[Senate Hearing 118-750]
[From the U.S. Government Publishing Office]
S. Hrg. 118-750
DRUG SHORTAGES: EXAMINING SUPPLY
CHALLENGES, IMPACTS, AND POLICY
SOLUTIONS FROM A FEDERAL
HEALTH PROGRAM PERSPECTIVE
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 5, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
62-303--PDF WASHINGTON : 2026
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina
SHERROD BROWN, Ohio BILL CASSIDY, Louisiana
MICHAEL F. BENNET, Colorado JAMES LANKFORD, Oklahoma
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(II)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Hernandez, Inmaculada, PharmD., Ph.D., professor, Division of
Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical
Sciences, University of California, San Diego, La Jolla, CA.... 5
Wosinska, Marta E., Ph.D., senior fellow, Schaeffer Initiative on
Health Policy, The Brookings Institution, Washington, DC....... 6
Coukell, Allan, senior vice president, public policy, Civica Rx,
Lehi, UT....................................................... 8
Westin, Jason R., M.D., MS, FACP, director, Lymphoma Clinical
Research Program, and section chief, Department of Lymphoma and
Myeloma, M.D. Anderson Cancer Center, Houston, TX.............. 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Coukell, Allan:
Testimony.................................................... 8
Prepared statement........................................... 45
Responses to questions from committee members................ 48
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement with attachment........................... 60
Hernandez, Inmaculada, PharmD., Ph.D.:
Testimony.................................................... 5
Prepared statement........................................... 67
Responses to questions from committee members................ 76
Westin, Jason R., M.D., MS, FACP:
Testimony.................................................... 10
Prepared statement........................................... 83
Responses to questions from committee members................ 85
Wosinska, Marta E., Ph.D.:
Testimony.................................................... 6
Prepared statement........................................... 90
Responses to questions from committee members................ 97
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 108
Communications
Alliance for Pharmacy Compounding................................ 111
American Academy of Dermatology Association...................... 116
American College of Emergency Physicians......................... 117
American Hospital Association.................................... 122
American Pharmacists Association................................. 124
EPCOT International.............................................. 126
Federation of American Hospitals................................. 132
Healthcare Leadership Council.................................... 133
Healthcare Supply Chain Association.............................. 136
Physicians Against Drug Shortages Inc............................ 139
Society of Gynecologic Oncology.................................. 145
STAQ Pharma...................................................... 147
United States Pharmacopeia....................................... 148
DRUG SHORTAGES: EXAMINING SUPPLY
CHALLENGES, IMPACTS, AND POLICY
SOLUTIONS FROM A FEDERAL
HEALTH PROGRAM PERSPECTIVE
----------
TUESDAY, DECEMBER 5, 2023
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:06
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Stabenow, Cantwell, Menendez, Carper,
Cardin, Brown, Bennet, Casey, Warner, Whitehouse, Hassan,
Cortez Masto, Warren, Crapo, Cassidy, Young, Barrasso, Johnson,
Tillis, and Blackburn.
Also present: Democratic staff: Shawn Bishop, Chief Health
Advisor; Joshua Sheinkman, Staff Director; and Tiffany Smith,
Deputy Staff Director and Chief Counsel. Republican staff:
Kellie McConnell, Health Policy Advisor; Stuart Portman, Senior
Health Policy Advisor; Gregg Richard, Staff Director; and Conor
Sheehey, Senior Health Policy Advisor.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order. This
morning the Finance Committee meets to discuss the drug
shortages that are plaguing Americans in communities across the
country.
In America today, if you receive a cancer diagnosis,
chances are scientists and doctors have developed effective
treatments to fight or beat this horrible disease. While most
of the spotlight tends to fall on new, cutting-edge
innovations, some of the most vital treatments for millions of
Americans suffering from cancer and other chronic illnesses are
lower-cost generic medicines that can really help and have been
around for many years. These are the products where the
shortages are felt the most, and it threatens the health and
well-being of the country.
Earlier this year, the Finance Committee began to
investigate what was causing a widespread shortage of ADHD
medications in Oregon and across the country. What we found was
shocking. The supply chains for these prescriptions that
millions of Americans count on to work and learn were bogged
down in what can only be called bureaucratic bedlam.
Manufacturers, the DEA, and the Food and Drug Administration
all offered conflicting explanations for why the shortages for
Adderall and its generics have persisted, and why patients have
been in the dark without clear answers.
So, we are now pushing to resolve these shortages and add
transparency and flexibility so it does not happen again. So
today, the Finance Committee is going to examine the causes of
these devastating drug shortages. In particular, the committee
is going to look to use the power of Medicare and Medicaid,
which covers millions of Americans and pays for hundreds of
billions of dollars in health-care spending every year.
This is urgent business for this committee, and it is going
to be key to find bipartisan solutions that are going to get at
this persistent and tragic problem. The consequences of these
drug shortages are not abstract. I have town hall meetings in
all of my counties each year, and at all of these meetings I am
hearing about the problems of shortages at pharmacies in
Oregon, across the State--and this has hit rural communities
and rural America like a wrecking ball.
There has been story after story of drug shortages
resulting in rationing, inappropriately low doses, or
alternative treatments that are not as safe and effective as
the product that is experiencing the shortage. These shortages
can be life or death for kids, especially when it comes to
cancer drugs.
The evidence shows that the cause of the vast majority of
drug shortages is, in effect, a set of market failures. Right
now, they exist across the prescription drug supply chain from
manufacturers to providers, as well as the middlemen that we of
course know here: the PBMs and drug wholesalers.
The substantial portion of the market failures are driven
by the consolidation of generic drug purchasing among a small
group of very powerful health-care middlemen. There are many
companies that manufacture generics, but they must compete for
the attention of highly consolidated middlemen, such as the
drug wholesalers and hospital group purchasing organizations,
to gain access to markets.
In the case of drug wholesalers, three companies control 90
percent of the pharmaceutical market in the country, and all
three of those companies are among the top 15 largest
businesses in America by revenue. The generic manufacturers
that are awarded contracts by these middlemen do so by offering
penny-on-the-dollar prices that mean they cannot invest in the
capacity or equipment that is the key to actually making
reliable, high-quality medications.
So you have, in effect, a ``race to the bottom'' price war
for generics that leads to quality control problems and factory
shutdowns, which leads to a shortage of generic drug products
that, of course, are in high demand.
So, we are in a position on the Finance Committee to
correct this mess. Senator Crapo and I work often on these
issues, particularly where we are dealing with issues that
involve Medicare Part A and Part B; B in particular, paying for
services in doctor's offices, hospitals; Part A, including
prescription drugs that are administered there like
chemotherapy treatments and related injectable drugs.
Some of the injectables are facing the most serious
shortages. In Part D, 90 percent of the medications dispensed
are generics. As the committee has found as we worked on the
pharmacy benefit manager issue, even if manufacturers are
selling generics at low prices, the middlemen have free rein to
mark up prices along the way, and once again the circle comes
back with seniors getting higher costs in America.
While middlemen get rich and consumers pay more than they
ought to for generics, manufacturers may decide it is not worth
the trouble to even produce the medicines and just get out of
the market.
So those are some of the issues that we have to tackle.
Suffice it to say not all of these issues relating to market
failures will come up in coffee shops across America every
morning, but we sure know that a lot of people are hurting, and
they are talking about what is going to be done about this. We
have a chance to work in a bipartisan way, as we have done on
health-care issues so often.
I want to recognize my friend, Senator Crapo.
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you, Mr. Chairman. This year, the
Finance Committee has taken unparalleled action on prescription
drug access and affordability. Our bipartisan PBM reform
legislation would cut patient costs at the pharmacy counter,
strengthen provider choice for seniors across the country, and
reverse warped incentives that currently favor higher-priced
medications.
Our policies would accomplish all of this and more, while
reducing the Federal deficit. Taxpayers, consumers, and
community pharmacies deserve to see these bills passed by the
full Congress and delivered to the President's desk as quickly
as possible.
For patients with chronic conditions, as well as
independent pharmacies at risk of potential closure, inaction
is not an option. As our PBM process has shown, bipartisan,
consensus-based, and market-driven policymaking can address a
wide range of challenges facing seniors and working families.
In that same spirit of exploring effective legislative
solutions, today we turn to another issue harming the health
and finances of Americans in every State: the surge in drug
shortages. For treatments targeting any number of conditions,
from pediatric cancer to mental health ailments, our ability to
prevent and resolve shortages can mean the difference between
life and death. To develop meaningful policy improvements to
reverse the current rise in drug shortages, however, we first
need to understand and examine the economic drivers, with a
focus on Federal programs within our committee's jurisdiction.
While high-priced medications have received outsized
attention during prescription drug discussions in Congress,
shortages disproportionately affect low-cost therapeutics,
which operate in a largely different and increasingly
challenging economic environment. In fact, 84 percent of
shortages occur in generic drugs, and 56 percent of products in
shortages have unit prices below a single dollar. Given that
generics comprise roughly 9 in every 10 prescriptions filled
across the United States, these shortages can inflict drastic
harm on massive populations of Americans.
The average shortage affects at least half a million
consumers, forcing them to scramble for viable alternatives--or
they will forgo treatment entirely. As experts and officials
have broadly affirmed, the structure of the generic market
incentivizes a proverbial race to the bottom on pricing.
Since 2016, generics have seen price erosion in excess of
50 percent. The razor-thin margins resulting from these
dynamics trigger of host of dire consequences, from
discouraging quality investments to spurring widespread
outsourcing, including to China. Moreover, the generic drug
maker exit rate currently exceeds the rate of entry, and
upwards of 40 percent of generic medication markets are
supplied by a single manufacturer.
Rather than reduce shortage risks, unfortunately a number
of government policies make them even more pervasive. And
worse, Medicaid's inflation-based rebates, for instance, can
trigger massive uncapped losses on even low-cost generics, in
addition to requiring literal penny pricing under 340B.
These and other price-control policies warrant serious
scrutiny in the context of generic products, especially for
sterile injectables, which carry high production costs and
offer minimal return. More broadly, our reimbursement systems,
including under Medicare, offer little opportunity or incentive
for drug makers to compete on dimensions other than price, such
as reliability and resiliency.
The House Energy and Commerce Committee's comprehensive
work on this issue thus far is welcome. Enacting effective
legislation will necessitate bipartisan and bicameral
collaboration. The Finance Committee can build on our strong
track record of solutions-oriented policymaking to address the
rash of drug shortages afflicting families across the country.
