[Senate Hearing 118-56]
[From the U.S. Government Publishing Office]
S. Hrg. 118-56
DRUG SHORTAGE HEALTH AND NATIONAL
SECURITY RISKS: UNDERLYING CAUSES AND NEEDED REFORMS
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HEARING
BEFORE THE
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 22, 2023
__________
Available via the World Wide Web: http://www.govinfo.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
52-496PDF WASHINGTON : 2023
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
GARY C. PETERS, Michigan, Chairman
THOMAS R. CARPER, Delaware RAND PAUL, Kentucky
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
KYRSTEN SINEMA, Arizona JAMES LANKFORD, Oklahoma
JACKY ROSEN, Nevada MITT ROMNEY, Utah
ALEX PADILLA, California RICK SCOTT, Florida
JON OSSOFF, Georgia JOSH HAWLEY, Missouri
RICHARD BLUMENTHAL, Connecticut ROGER MARSHALL, Kansas
David M. Weinberg, Staff Director
Zachary I. Schram, Chief Counsel
Christopher J. Mulkins, Director of Homeland Security
Alan S. Kahn, Chief Investigative Counsel
Megan Petry Edgette, Senior Investigative Counsel
William E. Henderson III, Minority Staff Director
Christina N. Salazar, Minority Chief Counsel
Phillip A. Todd, Minority Chief Economist
Laura W. Kilbride, Chief Clerk
Ashley A. Gonzalez, Hearing Clerk
C O N T E N T S
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Opening statements:
Page
Senator Peters............................................... 1
Senator Paul................................................. 3
Senator Lankford............................................. 16
Senator Blumenthal........................................... 19
Senator Hassan............................................... 21
Senator Johnson.............................................. 23
Senator Hawley............................................... 25
Senator Rosen................................................ 28
Prepared statements:
Senator Peters............................................... 35
Senator Paul................................................. 37
WITNESSES
Wednesday, March 22, 2023
Andrew Shuman, M.D., Associate Professor of Otolaryngology-Head
and Neck Surgery, and Chief of the Clinical Ethics Service
Center for Bioethics and Social Sciences in Medicine,
University of Michigan Medical School.......................... 5
Vimala Raghavendran, Vice President Informatics Product
Development, U.S. Pharmacopeia................................. 7
Erin Fox, Pharm.D., Associate Chief Pharmacy Officer of Shared
Services and Adjunct Professor, College of Pharmacy, University
of Utah........................................................ 9
John C. Goodman, Ph.D., President Goodman Institute for Public
Policy Research................................................ 11
Alphabetical List of Witnesses
Fox, Erin Pharm.D.:
Testimony.................................................... 9
Prepared statement........................................... 55
Goodman, John C. Ph.D.:
Testimony.................................................... 11
Prepared statement........................................... 63
Raghavendran, Vimala:
Testimony.................................................... 7
Prepared statement........................................... 46
Shuman, Andrew, M.D.:
Testimony.................................................... 5
Prepared statement........................................... 40
APPENDIX
Majority Staff Report............................................ 74
Statements submitted for the Record:
Association of Clinical Oncology............................. 115
Children's Cancer Cause...................................... 120
Healthcare Supply Chain Association.......................... 123
Responses to post-hearing questions for the Record:
Ms. Raghavendran............................................. 126
Ms. Fox...................................................... 129
DRUG SHORTAGE HEALTH AND NATIONAL
SECURITY RISKS: UNDERLYING CAUSES AND NEEDED REFORMS
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Wednesday, March 22, 2023
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m., in room
SD-562, Dirksen Senate Office Building, Hon. Gary Peters,
Chairman of the Committee, presiding.
Present: Senators Peters [presiding], Hassan, Sinema,
Rosen, Ossoff, Blumenthal, Paul, Johnson, Lankford, Romney,
Scott, and Hawley.
OPENING STATEMENT OF SENATOR PETERS\1\
Chairman Peters. The Committee will come to order.
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\1\ The prepared statement of Senator Peters appears in the
Appendix on page 35.
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Today's hearing will examine ongoing and rising shortages
of medications, which range from drugs used in hospitals to
provide critical care and treat serious diseases like cancers,
to prescription medications, and even common over-the-counter
remedies to treat cold and flu symptoms.
After a winter with high cold, flu, and respiratory
syncytial virus (RSV) cases, many of us have gone to the store
and have seen bare shelves due to shortages of children's
Tylenol and Motrin. Others have faced shortages of key
prescription medications, including antibiotics.
Throughout the country, hospitals regularly experience
shortages of a range of drugs needed for emergency care, for
surgeries, and for other procedures. These often include
sterile injectable drugs like intravenous (IV) saline solution
and sodium bicarbonate needed to provide critical care,
dialysis, and other lifesaving treatments. Some of these
products have been in shortage for over a decade. For example,
lidocaine, used to manage pain, has remained in shortage since
2011. Vancomycin, used to treat bacterial infections, has been
in shortage since 2009. Even drugs needed to treat childhood
and adult cancers, including some that have simply no
alternative treatment, are regularly in shortage. While some
shortages may only be an inconvenience, others can have
devastating impacts on patient care.
These shortages, which reached a peak of 295 individual
drugs in shortage at the end of 2022, have left health care
professionals grappling with limited resources to treat
patients in need.
Drug shortages are certainly not new. There are a number of
factors that contribute to drug shortages, including economic
drivers that lead to a lack of manufacturers willing to enter
or to remain in the market or invest in quality manufacturing
systems, insufficient visibility into the entire supply chain
for critical medications, and an overreliance on foreign and
geographically concentrated sources for the materials needed to
make these drugs. Taken together, these underlying causes not
only present serious concerns about providing adequate care to
patients, they also represent serious national security
threats.
In 2019, I released a report identifying many of these
national security risks, and how they contributed to drug
shortages and in some cases, price hikes. My report found that
nearly 80 percent of the manufacturing facilities that produce
active pharmaceutical ingredients (APIs), the key ingredients
that give a drug its intended effect, are located outside of
the United States, and many of our APIs are sourced from either
China or India.
Just months after I released that report, as the
Coronavirus Disease 2019 (COVID-19) pandemic spread around the
globe, we saw firsthand how our overreliance on foreign
producers for medical products, along with failures to
adequately prepare for a pandemic, quickly led to widespread
shortages of desperately needed medications and medical
supplies like personal protective equipment (PPE).
Today, I am releasing a new report, that I am holding up
here, that builds on those previous findings and identifies
additional recommendations to strengthen domestic manufacturing
of critical drugs and limit the disruptions caused by shortages
and supply chain issues.
I now move to introduce this report into the record,\1\ and
without objection, the report will be included in the hearing
record.
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\1\ The Majority Staff Report appears in the Appendix on page 74.
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My report finds that between 2021 and 2022, new drug
shortages increased by nearly 30 percent, and that both the
pharmaceutical industry and the Federal Government, including
the Food and Drug Administration (FDA), lack the information
needed to effectively detect and to prevent shortages.
Most significantly, this updated report found that our
continued overreliance on foreign suppliers for the key
materials needed to make critical drugs, primarily those in
China, remains an unacceptable national security risk. For
example, over 90 percent of generic injectable drugs used to
treat serious injuries or illnesses in the United States rely
on key materials from China and India, and nearly 90 percent of
generic API manufacturing sites are located overseas.
My report makes several recommendations to help protect our
health and our national security, including to invest in
advanced manufacturing capabilities to produce critical drugs
here in the United States, and require that the Food and Drug
Administration and its interagency partners can get the
information needed to better monitor supply chain
vulnerabilities and to anticipate possible shortages.
I am encouraged by recent legislative and executive actions
to bolster our medical supply chain resiliency. Last Congress,
I helped author a bipartisan provision to increase visibility
into where critical medical supplies and drugs are produced,
and this Congress I am working on legislation that builds on
many of the report recommendations to protect our health and
national security. I look forward to working with my colleagues
to advance these important measures.
Today's discussion with our panel of expert witnesses will
provide even more detail about what Congress and our Federal
agencies should do to address both drug shortages and the
national security risks that they present, and I look forward
to the conversation.
I would now like to recognize Ranking Member Paul for his
opening statement.
OPENING STATEMENT OF SENATOR PAUL\1\
Senator Paul. Ever wonder why we never have shortages of
iPhones or computers? What separates the drug industry from the
computer or smartphone industries? Computers and smartphones,
like drugs, are highly technical and globalized industries, yet
there are seldom shortages in any of those industries.
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\1\ The prepared statement of Senator Paul appears in the Appendix
on page 37.
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However, unlike the computer, automobile, or smartphone
industry, the needs addressed by the drug manufacturing
industry are often a matter of life and death. This is why the
decisions of policymakers and regulators are of utmost
importance. Rules and regulations that inhibit the production
of drugs will create pain for hospitals and patients.
The Food and Drug Administration recently identified a
shortage of over 120 different drugs. Some of these drugs, such
as saline, are necessary for the most basic of treatments.
These shortages are not a new phenomenon. This has been
going on for quite some time. Since 2007, the FDA identified an
average of over 100 separate drug shortages per year. In 2011,
the FDA identified a whopping 267 drugs in short supply.
Despite possessing the most innovative medical industry in the
world, the United States is unable to maintain a consistent
supply of the most crucial medicines. We have to understand
why. We understand there is a problem and we have to understand
why this is happening.
While many blame these shortages on foreign producers, so-
called ``greedy'' pharmaceutical companies, and even hospitals,
it is no coincidence that the rise in drug shortages correlates
with the expanded regulatory reach of the FDA.
Drug shortages force doctors to consider rationing
medicines and postponing essential procedures and force
patients to needlessly suffer.
While our nation's hospitals have trouble purchasing the
necessary amounts of drugs for cancer patients, heart attack
victims, and those in chronic pain, these same hospitals find
no such shortage when purchasing computers. Doctors and nurses
do not have to cope with a smartphone shortage. There has to be
an explanation here.
The key difference between these industries and the drug
manufacturing industry is obvious. The companies producing
computers and smartphones are, by comparison, left to compete
with one another with little manipulation from the government,
while the FDA places the heavy yoke of regulation on drug
manufacturing. This is the key difference. It is the heavy hand
of government.
Over 40 years ago, Milton Friedman remarked, ``If you put
the Federal Government in charge of the Sahara Dessert, in five
years there would be a shortage of sand.'' While Friedman was
discussing price controls and output restrictions on oil and
gas production in Dubai, the same wisdom still holds for drug
pricing in our country.
