about the constant unsolicited offers for drugs on the shortage
list, but at prices that are nothing short of price gouging.
For example, one company offered to sell a cancer drug for over
$990 per vial, more than 80 times the price a hospital normally
pays for it. I recognize the incredible predicament that this
puts our health care providers in. I do not envy their choices
of either delaying or denying treatment until drugs become
available from a reputable distributor or paying huge markups
on the drugs.
Dr. Hudspeth, by the way, I really appreciate your passion;
I feel it. When your hospital no longer has a needed drug
available, what steps does your hospital undertake to obtain a
needed drug? I am very familiar with chemotherapy. It is done
in cycles. So I guess you might have enough to start a cycle
but not enough to finish a cycle, so I guess you don't start
it, is that how that works?
Dr. Hudspeth. That is correct. And basically part of our
committee meetings each week is looking at who, throughout the
institution, is due for what and how much that will entail and
how much supply is on hand. Our institution does not deal with
the gray market. We have certainly been approached. Our policy
is we do not deal with them. And I am continually indebted to
the wonderful pharmacists at our institution that have spent an
amazing amount of time speaking with manufacturers, trying to
get drug. It has really been an all-out effort.
Mr. Cummings. Do you think there are a lot of other health
care facilities in, say, South Carolina that refuse to deal
with the gray market folks?
Dr. Hudspeth. It is hard to say. I could see how the
pressures could get to you. It is very easy to say, sure, we
don't want to deal with the gray market, but at the end of day,
when you know there is a patient on the other end, you can see
where that temptation could come along. So I don't know of any
instances for sure, but I know that the threat is out there.
Mr. Cummings. To all of our witnesses, can you explain to
me how it would be potentially harmful for a patient to be
given a drug that has changed hands many times?
Mr. Okon. I can just say, Mr. Cummings, that the amazing
thing about the distribution system, it is very regulated and
you understand the pedigree of the drug, which is very
important. So the problem is when you have some distributor
that you don't know at all that basically sends a fax, I hear
from practices all the time that they get faxes about drugs,
they get emails about drugs, and you don't understand the
pedigree of that, again, I am not an oncologist, but I think
the problem is administering that drug, which I don't think my
wife would be in favor of, as an oncology nurse, administering
that drug without a set pedigree is very dangerous because you
are talking about extremely, extremely potentially toxic
medication.
Mr. Cummings. I was just thinking, going back to you, Dr.
Hudspeth, if you have somebody with cancer and they face life
or death, and the patient knows, people begin to research.
Dr. Hudspeth. Absolutely.
Mr. Cummings. Have you ever come into a situation where
somebody says, wait a minute, doc, we know you don't have the
drug, but we have done some discovery here and learned that XYZ
Gray Market Co. has it. We don't care what it costs, we will
pay. Do you run into those kinds of situations?
Dr. Hudspeth. It is getting to that point, and 85 percent
of the children I take care of are Medicaid funded. I am a
native South Carolinian, but we are a poor State, and part of
my passion is that these kids have to have treatment no matter
what background or circumstances they come from.
So what I am afraid of is you are going to set a hierarchy
of treatment. If you have the money to obtain some drug, travel
to Canada, you can get treatment, but the folks who don't have
the finances to do that are left behind. And who is that going
to be? It is going to be the kids.
Mr. Cummings. Dr. Thompson, are your members concerned with
the safety of such drugs that circulate in the gray market?
Dr. Thompson. Yes, sir, they are, and this has been a
phenomena that they have dealt with for a very long time. The
notion of receiving faxes came up and this does happen. When
there is a shortage, our members get contacted with offers to
provide these drugs at exorbitant prices.
But it is really not the price issue so much. Not that that
is not a factor. It is the safety issue. When everybody knows
that there is a profound shortage of a drug, they are asking
the question, Where did these distributors get the product? Is
it safe? How was it stored? What is the pedigree? So it raises
real concerns.
Many pharmacy departments in hospitals will not buy from
the secondary market at all. But, as others have mentioned,
sometimes there is no other option.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Gowdy. I thank the gentleman from Illinois.