Mr. Chairman, before I conclude, I would like to ask
unanimous consent to enter a statement from the Community
Oncology Alliance into the record.
The Chairman. Without objection, so ordered.
[The statement appears in the appendix beginning on p. 61.]
Senator Crapo. This statement highlights the grave risks
posed by shortages for those seeking cancer care. With that,
thank you to our witnesses for being here today, and thank you,
Mr. Chairman.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. I thank my colleague, and I think this is
another issue, along with the work we have been doing on the
PBMs and other matters, that is ripe for a bipartisan effort,
and this would respond to both patients and taxpayers. I look
forward to working with all my colleagues on it.
We have an excellent panel, sort of the NBA all-stars of
the field, so to speak. Dr. Inma Hernandez is a pharmaceutical
health services researcher and a professor at the University of
California at San Diego. Her research focuses on improving
medication uses, outcomes, and equity. We welcome you.
Next to you is Dr. Marta Wosinska, a senior fellow with the
Schaeffer Initiative on Health Policy at the Brookings
Institution. She is a health economist who specializes in the
question of markets--obviously the topic today--and has worked
at the FDA, the Federal Trade Commission, and the Department of
Health and Human Services.
Then we have Mr. Allan Coukell, vice president for public
policy with Civica Rx, president of the Civica Foundation. He
started his career as a clinical pharmacist in the field.
And then we have Jason Westin, professor of Medicine in the
Department of Lymphoma-Myeloma at the University of Texas M.D.
Anderson Cancer Center, and he is director of lymphoma clinical
research there at the Center.
So we have an excellent panel. Let's begin with you, Dr.
Hernandez, and I know everybody always feels sort of compelled
to read every word in their statement. We will make your
statements part of the hearing record in their entirety, and
you can just take your 5 minutes or so and tell us what is
important to you. Doctor?
STATEMENT OF INMACULADA HERNANDEZ, PharmD., Ph.D., PROFESSOR,
DIVISION OF CLINICAL PHARMACY, SKAGGS SCHOOL OF PHARMACY AND
PHARMACEUTICAL SCIENCES, UNIVERSITY OF CALIFORNIA, SAN DIEGO,
LA JOLLA, CA
Dr. Hernandez. Chairman Wyden, Ranking Member Crapo, and
honorable members of the committee, thank you for the
invitation to testify today. My name is Inmaculada Hernandez,
and I am a pharmacist by training and a professor at the
University of California in San Diego.
Mr. Chairman, I applaud you for holding this hearing. Drug
shortages are a significant public health risk of the highest
national priority. This year, doctors were forced to ration the
use of cancer drugs due to a shortage. This shortage is only
one of hundreds that threaten patient access to lifesaving
medications.
In the U.S., drug shortages disproportionately affect low-
cost generic products. There are many underlying factors
contributing to shortages, but the primary drivers are economic
and regulatory. My testimony will focus on economic drivers and
offer potential solutions.
Generic drugs are equivalent versions of the same product
manufactured by different companies. Generally, the pharmacy or
the provider can choose any manufacturer's version. The
reimbursement paid to the pharmacy or the provider is the same
regardless of the generic version selected. As a result,
pharmacies and providers are incentivized to purchase generic
versions with the lowest acquisition cost. In other words,
pharmacies and providers have no incentive to purchase drugs
from manufacturers that have more resilient and dependable
supply chains.
These reimbursement practices have been crucial to keep
costs down in Medicare and Medicaid. However, they have eroded
prices, and in some cases threatened market sustainability.
Manufacturers lack incentives to invest in dependable supply
chains. This is particularly the case for products with limited
profitability, such as older but essential generic injectables.
They are expensive to manufacture, and their prices have sunk
after decades of competition.
Manufacturers respond to decreased profit margins by
engaging in cost-containment strategies. These include reduced
factory maintenance, for example, but also offshoring. Most
generic drugs used in the United States are manufactured
overseas, primarily in India and China.
Cost-containment strategies, including offshoring, increase
the risk of quality issues. Manufacturers in India and China
receive the most FDA warnings for violations of good
manufacturing practices. Quality issues generate shortages
because production must be halted until issues are resolved. In
light of these changes, manufacturers may decide to discontinue
the production of less-profitable drugs. This contributes to
market concentration and limits the ability to respond to
supply disruptions.
In summary, we have a drug supply chain that heavily relies
on foreign manufacturing. This is a national public health
risk. We also have a reimbursement system that fails to reward
manufacturers to invest in dependable supply chains.
In some cases, profit margins are so low that manufacturers
simply do not have incentives to produce the drug at all.
Policy intervention is urgently needed to address these issues.
Short-term, the Federal Government should consider funding the
reshoring of generic manufacturing. Funding should be tied to
supply guarantees and resilience of the supply chain.
In addition, we need to build incentives for pharmacies and
providers to purchase drugs from manufacturers with dependable
supply chains. This could be achieved through the incorporation
of value-based payments, meaning that payments to pharmacies
and providers could be higher when they select generics from
more dependable supply chains.
Admittedly, these solutions will likely result in increased
government spending. This spending is a necessary investment.
Without intervention, drug shortages will continue to threaten
patient access to lifesaving medications. Just as we invest in
building roads and bridges and manufacturing semiconductors, we
must invest in generic drugs. It is critical to further our
country's health and to protect national security.
Thank you for your attention.
[The prepared statement of Dr. Hernandez appears in the
appendix.]
The Chairman. Thank you very much, Dr. Hernandez. There was
a little huddle here because we all think your testimony is so
impressive, and we are trying to figure out the next steps. We
thank you.
Dr. Wosinska, please, your testimony.
STATEMENT OF MARTA E. WOSINSKA, Ph.D., SENIOR FELLOW, SCHAEFFER
INITIATIVE ON HEALTH POLICY, THE BROOKINGS INSTITUTION,
WASHINGTON, DC
Dr. Wosinska. Chairman Wyden, Ranking Member Crapo, and
members of the committee, thank you for inviting me here today.
My name is Marta Wosinska, and I am an economist and a senior
fellow in economic studies at the Brookings Institution. I have
been studying drug shortages for over a decade. Much of my work
deals with economic incentives that contribute to drug
shortages.
In the follow-on conversation, I will be able to speak to
drug shortages more broadly, but in my remarks, I would like to
discuss why low-cost generic, sterile injectable drugs are so
vulnerable to shortages, and why this committee is well-
positioned to address these shortages.
Generic sterile injectable drugs, or what I call GSI drugs,
include drugs to treat cancer, crash cart drugs used to treat
life-
threatening emergencies, morphine, IV antibiotics and IV
nutrition, and something as basic as saline and sterile water
for injection.
GSI drugs are and have been for years the most common type
of drugs to be in shortage. Typically, these drugs represent
about half to two-thirds of all shortages. GSI shortages result
primarily from manufacturing quality problems at facilities
where the final product is made, often in the United States.
The resulting shortages generally last months, and more
increasingly, several years.
What is vexing about these shortages is that they are
largely avoidable. Most of these shortages do not result from
external shocks like pandemics or natural disasters, but
instead from factors that drive how hospitals buy GSI drugs and
the underinvestment in manufacturing operations that follows.
So what are the factors driving which GSI drugs hospitals
buy? All payers, including CMS, reimburse hospitals in a way
that gives them incentives to use the lowest-priced GSI drug
available. These reimbursement mechanisms have a point. After
all, two generic versions of the same drug are therapeutically
equivalent, and therefore readily substitutable.
But therapeutic equivalence is not the same as reliability
of supply. The price pressures put on manufacturers create a
dynamic where there is little return on investing in
manufacturing facilities, staffing, and oversight. These price
pressures are particularly consequential for GSI drugs, because
making those drugs requires specialized facilities where
employees follow complex manufacturing processes and controls.
There is simply less room for error in manufacturing because
GSI drugs must be sterile and free of particulates.
As the largest single payer for hospital space and
outpatient visits in the U.S., CMS is well-positioned to
influence how hospitals buy. If we want to address the
persistent GSI drug shortages, CMS will need to pay hospitals
differently, incentivizing them to consider reliability of
supply in their purchasing decisions.
This can and should be done by rewarding hospitals for
buying reliably and for buffering before shortages happen. In
my written testimony, I describe in detail how such a program
could be stood up. Here, I will only mention that the proposed
program builds on and boosts existing tools to assess
reliability and efforts to reward supply chain reliability,
such as the one that the next witness will discuss.
The program leverages the private sector's ingenuity in
developing new tools and creating new contracting models, and
the program goes beyond rewarding manufacturing quality. It
also provides rewards to protect from other sorts of problems
like natural disasters and geopolitical instability. The
program also accounts for the differences in the economic
environments that different hospitals face, which is really
important.
And last but not least, the program can be stood up now,
without having to wait for FDA to develop a set of quality
metrics. But CMS does not have the authority to set up such a
program, especially one that is not budget-neutral. This
committee, however, can grant that authority.
To conclude, I would like to say that this is not the first
time we have had cancer drug shortages, and it will not be the
last unless Congress steps in to support CMS's role in this
space. Getting at the issue through CMS is critical because CMS
is much better positioned than FDA to address economics.
For this reason, I would like to again thank Chairman Wyden
and Ranking Member Crapo for holding a hearing on this issue. I
hope you will consider the recommendations I provided in my
testimony, and I look forward to answering your questions.
[The prepared statement of Dr. Wosinska appears in the
appendix.]
The Chairman. Thank you very much.
Mr. Coukell?
STATEMENT OF ALLAN COUKELL, SENIOR VICE PRESIDENT, PUBLIC
POLICY, CIVICA Rx, LEHI, UT
Mr. Coukell. Chairman Wyden, Ranking Member Crapo, and
members of the committee, thank you for holding this important
hearing on the pressing issue of drug shortages. My name is
Allan Coukell. I am a pharmacist by training, and I lead public
policy for Civica, also known as Civica Rx.
Civica is the only pharmaceutical company established
specifically to address drug shortages. It was founded by a
group of U.S. health systems and philanthropies who, after a
decade of shortages, realized that the market is not self-
correcting, and that a different approach is required.
They created Civica as a nonprofit with the mission to
deliver a safe, stable, and affordable supply of essential
medicines to U.S. patients. In our first 5 years of operation,
our hospital membership has grown to 1,500 hospitals. We have
80 drugs now with nearly 150 million vials delivered. And with
U.S. Government support, we have built a state-of-the-art
injectable drug manufacturing facility in Petersburg, VA.