The drug industry is one of the most regulated markets in
the economy. Output controls, such as FDA's approval procedure
for nearly every step of the manufacturing process, increase
the cost of production and restrain the adaptability of
manufacturers to meet shifting demands. When one company goes
out of business, another one cannot ramp up without asking
permission to make more of a drug. If a drug maker closes, the
remaining manufacturers, which must react to increased demand,
are forced to seek FDA approval to produce more than the
originally approved amount or to produce quicker than the
originally approved timeline. This is crazy and we should stop
it.
Why does the United States embrace central planning in
health care? Central planning produced shortages of even the
most basic consumer goods in communist countries during the
Cold War. There is a famous Soviet quip about a man entering a
shop and asking the clerk, ``You don't have any meat?'' The
clerk says, ``No, we are the store that doesn't have any
fish.'' They were used to shortages. It was a common thing. It
was common enough that people joked about not being able to get
enough of basic items.
We should not tolerate central planning in a capitalist
country for the most essential products on the market. Further
abandoning the principles of basic economics, Medicare price
controls, such as requiring drug companies to pay rebates to
Medicare if they raise their prices too quickly, create even
more barriers to entry, which prevent competitors from arising
in the market. Limiting the amount of drug production and
producers results in artificially high prices and drug
shortages.
Americans will be healthier and live longer if their
government allows innovators to provide drugs at affordable
prices, and produce a strong supply. I hope this hearing will
identify the regulations that impede the ability of markets to
do what they do best--provide for the consumer.
I look forward to hearing our witnesses' testimonies.
Chairman Peters. Thank you, Senator Paul.
The practice of the Homeland Security and Governmental
Affairs Committee (HSGAC) is to swear in our witnesses, so if
each of our witnesses would please stand and raise your right
hand.
Do you swear that the testimony you will give before this
Committee will be the truth, the whole truth, and nothing but
the truth, so help you, God?
Dr. Shuman. I do.
Ms. Raghavendran. I do.
Ms. Fox. I do.
Mr. Goodman. I do.
Chairman Peters. Thank you. You may be seated.
Our first witness is Dr. Andrew Shuman, Associate Professor
of Otolaryngology--I hope that is correct; that is quite a
mouthful. He is also in Head and Neck Surgery at the University
of Michigan Medical School, and Chief of Clinical Ethics
Service at the Center for Bioethics and Social Sciences in
Medicine. Dr. Shuman is an internally recognized leader on
ethical issues within his specialty, and has authored numerous
publications in several leading journals in the field,
including the New England Journal of Medicine.
Dr. Shuman, welcome to the Committee. You may proceed with
your opening remarks.
TESTIMONY OF ANDREW SHUMAN, M.D.,\1\ ASSOCIATE PROFESSOR OF
OTOLARYNGOLOGY-HEAD AND NECK SURGERY, AND CHIEF OF THE CLINICAL
ETHICS SERVICE CENTER FOR BIOETHICS AND SOCIAL SCIENCES IN
MEDICINE, UNIVERSITY OF MICHIGAN MEDICAL SCHOOL
Dr. Shuman. Thank you, Chairman Peters, Ranking Member
Paul, and the Committee for the privilege of speaking with you
today. I am a cancer surgeon and a medical ethicist, and I have
a surgical practice and leadership roles at both the University
of Michigan and the Veterans Affairs (VA). I am not speaking on
behalf of either institution today.
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\1\ The prepared statement of Dr. Shuman appears in the Appendix on
page 40.
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My personal experience with drug shortages began 15 years
ago. At the time, there was a national shortage of propofol, an
anesthetic we need to perform surgery, that required
anesthesiologists to improvise how to keep patients
comfortable. You do not need to go to medical school to realize
that patients need to stay asleep during their operation.
Since that first experience, colleagues and other hospitals
have asked me to help them respond to the never-ending game of
drug shortage Whack-a-Mole. My goal for the next few minutes is
to share some examples from my experience trying to protect
patients from the serious medical consequences of not having
access to the drugs they need.
We are lucky enough to live in a country where cutting-edge
research has massively reduced cancer-related deaths, but
cancer drug shortages represent a tragedy that is happening in
slow motion. For example, etoposide is a cancer drug that has
been on the market for over 40 years and typically costs less
than $50 per vial. It is given to patients for nearly a dozen
different kinds of cancer. But in 2018, due to a manufacturing
delay, this drug was on shortage across the country. Which of
our patients with cancer should get it? How can we prioritize
between American lives? Should our limited vials go to an older
woman who was just diagnosed with lung cancer? A young man who
had already been successfully taking it for testicular cancer?
Or a baby with neuroblastoma, an aggressive cancer for which
this drug is recommended, but others might substitute?
Our hospital, like others across the country, struggled to
make these decisions based on projected availability, which
patients were already under our care, and our best guess at how
many new patients would be diagnosed in the coming weeks. As a
doctor who has devoted my life to fighting cancer, it is hard
to express how horrible that is.
In this particular case, we had enough drug for our lung
and testicular cancer patients, and our heroic pharmacist was
able to scrape together enough etoposide from the bottom of the
leftover vials to also treat the infant patient. But our
pharmacists should not be desperately trying to squeeze out a
few last drops when a life may be on the line.
While my focus is on oncology, drugs shortages impact every
field of medicine. For example, Senator Paul has dedicated his
professional career to preserving and restoring his patients'
vision. There are eyedrops that literally keep people from
going blind that cost a few dollars, but these are sometimes
unavailable.
All patients affected by drug shortages deserve better. I
would be remiss not to point out how the COVID pandemic has
exacerbated drug shortages. My colleagues across the country
have worked tirelessly over the past three years to take care
of patients with COVID. We have learned quite a bit about how
to conserve and ration health care resources, and try to do so
equitably to ensure that diverse patient communities have
access to the best care possible.
But all hospitals do not have access to the same resources.
Michigan Medicine has multiple pharmacists whose full-time job
is mitigating drug shortages, but not every hospital has that
resource. Patients should not have better access to scarce
drugs based on the hospital they go to. This is why I and my
team have studied how institutions across regions can better
communicate about ongoing shortages.
One key role for lawmakers is to improve drug shortage
monitoring and information sharing nationwide. Information
sharing is a critical component of health care emergency
preparedness. We often think of important resources in terms of
staff, space, and stuff. For example, in April 2020, we
desperately tried to make sure we had enough ventilators--this
is at the onset of the COVID pandemic--but a ventilator is just
an expensive box if we do not have enough respiratory
therapists to operate it. At Michigan Medicine, we had to train
our medical students to help use the ventilators when we ran
out of respiratory therapists.
Even if we have enough ventilators and the personnel, we
still need enough hospital beds, which remain in short supply
even today. Finally, the patient on that ventilator needs the
proper medications to keep them sedated and comfortable,
ironically the same medication, propofol, we ran out of in the
operating room.
We need to diversify where our medical supplies come from,
including increasing production on American soil. Companies
need to disclose the reasons they cannot meet demand.
Otherwise, we will not know where to focus resources.
In addition, drug pricing structures are not always
reflective of their value to patients. We should incentivize
companies to make high-quality, critical-need drugs like the
ones that I have mentioned, even if they have been less
profitable historically.
We can all agree that sick Americans deserve access to
lifesaving medications. Telling someone with cancer that they
cannot receive a drug that was developed during the Johnson
administration and costs less than my Uber ride from the
airport is simply not acceptable.
I thank the Committee for highlighting this critical issue
finding creative legislative solutions.
Chairman Peters. Thank you, Dr. Shuman.
Our next witness is Vimala Raghavendran, who is the Vice
President of Informatics Product Development at U.S.
Pharmacopeia (USP), an independent, scientific, nonprofit
organization focused on building trust in the supply of safe,
quality medicines. She led the development of USP's Medicine
Supply Map, an information platform that identifies and
forecasts risk in the generic drug supply chain to help predict
potential shortages.
Welcome, Ms. Raghavendran. You are welcome to the Committee
and you may proceed with your opening comments.
STATEMENT OF VIMALA RAGHAVENDRAN,\1\ VICE PRESIDENT INFORMATICS
PRODUCT DEVELOPMENT, U.S. PHARMACOPEIA
Ms. Raghavendran. Good morning and thank you, Chairman
Peters, Ranking Member Paul, and distinguished Members of the
Committee for this opportunity to testify today. As you note,
my name is Vimala Raghavendran, and I am Vice President for
Informatics Product Development at USP. I am pleased to provide
USP's perspective on the underlying causes of drug shortages
and the reforms needed to improve the resiliency of our
nation's medicine supply.
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\1\ The prepared statement of Ms. Raghavendran appears in the
Appendix on page 46.
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USP is an independent, scientific, nonprofit organization
founded in 1820, when 11 physicians took action to protect
patients from poor-quality medicines. Convening in the old
Senate Chamber, they published a national, uniform set of
guidelines for medicines called the U.S. Pharmacopeia.
A core pillar of USP's mission in the 200 or so years since
then has been to help strengthen the pharmaceutical supply
chain so that the medicines people rely on are available and
meet quality standards.
The Federal Food, Drug, and Cosmetics Act of 1938, created
the requirement that medicines sold in the United States
generally must adhere to USP standards. As a result, USP
standards are used in the vast majority of FDA registered
facilities that make pharmaceutical finish doses and active
ingredients.
Drug shortages remain a persistent threat to both public
health and national security. When there is a drug shortage it
means that a patient is not able to get a medicine they need to
either protect their health or save their life.
Recognizing the urgent need for more insight to guide
solutions, USP invested in the development of a data
intelligence platform, the Medicine Supply Map. As you note,
Chairman Peters, our mission is to identify, characterize, and
quantify supply chain risk so that stakeholders can anticipate
and mitigate the impact of drug shortages. We quantified over
200 factors that contribute to drug shortages in order to build
our models.
Based on this work, USP has identified four types of risk
that are correlated with drug shortages, many that you outlined
in your opening statement. The first is geographic
concentration. Our data shows that geographic concentration
anywhere, including within the United States, can result in
drug shortages.
The second factor is manufacturing complexity, which can
take many forms. For example, the need to maintain sterility
when making injectables or the need for dedicated facilities to
make certain types of antibiotics.
The third factor is price. USP's analysis shows that lower-
priced drugs have a higher likelihood of being in shortage. We
see this particularly for older generics like sterile
injectables and antibiotics. Manufacturers only receive pennies
per dose for some of these drugs.
Fourth is quality. Drugs made at facilities that have a
history of poor outcomes from FDA inspections are more likely
to experience drug shortages, as are drugs with a history of
recalls.
Given these findings, USP makes the following
recommendations to Congress.
One, establish an early warning system and research center
of excellence that will help assess risks in the supply chain
and predict drug shortages, giving stakeholders in the public
and private sector enough notice to react. USP has started
working on this, as have other organizations, but more work is
needed. For example, policymakers are flying blind in our
understanding of U.S. reliance on other countries for critical
ingredients used in the manufacture of medicines.