The Chair would now recognize the gentleman from Arizona,
the vice chairman of the subcommittee, Dr. Gosar.
Mr. Gosar. As a health care professional, I look at
symptoms, and I don't treat symptoms, I am looking at what the
disease process is. So I want to ask you yes or no down the
road, is the gray market a symptom or is it the disease?
Dr. Hudspeth. It is a symptom.
Mr. Kalmans. It is a symptom.
Mr. Okon. Symptom.
Dr. Gottlieb. It is a consequence, it is a symptom.
Dr. Thompson. Symptom.
Mr. Gosar. Thank you. So what we really need to do is
concentrate back on the cure back to the disease process. So it
seems to me like we have something going wrong here and we need
to get back down to it.
There are some clear problems in the way that we are
addressing the drugs themselves. Very quickly, can you give me
an idea on how we can do this? Because it seems like
arbitrarily isn't allowing bureaucrats to set, it seems
anywhere the Federal Government is involved we have problems,
and when we have somebody outside the business of medicine
dictating to medicine, we tend to get bigger problems.
So, real quickly, is there a way that you can see that we
can simplify this and let the markets work, but also have some
control, very simple, but also allow the patients to have skin
in the game? Doctor, what do you think?
Dr. Hudspeth. I think there is going to have to be an
allowance for the market to work, for the prices to reach
market value. There are clearly still some drugs that would
benefit from regulation that will allow us to treat the
greatest number of patients overall. So it may not be that we
abandon some of the tenets of the MMA altogether, but I think
it is clear that in the generic injectable industry it is a
very different beast, so probably there need to be allowances
made differently for these types of drugs.
So is it that we grant exclusivity, even though it is a
generic drug, for a certain period of time? Do we offer
financial incentives for the production? So is it maybe
focusing on incentives for production and good manufacturing
process, which helps everything, perhaps maybe even over just
the price of the drug itself? And that may be able to be better
controlled when focusing on overall incentives to the company.
Mr. Kalmans. There are several different kinds of solutions
to look at. I will give an example of one. We know there is a
rapid price decline when drugs go generic, and right now they
are limited from price increases to a maximum of 6 percent
based on the ASP legislation. One idea might be to look at
changing for drugs that have been generic for a couple of
years, changing the ASP to be ASP plus 20, to allow prices to
have greater fluctuation to make sure that the profits can
continue to be earned and generics are priced at a market price
that is palatable.
Mr. Gosar. I know we are going to put up a slide before Mr.
Okon does, but this actually shows just one drug, Carboplatin,
that you can see how much it has decreased. So this gives you
an example of one idea.
Mr. Okon.
Mr. Okon. I think, Dr. Gosar, that what has to happen is I
think on the manufacturing side there has to be some clear
incentives, whether we look at tax credits or something else
that basically incents not only manufacturer coming into the
market, a manufacturer staying in the market over a period of
time. And I think that it is very clear on the reimbursement
side we need to do something differently and we need to do
something immediately with these drugs.
You have to realize that some of these drugs are what we
talk about as being even underwater, that their cost is higher
than the reimbursement for Medicare right now. And because
Medicare and cancer care basically accounts for 50 percent of
the cost, it has an inordinate influence on private payers as
well, too.
So this is having a consolidation factor. We are seeing
consolidation on the provider side; we are seeing consolidation
on the manufacturing side. So I think we need to do something.
And one of the things is when a new product comes into market
and there is not an established ASP, it is basically WAC plus
3, wholesale acquisition cost plus 3. Maybe we need to do
something like that in terms of on an immediate basis.
But I have to say this. Whatever we do, we have to put the
politics aside right away. We have to get in a room and come up
with some solutions because this is really a crisis.
Mr. Gosar. Dr. Gottlieb.
Dr. Gottlieb. Yes, I think we need to go to a different
pricing scheme, and I advocate my written testimony, looking at
the wholesale acquisition cost, which might allow producers to
take and sustain price increases that would allow them
investment facilities. I think the regulation of the facilities
needs to be uniform so you don't have the cost of goods going
up for one manufacturer but not up for others. I think there
are schemes we can think of that would allow some limited
rebranding of these products so that manufacturers could make
representations about the manufacturing quality that might
allow them to either sustain higher prices in the market or get
automatic government purchasing for programs like VA or others.