Civica drugs are not chosen for their return on investment;
they are chosen by hospitals because they're in shortage or at
risk of being in shortage. They tend to be old and low-cost,
but absolutely essential and used in every hospital every day
to treat patients. Because of our mission, Civica does some
things differently from the traditional generic drug supply
chain. For example, we enter long-term purchase and supply
contracts that add stability to the market. We maintain a 6-
month buffer inventory of every drug to ensure continuity of
supply. We also emphasize U.S. sourcing whenever possible, with
the EU and Canada as our next choice--and we do not source from
China unless there is no other option.
To reduce the risk of a failure to supply, we perform an
intensive quality audit of potential suppliers and ongoing
quality reviews, and every drug is sold at the same price to
any purchaser. The success of the approach has been proven. In
fact, 20 of our top 25 products are currently in national
shortage, and yet we are supplying a number of hospitals
without interruption.
When a tornado hit a generic drug manufacturing plant in
North Carolina a few months ago, we immediately let a number of
hospitals know that of the 21 drugs we have that overlap with
drugs from that facility, we would be able to supply double
their committed volume. And a recent peer-reviewed study found
that supply through Civica is not only more reliable than
conventional sources, it also produced net cost savings. So,
the resilience of this model points to steps that this
committee could take to prevent future drug shortages.
And make no mistake; shortages are not a passing storm that
will soon blow over. After a dozen years, they must now be
understood as a built-in and permanent outcome of our current
system. The U.S. system is designed so that purchasers of drugs
are incentivized to choose the lowest price, saving pennies on
already low-cost products instead of purchasing in a way that
makes shortages less likely.
Civica's member hospitals have already taken steps to shift
the equation, but many others have not, and without action,
things will get worse. The immediate cause of most shortages is
quality problems in the manufacture of the finished dosage
form, but the root cause, as we have said, is low prices.
To put that in perspective, a vial of sterile injectable
medicine typically costs less than this cup of coffee that I
bought downstairs this morning. So this reduces the incentive
of manufacturers to invest in quality or newer manufacturing
facilities. Low prices push production offshore to low-wage
markets where quality problems proliferate and the FDA presence
is less consistent.
Finally, it takes time to ramp up pharmaceutical
production. So, when one manufacturer leaves the market, we are
facing a shortage, even if there are other manufacturers that
already have FDA approval to make that drug.
So, policy responses to reduce shortages should include
measures to incentivize or encourage providers to contract for
adequate buffer inventory, purchase from manufacturers that are
less likely to have quality failures, and enter long-term
contracts that bring stability to the market.
We also encourage Congress to work directly with
manufacturers to create an insurance policy. For the cost of
about $4 million a drug, Congress can ensure that we have
backup domestic manufacturing capacity ready to go when a
shortage starts. And how smart would we feel today if 5 years
ago we had made this investment in cancer drugs, and we were
prepared for the shortages we are experiencing now? A timely
investment will provide a cost-effective insurance policy for
the future.
Thank you again for your attention to this topic and for
the opportunity to be here, and I look forward to your
questions.
[The prepared statement of Mr. Coukell appears in the
appendix.]
The Chairman. Thank you very much.
Dr. Westin?
STATEMENT OF JASON R. WESTIN, M.D., MS, FACP, DIRECTOR,
LYMPHOMA CLINICAL RESEARCH PROGRAM AND SECTION CHIEF,
DEPARTMENT OF LYMPHOMA AND MYELOMA, M.D. ANDERSON CANCER
CENTER, HOUSTON, TX
Dr. Westin. Chairman Wyden, Ranking Member Crapo, and
members of the committee, it is my pleasure to appear before
you to discuss the drug shortage crisis facing our patients. I
am Dr. Jason Westin, professor of medicine, and director of
lymphoma clinical research at M.D. Anderson Cancer Center in
Houston, TX.
Today I am speaking on behalf of the Association for
Clinical Oncology, or ASCO, the leading oncology professional
organization, representing nearly 50,000 oncology professionals
dedicated to improving cancer care. We deeply appreciate the
committee's bipartisan dedication to addressing the root causes
of drug shortages.
I am here to provide a firsthand account of the challenges
faced by cancer patients and their health-care providers from
oncology drug shortages. This crisis impacts whether patients
receive lifesaving and life-prolonging oncology drugs as
intended, or are forced to receive suboptimal alternatives,
reduced doses, delayed treatments--or worse, not receiving our
best therapies.
Many of my colleagues have been forced to make impossible
choices, including to choose which patients will be prioritized
to receive potentially curative therapy. When physicians must
use treatments that may not be standard of care, prior
authorization, already an untenable burden, becomes even more
intrusive. Patients and their families look to us as a trusted
source, and we are left with no explanation.
In 2022, I encountered a shortage of a drug called
fludarabine, a cheap and generic drug initially approved over
30 years ago. Fludarabine is not the most common drug anymore,
but it is an essential component of CAR T-cell therapy, an
almost science fiction-like technology that weaponizes a
patient's own immune cells to fight their cancer and hopefully
eliminate their cancer, which can sometimes cure patients of
otherwise fatal cancers.
The effectiveness of CAR T-cell therapy, however, is
dependent upon being given with fludarabine, and unfortunately
there are no proven alternatives. My patients with rapidly
progressing, relapsed aggressive blood cancers usually only get
one shot at CAR T-cell treatment, because they may be too sick
to try again. And with shortages, I do not know if CAR T-cell
will work without fludarabine, and I cannot wait to try when
fludarabine is back in stock.
In other words, the absence of a generic and cheap drug
like fludarabine literally can be a difference between life and
death. I recently treated a young mother of three with cancer
that grew despite multiple lines of treatment. Contemplating
hospice care, she received CAR T-cell therapy and now is in a
long-term remission, offering her the potential for decades of
life, and her children the security of having their mom alive
and well.
Her story and countless others like it would not be
possible without drugs impacted by these shortages. We know how
to treat cancer, but shortages force impossible choices. We
have drugs that are lifesaving and shortages that are life-
threatening.
The U.S. needs a more robust drug supply chain to avert
future shortages of key medications. Most oncology drugs in
shortage are older generic injectables that typically
experience slim or sometimes negative profit margins. The
leading cause of shortages is manufacturing quality issues, and
correcting these can be expensive, leaving manufacturers
shuttered for months or deciding to leave the market
altogether.
Quality issues in one company can impact and have a domino
effect on the entire supply chain. Current drug payment
policies can compound quality issues, as purchasers have
limited information, typically only price data, and do not have
access to quality or supply information. This creates
incentives for manufacturers to prioritize cost-cutting over
quality improvements.
The current Medicare payment system bases drug
reimbursement on average sales price plus 6 percent, which may
result in artificially low reimbursement because of delays in
updating ASP. This creates barriers for new manufacturers to
enter, for production increases, and for correcting quality
issues. Congress should consider alternative payment
methodologies that would provide immediate relief from
artificially low rates and encourage a more reliable supply of
drugs.
CMS is constrained in how it pays for drugs, but it could
use demonstration projects to set a reimbursement floor on
shortage-prone critical drugs, could investigate tying
increased reimbursement to guaranteed supply, or could leverage
the FDA's pilot program, which promotes quality manufacturing
and reliable drug supply.
There are existing examples of purchasers that were willing
to pay increased prices for a return on guaranteed supply.
Policymakers can incentivize drug suppliers that make changes
by promoting advanced manufacturing technology and continuous
manufacturing for critical drugs, by considering coupling
enforcement mechanisms to existing risk management
requirements, and by incentivizing purchases to favor
manufacturing of reliable supply.
HHS could incentivize a private-sector reserve of essential
medications, medical devices, and supplies. These proposals
should be implemented in a manner that avoids hoarding or
creates additional shortages or supply chain challenges, and
includes consideration of the unique need of independent and
private practices.
We recognize concerns around increased cost, but we will
pay a greater long-term cost in the form of delayed or denied
care if we do not address underlying economic forces driving
shortages of generic drugs.
In conclusion, we at ASCO applaud the committee's effort to
enhance the pharmaceutical and medical supply chain, to protect
our Nation's most vulnerable patients. The shortage of critical
cancer drugs is an urgent crisis, and we stand ready to
collaborate with you to advance comprehensive solutions that
ensure Americans with cancer receive lifesaving and life-
prolonging treatments, to help end these life-threatening
shortages. Providers should not have to make impossible choices
about patient care.
Thank you. I look forward to your questions.
[The prepared statement of Dr. Westin appears in the
appendix.]
The Chairman. Thank you very much, and all of you have been
excellent.
I want to start with you, if I could, Mr. Coukell. I mean,
you tell an incredibly important story. You talk about how,
somehow you are able to get help to people even in this whole
bedlam, as I described, of shortages, and yet your membership,
your hospitals, you have been able to continue to meet their
needs.
I think I would be interested in your thoughts if we were
to--and we are going to work on this in a bipartisan way, so we
are going to try and get as many ideas as we can out there. If
we decided to direct Medicare to pay separately for sterile
injectables, do you think that would give us a chance to get
those twin objectives: not just price, but quality?
Mr. Coukell. Thank you, Senator. I appreciate that
question. I think potentially--and it would depend on how it
was constructed--if the payment increased the provider
reimbursement but did not change the incentive to buy below the
reimbursement level, then you would have the effect of
increasing the spread or the margin without really shifting the
purchasing patterns that are driving shortages in the first
place.
But if that reimbursement that you are talking about was
tied to some of the shifts that many of the witnesses have
talked about today, in terms of laying in extra inventory and
selecting manufacturers that are less likely to have a
shortage, you could see it having exactly the desired effect.
The Chairman. Good.
Dr. Hernandez, you basically, in a very impressive
presentation--I gather you are coming out today with an
analysis that will be in the American Journal of Medicine, is
that correct? So we can talk about that and what you have shown
about price gouging and the like.
But you believe--according to your testimony, you want to
tie a lot of the reforms to value-based purchasing, which
strikes me as an appealing idea. Can you give us a little bit
more detail about how we might go about doing that? I know that
time is short and we cannot get into lots and lots of
information.
But I would just be interested in a little bit more
information about your theory of tying this to value-based
purchasing.