Two, protect critical medicines with vulnerable supply
chains by investing in solutions that incentivize new and
efficient manufacturing technologies that have the potential to
bring manufacturing back to the United States. USP is working
with FDA and other partners to facilitate the adoption of
advanced manufacturing. Congress can help by making it easier
for manufacturers by funding workforce development and the
development of practices and methodologies that apply industry-
wide. We thank Congress for the omnibus spending law passed in
December 2022, that calls on the Department of Health and Human
Services (HHS) to establish centers of excellence that support
advanced manufacturing. That was an important step.
Finally, Congress should consider comprehensive solutions
that extend beyond an exclusive focus on onshoring. Given our
finding, the geographic diversity is important to a resilient
medicine supply.
Again, thank you to the Committee for this opportunity for
input. We welcome the prospect of serving as a resource to you
as you seek solutions, and I look forward to answering any
questions you have. Thank you.
Chairman Peters. Thank you, Ms. Raghavendran, thank you so
much for your comments today.
Our next witness is Dr. Erin Fox. Dr. Fox is the Associate
Chief Pharmacy Officer of Shared Services and Adjunct Professor
at the University of Utah College of Pharmacy. Dr. Fox's areas
of expertise include drug shortages, medication use policy,
drug information, evidence-based medicine, and drug costs.
Dr. Fox, welcome to the Committee. You may proceed with
your opening remarks.
TESTIMONY OF ERIN FOX, PHARM.D.,\1\ ASSOCIATE CHIEF PHARMACY
OFFICER OF SHARED SERVICES AND ADJUNCT PROFESSOR, COLLEGE OF
PHARMACY, UNIVERSITY OF UTAH
Ms. Fox. Thank you, Chairman Peters, Ranking Member Paul,
and distinguished Members of the Committee, for holding this
hearing and for inviting me to participate.
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\1\ The prepared statement of Dr. Fox appears in the Appendix on
page 55.
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I am the Associate Chief Pharmacy Officer for Shared
Services at University of Utah Health, but I am not speaking on
behalf of the university today. I am here to provide my
perspective on drug shortages, highlight some of the problems
shortages create, and offer two recommendations.
My team and I at the University of Utah Drug Information
Service have tracked national drug shortages since January
2001. We receive voluntary reports from health care providers
who cannot access important medicines for their patients. We
confirm directly with manufacturers if there is or is not a
shortage, and we post our findings to a public website that is
hosted by the American Society of Health-System Pharmacists.
Our goal in providing these data is to help clinicians
mitigate the effects of drug shortages, providing estimated
release dates, evidence-based safety and management
suggestions. Currently, we are tracking 302 active drug
shortages.
Some patients have died due to drug shortages, most as a
result of medication errors where substitute drugs were dosed
incorrectly or an emergency product was not available. Patients
also suffer when alternative drugs have worse outcomes than the
drug of choice, such as patients with sepsis, who had a higher
mortality rate during a shortage of norepinephrine. Shortages
of chemotherapy have led to delayed treatments, delayed
clinical trials for new therapies, reduced doses, and poor
outcomes.
In the background, pharmacists scramble. Most health
systems have one or more full-time employees devoted
exclusively to shortage management, directing medication
switches, and spending time tracking down scarce products.
Switching products is time-consuming and challenging in
today's technologically advanced pharmacies. Switching just two
drugs, for example, to be administered in syringes instead of
saline bags did help us, at our organization, manage our saline
shortage, but it also required us to review and manually change
700 patient treatment plans in a single day.
The cause of a specific shortage is rarely publicly
available. When we investigate shortages we ask manufacturers
for causes directly. We also use other available data, such as
FDA inspection reports, but in most cases we cannot identify
what triggered a specific shortage. Was it a quality problem? A
demand increase? A prioritization issue to prioritize other
products? Problems accessing ingredients? Answers to these
questions are important because they can give us clues about
how long a shortage will last and how long a shortage will last
is something that companies often do not give us.
Although we may not know what drives individual shortages,
we now understand an important economic driver. There is no
recognition for manufacturers that choose to invest in quality.
FDA sees really clear quality differences between products and
manufacturing sites, but this information is confidential and
it is not available to the people making the purchases.
Buyers cannot easily see the reliability of manufacturing
operations, so there is a race to the bottom for prices, the
result of pressure from hospitals that are paid with capitated
payments, and group purchasing organizations that contract on
behalf of hospitals. For a pharmacy buyer, the differentiating
factor is price.
I was part of National Academies of Sciences, Engineering,
and Medicine's (NASEM) consensus committee on building
resilience into the nation's medical product supply chains. Our
committee provided a comprehensive set of recommendations,
which I urge you to review.
I have two recommendations that build on this report today.
First, we need additional transparency to develop a rating
system for pharmaceutical manufacturing reliability. FDA has
been working to develop quality metrics ratings, but they do
not intend to make the scores publicly available. A rating
system could be used by health systems that are already paying
more for shortages, with employees and time spent making drug
switches. Hospitals would be wise to consider paying more for
reliable supply agreements, particularly in the current setting
of significant health care labor shortages. Payers and
accreditation bodies can also incentivize hospitals to do the
same, to prevent poor patient outcomes.
Second, if the Federal Government intends to use tax
credits, loans, or subsidies to strengthen supply chains, FDA's
current list of critical medications is not a good starting
point. Understanding which products are most at risk would
allow targeted, more effective actions to prevent or mitigate
shortages with limited resources available. I am concerned that
without addressing the scope of the current FDA list and the
scope of our analytical capabilities the government may be
overlooking some critical supply chains and their
vulnerabilities and opportunities to strengthen supply chains.
Thank you once again for holding this hearing and for the
opportunity to share my perspective. I welcome any questions
you may have.
Chairman Peters. Thank you, Dr. Fox.
Our final witness is Dr. John Goodman. Dr. Goodman is
President of the Goodman Institute for Public Policy Research.
Dr. Goodman received his Ph.D. in economics from Columbia
University and has taught at Columbia University, Stanford
University, Dartmouth University, Southern Methodist
University, and the University of Dallas. Dr. Goodman regularly
writes and speaks about health policy.
Dr. Goodman, welcome to the Committee. You may proceed with
your opening remarks.
TESTIMONY OF JOHN C. GOODMAN, PH.D.,\1\ PRESIDENT, GOODMAN
INSTITUTE FOR PUBLIC POLICY RESEARCH
Mr. Goodman. Thank you, Senator Peters, Senator Paul, and
the rest of the Committee. Thank you for having me here today.
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\1\ The prepared statement of Dr. Goodman appears in the Appendix
on page 63.
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We have shortages, especially in the market for generic
drugs because, No. 1, we have price controls in the Medicare
Part B program, we have price controls in the 340B program, we
have unproductive output regulations, that Senator Paul so
aptly described, and probably more important than those three
things all combined is the fact that we have suppressed in this
market normal market forces that eliminate shortages everywhere
else in the economy.
If the manufacturer of a generic drug finds a way to make
that drug more reliable, more consistent, safer, even more
efficacious, better at curing diseases, the manufacturer cannot
communicate this information to the buyers of the drug.
Therefore, he cannot profit by making these changes.
What has happened in this market is the FDA imposes on the
market a vision that all generics are the same, the only
difference among them is price, and that is the only difference
that is allowed to be communicated. The principle here is that
if you force buyers and sellers to compete on price and price
alone, you are going to get a race to the bottom on every other
feature of the product, and that is what is happening in this
market.
If I could compare it to another market, if there is a wine
in surplus and the price goes down, Walmart buys it and stocks
it. If there is a shortage of a wine and the price goes up,
Walmart may not buy it at all. In Dallas, Texas, when I go to
Sam's Club, I know I am going to pay the lowest price in all of
Dallas, but they may not have the wine I want. If I go to a
boutique wine shop, on the other hand, I may pay $1 or $2 more,
but they will have the wine I want. What we are doing is we are
forcing, in the generic drug market, the Walmart approach to
every other product.
Now, this report that you all have put out today I think it
is really good on problems, better than I could have done in my
testimony. It mentions a few things I have already mentioned.
It says that in this market people are competing on price
alone, that there is a race to the bottom on every other
feature of the product. It compares the market for brand drugs
to the market for generics. All that is really good.
But when we come to the solutions there is one thing that
is missing, and that is the observation that the reason why the
generic market works the way it does is because we do not allow
it to work in any other way.
Let me conclude by a reference to Senator Paul's reference
to other markets, including the automobile market. The battery
in an electric car has parts that, in principle, come from 25
different countries. We do not send inspectors off to those 25
countries to see what is happening elsewhere around the world.
We looked at Tesla. If the battery does not work, we blame
Tesla and we do not buy the car, and that is the kind of model
that we need to about in reforming the market for generic
drugs.
Thank you.
Chairman Peters. Thank you, Dr. Goodman.
The Defense Logistics Agency (DLA) basically buys its
medication for the U.S. military from the same commercial
market that gets its raw materials from foreign and
geographically concentrated sources. Ms. Raghavendran, how at
risk is the United States, for example, if another pandemic or
a major earthquake, flood, or other natural disaster hits where
these drugs are sourced?
Ms. Raghavendran. Thank you, Chairman Peters, for that
question, and also again for the opportunity to be here today.
Our analysis suggests there is significant reliance on foreign
sources when you look at finished dose forms and active
pharmaceutical ingredients, and more for the latter than the
former.
There are some blind spots in this picture, though, which I
will explain. When you examine facility and product
registration counts we see that the concentration is
predominantly in India, lesser extent in Europe, and then
followed by China. But what we have to keep in mind is that
these are counts of facilities and product registrations. What
it does not take into account is volume. The volume could be
concentrated in one facility among many, and we do not know
that picture.
Where we are flying completely blind is in our
understanding of where the key raw chemicals that go into
making the active ingredient come from. We have some anecdotal
evidence but we really have no systematic understanding.
Chairman Peters. Thank you.
Dr. Fox, the Defense Department (DOD) told my staff that
with the exception of just three drugs, the DLA is not able to
assess with certainty whether any of the other drugs it
purchases rely solely on sources from either China or India.
Given this blind spot, as was mentioned in the previous
comments, what would happen to veterans, to military personnel,
and to the U.S. health care system at large if these raw
materials, including those sourced from China and India, simply
became unavailable?
Ms. Fox. We would have significant shortages, and that is a
little bit about what we have today where the DOD and our
military are relying on the same commercial market as
hospitals.
Chairman Peters. The report that I released today and that
Dr. Goodman referenced finds that our lack of supply chain
visibility is basically a national security risk, and it
persists at a time when active shortages that we are seeing
today are actually on the rise. The COVID-19 pandemic only
exacerbated this problem.