The other thing that I think this committee might think
about is the fact that there is a significant portion of the
manufacturing capacity that is offline right now, that has been
taken offline by the Food and Drug Administration. If you look
at just the first five companies that the ranking member
mentioned, APP, Bedford, Hospira, Teva, Sandoz, that is
probably 80 percent of the parenteral market, and you might
have upwards of almost 20 percent of the manufacturing capacity
of those companies offline right now, if I am just thinking of
a couple of those companies. Those manufacturing facilities are
going to be coming back online, and as they do they are going
to hit FDA with literally hundreds, if not thousands, of
supplements, and the question is is the regulatory agency
prepared to approve those and evaluate them in an efficient
fashion.
Dr. Thompson. Mr. Davis mentioned involving manufacturers
in this process. My organization has been researching drug
shortages for 10 years now, and one thing we do is we conduct a
root cause analysis and we ask every stakeholder in the supply
chain what is causing this, what would help, what is the issue.
Getting insights from pharmaceutical manufacturers is a
challenge in terms of what are the issues, what would the
incentives be, and we would really like to get some answers to
those questions from the manufacturers' standpoint.
What specific incentives could be provided to you by the
Federal Government to help you stay in this business, get in
this business, ramp up supply. I would strongly encourage this
committee and others to have a discussion with pharmaceutical
manufacturers and see if you can get some better sense from
their perspective what the incentives would be that would help
them be in these businesses that are so critical to our
patients.
[The prepared statement of Hon. Paul A. Gosar follows:]
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Mr. Gowdy. I thank the gentleman from Arizona.
The Chair would now recognize the gentleman from Illinois,
Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman. And again I
want to thank you for your indulgence relative to Mr. Cummings'
need.
As a member that represents over a dozen safety net
hospitals in the 340(b) drug discount program, I am extremely
concerned about the unsubstantiated suggestions linking 340(b)
and drug shortages. It is hard to believe that this small, but
critically important program is of the magnitude to affect the
drug market in this way.
Dr. Thompson, can you cite any specific evidence that the
drug shortage is significantly affected by the 340(b) program?
Dr. Thompson. Sir, in our research we have seen no evidence
to support that claim and I personally don't find it to be
highly likely. The 340(b) program is a very small program, it
makes up about 2 percent of the national drug market, so it
just doesn't seem that likely.
Mr. Davis. Let me ask if any of the other witnesses have
any evidence that you have come into contact with or unearthed
that would suggest any difference.
Dr. Gottlieb. Manufacturers feel otherwise. I mean, the
340(b) program has been significantly expanded and drugs are
started to get diverted into that program and sold at a much
lower cost, and to the extent that the program that you now see
arbitraged in the marketplace, where hospitals are literally
buying out community oncologists and other providers to try to
capture the drug revenue and move it toward the hospital
environment, where they could earn the money on the spread for
what they are buying the drugs for versus what they are billing
Medicare for, you are seeing a growing proportion of the
overall drug utilization start to shift to that program. I
think it creates a lot of uncertainty in the marketplace and
just more impediments to people making investment decisions.
I sympathize with the idea that we need to subsidize these
hospitals. I have worked at some of these hospitals that are
beneficiaries of this program. I wish we could find ways from a
policy construct to subsidize them directly, rather than doing
it indirectly by this sort of arbitrage on the drug revenue.
Mr. Okon. I think, Mr. Davis, first of all, the 340(b)
program, the intent of it is a wonderful program. What it is
meant to do and taking care of indigent patients and patients
who can't afford care is absolutely right-minded. I think we
just have to keep in mind, though, that ASP, because 340(b)
discounts and Medicaid rebates as well, too, are not included
in the calculation of average sales price, that when we look at
ASPs going down, that is not reflective of what the
manufacturers are actually paying.