Dr. Hernandez. So, I think the idea could be to tie the
reimbursement to the provider on the quality and the resilience
of the supply chain of the manufacturer selected; meaning,
right now we are picking an average sales price. The average
sales price is a weighted average of all generic and other
versions for a product, right?
Providers are incentivized to buy at the lowest acquisition
cost. But maybe you could still pay based on average sales
price, but do something like average sales price plus 20
percent if you use the injectable drug manufactured from a
manufacturer that has five out of five stars in resiliency of
the supply chain.
That could need separate reimbursement, because most
generic injectable drugs, which as we heard, are most prone to
uncertainties, are reimbursed under Medicare Part A, and in
some cases under Part B. But in Part A, they are not paid
separately, meaning that the hospital gets a bundled payment
for all of the services under the hospitalization.
If we want to pay more for drugs that get manufactured from
resilient supply chains, we also need to apply that modifier to
a drug claim level that I think would probably need separated
reimbursements. So it is pretty much aligned with what Mr.
Coukell said.
I think separate reimbursement would work, and we could
attach to that a value-based modifier, meaning a percent
increase based on how resilient the supply chain is of the
generic version selected.
The Chairman. So, let me just use the rest of my time on
this question of the price gouging and the middlemen markups on
generics, and we will just throw this open to any panel member.
The Wall Street Journal recently reported that PBMs mark up
prices of generic medicines by hundreds, sometimes several
thousand percent higher than the price paid to the pharmacy.
The markups jack up costs, leaving taxpayers to foot the
bill, and do not do anything to help prevent drug shortages. I
would be interested in what this panel thinks we ought to be
doing as part of our efforts here to rein in this price gouging
by middlemen, specifically on generics? I gather that Dr.
Hernandez's study is going to come out today, be peer-reviewed,
be more extensive.
So I think we know what the problem is. Why don't we get
Dr. Wosinska--I know that you are an expert in this field and
have background in government. Why don't we start with you? But
I would be interested in what the four of you think, for my
last question, we ought to be doing with respect to price
gouging here. Doctor?
Dr. Wosinska. So, price gouging in the context of drug
shortages happens more with the gray market, when the drug is
in shortage and then hospitals are really desperate and trying
to get product in hand. So I think this is how I could tie
price gouging to shortages.
But perhaps I could speak to the role of PBMs in this sort
of dynamic, and price pressure more broadly. So PBMs are
vertically integrated with mail pharmacies and also with
specialty pharmacies. And so, just like all pharmacies, they
also, just like hospitals, try to buy the least expensive
therapeutically equivalent product possible.
So in a sense, through the pharmacy channel, they are very
much contributing to the downward price pressure. They don't
really play in the generic sterile injectables space, but they
very much contribute to the sort of price pressures in the oral
dose products. And there again, there is no mechanism, there is
no weight to put in place, really, on reliability of supply.
The Chairman. Let me just, because I am over my time--Dr.
Hernandez, your thoughts on that. You know, what is going on
here in the generic market? What can be done to rein in the
middlemen?
Dr. Hernandez. Let me just briefly summarize the findings
of the paper, so that everyone is on the same page. So we just
looked at the reimbursement rates paid by the six leading
organizations in Medicare Part D for the top 50 generic drugs
by Medicare spending.
We found 16 drugs reimbursed by at least one Part D
organization at a markup of 1,000 percent or higher, okay? For
instance, I have here an example for you. Aripiprazole is an
antipsychotic drug. The pharmacies paid an average of 17 cents
per tablet.
Rite Aid--and when I say Rite Aid, I mean the PBM, not the
pharmacy chain, because Rite Aid is also a PBM that offers Part
D plans. So, Rite Aid paid pharmacies $11.7 per tablet. Again,
the price was less than 17 cents. So we are talking here about
a 7,000-percent markup. CIGNA reimbursed pharmacies at $4.6 per
tablet, or a 2,700-percent markup. CVS Health had reimbursement
rates that were very similar, so we are not just talking here
about Rite Aid PBM.
These practices are concerning, because if patients, let's
say, had a 30-percent cushion on the aripiprazole, they could
pay 30 percent of the inflated amount. So they end up paying
much more than actually the pharmacy paid for the drug, let
alone what the manufacturer got for it.
So in summary, I think the way we pay for generics needs
reform, because on the one hand, we are failing to incentivize
manufacturers to invest in resilient supply chains. On the
other hand, on the Part D side, we are allowing
intermediaries--and by intermediaries, I mean PBMs--to inflate
the cost of drugs without justification, which ends up in
seniors paying more.
I truly appreciate the efforts, and I applaud the efforts
of the committee to look at PBMs earlier this year, and I think
the legislation that you put together has a major impact for
making a difference.
The Chairman. We will be able to ask you more in the
future, and you have been helpful. Thank you.
Senator Crapo?
Senator Crapo. Thank you very much, Mr. Chairman. And
again, thank you to all our witnesses for the expertise you
bring to us today, and let me tell you the issue that I am
focused on. Every one of you has made the point that one of the
big problems here is that we do not compensate for quality of
product. We compensate for price of product only.
And I get that. What I am trying to figure out, given the
fact that we are talking about Federal Government-administrated
payment systems, is who is going to decide--if we get a
solution here, who decides which products are worth more
compensation?
Dr. Hernandez, you said that maybe there should be a 20-
percent markup compensated by us for those that got four stars.
Who decides who gets four stars? Do we want to have a Federal
Government agency evaluate every generic provider and decide? I
personally have a little bit of trouble with that.
The hospital or the doctor who is providing or prescribing
the medicine should be making that decision, but they are going
to choose the one that they get the compensation for in a
system where the government is paying the compensation. How do
we incentivize the doctors or the hospitals to make the proper
choice, and not create a Federal Quality of Generics Agency at
the Federal level?
I hope you understand my question, and you raised your
hand, Dr. Wosinska. Why don't you go ahead, and then Mr.
Coukell and anybody can jump in?
Dr. Wosinska. Yes. I would love to speak to this. So there
have been a number of proposals, and actually, if you look at
the proposal that I put out earlier this year, I would like FDA
to continue with the steps that they have been taking to
develop metrics to ascertain whether a facility is following
good manufacturing practices, and quality maturity.
But to really expect that FDA is going to be able to do it
for all drugs would require incredible resources and many
years. Even if we were to zero in on just generic sterile
injectables, at this point we probably would be waiting several
years, and we still do not know whether the program they would
stand up and the metrics they would stand up would do exactly
what we want them to do.
So the reason why my proposal is somewhat different is--I
do think that those kinds of metrics could be built in, but I
very much believe that a pay-for-performance program for
hospitals, rather than an add-on or payment adjustment, is the
way to go.
You can basically ask hospitals to look back at the end of
the year. There are usually 30-40 shortages each year, and at
the end of the year you basically ask them: how did you do in
terms of preparing for these shortages? They do not know which
shortages, but the idea is to sort of have them be thinking
about which suppliers are more reliable, and be thinking, who
did you buy from? Did you buy from Intas, which caused the
shortage of cancer drugs, or did you buy from Fresenius Kabi?
And there is enough information out there already that
hospitals--actually not hospitals. I actually should say, I do
not expect hospitals to be doing the homework. Their GPOs are
currently doing a lot of that homework, but they are not
incentivized to use that because hospitals still want to buy
the cheapest. So there are a lot of elements in place. Civica
for example, Civica's program would do really well in this
case.
And so, the idea is to look back and then score the
hospitals. Did you pick right, where you buffered your
inventory before there was any sign of shortage? It would
really drive the development of tools, and then basically the
idea is to have an add-on, compare hospitals, just like with a
value-based payment program. Compare hospitals--so you look at
Mayo Clinic and Intermountain. Who did much better here? And
then there would be a payment adjustment at the end of the
year, where CMS would basically reward the ones that are doing
better. And you do not need FDA metrics to stand it up. We can
stand it up now.
Senator Crapo. All right.
Mr. Coukell?
Mr. Coukell. Let me add a couple of points. One, we do not
have to shift 100 percent of the market. We just need some big
chunk of the market to shift toward more reliable supply, to
give us that resiliency and redundancy that we need.
And number two, most purchasing is not done by individual
small hospitals. It's done by big organizations on behalf of
hundreds of hospitals. So these are sophisticated organizations
that can do it. Civica's a small company, but we have a process
for qualifying and validating our suppliers.
It would be useful if the FDA's quality metrics program
were out and ready, but even absent that, if we create the
market, create the incentive for the private sector to choose
quality, then I think various private-sector solutions will
emerge to evaluate the quality of different manufacturers and
make that choice.
Senator Crapo. Thank you. I see my time is up. I would
encourage both of the witnesses who did not get a chance to
address that to please send us any written response to that, if
you feel you have something to add. Thank you.
The Chairman. And thank you, Senator Crapo. This whole
question of pay for performance, we can look forward, we can
look backward, but we need more information on it. So I share
Senator Crapo's views.
Senator Stabenow?
Senator Stabenow. Well, thank you, Mr. Chairman and Ranking
Member, and thank you to all of you. And I appreciate what
Civica is doing right now in looking at how we tackle this.
This is such a complicated issue. It is not just in what is
happening in supply chains and so on, but price. And if you
step back and look at the whole thing, it starts with taxpayers
of this country giving hundreds of billions of dollars to drug
companies for basic research.
We fund the basic research in our country for whatever is
done in prescription drugs and so on, and then we allow write-
offs for additional efforts in terms of putting together
commercialization and so on. And then we have a situation
where, in the interest of cheaper costs, those companies then
go to India or China to be able to produce these drugs.
There is something wrong with this picture on multiple
levels, as well as just, how do we incentivize? I mean, I think
from a big picture perspective, there is a public interest,
because this is medicine. It is about curing cancer. It is
about making sure medicine is available.
So there is a public role, which means there is a role
federally for us. And we did a piece of that last year in
saying insulin--$10 to produce, hundreds of dollars for someone
to actually get it who is a diabetic--and we capped it for
someone on Medicare at $35 a month in the public interest, to
help people get a lifesaving drug that frankly was over 100
years old.
And so we did that. We have looked at other pieces on the
pricing side, but we know it is not enough if it is affordable.
It has got to be available, and that is what today is about. Is
it available? And so, I very much appreciate that first step
the Biden administration is taking, looking at supply chains as
it relates to drug shortages, taking action through the Defense
Production Act.