Dr. Fox, the FDA created the Essential Medicines list in
2020, but in your testimony you note that this list should not
be the starting point for determining which drug supply chains
are most vulnerable because, ``it is not comprehensive for
essential medical care,'' quoting your testimony today. Why is
this so, and what should the Federal Government be doing
differently?
Ms. Fox. Thank you for that question. The government really
needs to assess which products truly have a vulnerable supply
chain. As my colleague mentioned, there may be very
concentrated sources of key starting materials. It could look
like we have a broad supply chain with maybe five to six
manufacturers of something, but if each one of those companies
was relying on a single key starting material that is only
available in China or India, we simply do not know that. We
need to do more work to truly assess where the key
vulnerabilities are.
FDA's essential medications list was not developed for that
purpose, and in fact it includes medications like filgrastim,
that has a very hardened manufacturing process, where they
could basically operate off the grid without any water, without
any power, and they would still be producing filgrastim.
We really need to target the true vulnerable products.
Chairman Peters. Dr. Shuman, we have data on drug shortages
but data on the impact of these shortages, especially on
patient care, is unfortunately very limited. For example, a
2010 shortage resulted in pediatric Hodgkin's lymphoma patients
receiving medication substitutions that unfortunately turned
out to be less effective as well as increasing complications
for the delivery of that drug.
If you could please, for the Committee, describe the impact
that you have seen from your work at the University of Michigan
Medical School and what Congress should be aware of that is not
right now being captured by just looking at the data.
Dr. Shuman. Thank you for that question, Senator. You are
absolutely right. One of the challenges of drug shortages is
that it requires hospitals to essentially MacGyver different
treatment opportunities and regimens, which is not necessarily
evidence-or data-based.
As an example, the Hodgkin's lymphoma drug was not
available, and as a result, very well-meaning oncologists
switched to a different chemotherapeutic drug. The analogy that
I will use is when you are baking you have a list of
ingredients and you need that list to be exactly what it is in
order to have an end product. When you make a substitution and
you do not necessarily know how well that is going to work, the
problem is you are not going to end up with a dry cake. You are
going to end up with a child whose cancer has not been cured.
That is a prescient example of where we are and where we have
been going.
I can speak more about impact on VA and current at your
discretion, sir.
Chairman Peters. We will do that, but my final question to
you, as we look at these drug shortages clearly it has a big
impact on a major medical center like the University of
Michigan. But talk to me about the impact of smaller, less-
resourced hospitals, which is the majority of hospitals out
there around the country.
Dr. Shuman. You are absolutely right, sir. The major issue
here is the disparities that exist. At major institutions we
have more staff and resources in order to anticipate and
mitigate shortages, to make sure that we have enough product,
conserve it, obtain it from other sources. Smaller institutions
simply do not have that. What that creates is situations in
which smaller hospitals may not know what the supply may look
like elsewhere. They may be making rationing decisions that are
not necessarily consonant with national guidelines or with what
hospitals down the street are doing.
For example, when we are short on a medication at Michigan
Medicine I have absolutely no idea what that supply looks like
or what the workflow looks like at hospitals across the State.
That begets disparities. That treats people unfairly, whether
that is poor people in Detroit or whether that people in a
rural hospital in northern Michigan. They are suffering in ways
that we cannot even necessarily know.
Chairman Peters. Thank you. Ranking Member Paul, you are
recognized for your questions.
Senator Paul. Thank you. I think one of the problems we
face in health care policy is that people think it is unique.
We have this unique problem. We have a shortage here, and so
what are the peculiarities to health care policy? There may be
some answers but many of the answers, and probably the most
important answers, are economic answers. Do price controls work
and do price controls lead to shortages? Yes. Obviously they
do.
Some people say the Soviet Union was defeated, and they
really were not defeated, in a big pitched military battle.
They were defeated because they could not determine the price
of bread. If you set the price too high, the bread rots on the
shelves. If you set the price too low, there is no bread. If
you set the bread too high, there is a black market. These are
just things that happen with price controls.
In capitalism, the signal that is given to everybody who
manufactures something is the price, and the price is where
supply meets demand. It is a mathematical function. But it is
also something that no one person can figure out. None of us
are smart enough or have enough knowledge or bandwidth to
figure this out. So 330 million Americans, but really billions
of people worldwide, are interacting, and that is how we
determine the price of things.
If doxycycline, which has been around forever--it was used
in acne and also still for infections and things--is in
shortage and in low price, as soon as it becomes in shortage
the price will rise. In true capitalism, price rises and they
will make more of it. But if you keep the price the same and
there is a shortage, it just gets worse and worse and worse,
and people leave the marketplace because you are keeping the
price suppressed.
There is no moral price. There is no right price. The
Soviets or socialists or people who think they know what is
best for people try to determine the moral price of things.
There is only the price where supply meets demand if you want
goods to be distributed, so you have to allow prices to go up
and down. In essence, probably all of these problems are fixed
by freeing up prices, and they have to go up and down fast.
Dr. Shuman mentioned, which is true, we have to get the
information back. Everybody is saying we have to get the
information back. How come we do not tell Walmart to do that?
That is the real question here. How come Walmart does it
automatically? You scan something, you buy a chair at Walmart,
or you buy food at Walmart, it goes into the computer in
Bentonville, they are reading it. I always joke because as I
check out somebody in Bentonville is already putting it on a
truck, and it is going to be there an hour later.
There is no reason medicine should not work that way. But
we have this mistaken notion that keep the prices low, suppress
the prices, and then somehow we will do good for people, we
will help poor people. What it has done is it destroys the
market.
We also have regulations such that we essentially shut
things down. I think the baby formula fiasco was a great
example. It is not even prescription, really, but the FDA
oversees this. There was some question, and still is a question
to this day, whether the bacteria that the children
unfortunately died from had anything to do with the plant. They
did a Deoxyribonucleic acid (DNA) analysis on it. It was a
different bacteria, and yet we shut the plant down.
To combine the problems and make it worse, we would not let
in any of the imported stuff. It is like they do not put iron
in it in Europe. You can debate how much iron should be in
formula, and 10 different experts can tell you how much iron
should be in formula, but for goodness sakes, would it not be
better to have some formula than no formula?
But we do not allow international competition. We should do
that in drugs as well. If we had international competition it
helps to keep our prices down, but it also would help to keep
the supply up as well. But these are things we have talked
about for decades, and actually many in my party have opposed
allowing the reimportation or allowing you to shop
internationally. I think that would help, but you have to free
up prices.
If we only look at the back end where we say, ``Oh, we are
going to come in and we are going to tell government and tell
hospitals how to look at things,'' that is one way of looking
at it, but it is like you do not even have to do that. Free up
prices and then people will make pricing decisions. The prices
go up automatically and more of the stuff gets produced. We
will not have to have like government figure out how to
institute capitalism. We just have to get government as much
out of the way and allow more capitalism.
Another thing we could do--and I will direct this question
to Dr. Goodman--is the patient has to encounter the price for
the pricing system to work. If you have a deductible of $10,
you do not encounter the price, you do not care what. You get
heart surgery and it costs $3 million and your toothpaste costs
$42. Why? Because they can and you do not care. The patient has
to care. You have to connect the patient to the price.
One of the things we do in our country is we limit how much
you can put into a health savings account. We also limit who
can get them. Health savings account (HSA) is basically
capitalism. These are people encountering, at least for their
first set of dollars, seeing the price, understanding the
price, and making decisions on price.
One of the proposals I have had is instead of only having
10 percent of the public allowed to have it legally, let
everybody that has insurance, or does not have insurance, have
an HSA. Everybody has kids with crooked teeth, and now they all
have beautiful teeth but it cost a fortune. But it would be
nice to be tax-deductible for everybody. Even if you have a
low-deductible policy, why should you not be allowed to have an
HSA?
I guess the question to you, Dr. Goodman, is getting the
patient or the consumer connected to the price important in
this? Would HSAs be part of reform?
Mr. Goodman. Absolutely. If you think about aspirin, when I
got to the store I see Bayer aspirin and I see other brands. I
identify with a brand. Bayer assures me that its product is
good and I trust them. When I get a generic drug I do not know
where it came from. I do not know what country it was produced
in.
The only thing I would add to your analysis of price
controls is what we have done is we have created a market where
you can only compete on price. You cannot compete on
reliability. Reliability is a valuable thing. The brand
companies invest in reliability, so their drug will be there
when the demand is there.
In the generic market, if the only thing that matters is
price, you do not care about reliability. You just want the
lowest price possible, and that is what is happening.
Senator Paul. Even in the generic market when we have
shortages are not they limited in raising their prices, at
least to government and to most insurance policies. If I am
selling you doxycycline and I make it generically, the hospital
has sort of got a fixed price, Medicare has a fixed price,
insurance has a fixed price. Is it not pretty hard, as there
becomes a shortage, to really even have price competition?
Mr. Goodman. As I said in the beginning, we have price
controls in the Medicare Part B program, at least what the
doctor can get, and in the 340B program we have price controls.
In general, people can pay more for a generic drug but no
one does because, again, we have a race to the bottom. We have
no competition on reliability, consistency, safety, or even the
efficacy of the drug, and half the time, or more than half the
time, you do not even know where the drug came from. If we
could just make the generic market work as well as the brand
market works, we would have huge improvement.
Senator Paul. I have one question but I will come back to
it.
Chairman Peters. Very good.
Senator Lankford, you are recognized for your questions.
OPENING STATEMENT OF SENATOR LANKFORD
Senator Lankford. Senator Lankford is looking up his notes,
running in from the last hearing, trying to be able to get set.
You all, thank you. Many of us are running back and forth to
multiple hearings today, and interestingly enough, a lot of
conversation on the Hill about drugs in general.
One of my questions is, let me set a scenario in front of
us. Russia invades Ukraine, and so immediately the United
States cuts off Russian companies and American companies based
in Russia shut down.
China invades Taiwan. The United States says we are not
going to do business with China right now. Ten thousand some-
odd number of our active ingredients are coming out of China.
What happens that next day? Yes, John.
Mr. Goodman. Three years ago, almost to this day, China
threatened to cut us off. We were complaining about COVID and
they said if you keep complaining we will just cutoff your
drugs. Now, it is not in their self-interest to do it, but
China has a lot of power over our drug market, and we know that
they care about things other than maximizing profit.
Senator Lankford. Anyone else want to jump in on the
conversation? Go ahead.
Ms. Fox. Thank you for that question, and I would say that
that is one of the reasons why we need more transparency to
identify exactly which products we are relying on China for and
which ones we might have some diversification in. We also do
not have any idea about the key starting materials that China
is holding, so that would be very important to investigate.