So in no way, shape, or form, knocking either, obviously,
340(b) or Medicaid, but I think we have to be aware that there
are other pressures downwards on the manufacturer to give up-
front discounts and rebates that we just have to be aware of
are actually increasing. If you look at the number of DSH
hospitals that are qualified for 340(b), it has expanded from
about 519 in 2004 or 2005 to the estimate is close to 3,700
next year. So we just have to be aware of the impact that these
discount and rebate programs are also having on ASP. That is my
point.
Dr. Hudspeth. I think it is important to note, though, for
children's hospitals, essentially everyone is going to be part
of a DSH program. Children's hospitals historically always
serve a tremendous portion of patients who are funded by the
Government, so it is important to realize the impact on kids. I
agree with the representative from the HSP. As I was reviewing
it, I see the rule of twos, 2 percent. It only concludes 2
percent of all drugs. The other thing is that if you look over
the past 2 years, any of the drugs that have been on shortage,
none of those have been on the so-called penny pricing list for
the 340(b) program.
Mr. Davis. Thank you all.
Dr. Hudspeth, let me ask you, you mentioned earlier that
your institution does not deal with gray markets.
Dr. Hudspeth. That is correct.
Mr. Davis. Could you tell us why and what dangers there
might be inherent in that kind of transaction?
Dr. Hudspeth. Absolutely. It has been well outlined by the
other folks that you simply don't know what you are getting.
You really have no idea how to really know, has the drug been
stored properly, has it expired, does it really contain what
you think it contains? And with that type of uncertainty,
patients undergoing chemotherapy treatments are fragile; we
push them to the limit. Then if you then expose them to
something that may be a completely different drug altogether,
and maybe it is not even drug at all, there could be real
inherent dangers in that. You simply don't know what you are
getting.
Mr. Davis. So the risks simply are not worth the costs.
Dr. Hudspeth. Absolutely.
Mr. Davis. Thank you very much, Mr. Chairman.
Mr. Gowdy. I thank the gentleman from Illinois.
The Chair will now recognize the gentleman from
Connecticut, Mr. Murphy.
Mr. Murphy. Thank you, Mr. Chair, and thank you very much
for this incredibly important hearing.
According to probably the most comprehensive FDA study that
we have, the leading cause of these drug shortages are quality
problems during manufacturing. I think the study showed that
about 54 percent of the shortages studied were due to
manufacturing problems.
I will pose the question to you, Dr. Thompson. You
mentioned that there is a multitude of causes here, but while
we spend most of the time here talking about pricing, the data
at least coming out of the FDA suggests that the biggest
problem is manufacturing. The information that you have
collected thus far, does that back up the idea that the biggest
cause here is manufacturing problems?
Dr. Thompson. Yes, sir, the 54 percent number is the one
that you know has been backed up by the research we have done
over the years on the issue.
Mr. Murphy. That study goes on to further say that outside
of that 54 percent that is due to product quality and
manufacturing issues, 21 percent is due to delays in capacity
issues, 11 percent is due to discontinuations, 5 percent are
due to raw material issues, 4 percent are increased demand
because of another shortage, etc.
None of the reasons that the FDA cites are due to pricing
issues, and certainly none of them are related to 340(b), so
maybe, Mr. Okon, I will ask you the question, and I would be
glad to hear comments from others. Is this study wrong? And if
it is not, how do you square the focus that we have heard on
this panel on pricing when the FDA suggests that it is much
more due to underlying manufacturing issues?
Mr. Okon. No, I think that is absolutely right. But I think
what you have to understand, Mr. Murphy, is that what we have
done is we have consolidated the manufacturing market. So we
have looked at, and actually I have a couple of charts looking
at ANDAs. That is an abbreviated new drug application that a
manufacturer of a generic has to file. It is an abbreviated
process.
If you look at those numbers of new ANDAs, I think we put
up Carboplatin before, I can show you that 17 have been filed
for most form strains. There are only three or four
manufacturers in the market now. So you can look at double
digit number of ANDAs have been filed, but if you look at the
number of available manufacturers now for any type of product,
it is usually one, two, or three.
So what happens is that, as a result of that, any
manufacturing glitch, any quality glitch, anything that the FDA
said, which is absolutely right, it is happening on a much
smaller base. And what happens, typically, is you take the
whole production line, other products off cycle. So that is our
problem. The problem is that it is economic and it is not using
reimbursement as an excuse. It was driven by that, that is the
root cause, but because we have consolidated the manufacturing
market down now, any kind of a glitch, regulatory, quality,
supply glitch, is going to be magnified.