That is one of the ways we have to be able to do that,
which is important. In addition to that, essential medications,
investing and including $35 million to produce key materials
for sterile injectable drugs, again I think in the public
interest.
And we all know--we have been talking about it today--how
important those medications are. And they are focused on a
supply chain resiliency and shortage program with a coordinator
and so on.
So all of this is very important to all of these pieces,
and it is complicated. I mean, we certainly want to incentivize
the right thing, and we're not interested in just giving more
dollars to the drug companies, who are already pricing folks
out of their ability to get their medicine. But I do think
within the system, we need to be trying incentives and so on.
Dr. Hernandez, I wanted just to ask you, back when we did
the Affordable Care Act, there was language I put in there
based on work done at the University of Michigan on value-based
purchasing. Actually, it is in the ACA.
I do not know if you have looked at that or at any way to
use that kind of language, even on what you are talking about,
because value does matter. It is not just the cheapest
medicine. Anybody getting health care will say, ``Oh, just give
me the cheapest, you know, give me cheap.''
You want the best in terms of value and so on. But we did
take some steps to try to signal that, and I do not know if you
have looked at all at that language.
Dr. Hernandez. I think we have done that in other sectors
of health care, but not precisely on purchasing of generic
drugs, which is where we have shortages.
Senator Stabenow. Yes.
Dr. Hernandez. So I agree. I think we need to maybe apply
that philosophy of paying for value, that I agree has been very
well developed at the University of Michigan by a group of
colleagues. So we need to apply that to the purchasing of
generic drugs.
Senator Stabenow. Right. Thank you very much.
And let me ask, on supply chains and improving quality, Dr.
Wosinska, let me ask--you talked about the shortages being
caused by manufacturing quality problems. Can you talk a little
bit more about what investments drug manufacturers could make
to prevent frequent quality issues? Talk a little bit more
about that.
Dr. Wosinska. So that is challenging. I mean, I can make a
very long list of the things that they could do. They just do
not have an incentive to do it. So that's where the struggle
is. If you look at where drug shortages tend to happen, the
reason why it's generics versus brands--so, I should say
branded drugs do go into shortage sometimes too, but actually
frequently it's because they have a really unexpected dynamic,
such as all the GLP-1 inhibitors right now. Everybody wants
Ozempic. They just cannot keep up with manufacturing, so this
is a massive demand increase. And for generics, the margins are
so small, there is no buffering. So a brand manufacturer will
have dual suppliers. They will carry more inventory. They will
take a lot of steps to buffer this.
There are a lot of things that I could list, but again,
there just is not an incentive, and the incentive trickles
down. If we were to put more requirements on these
manufacturers, a lot of them would leave the market. So it
really needs to come from thinking through the buyers, and sort
of having these pooled strategies.
There are ways also to have the government support, but
again, the market is not functioning in a way that we want it
to. If we want resilience, we will have to pay for it one way
or the other. That is the unfortunate truth on that.
Senator Stabenow. Thank you.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Cassidy?
Senator Cassidy. Yes. Now, Dr. Hernandez, thank you for
including the references--and I want my colleagues to listen to
what I am about to ask. In your reference No. 7, you speak
about how PBMs are paying pharmacies much higher than their
acquisition costs, a thousand times more, but then they are
potentially clawed back.
What I have learned is that the Health Savings Account--
from Obamacare--covers both the pharmaceutical benefit and the
medical benefit. And so, the way this is structured, they are
really using theoretically--the PBM--that HSA as a piggy bank
to drain from the patient in order to claw back and put more
money in their pocket. That is a reasonable scenario of what is
happening, correct?
Dr. Hernandez. So the problem is that the clawback data are
confidential, so----
Senator Cassidy. I understand that.
Dr. Hernandez. Yes, yes, yes. So it does not have to be
about the Health Savings Account. It can also be about the
payments paid out of pocket in cash. So I think that the----
Senator Cassidy. Either way, one fix of this is if we make
the Health Savings Account only for the medical benefit. It
would eliminate the incentive to charge a high markup fee
relative to the acquisition cost. Whether that is occurring or
not, it will eliminate that incentive, and that is something
that this committee can do. So we can talk about that more,
but----
The Chairman. I think Dr. Hernandez wants to respond again.
Dr. Hernandez. I disagree with you, Senator. I do think we
need to prevent these markups. I think they should be prevented
through increased oversight of the PBMs, because the problem
with excluding the pharmacy benefit from the Health Savings
Account is that then patients may not be able to use it for
things like expensive drugs for cancer, and I think that is
concerning. Because if you think about it, the big, the more
expensive drugs, are branded drugs, right, and then there are
also generic drugs. So I think----
Senator Cassidy. So the alternative would not be to make
the patient pay for it out of pocket. The alternative would be
to have it covered under the medical benefit.
Dr. Hernandez. But the drugs that patients pick in the
pharmacy are covered under Part D. There are like oral
expensive drugs----
Senator Cassidy. I get that. So, let's just talk about
that, because it does seem as if the HSA--and this is not Part
D; this would be commercial insurance. The HSA component of
this--which I think our committee governs--HSA not health,
needs to be examined, because I actually think that there is a
negative incentive in order to use that as a piggy bank. But we
can talk about that offline.
Dr. Wosinska, one thing: in Youngsville, LA, based on a
grant from BARDA, they are making low-cost N95s and sterile
gloves. But the cost of that is still not competitive relative
to China.
Now I like your thing here, and again for my colleagues, I
think I am going to highlight on page 7, your third paragraph,
that we strengthen sections--and I will not go through that--of
the Social Security Act, in order to actually increase the
amount that CMS reimburses for this acquisition. Can you speak
about that, because in your testimony you did not delve into
that that much?
Dr. Wosinska. That's right. Thank you for the question. So
CMS does have a tool where they are able to step in in some
cases. It is not a particularly well--it is not at all a tool
suited for rewarding reliability, because CMS would have to
know who is reliable.
But it is a really good tool, for example, that was used
with N95 masks, where CMS wanted to reimburse hospitals for
purchasing domestic ones. So, this could be very much a
national security-type scenario where the government decides we
need to subsidize certain products.
But the problem is, the way the statute is structured, that
CMS can only reimburse the IPPS or OPPS share. So, let's say
that I am a hospital. I am going to buy--I have a choice of
buying $1 masks or $2 masks----
Senator Cassidy. Or a little bit more expensive generic,
domestically produced mask versus one produced overseas with
unknown reliability.
Dr. Wosinska. That's right. But if there is a price
difference, I am only going to get reimbursed for half of it,
or if I am doing--my IPPS is half. And that makes no sense as
an economic agent. I am not going to do it. I will have to
spend twice the amount of money that I am going to get
reimbursed for. This committee could close that gap and think
of certain situations where----
Senator Cassidy. So, let me stop you, because I think you
have made the point. But you do not want to continue to prop up
an inflated price. In Youngsville, they are continually putting
in efficiencies to lower their net cost. And so, how would you
structure this so as to continue to incentivize lower costs for
domestic production?
Dr. Wosinska. Yes, that is actually really important. This
is, I think, where it should tie in with HHS's supply chain
coordinator role. If we are going--CMS does not know which
products would, for national security reasons, need to be
propped up, right? They need to be told that. There needs to be
an assessment of what is vulnerable to geopolitical risks and
what is not.
And so, in a coordinator role like this, they can also be
assuring that if there is only one domestic manufacturer, that
they are not going to start charging $1,000 per piece if the
government is going to fully reimburse it. So, they could have
contractual agreements on the front end, that if you are going
to participate in this program, we are going to make sure you
are not going to jack up the price.
Senator Cassidy. Sounds great. And could I have the
indulgence to have one more question of Dr. Westin?
The Chairman. Yes, yes, yes.
Senator Cassidy. Dr. Westin, you talk about how do we
reimburse more for certain drugs in order to--the same sort of
thing. You have to have a pull-through. You may have a domestic
manufacturer, but you have to have a pull-through. When I was
in the House back in 2012, I introduced the Patient Access to
Drugs in Shortage Act--and my bill was never adopted.
I changed the Medicare reimbursement rate for generic
injectable products with three or fewer active manufacturers
from ASP plus six to wholesale acquisition cost. And we also
exempted generic injectable products with three or fewer active
manufacturers from Medicare rebates and 340B discounts.
One of you mentioned 340B discounts may give the purchaser
the drug for pennies, and it is hard to believe that that is
acquisition cost for an injectable. Any thoughts about my
proposed legislation, knowing I have a pride of authorship--but
nonetheless it seems still like a good way to go?
Dr. Westin. Senator Cassidy, thank you for the question. I
would be happy to provide more answers to that in detail
offline, because I know we are past time. But I think it makes
sense in general, the idea of being able to look at these drugs
in shortage, and being able to perhaps call out these drugs
specifically to have a different reimbursement mechanism, such
that they are not pennies on the dollar, as you said, and
basically having a race to the bottom cost-wise.
So I think that your bill--I am not familiar with the
specifics of it, but I am happy to look at it and get back to
you.
Senator Cassidy. And the question for the record that will
be for you all, is to what degree, if we exempted these drugs
from 340B and Medicaid rebates, how that would potentially
benefit the overall industry. Is that enough of a market
share--and I think it is--that it could actually increase the
profit margin to continue production?
With that, I yield.
The Chairman. I thank my colleague, and I want to get more
of an understanding, because my colleague knows I very much
like working with him.
On this HSA point, it looked to me like what Dr. Hernandez
was saying is, the patient is going to eat the cost one way or
another. They are going to eat it out of pocket or they are
going to eat it through the HSA. So let us just work together--
--
Senator Cassidy. And that is assuming that it is subject to
the deductible. If it is not subject to the deductible, then it
would not be an issue.
The Chairman. We will follow up with you and talk about
this.
Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman.
Dr. Hernandez, in the market for generic drugs, sellers
compete primarily on price, creating what I believe is a race
to the bottom. Research has shown that the lowest-priced
generic medications carry a substantially greater shortage
risk.
In the face of narrow margins and declining profitability,
some manufacturers exit the market for certain drugs or shut
down entirely. Do you agree that the race to the bottom pricing
is a driver of prescription drug shortages?
Dr. Hernandez. I do. I think your summary was very
complete. As I said, I think drug shortages have economic
drivers behind them, where the race to the bottom is one of
them. The race to the bottom has been key also to keeping costs
down in Medicare and Medicaid, and enabling affordability of
generic drugs.