Senator Lankford. Go ahead.
Ms. Raghavendran. Yes, just to add a little bit to what
Erin Fox said, I particularly want to emphasize that there is
anecdotal evidence that we rely on China for the key raw
chemicals that go into making our pharmaceuticals. That might
be true. We just do not know because we have not done the
systematic analysis.
Senator Lankford. OK. Did you want to mention something on
that as well? Go ahead.
Dr. Shuman. Sure. I appreciate the question. I will answer
with a specific example. This past year, one plant in Shanghai
that produced a contrast material that is used for radiological
scans across the board, went down, and literally overnight,
half of the U.S. supply of contrast for radiologic scans was
unavailable.
I work in the VA system. This impacts veterans literally
overnight, where we needed to make decisions about whether we
were going to allow some scans to be done to evaluate someone's
cancer to treat someone's heart disease. Veterans deserve
better, and we should not be reliant on a supply chain that is
that tenuous.
Senator Lankford. Where are the next sources? What
countries, what agencies, what entities, what drug companies
are actually stepping up into this and saying, ``We are
bringing the manufacturing back here. We understand that we are
vulnerable at this, and so we are actually doing something
about it''?
Mr. Goodman. It is my understanding that the brand
companies, who also use overseas suppliers, mainly use Europe
and maybe Puerto Rico, but I think most of our brand drugs are
not produced in China or India. The China and India production
is there because of the race to the bottom and competing on
price alone. If all you care about is price, you go to the
place in the world where you can get price the lowest, and
those are two countries where you can do that.
Senator Lankford. But that is also where the generic active
ingredients are coming out of.
Mr. Goodman. Yes.
Senator Lankford. What other countries or entities? I know
Saudi Arabia and United Arab Emirates (UAE) are rapidly
accelerating drug manufacturing and trying to be able to do
some of the things to set up a process for that. There are
other countries that are trying to engage in it. But I do not
hear a lot of the race, just trying to figure out how we do
low-cost alternatives in other places, because those low-cost
alternatives, in many of the older drugs, are the only option
and the only place that it is there. It may be new technology
and new innovation for one type, but for older technology, and
antibiotics and such, it is very different.
Mr. Goodman. Mark Cuban told me the other day that he is
building a manufacturing plant right here in the United States,
and he sells generic drugs. For him to be successful I think he
has to be able to advertise and convince the buyers that his
product is reliable, consistent, safe, efficacious.
This goes back to what Dr. Paul asked me, he is selling
directly to the consumer. They do not even accept third-party
payment. Maybe that manufacturer-to-consumer model is going to
work better than everything else we have been experiencing.
Senator Lankford. It cannot work worse than the pharmacy
benefit manager (PBM) model that we currently have.
Mr. Goodman. I agree with that.
Senator Lankford. OK. Does anyone else want to make a
comment on that? Other places?
Ms. Raghavendran. Senator, I do want to talk a little bit
about the promise of pharmaceutical continuous manufacturing.
These are sort of novel approaches to manufacturing that hold
great promise in terms of bringing or medicine supply onshore.
It might make sense, particularly for certain critical
medicines that we rely on as patients.
Pharmaceutical continuous manufacturing can be scaled up
rapidly. It has lower production costs. It has a smaller
environmental footprint. But we need to make it easier for
manufacturers to enter the market. Remember here we are talking
about drugs where manufacturers are getting paid pennies per
unit, and so we need to make it easier for them by funding
things like workforce development. People in this country do
not know how to work with these new technologies necessarily.
They are new. We need to build out industry-wide best
practices, methodologies.
Congress has actually funded legislation. The omnibus
spending law actually addresses this point. I look forward to
where that goes and it is a great first step.
Senator Lankford. We have found ways to be able to push a
lot of the manufacturing out of Puerto Rico that was well-known
for having a lot of the drug manufacturing, and push it out of
the United States in multiple other areas. We currently are one
of the worst countries in the world for research and
development (R&D), based on our current tax policy. It
literally punishes companies for doing R&D here.
We currently are getting out of the manufacturing tax
policy, where for manufacturing it was, up until this past
year, that you could actually get a full expensing for that.
Now that full expensing has gone away, and we are actually
punishing people for doing manufacturing here.
If we do not fix our tax policy and incentivize
manufacturing to actually be here rather than punishing people
to do manufacturing here, and if we do not reduce some of the
hoops to actually do the manufacturing, or allow innovation,
like what you have talked about on this, to be able to do
directly from manufacturer and other ways you can get around
some of the PBMs, we are in trouble. But currently there is
very little incentive to be able to onshore things based on our
tax policy and our regulatory environment, when we desperately
need it.
When I ask people about how quickly can we get drugs out of
China, to be able to do this and just get access to it, they
talk in decades, not in year. That is not a good scenario for
us right now with currently a growing hostile threat from the
Chinese. Thank you.
Chairman Peters. Thank you, Senator Lankford.
Senator Blumenthal, you are recognized for your questions.
OPENING STATEMENT OF SENATOR BLUMENTHAL
Senator Blumenthal. Thank you, Mr. Chairman. Thank you for
having this hearing on a problem that really has been
longstanding. Dr. Schuman, you refer to the shortages of
propofol 15 years ago. I was absolutely astonished in visiting
some of our hospitals 12, 15 years ago, to discover the
shortage of anesthetics like that one. This problem has been
around for a long time.
In the greatest country in the history of the world,
capable of providing the greatest health care on the planet, we
seem to be unable to provide enough of these basic medicines,
anesthetics. This is not kind of the advanced care, cancer
treatment that no doubt you are using in the course of your
oncology practice. This is the workhorse medicine. Why is it
that anesthetics are in short supply? Are they still now--I
should ask that question first--and why was it then, and why is
it now, if that is still the case?
Dr. Shuman. Thank you for that question, and I agree
completely. The problem here is many of these sterile
injectable drugs are, frankly, very complicated to make, and
when companies are making pennies on the dollar per unit, it is
very hard to incentivize their production, for many of the
reasons that have been brought up earlier.
The issue with propofol 15 years ago was that there were
contaminants within the drug. It was a mold and glass shards, I
believe, were in the medication, which, again, you do not need
to know much to know is a problem. That became another problem
yet again during the early COVID pandemic when we were
struggling to keep people on ventilators comfortable, for
exactly that reason.
The broader problem here involves generic sterile
injectables and the complexity of their production and the lack
of sufficient incentive for companies to be able to make them,
especially on short.
Senator Blumenthal. Is there still a shortage of
anesthetics?
Dr. Shuman. Yes. A number of different drugs, and I believe
Dr. Fox can add more details to that. But the short answer is
yes.
Senator Blumenthal. But presumably the contaminant issue
has been resolved. Is it still the very tiny margins of profit
that are a disincentive to these companies to make this
workhorse medicine?
Dr. Shuman. The short answer is yes. The process of making
these is also quite complicated in terms of the facilities that
are utilized. For example, propofol is in a lipid solution
which is much more at risk for contamination than many others.
But I will defer to Dr. Fox and others for more details.
Senator Blumenthal. I know you are an oncologist, not an
economist, so I will ask the question first and then turn to
others who can speak on the economics. But I suspect, as a
lawyer and a non-economist, a non-doctor, there is something
wrong here when anesthetics, workhorse medicine, needed by
every single hospital in the country, somehow are not
responding to demand signals or the demand signals are not
working. Why is it that we are not seeing more production? We
all believe in capitalism. I am a strong supporter of
capitalism, but in this situation why is it not working?
Mr. Goodman. Suppose I tell you, as a manufacturer, if you
pay me a dollar more I will overinvest in capacity, and we will
not have any shortages, and I will meet your demand. I, under
the current rules, cannot do that. I can only compete on price.
If you can only compete on price, it is a race to the bottom on
everything else, including reliability of supply. It is that
simple.
Senator Blumenthal. Take Senator Paul's analogy, bread.
Someone is going to produce more bread if there is more demand,
the price will rise, and the demand will be met.
Mr. Goodman. But suppose the grocery store owner, like the
pharmacist, is compelled to sell you the lowest-priced bread
that comes his way, then the quality of bread would go through
the floor. That is what is happening here. It is not the
quality. It is the reliability, safety----
Senator Blumenthal. But these are all reliable, safe
anesthetics. They are not selling snake oil.
Mr. Goodman. No. But the manufacturing process is not
reliable. Compare that to brand-name drugs.
Senator Blumenthal. Someone would make a more reliable
process. To take a different analogy, if you are in a company
that puts satellites in space and they do not make it into
space, they are not reliable, you are not going to get paid. A
product that cannot be delivered will not be relied on and they
will turn to another manufacturer. I do not understand.
Mr. Goodman. The FDA does not allow me to charge you a
little bit more for reliable supply. It forces me to compete
only on price. If I am competing only on price then sometimes I
am going to run out of product or I will not be able to meet
demand. But that is the only way I can compete.
Senator Blumenthal. You are blaming it on the FDA.
Mr. Goodman. Yes.
Senator Blumenthal. OK. Let us take the next.
Ms. Fox. Sure. Unlike an iPhone or anything else we buy at
Walmart, we do not have the information about how good is the
quality. We do not have a rating system. We have no way to
differentiate between the products.
Your example about the anesthetics, they are still in short
supply, in part because there are usually only one or two
companies making those drugs, and also there is really no
incentive for one company to do a better job. If one company
did do a better job we have no way of knowing that. Unlike
other things we buy, we have no rating system and no way to do
that.
I will tell you, unlike other products, people's lives are
at stake. It is not just a matter of maybe not buying peanut
butter today or not buying a tire. It is having to decide to
use a lower-quality product or a product that we know will not
work as well, just because we do not have the access to it in
our hospitals.
Senator Blumenthal. I am out of time, but I am also, so
far, unsatisfied that we have really identified what the
actionable policy should be here. I cannot blame it all on the
FDA. I am sorry. There have to be other reasons, and I think
Dr. Shuman suggests in his testimony whether it is bringing
some of the supply chain back to this country, producing more
here. I do not think that you can just blame it on the FDA.
Thank you.
Chairman Peters. Thank you, Senator Blumenthal.
Senator Hassan, you are recognized for your questions.
OPENING STATEMENT OF SENATOR HASSAN
Senator Hassan. Thank you very much, Mr. Chair and Ranking
Member Paul, for holding this hearing, and to our witnesses,
thank you all for your insights and the important work that you
do.
Look, my office, like I think all of our offices,
frequently hears from constituents about the challenges they
are facing to fill prescriptions and purchase over-the-counter
medications that their families use on a daily basis. I am
really glad we are holding this hearing.