Dr. Gottlieb. The other issue is, it is true that the
agency has gotten more vigilant in recent years around the
manufacturing of parenteral, the injected products,
particularly looking at foreign sites. After years of criticism
that it wasn't doing enough to look at the overseas
manufacturing facilities, it has gotten more aggressive, so it
has stepped it, it has brought regulatory actions against a lot
of the manufacturers in this space, and that has prompted them
to have to take remediation that has increased the
manufacturing cost, increased the cost of goods. I think the
pricing issue comes into play when they can't take price
increases to reflect their higher cost of goods. So rather than
continue to market the products at a loss, more manufacturers
are choosing to get out of certain lines of business.
Mr. Murphy. So let's take the pricing issue, because there
has been an incredible benefit of generic drugs coming onto the
market and the very justifiable incredible decrease in cost
that comes along with it. So if you believe that pricing is the
cause here, how do you adjust upwards for shortage areas
without adjusting upwards for drugs that aren't shortage drugs?
And then, secondarily, how do you do that in a way that doesn't
create an incentive for shortages? How do you create an
incentive to make the stuff that you really need without
creating a reason for people to declare a shortage in order to
get a little extra benefit?
Mr. Kalmans. A couple of comments. One is the FDA paper I
think is accurate, but the FDA regulates manufacturing, so the
FDA is commenting on its mandate, not commenting on pricing
because it is outside of their mandate. I would like that
noted.
Second, if you look at the data, the drugs that are in
shortage tend to be the lower priced generic drugs, not the
higher priced generic drugs. They aren't manufacturing
shortages cited for many high priced generic drugs, just the
low priced ones. So I think that is evidence that points in the
direction that pricing is a factor.
Third, I mentioned earlier and I will mention briefly
again, I think that after a drug has gone generic and you have
taken a price decline over a period of time, there needs to be
a rebalancing so that drugs, rather than having the bottom fall
out, are able to move back up. So I think after the drug has
been generic for 12 to 24 months, then there needs to be
something put in legislatively to allow that price to float
more freely.
Mr. Murphy. Thank you very much.
Thank you, Mr. Chairman.
Mr. Gowdy. I thank the gentleman.
Given the wonderful resources we have and the five
witnesses, we are going to have a second round of questioning.
It will be quicker, if your schedules can accommodate it. If
they cannot, we understand, but this is a rare opportunity for
us to talk to people who are experts in the field. So, with
that, I would recognize the gentleman from Arizona, Dr. Gosar,
if he has any followup questions.
Mr. Gosar. I do.
Dr. Hudspeth, you really brought this to a tee, that there
is this oncology, these drugs that are a problem right now. But
there are also anesthetics and antibiotics. So this is a
multifaceted problem. And it seems to me that we have a number
of problems. It was just alluded to here that instead of having
a wider variety of manufacturers, we are down to several, two
or three. So when there is a glitch we have a problem.
Number two is we have problems with the FDA. And I want to
get back to you, Dr. Gottlieb, in making the FDA being a little
bit more nimble. You know, instead of being antiquated to shut
everything down, they are starting to work with industry. But
it seems like it is the rules regulations that have really--and
we need them, don't get me wrong. We need them, okay? But we
need to have a constant vigilance about applicability and how
things fluctuate and work. Nothing follows an equation all the
way across the board, just like every cancer patient isn't
treated the same way.
So to me it seems like the system itself is all out of
whack. And not just reimbursement rates are not the key here.
And I am tired, I like going for the surgery, okay? Go right to
the point. We have to do something different than what we are
doing. It is not working. It is definitely not working and we
need to revamp this.
And we need to openly talk about the business of medicine,
frankly. I am great at this because I am a dentist, okay? I am
one of those people who can talk to you. There is nothing wrong
about making a profit. You have to make a profit in keeping
your doors open. It, frankly, has to come about.
So when I see these, there is another part of this equation
that bothers me. When you are having to huddle around deciding
who gets what, there is a liability issue, is there not,
doctor?