But in some cases, it has to do with the market
accessibility, as particularly is the case of generic
injectables. So I very much agree with your statement.
Senator Menendez. Yes. Now, wholesale distributors purchase
drugs from manufacturers. They store them. They sell drugs to
pharmacies and clinicians. These ventures collectively account
for an estimated 90 percent of all domestic generic drug
purchases, and they leverage their market power to serve as
price-setters for generic products.
Do you agree that increased concentration among drug
purchasers, such as wholesale distributors, is a factor in
driving race-to-the-bottom pricing and making our supply chains
more brittle?
Dr. Hernandez. So, we have concentration in two entities on
the purchasing side: wholesalers and group purchasing
organizations. Both of them are highly consolidated, with only
three or four accounting for the majority of the market.
Now on the wholesaler side, we have wholesalers buying
generic drugs from manufacturers for basically like one-third
of the country because of the consolidation. That means that
only manufacturers that can produce a large enough volume are
competitive to being what we call preferred list of
wholesalers. So that also leads to concentration on the
manufacturing side.
Now, on the group purchasing organization side, these
entities--which are also very consolidated--aggregate
purchasing power across pharmacies, hospitals, health systems,
et cetera. They contribute to the race to the bottom because
they are negotiating these contracts on behalf of a large
number of members. But I just wanted to differentiate that
there are the two types of entities.
Senator Menendez. Okay; I appreciate that.
Dr. Wosinska, as we have heard, the generic drug market is
one that largely encourages competition on price alone. This
makes it challenging for generic manufacturers to invest in
additional capacity, manufacturing upgrades, and quality
control. As a result, manufacturers can experience quality
issues that result in facilities going offline or drugs being
discarded. Further, generic drug purchasers appear to have
limited information about manufacturer and facility quality
management.
Are there sufficient financial incentives for generic drug
purchasers to prioritize quality and reliability in their
purchasing decisions, and if not, what financial incentives
should we be considering?
Dr. Wosinska. No, there definitely--the market does not
reward reliability. I think it can be done on both sides.
Definitely, it needs to be addressed through the buyers to
change the weight that buyers place on reliability. That by far
is the most important thing.
There have been a number of proposals, and in some of my
work, I have also proposed that we do also direct investments
and provide forgivable loans to help build up the
infrastructure and to help manufacturers directly get up to
par. But that will not change anything if there is still the
race to the bottom.
So, until we actually address how the buyers buy and what
they weigh, we are not going to make much progress. But if we
start rewarding reliability, and manufacturers can maintain
actually a higher price point because it is rewarded--that
reliability--then there is going to be an incentive that will
follow.
Senator Menendez. All right.
Finally, for anyone on the panel: for many drugs, Medicare
is the largest payer in the United States. Medicare Parts A and
B typically reimburse providers for inexpensive generic drugs
as part of a bundle of services and supplies, rather than on an
individual drug basis.
By design, these bundled payments increase downward
pressure on pricing, and these cost constraints impact
contractual pricing arrangements across the supply chain. Are
there payment and contracting reforms that can enhance
predictability and stability with respect to generic drug
pricing payments and volume commitments?
Dr. Wosinska. So, if I could actually speak--earlier there
was discussion around unbundling payments and to what extent
that would help. I just would like to emphasize that unbundling
will help, again, if the price becomes a signal of quality. And
you know, just unbundling is not going to solve this problem.
And the other witnesses spoke to that. So the question is,
can we get reliable measures around what is reliable? And if
you--I have more detail about it in my testimony, but I believe
that if we wanted to wait, especially for generic sterile
injectables, for FDA to develop this, it will take time.
But I think there are other ways for us do it through a
pay-for-performance program, to engage hospitals in trying to
do a better job of doing this homework, actually through the
GPOs, because the GPOs are actually in a very good position.
They already look at supply chains and the reliability of
supply chains.
They are just not being rewarded for selecting the more
reliable manufacturers on their contracts.
Senator Menendez. Thank you.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Johnson?
Senator Johnson. Thank you, Mr. Chairman. I think we need
to focus a lot more on the root cause of this problem, and we
are getting close to it. I think a number of the witnesses have
said it is, you know, the low prices; it is the race to the
bottom.
I think you have to find out what is causing that. Now, I
have not heard the words monopsony purchasing power yet, where
you've got basically the Federal Government, with the drug
formulary, pretty well driving most of these prices. I would
ask the witnesses, can you think of a common consumer product
that is always in persistent shortages? Can anybody think of
one?
You know, there may be some, but the reason there are not
is you have millions, billions of consumers, and the
marketplace takes care of all these problems. It demands higher
quality. It demands better levels of customer service. It
demands the best price.
But because we have the Federal Government being involved
in the health-care marketplace, it has screwed everything up.
Third-party payer systems through insurance are another kind of
monopsony-type of purchasing power as well.
So, we need to focus on what we can do to bring consumers
back into the process here. I am a manufacturer. I supplied the
medical device industry for years. We actually were able to--
and our customers allowed us to charge--a higher price, to
stabilize their pricing over a number of years, but also to
ensure supply.
Mr. Coukell, that is basically your company's approach to
this. You increase costs by having buffer stock, correct? So
you are able to provide a service. You would probably be
considered a middleman, and if your company makes any money off
this, generally the members of this committee would be
criticizing you for skimming off the top and driving up prices.
But you actually provide a service, isn't that correct?
Mr. Coukell. Thank you, Senator. We are a manufacturer, but
part of what we do in contracting with hospitals is bypass the
middlemen in the transaction. So we work directly with
hospitals. We do not go through the GPO contracting process.
Senator Johnson. That is a marketplace solution; okay.
Mr. Coukell. That is a marketplace solution.
Senator Johnson. Dr. Wosinska, when we were talking about
PBM reform here--and by the way, I am the only one on this
committee who voted against what the committee is trying to do
here, because I do not understand how it is going to fix any
problems.
One request I asked staff was, if this is going to lower
prices for consumers, why is big pharma in favor of the PBM
reform that they are proposing? Again, we are talking about,
right now, shortages caused by a race to the bottom, too low
prices.
Isn't it true that PBMs are negotiating lower prices for
the organizations they are representing, and it's just not
transparent in terms of how those prices benefit consumers,
because it benefits them in lower insurance costs and that type
of thing. Do you want to respond?
Dr. Wosinska. Yes. So PBMs really play a role in the oral
dose market, not generic sterile injectables. They do not deal
with hospitals, and really their role here is because they are
a major pharmacy. This is the vertical integration. That is the
piece, really not the contracting, but the fact that they own
mail-order pharmacies and that they also have specialty
pharmacies.
And just like any other specialty, they are incentivized to
bring the lowest cost. What they mark up and how this shows up
to the patient is the difference there.
Senator Johnson. They are bringing--they are putting
downward pressure on drug prices, correct?
Dr. Wosinska. There is downward pressure on the--yes, there
is absolutely downward pressure. And just to your previous
question, and your previous point about sort of where things
break down and why is it that the consumer suffers, I just
would like to highlight this.
There are a lot of players in the chain, and each one of
them is incentivized very differently, and they do not
internalize the harm that results to patients. I will say it is
including--you know, if you think about the cost on hospitals
from shortages, $360 million, that is $60,000 per hospital.
Senator Johnson. In a free market, there would not be these
shortages, certainly not with generic drugs. It just would not
occur. But it is not a free market. Government has interfered
and screwed it all up.
One point I want to make is, I think this is an enormous
national security threat, the fact that we do not, by and
large, produce precursor chemicals; we do not produce the
active pharmaceutical ingredients.
I am not for general economic engineering. But in this
case, I think we do need buy American provisions. Now again, as
you have said, we are going to have to pay higher prices, but
one of the reasons you have these huge markups from the
middlemen is when you have a shortage.
So, if you did not have those shortages, you would not have
those instances where people are responding to the marketplace,
driving costs up 1,000 times. If you eliminated the root cause
of the shortages--you know, bring back more consumerism, get
rid of the
monopsony-type of buying power--that would be a solution.
But we do need to address this, and we have not. We had
this infrastructure bill. I do not think we spent a penny on
trying to bring back the manufacture of precursor chemicals and
API to America. That is an enormous national security threat,
and we are just ignoring it. Anybody want to comment on that?
Dr. Wosinska. If I could speak to this briefly, I
completely agree with you that we need to be thinking about
sort of the geopolitical threats. Where we face a challenge is
with the enormity of this problem. To onshore everything into
the United States--I do not know--trillions of dollars?
What we need is to be really strategic about what are the
essential medicines and which ones are really vulnerable.
Senator Johnson. It would not be trillions. It would not be
trillions. Again, the marketplace would respond to it if we
allowed the marketplace to do it. But we are not. We are trying
to do this through government control, and again, government
just screws things up.
Thank you, Mr. Chairman.
The Chairman. The time of the gentleman has expired.
Senator Carper is next.
Senator Carper. Thank you, Mr. Chairman. Welcome one and
all. Nice to see you.
A question regarding the Medical Supply Chain Resiliency
Act. The COVID-19 pandemic taught us a bunch of different
lessons, as you know, about the resilience of our Nation's
supply chains, especially with respect to medical supply
chains. Across America, certainly in my home State of Delaware,
we have heard from patients, we have heard from caregivers, we
have heard from providers, we have heard from manufacturers
about the lack of access to medicine and to medical equipment
that impacted their lives.
The aftermath of this once-in-a-generation health crisis
emphasized that we as lawmakers, here and across Capitol Hill,
need to take action to shore up our access to goods around the
world. No one should have to worry about not being able to
access a treatment that they need.
That is why I worked with one of our colleagues on this
committee from North Carolina, Senator Thom Tillis, to
introduce the Medical Supply Chain Resiliency Act. Our bill, as
you may know, would give the President the authority to
collaborate with other allies across the world to help
diversify our supply chains, to increase access to critical
medical goods, and to mitigate the effects of the public health
crisis.
Today, the medical supply chain backlog continues to affect
access to lifesaving medications, with over 140 medications
listed as active drug shortages--over 140 by the FDA. Improving
the supply chain resiliency in the U.S. has never been more
important.
A question, if I could, for Dr. Hernandez. Dr. Hernandez,
in your testimony you emphasize the importance for drug
manufacturers to build resilient supply chains. Can you just
discuss with us for a couple of minutes how we, as lawmakers,
can incentivize drug and medical product manufacturers that
invest in secure supply chains?