I want to start with a question to you, Dr. Shuman. In
2017, the FDA reported that 80 percent of active ingredients
used in medicines were manufactured in China and India. This
manufacturing monopoly is one of the root causes of the drug
shortage, and relying on China for active ingredients is a
national security and public health risk.
Dr. Shuman, how can the United States shore up domestic
drug manufacturing and better protect our supply chains from
potential conflicts with China?
Dr. Shuman. Thank you for your question, and thank you for
your advocacy on this issue. I completely agree with you that
this is a national security concern and it is something that we
need to deal with. I think incentivizing production on American
soil is critical. The devil is, of course, in the details of
what that looks like.
But I would consider drug manufacturing to be critical
infrastructure. If we have crumbling bridges, we fix them. If
we do not have medications that we need, we build the factors
and we incentivize companies, whether it is public-private
partnerships or other types of arrangements, to make the
critical drugs, that are quite expensive to make, on American
soil.
Senator Hassan. Thank you.
Ms. Fox, I want to turn to you. The FDA maintains a list of
essential medications and medical devices that is intended to
inform which supply chains are most critical to support. That
is a really important baseline. However, some medications like
Adderall and some children's medicines are not on the FDA's
Essential Medicines list. Many Americans need these
medications, and the FDA and other entities need to do a better
job of managing these particular supply chains, as you
discussed in your testimony.
What can the FDA and other organizations do to identify and
then prioritize addressing supply chain vulnerabilities for
drugs that are not on the Essential Medicines list?
Ms. Fox. Thank you so much for that question. We really do
need to address transparency. We absolutely need to get more
information about the true vulnerabilities, exactly where we
are missing information, where the key starting materials are
coming from. We cannot focus our efforts on every drug, so with
limited resources we need to really drill down to which
products are most vulnerable.
FDA's Essential Medicines list was actually not intended to
identify those that are most vulnerable. It was really kind of
targeted toward taking care of patients in an acute pandemic,
honestly. That list, we really do need to revise it and
identify those items that are most critically relying on
products that we really cannot get.
Senator Hassan. OK. Thank you.
To Ms. Raghavendran, the U.S. Pharmacopeia Medicine Supply
Map collects and analyzes data from across the world to
pinpoint drug manufacturing supply chain vulnerabilities. This
map can help prevent shortages and ensure quality. How could
FDA use this the Medicine Supply Map or similar data to better
address vulnerabilities in the medical supply chain?
Ms. Raghavendran. Senator, thank you for the question. We
have seen many applications of data intelligence, like the
Medicine Supply Map. We think there is value not just to the
FDA but also within the private sector. On a day-to-day basis
it is in the private sector that the supply chain is managed,
and it is the stakeholders in the private sector that are
responsible for getting medicines to patients when they need
it. The FDA drug shortages team also uses information such as
this to manage drug shortages.
The ways you can use it, so for example, if you are
manufacturer it would be great to know that your competitor
might have a drug shortage, because then you can ramp up your
production to meet that demand. On the other end of the
spectrum, if you are a hospital it is really good to know what
are the critical medicines that are going to likely have a
shortage because then you can plan for it. You can either
contract with additional suppliers, and if the shortage were to
actually happen you have time to prepare. I mean, Dr. Shuman
and Dr. Fox can talk about how, when that shortage happens,
hospitals staff are scrambling to figure out alternate
treatment protocols and so forth.
Senator Hassan. I appreciate that hospitals and private
manufacturers may want to use this data, but I also think it is
really essential that the FDA and the United States government
use this data too, so it can be looking at the whole map, not
just an individual region's particular experience, and really
begin to plan and make sure, again, that we are treating this
as the critical kind of infrastructure that it is.
Quickly, in my remaining time I want to start with a
question to Ms. Fox and Dr. Shuman, because earlier this month
I introduced a bill with Ranking Member Paul to get more
generic drugs to market faster. Under current law, FDA may
reject an application for a generic drug without telling the
generic drug manufacturer what part of the formula was wrong,
which can ultimately lead to really time-consuming delays. By
simply telling a generic drug manufacturer what adjustments
they need to make, our bipartisan bill would help improve the
generic market approval process and lower drug prices overall.
Are there other aspects of FDA's generic approval process
that could be improved and help more generics make it to the
market in a more timely way? And we will start with you, Ms.
Fox.
Ms. Fox. Thank you for that question. I think when we think
about the generic drug approval process we know that FDA does
prioritize products that are in shortage, and so those do get
bumped up to the top of the list, which is great. But I think
it is also really important to understand which companies are
set to do a good job, which companies are investing in their
quality manufacturing, and those products should potentially
also get priority. Why should we approve a product from a
factory that is old and crumbling and is likely to have all of
its medicines recalled because they are contaminated?
Senator Hassan. Also why should we slow a company down by
not telling them where they are off.
Dr. Shuman, quickly, would you like to comment on that
process as well?
Dr. Shuman. I completely agree. I will say that as an
institution we have no idea what that quality looks like, and
if legislation can clarify for buyers, either hospitals or
preferred provider organization (PPOs) or others, whether or
not the product we are buying is of higher quality and is,
thus, more reliable, it would go a long way. I would argue that
the market would pay more for that if we were able to clarify
that we are paying for a higher-quality product.
Senator Hassan. Thank you very much, and thank you, Mr.
Chair.
Chairman Peters. Thank you, Senator Hassan.
Senator Johnson, you are recognized for your questions.
OPENING STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thank you, Mr. Chairman. As Chairman of
this Committee in February 2020, at the very start of the
pandemic I held a roundtable with former Center for Disease
Control and Prevention (CDC) Director, Julie Gerberding, and
former FDA Commissioner, Scott Gottlieb. The main takeaway from
that roundtable was that we do not produce the precursor
chemicals, we do not produce the API.
That was more than three years ago. We have spent trillions
of dollars. I think we misspent many of those trillions of
dollars. I am not sure we even spent a dime addressing that
problem that we pointed out in February 2020. Again, if you
want to point the finger of blame at somebody, point the finger
of blame at Congress, that spent trillions of dollars, a
trillion-dollar infrastructure bill, a China bill that made
sure we could make chips, but we did nothing in terms of
precursor chemicals and the API.
Dr. Goodman, I want to talk a little bit about generics and
the completely unlevel playing field. I think what certainly
was revealed during our, and I would say miserably failed
response to COVID, is we not only ignored but we sabotaged the
use and the research into cheap, widely available, generally
safe generic drugs. There were a host of them, that some
doctors were using. I certainly referred people that called me
to these doctors, I was amazed at some of the results.
But what was revealed is that the playing field, generics
versus expensive patentable drugs, was completely tilted in the
favor of randomized controlled trials--and let us face it,
there is not the dollars available in generic drugs to do
randomized controlled trials. All of a sudden observational
studies were put to the side, like they were not valid, when in
many cases the doctors I have talked to, that might have the
greatest validity.
Can you kind of speak to that unlevel playing field between
patentable drugs and cheap generic? I will call them molecules
because some of these are just miracle molecules. For example,
Nobel Prize-winning drugs that have been trashed by our FDA.
Mr. Goodman. The first point I want to make is that when
you have a pandemic that you do not know anything about, and it
is new, and we really do not know what to do with it, you want
experimentation. You want to know what doctors in New York are
doing, in California. You want them to communicate with each
other.
Senator Johnson. That was not allowed, was it?
Mr. Goodman. It was strongly discouraged.
Senator Johnson. That information was shut down. It was
censored. But the doctors that had the courage and compassion
to treat patients were vilified, including from this dais. They
were vilified.
Mr. Goodman. I agree. Now compare that to what has happened
with cancer drugs. Maybe half the cancer drugs these days are
off label, so how did that happen? It is because of doctors
experimenting and communicating with each other and writing in
medical journals.
Let me make a second point about randomized controlled
trials. For years and years and years we thought this was the
way to do it. You have this group, they take the pill, this
group takes a placebo, and then you compare them, and if there
is not a significant difference you do not allow the drug on
the market.
But over time people noticed that over here in the people
who are taking the drug, even though the group as a whole was
not significantly different from the placebo group, some people
did remarkably well. Then it dawned on people, well look, maybe
it has something to do with the DNA of the patients, and once
you understand that you begin to realize that these controlled
trials do not tell you all you need to know. Some people may
respond well to a drug and other people may not. We simply have
to recognize that.
I am in favor of doctors being able to experiment. If
something is working with a patient, let the patient and the
doctor do it and let us not censor anything that is not coming
out of the CDC.
Senator Johnson. You mentioned there is a pretty high
percentage of drugs that are prescribed off label. Correct? Do
you have a number off the top of your head?
Mr. Goodman. No, but I think for cancer it is half of them.
Senator Johnson. I have heard something like 20 percent of
all drugs, 20 to 30 percent, are described as off label. By the
way, that is called the practice of medicine. That is how we
actually advance medicine, OK, as opposed to a dictate coming
from doctors in these agencies that do not practice medicine.
That has been a real problem.
Let us talk a little bit about the revolving door between
our Federal health agencies, and I would call it the capture by
Big Pharma of our Federal health agencies. The two individuals
I just spoke of, that testified before our Committee in a
roundtable in February 2020, one of them is now a director of
Pfizer. Talk about how harmful that is in terms of the public
trust and the public getting correct, honest, transparent
information from our Federal Government.
Mr. Goodman. All I can say is there is an economic
literature on the economics of regulation, and going all the
way back to the ICC, one of our first regulatory agencies,
right up through the end of the last century, many studies
showed that regulatory capture often happens, maybe not 100
percent capture, but the regulatory agencies tend to do the
bidding of the industry they regulate. This is well known,
whether it is taxicabs or railroads or trucking, this has
happened over and over again. It is definitely a problem.
Senator Johnson. Have our Federal health agencies been
transparent and honest during this pandemic, in general?
Mr. Goodman. No, and I think I read an expose in The New
York Times just the other day where people who worked in the
CDC said they were not transparent and were angry that they
could not speak for the public.
Senator Johnson. I would agree with that. I have written
over 50 oversight letters. I have gotten mostly non-response
responses when I have gotten any response whatsoever.
I just came from a Finance Committee hearing. We had
Secretary Becerra in front of us. Through court-ordered Freedom
of Information Act (FOIA), about 4,000 pages of HHS documents
were released a lot of Anthony Fauci, Francis Collins emails.
Those were heavily redacted through FOIA. Congress is not
subject to those redactions. Together with Senator Paul and I
think Senator Hawley and two other of my colleagues we wrote a
letter.
There is a law that says if five of us write a letter,
those documents shall be turned over to us. They have not been.
In the combination process we targeted 400 pages. They did not
turn them over to us but they did allow us to read 50 pages at
a time in a reading room. We could not take copies; took notes.