Dr. Hudspeth. Absolutely. We sit around and say, Do we need
to call the hospital risk management? Should we have ethics
committee here? How do you begin to make these decisions?
Absolutely.
Mr. Gosar. Dr. Gottlieb, I want to go back to you and your
background, particularly with the FDA. I know that when we see
a glitch in manufacturing, the FDA tends to be very
recalcitrant in shutting everything down, instead of being more
interactive and maybe looking at one part of that. How do you
see the FDA changing a little bit that could help this
scenario? Not just with the cancer drugs, but all the way
across the drug shortages.
Dr. Gottlieb. Right. Well, I think that the agency has and
had legitimate concerns around a lot of the remediation that
its forced and some of the capacity that is frankly offline
right now is a result of the FDA actions. Contribution from
manufacturing process should never get into the sterile
injectable drug, and that was a lot of the problem with some of
the things that they shut down.
Thinking of a couple things that the agency could do, the
agency, right now, prioritizes the supplements for drugs when
they approach shortage status or when they are in shortage. I
think it could prioritize all the supplements, the
manufacturing supplements, for all the sterile injectable
drugs, because what could happen is a supplement can sit in the
queue now and 2 years from now that drug will be in shortage.
But I believe some of the drugs that are currently in
shortage might, one of the contravening factors is because
supplements might not have been reviewed in a timely fashion 1
or 2 years ago; and to do that the agency is going to need to
put more chemist reviewers on these supplements. I think as
part of the generic drug user fee program that is being
considered by this Congress, you could prioritize resources
directly for all the sterile injectable drugs, and not just
segregate them once they get into shortage.
I think you can think about changing the regulations to
make it easier to make manufacturing changes and improvements
and undergo remedial steps without having to file supplements
every time. It is a very cumbersome process.
And then the other problem here is that the agency, and the
manufacturers, for that matter, don't understand the root
causes of a lot of these problems, so what happens is entire
factories get shut down, entire product lines get refurbished.
And I think there needs to be more work done to try to
understand how some of these problems arise in the first place.
There is just not a lot of intelligence either on the
regulatory side or on the manufacturing side, for that matter.
Mr. Gosar. Dr. Hudspeth, you know, I am from Arizona, rural
Arizona, and it is a little bit different when it is coming
from hospitals in rural America, because we are at another
disadvantage, much more than the metropolitan. Now we are
talking about surgeries that are being rescheduled, putting
people on a prioritization based upon the drugs that we have
available for anesthesia. Do you even see that from the
standpoint, from outlying areas as a problem?
Dr. Hudspeth. Absolutely. We have actually shipped drug to
another children's hospital in our State because they didn't
have any Cytarabine for a little boy with AML. So we try to
band together and help other folks when we have the capacity to
do that. But we are hearing widespread shortages at many, many
other children's hospitals.
Mr. Gosar. So I guess what my whole point is we are seeing
a symptom again. This may be just a small choreographed part of
drugs, but there is more coming, and that is the biggest
problem.
Dr. Hudspeth. Exactly. There is no reason to think this is
going to get any better any time soon.
Mr. Gosar. Thank you.
Mr. Gowdy. I thank the gentleman from Arizona.
The Chair will now recognize the gentleman from Illinois,
Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman.
Mr. Okon, you assert in your statement that Medicare is the
root cause of the drug shortage which have affected oncology
drugs. However, a recent Health and Human Services study
entitled, The Economic Analysis of the Causes of Drug
Shortages, noted that 54 percent of the shortages are caused by
production and quality problems. What is the basis of your
assertion?
Mr. Okon. Well, I think the FDA study, as I told Mr.
Murphy, is absolutely, positively spot on, Mr. Davis, in terms
of it being right now due to a lot of manufacturing quality and
problems, but again what has happened here is that when we
changed reimbursement, and the change was really well intended,
part of it was the fallback of the falling of the execution on
CMS's part, but the nature of ASP and the price regulated
nature around that, we just have to realize what it has done is
we shrunk the manufacturing base.