Dr. Hernandez. Thank you for the question, Senator. I think
an idea would be to pay more to providers when they select
drugs from resilient supply chains. And there is some
discussion about how that could be achieved, in terms of how
you could set up the payment system.
But the idea could be to not reimburse always the same
regardless of the generic version selected, but rather
reimburse more when hospitals, and potentially pharmacies,
purchase drugs from manufacturers that have invested in
redundancy; in upgrading factories; in upgrading equipment; in
having some backup production lines, for instance, if the first
one shuts down. So I think that could be the idea.
Senator Carper. Thank you. Thanks very much, yes.
A second question, if I could, for Doctor Wosinska, a
question on lessons learned and capacity building. We have
heard discussions that in efforts to produce generic
medications as inexpensively as possible, drug makers are
limited in their ability to invest in building manufacturing
capacity and ensuring quality.
We have seen several instances where demand for a drug is
underestimated, and then we are caught unprepared and unable to
adequately ramp up production. For example, last fall--and I
think last winter--we saw a crisis of children battling an
early severe flu season, alongside RSV and COVID-19 surges.
Hospitals were at capacity while parents were facing empty
shelves where children's over-the-counter fever and pain
reducers should have been.
Even members of my staff have shared stories of the fear
they experienced while caring for their own children when they
became sick with fevers without access to medications as simple
as Tylenol. The unexpected high demand for these common
medications led to their shortage, and yet they are not
included on the FDA's drug shortage list.
It is clear that we need to work together to find a long-
term solution to build manufacturing capacity and oversight,
and to ensure we have the capabilities to adjust and meet
demands as they arise. Here is my question.
I often say that we need to find out what works, and do
more of that. In that spirit, what did we learn from the
shortcomings like this, and what actions should the Congress,
and in particular this committee, consider, in order to ensure
that we are prepared for a future crisis that faces such
unexpected demand?
Dr. Wosinska. Thank you for this question. It is a really
big question, so I will just highlight a couple of things. So,
preparing for a dramatic demand increase, it can be done in two
ways. One is by having inventories of materials or finished
dosage product. Another way is to have spare capacity and be
able to turn it on quickly.
So those are sort of the two ways in which you can ramp up
production, or have technology that is flexible enough that you
can sort of switch the line to something else. So those are
sort of the ways through which one can prepare for increases in
demand.
And that is actually sort of the space where BARDA has been
really active, because in a sense, that is what pandemic
preparedness is or CBRN threats. Those are all about massive
demand increases for products that can occur, which is somewhat
different in terms of how we prepare for this than for
manufacturing quality problems and the sort of economic drivers
that we described.
Senator Carper. All right. Thank you both; thank you both.
The Chairman. The time of my colleague has expired. We are
going to try to just keep going and get all the way through
this.
Senator Blackburn, you are next.
Senator Blackburn. Thank you, Mr. Chairman, and thank you
all for being here, so that we can discuss this issue.
Vanderbilt is in Tennessee, which I represent. They have
been dealing with 175 drug shortages for things that they are
needing, and of course we know all across the State, we have
different providers that are dealing with this. Now at
Vanderbilt alone, more than 100 staff members are engaged in
trying to manage and mitigate the disruptions that are caused
by the shortages.
Recently, there was an incident that occurred with a vital
chemotherapy that highlighted the severity, and the medical
center faced the possibility of having to form an allocation
committee. And they thought this was going to be a daunting
task. Fortunately, a shipment arrived, and so they were able to
avert the rationing. But this is something that is becoming all
too common with our providers. So we appreciate that you all
are here with us today.
Mr. Coukell, I want to come to you. Talk a little bit about
how long-term purchasing contracts with hospitals and health
systems play a role in prioritizing the production of generic
drugs, and what type impact they can have on the drug supply
chain.
Mr. Coukell. Yes, thank you, Senator. If we treat generic
drugs like commodities, then the market will function like a
commodities market. So, if I want to buy a load of soybeans, I
can buy a load of soybeans today and buy from somebody else
tomorrow. But it does not create any long-term relationship or
commitment between buyer and seller.
When the hospital or the purchaser enters a long-term
agreement with a manufacturer, then that manufacturer is going
to reserve line space, will know they have a market for that
product for a period of 2 years or 5 years or whatever it is,
and they will continue to be there to meet the needs of their
customer.
Senator Blackburn. And then with the model of Civica Rx,
talk with me about how that helps to stabilize a supply chain,
and the impact that that has.
Mr. Coukell. Yes, thank you, Senator. So, by having those
long-term purchase commitments in place, we are both able to
ensure that our manufacturers are there for the long haul, and
that we vet them for quality so they are less likely to have a
supply failure.
But we also then have predictable demand from the
hospitals, because they have committed to a certain volume. And
because we have predictable demand, we can then build up a
buffer inventory of around 6 months' worth of drugs. We are
always selling the older stock and continually replenishing it.
If something happens in the market, either with our own
supplier or somebody else, we have a 6-month buffer inventory
to continue to supply through that interruption.
Senator Blackburn. And to work through it.
Dr. Wosinska, I want to come to you. Do you think, as we
are looking at this issue of the unpredictability in the supply
chain, it should be mandatory that hospitals develop a plan, a
contingency plan for potential shortages, and a management plan
for their supply chain of pharmaceuticals?
Dr. Wosinska. That is an interesting question. I had not
thought about a mandate like that. I have really been taking an
approach of trying to change the hospital incentives really
more through carrots. To have a hospital carry buffer inventory
of all the products would be quite a tall order, and not all of
them are nearly as vulnerable.
So here again, I think hospitals might be better
positioned, and their GPOs, in figuring out what is more
vulnerable than CMS coming in and saying ``this is essential
and this is vulnerable.''
Senator Blackburn. Okay. So how do--you talk about those
incentives. What would those incentives be? How would you
encourage hospitals to commit to long-term purchasing
contracts?
Dr. Wosinska. So, the proposal that we have put forward is
not as specific as telling hospitals what to do. The proposal
that we have is a pay-for-performance program that really looks
at two metrics.
Let's say that there was a shortage of a drug. You look
back to when the shortage was starting. Who were you buying
from? Were you buying from the more reliable one? Oh, you
picked wrong. Did you have buffer inventories of this product?
So, it does not really matter whether they had long-term
contracts or not. It would encourage long-term contracts. That
is how the hospital assures that for their high-risk products,
they actually have committed product and they actually can get
it from the more reliable manufacturer.
But with this, it is more of an outcome-based pay for
performance, rather than, you know, take these behaviors. They
have to be 2 years, 3 years. How do we know it is the right
length, right?
Senator Blackburn. Yes.
Dr. Wosinska. And I am not sure that CMS is in a good
position to sort of really judge all the little pieces of it.
The Chairman. The time of my colleague has expired.
Senator Tillis is next.
Senator Tillis. Thank you, Mr. Chairman. I thank you all
for being here.
Dr. Westin, not too long ago I voted for the CHIPS Act, and
one of the reasons I voted for that is that we need to have
supply chain resiliency in the semiconductor space. I think
there is an analog here in terms of how we bring back
manufacturing to the United States by itself, particularly for
the lower-margin drugs. We have so many obstacles that we have
to overcome.
I am kind of curious if you could expand on that. I would
see regulatory burdens being one of them. I can see just cost
basis here, a lack of tax incentives, those sorts of things.
And anyone else who wants to speak up: what should we be
thinking about to make either the United States a better
jurisdiction to address some of our supply chain
vulnerabilities, or friendlier jurisdictions?
I have a particular interest in jurisdictions in this
hemisphere; I think Mexico or Latin and South America. But can
you give me some of your thoughts?
Dr. Westin. Thank you, Senator. I am a cancer doctor and
not an economist, so I will defer to some of my panelists here
to give some thoughts on that. However, what I would say is
that this is an ongoing issue that really does need to be
addressed in the way that you are talking about, to have
additional resiliency.
So, we look at semiconductors or other national security
issues. Not having access to generic drugs in some ways is a
national security issue.
Senator Tillis. Doctor Wosinska?
Dr. Wosinska. Yes, I would be happy to speak to this. The
CHIPS Act is a great example of how something like this could
be done. The big difference from semiconductors is that we are
talking about 20,000 approved drug products. Each one of them
has many phases and many facilities: 16,000 facilities, key
starting materials.
So the framework is good, but I think what we need to layer
on top of that is really an analytic approach on how we choose
what is most important. And in my testimony, I have, with
colleagues, put forward a framework for how the government
should prioritize which supply chains are important.
I will give you an example. Cancer drugs are not on the
essential medicines list, right? So one of the pieces that
needs to be thought through again is, what is essential?
Another piece is, what is really vulnerable? Going back to
trade and so on, we need to be thinking about not just
everything in the U.S.--that is not possible--but thinking
about potentially friendshoring, nearshoring, and also thinking
about full supply chains.
If the Federal Government were to move an API facility,
active pharmaceutical ingredient facility, to the United
States, but all of the upstream still comes from China and all
of the key ingredients still come from China, then what problem
did we solve? That is not a good use of taxpayers' money.
So we need to be really strategic in that approach and how
we do it, and then we can take the steps that you have taken in
the CHIPS Act.
Senator Tillis. Mr. Coukell?
Mr. Coukell. Thank you, Senator. I share your concern and
desire to see a strong domestic, industrial base for
pharmaceuticals. I do think it is helpful to think about what
is the problem we are trying to solve. So, if we are trying to
solve for long-term geopolitical risk, we absolutely have to
think about that whole supply chain from end to end.
If we are trying to solve for the shortages problem that we
are experiencing right now, most of the problem is with the
finished product. So there, we have to ensure we have a robust
infrastructure to produce that finished product. Once you have
a facility there, that can typically make many dozens of
different drugs. But right now, at today's prices, few
manufacturers can invest the capital required to build a brand-
new manufacturing facility.
Senator Tillis. Yes. Any suggestions on how to fix that?
Mr. Coukell. Well, in my testimony I start with a very
targeted proposal, which is just to say there are certain drugs
that we can say with high confidence are going to go into
shortage, mainly because they have been in shortage recently.
Some of those sell at prices that are so low that no
manufacturer in the U.S. could make them competitively and is
going to invest in bringing them to market.