It has been over a year since the last 50 pages have not
been turned over to us, a year, 50 pages, heavily redacted. I
asked Secretary Becerra to commit to turning those last 50
pages over to us. I certainly hope he does. But again, that
just proves, one example of how the agencies simply have not
been transparent and honest with the American public, and the
American public has a right to know.
Chairman Peters. Thank you, Senator Johnson.
Senator Hawley, you are recognized for your questions.
OPENING STATEMENT OF SENATOR HAWLEY
Senator Hawley. Thank you very much, Mr. Chairman. Thanks
for holding this important hearing on this critical subject.
Thanks to all the witnesses for being here.
I just have to say, I think we are suffering from an
increased market concentration here in the United States with
the pharmaceutical companies, combined with over-reliance on
foreign nations and foreign industry abroad. When you put those
two things together it is disastrous. It is disastrous not just
for our industry, though that is absolutely true, it is
disastrous for everyday consumers.
This is one of the reasons, let us take a drug that we have
not yet talked about but that millions of people, 34 million at
least, people in this country rely on every day, and that is
insulin. We have three companies in this country that produce
insulin, and yet the cost of it, which has not substantially
changed in terms of manufacturing over the last century--
insulin has been around forever--the cost of it has just
exploded.
Now why is that? I would submit to you one of the reasons
is market concentration. This is one of the reasons, by the
way, I have introduced legislation that would cap the cost of
insulin on a monthly basis at $25. I think that Americans
should not be paying more out of pocket than that, and I do not
think that these monopolies ought to be ripping off consumers
in order to pad their own profits.
For the same reason I am very concerned about over-reliance
on China, in particular. I would just notice, I want to get
into some of these statistics, that our over-reliance on China
when it comes to these drugs has really exploded since the turn
of the century, since 1999, 2000, 2001. What happened around
that time? We gave China most favored nation status on a
permanent basis. We brought China into the World Trade
Organization (WTO) and gave them full access to the
international trade market. Disastrous mistake. They weaponized
it. They have taken our industry. They have taken control, in
many cases, of manufacturing, including some of this drug
market. It is really exceptional. I think this ought to be a
wake-up call that it is time to change course.
Ms. Raghavendran, let me start with you. Your Medicine
Supply Map, which Senator Hassan mentioned a second ago, I
think is great and really shows just how dependent on foreign
manufacturers we have become. Just looking at the manufacturing
locations associated with active API drug master files (DMFs),
if I am reading it correctly, and correct me if I am wrong,
fully 60 percent, as of 2021, 60 percent were based either in
India or in China, and the United States accounts for just 10
percent. What caught my attention is the change in the last 20
years.
I mean, here again, in 2000, India contributed 20 percent
of active API files. That percentage tripled by 2021, to 62
percent. In 2000, China contributed just four percent of active
API files. That share increased sixfold by 2021, to 23 percent.
By contrast, what happened in this country, in 2000, the United
States contributed 15 percent of active API, but in 2021, just
four percent. Europe, really, I mean, 49 percent they
contributed in 2000, only seven percent by 2021. I mean, that
is really astounding.
Let me just ask you, do you think that being overexposed to
China and India--and, of course, we know that China supplies
India with 80 percent of its API, India being the world's
largest producer of generic drugs--do you think being
overexposed to China has major implications for our national
security?
Ms. Raghavendran. Senator Hawley, thank you for the
question. I am not a national security expert. I am a drug
shortages expert. What I can tell you is that we see four
different types of risk for drug shortage. Geographic
concentration is one of them. But there are other factors.
There is low prices, there is manufacturing complexity, and
there is quality failures. When we design solutions we have to
look at the whole picture, and, it is a multifaceted problem.
Senator Hawley. Let me ask you about the U.S.-China
Commission's recommendation. They recommended that the United
States, and I am quoting them now, ``maximize the production of
such goods''--meaning drug precursors and other critical
medical supplies--``maximize the production of such goods
domestically or as appropriate from trusted countries.'' Do you
agree with that recommendation?
Ms. Raghavendran. Senator, I think the specifics matter,
and I would be happy to get back to you with a statement for
the records, but USP does not have a position on that.
Senator Hawley. Dr. Shuman, let me ask you because in your
written testimony you mentioned the Shanghai plant example. You
brought it up again, I think, to Senator Blumenthal, what a
dramatic impact that had on your practice and your patients at
the VA, and of course not just yours but at VA hospitals
nationwide.
Give me your view on this. Just tell us about, for your
patients, the people that you serve, what does our over-
reliance and exposure to foreign adversaries--China is a
foreign adversary--what does that mean, practically, for them
in moments of crisis and moments of danger and situations like
we had with COVID and may have in the future, should we be in a
kinetic conflict with China?
Dr. Shuman. Thank you for your question and thank you for
your advocacy on this really important issue. I confess I know
much more about surgical anatomy than the geopolitical
situation that we are talking about. But what I will say is
when I am talking to my patients, frankly, whether it is a
veteran or someone at a private hospital, they do not
necessarily care where the drug is coming from or what is going
on other than the fact that they do not have it.
That is how I feel as well, as a doctor, as an ethicist, as
somebody with administrative oversight of drug shortage manage.
What we are dealing with is a situation in which doctors,
patients are truly handcuffed by the seemingly unpredictable
nature of these drug shortages. This is a perfect example where
one single factory going down dramatically impacted our supply.
There is absolutely no doubt that we are vulnerable, as a
Nation, but also as individual patients and doctors to this
issue, and I am so thankful that this Committee is facing this
head-on and that we can hopefully bring the supply back to
American soil in a way that will allow us to be more reliable.
Senator Hawley. Let me just ask before my time expires, Dr.
Fox, last week the Committee held a hearing on cybersecurity
risks in the health care sector, and I was particularly
concerned about risks to rural health care. Let me ask you
about that in this context, drug shortages and their effect on
rural communities. Do drug shortages, do you know,
disproportionately affect rural hospitals, rural communities?
Should we be concerned about that?
Ms. Fox. Yes, I do, in part because those rural communities
often do not have full resources like academic medical centers,
like I and Dr. Shuman work at. They are disparately impacted.
To your past line of questioning, I do want to say that
private companies are choosing to invest in China and
manufacture there, and yet they do not reveal where they are
making their products. It is not a requirement for those
companies to reveal which products are made in China, which
products are made in India, which products are made in the
United States. Without that information we really are
vulnerable.
Senator Hawley. That is a great point, and I hope something
that this Committee can work on.
Thank you, Mr. Chairman.
Chairman Peters. Thank you, Senator Hawley.
Senator Rosen, you are recognized for your questions.
OPENING STATEMENT OF SENATOR ROSEN
Senator Rosen. Thank you, Chairman Peters, Ranking Member
Paul, and thank all of you for being here today and your
testimony because this hearing and finding solutions not only
matters to patients, to ourselves, to our own budgets, people's
kitchen-table budget, what they pay, their access, rural and
urban, but I would say it is also not just our national
security but our economy. The implications, personal and
nationwide, worldwide, have a huge impact.
We have to figure out what those incentives are. We are
going to build on what some of my colleagues have said, to
increase pharmaceutical independence because we know 80 percent
of the key ingredients, they come from overseas, China and
India. I am not going to say what my colleagues have already
said, but like others on the Committee, I, of course, am
concerned about this over-reliance and the risk it posts,
again, to families, to the ones we love, and their health care
and their ability to get it, and our national security as well.
Last Congress, I worked with Senator Tim Scott to introduce
the Made in America Act. It is bipartisan legislation to create
a tax credit for pharmaceutical manufacturers to operate in
certain distressed communities across the United States,
creating good-paying jobs and retaking control of our drug
supply chain. I am pleased that a number of the FDA-related
provisions of our bill were passed into law as part of the
fiscal year 2023 omnibus. If we are serious about this, I do
agree we need to do a better job bringing lifesaving drugs
here.
Dr. Fox, a core pillar of the Made in America Act was to
increase collaboration between FDA's drug shortage staff and
the Office of Compliance. Both are mission critical--we know
that--in helping to prevent these shortages and monitoring
supply chains.
How should the FDA be thinking about implementing this
provision and linking these two important offices together?
What can we do there?
Ms. Fox. Thank you so much for that question, Senator
Rosen. Those two offices do work together closely, but usually
it is only during a drug shortage. Outside of that they do not
often work together. Certainly you could envision, if Congress
is able to change the labeling laws to require drug companies
to disclose where products are made, perhaps where their
sources are made, perhaps the Office of Compliance could work
much closer together with FDA to try to enforce that.
Senator Rosen. To get a better bill of materials, if you
will.
Ms. Fox. Yes.
Senator Rosen. Do you have any other incentives you might
like us to try to do while we work on being sure that we can
build this collaboration?
Ms. Fox. I think it is important to think about how we do
need private industry to make changes, especially to their
quality, and if we are also going to ask them to do a little
bit more work to reveal their sources of where they are
manufacturing drugs.
The societal benefits are much greater than any benefit the
manufacturers could get, so I think we need to structure
incentives appropriately. But certainly with the Office of
Compliance and FDA working closer together we could probably
get there.
Senator Rosen. Yes, I think it is good to have
transparency, that is for sure. We want to think about some
other ways that we can potentiate this, and how we support our
nonprofit pharmaceutical industry as well. That is another big
component. Tapping these drug shortages, increasing the access,
of course, to critical medications, I do not have to tell any
of you it is an all-of-the-above approach. There is not just
one thing that is going to fix it. It is going to be many
little things perhaps.
Without the need to maximize profits, shareholders,
nonprofits, maybe they can focus on lower prices to stabilize
supply, lower costs, and again, improve access across the
country. It is all about saving people's lives in the long run,
right?
I am pleased when the omnibus was signed into law,
legislation that I co-wrote with Senator Romney to direct the
Government Accountability Office (GAO) to study the impact of
nonprofit generic drug companies, that they would have on
lowering these drug costs, addressing the drug shortages, and
accelerating the development of new drugs. Some of my
colleagues have already asked questions to that.
But what I want to ask, I guess I will keep picking on you,
Dr. Fox. Today we have such a great panel and not enough time
for every question. But how can the nonprofit pharmaceutical
model, how can that help to mitigate the shortages,
particularly given its focus on maximizing access to lifesaving
medication, particularly in those underserved areas, urban and,
of course, rural?
Ms. Fox. Thank you so much for that question. I am very
familiar with one of the nonprofit drug companies, which is
Civica Rx, which is based in Utah. I do serve as a volunteer on
their advisory board. That company is really focused on making
high-quality medications inside the United States. They have a
factor that is almost ready in Virginia. They are also
partnering with a company to make the active pharmaceutical
ingredients in the United States as well, with Phlow. That was
a little bit of the money spent during COVID. You guys actually
gave some to Phlow for that.