So when you look, Mr. Davis, at how many manufacturers were
in the product, and remember these products were on the market
well before MMA, so when you shrunk that down, what happen is
you shrink that base. Now, when you have a manufacturing
problem you have a regulatory problem, you have a quality
problem, even a supply problem. You have so few manufacturers
that you have a huge problem associated, and that is why I
think we are getting so profound in terms of the number of
shortages, because our manufacturing base has shrunk down. And
I applaud you and I think you should get the manufacturers in
on the generic side, and we all need to come around and talk
and put politics aside and just solve the crisis.
Mr. Davis. Are you saying that HHS is a little behind?
Mr. Okon. Well, Mr. Davis, I probably am saying HHS is a
little behind. Actually, if you look at the HHS report, what
was kind of interesting about that is they started talking
about the economics and then they kind of stopped. So I am
wondering if somebody edited that portion of the report out.
But I think that it is a problem.
Mr. Davis. Dr. Thompson, how would you respond to that?
Dr. Thompson. Clearly, the FDA data is accurate and we do
think the economic factors need to be looked at. One thing that
we have learned over a decade of looking at shortages is that
there is no single root cause of these shortages; they are in
the tens and twenties and it runs the gamut of things.
We have been very supportive of the concept of looking at
the range of potential economic factors that have happened,
that are being suggested, and we have tried to sort of get
insights from manufacturers, wholesalers, GTOs and others that
really are the critical part of that supply chain around what
some of those may be to help solve the problem, but I think a
more substantial conversation with these various groups needs
to happen so we better understand what the economic drivers
are.
Mr. Davis. Let me ask if any of you are saying that our
regulatory activity really needs to be stepped up and become
perhaps a bit more direct.
Mr. Kalmans. I like the idea of directness. One of the
things that I think is possible here is, when you are citing
manufacturing issues, these issues aren't apparently related to
high-cost generic drugs. They are having no problem making
enough Gemcitabine and Docetaxel; it is the ones that are low-
cost. Same manufacturing plant. So manufacturing issues could
just be defined as capacity constraints. So I think it is a
question of how you define things as a regulator.
Mr. Okon. And I just want to add to Dr. Kalmans' remarks is
you have to understand some of these generics we are literally
talking about a dollar, under a dollar to manufacture a sterile
injectable. So it is not like stamping out a generic tablet; it
is a very intricate process.
Mr. Davis. Well, the next time I am talking with any of
them, I am going to suggest that maybe, rather than dancing,
that they need to come out and say here is what we need to do
and let's do it.
Thank you, gentlemen, very much, and thank you, Dr.
Hudspeth.
Mr. Gowdy. I thank the gentleman from Illinois.
If we were looking at this like a trial, I would say you
have proven beyond a reasonable doubt that there is a drug
shortage. You have proven beyond a reasonable doubt that it is
a crisis. You have proven by clear and convincing evidence that
there are a number of causes.
So I want to do this. Dr. Hudspeth, I asked you this
morning and I am going to ask you to do it again. I want you to
assume that you made the grades I made in college, and not the
ones you made, and that you weren't in medical school, but that
you found yourself in a legislative body. What is next? There
is no need to continue to have hearings on whether or not it is
an issue. You can beat a dead horse. It doesn't hurt the horse,
but it doesn't do any good. So what is next? Who should we be
asking questions of and what questions would you ask if you
were sitting here?
Dr. Hudspeth. Sure. I think there has to be a strategy
group that looks at pricing and pricing options. And I am not
an economist, so that is going to require all those folks to be
involved. Looking at pricing strategies and how you deal with
that.
But then the second fold of that, yes, we are going to need
to give incentives; yes, we are going to need to make it
profitable to make generics. But they can't cry wolf over and
over again, okay? So they cannot have continued manufacturing
problems. So there is going to have to be some sort of three
strikes you are out policy. Incentives and those things are
only so good as long as you can prove that you can keep up with
GMP.
And then I think the second thing is contingency planning.
That is what we all have to do. In school you have to have a
fire escape plan. And here we have lifesaving drugs with no
contingency plan and a single manufacturer, and I think some
solid planning for A through Z, what you do when you go
offline, how do we fill that in.
Mr. Gowdy. Mr. Kalmans.
Mr. Kalmans. Well, there has been stockpiling of medicines
for defense in the past. It could be an idea to look at
providing incentives to stockpile a generic injectable drug
stockpile. Just coming up with ideas, potential solutions. That
is one area I would look at. But this is an issue that is going
to stick around. It will grow for a period of time. I think it
may, over time, which we don't have, by the way. We don't have
the benefit of time.
But over time there has been an unprecedented number of
branded drugs that have gone off patent. Those actually will,
there are not as many drugs coming off patent in the future in
the generic injectable space, so I think the capacity will come
back into line. But, unfortunately, the bottom line is we don't
have the benefit of time, so the sooner we figure out a
solution together, the better off we all are.
Mr. Gowdy. Mr. Okon.
Mr. Okon. Mr. Chairman, I think we have to draw a line down
the paper and I think that what we have to do is put in place
is a solution that basically provides the proper incentives on
the manufacturing side, realizing that this is a regulated
market. It is regulated both in terms of price, it is regulated
in terms of manufacturing. We have to accept that. So I think
we have to put the incentives on the manufacturing side and I
think we basically have to do something on the reimbursement
piece.
The other side of the paper is more immediate, because even
when we do that it is not going to take care of Dr. Hudspeth's
patient that basically she has to find a drug. I think this is
a crisis, it is a national crisis, and we need to come
together, put all politics aside and say, how can we get these
drugs safely distributed through the proper channels? How can
we get them immediately so that we can basically get the drugs
in the patients' hands that need them?
And I think that with all what we have to do and I think we
should do on the legislation side to put the proper incentives
in place and basically take care of both the manufacturer and
the provider side, I think we have to do something more
immediate and I think it has to be drastic.
Mr. Gowdy. Dr. Gottlieb.
Dr. Gottlieb. Well, unfortunately, I think it is going to
get worse before it gets better. There are things we can do
both immediate and long-term. Immediate, I would urge the
committee to send a letter to the top five manufacturers and
ask them how much of their manufacturing capacity is currently
offline because it is undergoing remediation, and make sure
that, as that manufacturing capacity gets remediated in
consultation with the FDA, it is done in as efficient a fashion
as possible with the regulatory authorities.
The reality is we have more manufacturing in this country,
but the industry is consolidated so more of that manufacturing
capacity is sort of consolidated at a handful of very large
facilities. So when you take Teva's Irvine facility offline or
Hospira's facility offline, you have just taken out 15 percent
of the entire market.
Longer term, I think we need to find ways to allow these
prices to float to justify long-term investments. It could take
as long as 7 years to stand up a new manufacturing facility for
parenteral drugs, so the companies need to know that they can
take and sustain price increases for some of these drugs if
they are going to make those long-term investments. And that
would be sort of a long-term policy.
Mr. Gowdy. Dr. Thompson.
Dr. Thompson. Step one, pass the current legislation that
is pending in Congress, that is S. 296 and H.R. 2245.
Reporting, confidential reporting to the FDA isn't going to
solve drug shortages, but there is evidence to say that in 101
cases the FDA has been able to prevent a shortage when a
manufacturer confidentially reported to them, and that is what
this legislation does.
Now, there are 240 shortages on the list now, so you can
imagine that if reporting occurred across the spectrum, that
that number would be higher than 101. So I would say step one,
pass that legislation now that requires confidential reporting.
And it is confidential reporting to the FDA, it is not public
reporting.
And then the second would be to explore all these other
factors. I think that there is a little more time to do those
sorts of things. Not a lot of time, but look at the economic
factors. Really have a deep discussion with the manufacturers
and other members of the supply chain and get a very thorough
understanding of really what these drivers are, and then go to
that next step. But I think the legislation that is pending
Congress now needs to move.
Mr. Gowdy. Well, on behalf of all of us, thank you for
loaning us your expertise, your time. Fascinating is not the
right word. I don't know what the right word is, but I thank
you, Dr. Hudspeth, for bringing it to my attention and for the
other witnesses for loaning us your acumen and expertise.
The committee stands adjourned.
[Whereupon, at 11:27 a.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
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