These nonprofit pharmaceutical companies are able to make
high-quality products, focus in on building better facilities,
building a more resilient supply. The way that Civica works is
that our hospital has to make a long-term commitment to buy a
certain amount of product, and what that does is that allows
the nonprofit company to know exactly how much to make. They
are not in a guessing game of being in a price war with
somebody. We have committed to buy that product. Those reliable
supply agreements really do help shore up the overall supply
chain.
Senator Rosen. That is terrific, and thank you again, all,
for being here. At the end of the day, it is about the health
of the ones we love, the availability, the accessibility, the
affordability, and we need to bring that back here. Thank you.
Chairman Peters. Thank you, Senator Rosen.
Ranking Member Paul has a few closing questions.
Senator Paul. I think it has been a good discussion.
Everybody seems to agree there is a problem. That is a good
starting point. But like most of the discussions, I agree
somewhat with Senator Blumenthal, the description of the
problem is much easier than the actual availability of the
answer.
All four of you have said that there is a lack of
incentives that lead to shortages, so what are incentives?
Allowing the price to rise or moving price controls so prices
can rise for a generic, particularly when they become the only
one. When there is a shortage of supply you have to allow the
price to rise.
Some have said, there is a race to the bottom on prices.
Maybe prices are more elastic on the downward side than they
are on the upward. There are not many regulations saying that
you cannot lower your price, but there are a lot of regulations
that say you cannot raise your price.
What happens is, you think about, Medicaid and Medicare are
at least half, if not more than half. Their prices are stuck.
If you have a shortage of doxycycline, the price needs to go
up. The price will not go up for Medicare and Medicaid. But
private insurance is pretty sticky too. The contracts are long-
term and they have made long-term contracts. The gas stations,
the prices go up and down every day, so they can meet supply
and demand. That is the answer. You have to allow prices to go
up and down. It is sticky prices, inelastic prices, that cause
shortages.
Now you say you want other incentives. What else can we do?
There are two other ways you could help companies. You could
either subsidize them or give them a tax break. People on our
side of the aisle tend, most of the time, not to be in favor of
subsidies because if you give a subsidy to somebody that is not
any good at something you have squandered your subsidy. If you
give them a tax break, they only get it if they are good at it,
because you only get to deduct your profit. If you do not make
a profit, the tax break does not do you anything.
Now we did, once upon a time, have huge tax breaks in
Puerto Rico. It was a 100 percent tax credit. If this body
wants more American and closer-to-home production, reinstitute
the Puerto Rico tax break.
But I would go one step further, and I agree with Senator
Rosen. We have a bill that would take the opportunity zones
that have designed as poverty areas in our country, and there
is a bunch of them in every State. We would say to the
pharmaceutical industry, we are not just going to give you what
the last tax bill did, we are going to go further because
really, they have not worked that well. I am all for them.
I call them economic freedom zones. I have been talking
about them for five or six years. Jack Kemp talked about them
20 years ago. They never have really worked because the
incentives have not been good enough or have been too difficult
to get the incentives. Let us make them bigger, either a tax
credit like we used to have or lower or abolish the income
taxes, let us make it immediate, and let us let them start
doing it, because they have not moved because the incentive is
not enough. We could have more domestic production.
The only thing I will finish with is I think we have to be
careful, as a country, not to have irrational anger toward
China. Look, I have been talking about COVID coming from the
lab for two years. I am not an apologist for China. But at the
same time I do not want to end trade with China. It was
mentioned here--you end trade with China, you want to see
shortages, you are going to see a catastrophe. We cannot
overnight do that.
Should we encourage more production here? Yes. Let us have
more production here, but let us do not be irrational in our
anger toward China such that we disconnect and have no trade.
Both of our countries have grown wealthy because we have
traded, and we should be wary of that before we go further.
But I think it was a great panel and I hope people will
take to heart that everybody believes we need more incentives.
We have to figure out how those incentives can be put into
action.
Thank you all for coming.
Chairman Peters. Thank you, Ranking Member Paul.
I think this is an important issue that we have to really
drill down on, so a little bit more clarification on it, and
picking up on the questions that Ranking Member Paul has. When
he says that we have sticky prices that cannot go up, that is
because they are contracts, Medicare contracts and others,
which is part of capitalism. If you are a really big customer
you will negotiate for a price--that is pure capitalism--and
then you lock into a contract to do that, which is part of the
market. But is that the reason why we are seeing shortages is
because we have big customers locking in contracts for a price?
I am a little concerned. In fact, in our report,
fludarabine was a drug that had a shortage here, and I see once
it was in shortage it was less than $300 a vial, but all of a
sudden the manufacturer raised it to $2,736 per vial.
Especially if you only have one manufacturer making a drug you
own that market and the price could go right through the
ceiling as well.
Talk to us a little bit about price controls. Dr. Goodman
talks about price controls. Are there price controls by the FDA
or are these contracts that folks who are big customers are
entering into in order to have some control over the prices
that consumers pay? That is usually a good way to make sure
consumers are not gouged is by having a long-term contract.
Any of you can answer that. Dr. Fox, you are shaking your
head.
Ms. Fox. Thanks, Senator Peter. I will say that you are
exactly right with the contracting. The reason why hospitals
cannot pay 10 times the amount for a drug next week is because
we will still only get paid our capitated rate that has been
locked in for years. The insurance and the way that we pay for
health care in this country really does not allow for prices to
change every day, like at the gas station.
Chairman Peters. Anybody else? Dr. Goodman.
Mr. Goodman. Again, I am going to sound like I am repeating
myself. This is in the report that you all put together, which
I think is a very good description of the problem. What your
own report says is this is a market where people compete only
on price. I just want to say again, if buyers and sellers only
compete on price and nothing else we are going to get a race to
the bottom of all the other features of the product, including
reliability. What I mean by reliability is, the product is
there when you need it, and if you sacrifice reliability you
are going to have shortages.
If I could just take Mark Cuban's plant, for example, what
could you all do to make sure that Mark Cuban is successful
with his U.S.-based plant? You can allow him to say, ``Look,
the FDA can come by my plant any day of the week, at the drop
of the hat, no prior announcement, and inspect my facility.
That does not happen in India. It does not happen in China. I
am held to a higher safety standard than those guys overseas.
Furthermore, I am going to invest in reliability, so when you
come to''--what does he call it? Cost Plus Drugs--``when you
come to Cost Plus Drugs online it is going to be there when you
need it.''
If he could say those kinds of things to his consumers he
would be competing in the right way.
Chairman Peters. You are saying the FDA is preventing
companies from saying----
Mr. Goodman. Yes.
Chairman Peters. Is that accurate? Dr. Shuman, you cannot
assess the quality of a drug? There is not information, because
the FDA just simply does not allow you to have the information?
Dr. Shuman. I cannot answer the regulatory question. I
would defer to Dr. Fox. I will say we, as individual doctors
and institutions, do not have any way of gauging quality, and
the answer for that, I believe Dr. Fox----
Chairman Peters. Dr. Fox?
Ms. Fox. Thank you. That is true. Because there is no
requirement for any company to list which company even made the
drug, where it was made, sources of raw material, there is no
way to assess which company has a good quality record and which
company has a bad quality record.
Chairman Peters. That is a lack of transparency. That is
not the FDA saying you cannot say that.
Ms. Fox. No. FDA cannot share that information. FDA has the
information but legally they cannot share.
Chairman Peters. They have the information about all these
drugs?
Ms. Fox. Most of it.
Chairman Peters. But they are just not sharing it.
Ms. Fox. Correct. Congress could change the labeling law to
require drug companies to disclose that, and they could also
change the law to allow the FDA to disclose that. But right now
the companies decide what is confidential.
Chairman Peters. Yet even a lot of the companies do not
know where some of this stuff comes from, is my understanding.
Is that correct?
Ms. Raghavendran. Chairman Peters, just to add some color
to what Dr. Fox shared, when we analyze labels, only three
percent of labels actually listed who the active ingredient
manufacturer is. There is very little information in the public
domain about who makes these drugs.
Chairman Peters. But does the company know? The company
knows and the FDA knows, you are telling me? Or we do not know
because that is just not really tracked?
Ms. Raghavendran. The finish dose manufacturer that
purchases the active ingredient will know who the active
ingredient----
Chairman Peters. Oh, so they will know. Do they provide
that information to the FDA, and the FDA is just not telling
anybody?
Ms. Raghavendran. Yes, Senator, I would have the FDA has
certain confidentiality requirements that bind them.
Chairman Peters. Also the report shows that there are
multiple layers of manufacturing processes that could also
create false appearance that there is actually diversity in the
suppliers, and all of you have touched on this. I think there
were 12 FDA-approved manufacturers, fludarabine, which is the
one I mentioned here earlier, a critical drug for treating
childhood and adult cancers. But only a handful of those
approved are actually supplying the drug.
It looks like there is a lot of diversity but there really
is not. There are just a couple of companies out there? That is
lack of transparency? Talk to me about that, why that is a
problem. Dr. Fox.
Ms. Fox. Yes, that is exactly right. I can look, and it
looks like there are maybe six or seven suppliers of this
product. No problem if we have a shortage because the other
companies might be able to make up the difference. But when all
of those companies are actually getting their product from just
one or two sources, then we have a false sense of security. All
of that information in your report, which is fantastic, is
really not publicly available to anyone at a hospital to do
that level of research.
Chairman Peters. But it is available to the FDA. They have
all of that information.
Ms. Fox. It is but I do not believe that they can access it
well. A lot of that information is buried in portable document
format (PDFs). They can change. They only get the information
once a year as a snapshot in time.
Chairman Peters. Any other comments?
We have to dive into these issues. We are going to be
talking to all of you more than just what we can cover here.
With all that is happening today as well as votes occurring
right now, which is my Committee is now all gone, except for
me, as they run to vote.
But I look forward to working with you, each and every one
of you, as we look for some solutions. There is no question
that identifying a problem always is easier than identifying
solutions, but this Committee is about solutions and we would
need your expertise to help us sort this out so that we can
deal with this problem.
I want to thank all of you for joining us today and
offering very important testimony. The testimony received today
and findings identified in my report that we put out today
certainly point to the need for reforms, and I intend to work
with my colleagues and will introduce legislation to address
the underlying causes of these shortages as we seek out
appropriate solutions to what are clearly major problems.
The hearing record will remain open for 15 days, until 5
p.m. on April 6th, for the submission of statements and
questions for the record. Thank you again. This hearing is now
adjourned.
[Whereupon, at 12:26 p.m., the hearing was adjourned.]
A P P E N D I X
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