At a cost of about $3 million to $4 million per drug, we
could make sure that there is a U.S. manufacturer that has that
product, that has done all the analytics, sourced the API, got
the commodity sitting there, has the FDA approval, and when
that drug goes into shortage, you could turn that line on and
produce that drug in the U.S. That is a pretty cost-effective
insurance policy.
Senator Tillis. Thank you all. Thank you, Mr. Chairman.
I just want to mention something else. Thank you all. We
will also have some questions for the record for all of you.
But, Mr. Chair, I just wanted to mention, I was very happy to
be a part of the bipartisan PBM reform bill that came out of
this committee recently.
I am hearing some rumblings that it may get paired with
some not-so-popular provisions as it moves through the Senate
chamber. I do not know if that is correct, but I just want to
lodge my concern, because I really do hope that we can continue
to work on getting that through, and getting it over to the
House.
The Chairman. We are going to be focused on getting this
passed, and what has put us in this position is working in a
bipartisan way, and Senator Crapo and I were just talking about
that this morning.
Senator Tillis. Very good. Thank you. Thank you all for
being here.
The Chairman. I look forward to talking with you.
Senator Brown is next.
Senator Brown. Thank you, Mr. Chairman.
Dr. Wosinska, thank you for your comments. I want to take
off on that, but my question is really to Mr. Coukell. I
introduced, with Senators Blackburn and Peters, the RAPID
Reserve Act. It would require DHS to award contracts to generic
drug manufacturers in order to keep reserves--as you talked
about, Dr. Wosinska--of active pharmaceutical ingredients and
finished products that we can easily turn to during drug
shortages.
We should not--you know this--we should not have to rely on
foreign countries, and in many cases foreign competitors, for
the drugs Americans rely on. A stronger domestic pharmaceutical
supply chain will help to prevent those shortages and those
delays; that goes without saying.
Mr. Coukell, you discuss in your testimony a proposal to
invest in the domestic manufacturing of essential drugs at risk
for a shortage; a similar concept--different but similar to the
bill that we have put forward. Elaborate, if you would, on the
benefits of implementing these types of government contracts.
Mr. Coukell. Thank you, Senator, and thank you for your
work with the others that you mentioned on RAPID Reserve. We
supported it when it was introduced and continue to support it.
The concept there is to have a contract to produce API, to take
that through to finished drugs, and as you say, that is quite
similar to what I talked about.
The one difference is, what I talked about today, it
creates an insurance policy so the manufacturer is ready to
produce when the shortage starts, but does not assume that the
production is ongoing. But otherwise, they are very similar
concepts in terms of creating the readiness to manufacture in
an economic environment where otherwise we would not have that.
Senator Brown. Thank you.
Dr. Hernandez, a question for you, if I could. The U.S.-
China Economic and Security Review Commission a couple of years
ago recommended that Congress direct the FDA and other Federal
agencies to identify alternative sources for APIs and other
ingredients, including utilizing the Defense Production Act.
Last week, the administration announced plans to implement
some of these recommendations. Congress has already provided
some resources to the administration to use DPA authorities to
ramp up production of medical supplies, including generic
pharmaceuticals. I fought to include this in the CARES Act that
Congress passed a couple of years ago. One domestic company,
National Resilience, has already secured a DPA loan to expand
domestic manufacturing capacity of essential medicines in a
community called West Chester Township, north of Cincinnati.
Your testimony, Dr. Hernandez, highlights how drug
shortages are a matter of national security. Can you speak to
the importance of additional resources for authorities like the
Defense Production Act. And also, as you answer that question,
what are some additional authorities that the U.S. Government
can use, including DPA, to bolster the domestic manufacturing
of pharmaceuticals?
Dr. Hernandez. Thank you for the question. I do not--I am
not an expert in national security. It is just evident to me
that this is a vulnerability, but I am not an expert. I will be
happy to review this and get back to you with a written answer
for the record.
Senator Brown. Okay; thank you. DPA is something not
especially well known around here in the country, but is
something that a lot of these issues--whether it is smuggling
fentanyl into the country, whether it is crypto's use
internationally for various onerous uses--can come under and
certainly are national security issues.
DPA may be a place to answer some of those; it may not.
That is what we are trying to explore, and we will follow up
with you. Thank you.
Mr. Chairman, thank you. I yield back 1 minute.
The Chairman. I thank my friend.
I am not going to be filibustering here. We are waiting for
a couple of colleagues, and we have a vote coming up. I mean,
it seems to me as we get close to the end here, we are talking
about significant market failures.
It seems to me we are talking about a whole array of
incentives that are out of whack, and some interest in how to
use Medicare in a smarter and more creative way. Is that a fair
summation? Would any of you like to speak for about 20 minutes
or so? No?
We have a couple of colleagues on the way, and we will see
if we can continue this discussion. I thank my friend from
Civica from volunteering to spare me the filibuster.
Mr. Coukell. I cannot promise you 20 minutes on any topic,
Senator, but I will take the opportunity to bring up something
that CMS actually recently proposed in their annual hospital
payment rule, something that they did not ultimately decide to
go forward with, and I think could use a little fixing, but the
concept is sound. And what the agency said is, we propose to
pay hospitals a little more if they keep a buffer inventory for
essential drugs, or arrange for somebody to keep it on their
behalf. I think having it held upstream from the hospital makes
a lot of sense, for a number of reasons.
But they were proposing to use an existing Medicare payment
authority to just say, we recognize that it may cost a little
more to have that extra buffer inventory of essential drugs,
but that would be a good thing to do, and we will pay a little
more for it.
So, it is exactly along the lines that you are talking
about, and I think it is an idea that this committee can come
back to.
The Chairman. And what happened to said idea? Was it
formally proposed? Is it on the table now?
Mr. Coukell. It was formally proposed in the hospital
prospective payment rule, but they decided not to move forward
with it. But I think they got mixed feedback, and as I say, I
do think it is a rule that, as it was proposed, could use a
little adjustment. But they did propose it.
The Chairman. We will look at it.
Senator Bennet is always worth waiting for, and he is
recognized for his questions.
Senator Bennet. That is never true, Mr. Chairman, but thank
you very much for holding on to things. Ms. Wosinska, thank you
for your testimony. Thank you, everybody, for your testimony
today, for being here in this hearing.
Let me start here. I am hearing from many constituents that
sometimes the brand-name ADHD medication Adderall is often
available, but the generic version is not. And this is
obviously more expensive for families. Many families cannot
afford the entire out-of-pocket cost. I do not think parents
should have to make these choices, and to be honest with you, I
am hearing story after story after story of families that are
dealing with this, not just this problem of generics versus
not, but also just the availability of the medicine at all.
Could you explain what is going on here and what we need to
do to fix it?
Dr. Wosinska. Thank you for the question, and thank you for
the opportunity. I will have to start by saying that when a
good friend of mine heard that I was going to testify, the
first thing she said to me, she was like, ``Can you talk about
ADHD, because I cannot find the ADHD medication for my son''?
So the ADHD----
Senator Bennet. Please give your friend my regards.
Dr. Wosinska. Yes, I will. This is actually a very
different shortage. The shortage is driven to a large extent by
an increase in demand for the product. And we are in a system
where there are challenges in sort of expanding--there is
another agency involved, the Drug Enforcement Administration,
that has a cap on the amount of product that can be produced,
and then they also assign basically market share to
manufacturers to manufacture a quota.
And you know, we are the only jurisdiction that really has
this kind of a system of dealing with potential misuse of
controlled substances. And so what ends up happening is that,
you know, you put a cap. There are more people who want it than
can get it, and somehow, we are supposed to sort each other
out, that the patients who really need it get it, and the ones
who are taking it to study for exams and stay up all night do
not get it.
There is no system for that. The cap does not do that. And
then there are also challenges with how the manufacturer quotas
are assigned, because they tend to be assigned based on
historical purchases. That is why, in those markets and for
controlled substances, the brand frequently gets the largest
market share, and it is based on how the manufacturer quotas
are assigned. So----
Senator Bennet. Why do they get the biggest market share?
Say that again.
Dr. Wosinska. Because they have to give quota to
manufacturers. The DEA has to manufacture supply for quota.
Senator Bennet. So the DEA--so there first, or maybe these
are not in order. But there is a cap that they----
Dr. Wosinska. There is a cap.
Senator Bennet. And then, as a consequence, or in addition
to that, they have to assign a quota to the brand-name part of
it.
Dr. Wosinska. That's right, and they have to decide who
gets it. And it tends to be--here is another example. One drug,
Vyvanse, went generic this summer. There are 14 generic
manufacturers that want to go up for it, and it is a big
mystery to everybody how DEA is going to assign the market
share to those 14, because they have no historical purchases of
this, right? There were no generics prior to that.
So, this is not within the jurisdiction of this committee,
but I do think this is a very worthwhile conversation to be
had.
Senator Bennet. And do you think that--this probably is not
within your jurisdiction as well, but the demand issues you are
talking about, are you familiar with what is causing the
increased demand for the drug?
Dr. Wosinska. So, it is not well documented. We know in
which age groups this is happening. This is not happening in
Medicare. This is happening with young adults and sort of 30-
year-olds.
Senator Bennet. Yes. I mean, I think that you could
probably draw a pretty straight line, or maybe a line around
the COVID epidemic and the shortages that we are seeing.
That is when we started seeing this at the Target around
the corner from our house, and families started to tell me that
they were going to 20 pharmacies, 25 pharmacies, to try to find
the medication for their children that had been prescribed. And
I suppose this is an issue to raise with the DEA as well in
terms of their cap.
Dr. Wosinska. On the supply side, definitely--and on the
demand side, you know the FDA does have what is called REMS
authority, where if certain patients should be getting this and
it should be used in certain situations, there are ways to put
in programs to try to sort of control the demand side of it. So
there are other mechanisms to engage.
Senator Bennet. Well, thank you for your testimony. Thank
you. Tell your friend I said, ``hello.'' And, Mr. Chairman,
thank you for holding this hearing.
The Chairman. Senator Bennet, as usual you are raising a
very important issue. We have been banging some heads at DEA
and FDA, and particularly trying to force some disclosure with
respect to whether these manufacturing quotas are being met. So
we will have some more to talk about, absolutely.
Let's see. Senator Whitehouse is next, and then our
colleague, Catherine Cortez Masto.
Senator Whitehouse. Thank you, Mr. Chairman. Thank you to
the witnesses for being here with us.
I think many of us know that conditions like ADHD, and to
some degree autism, are often treated with prescribed
stimulants, and that patients experience considerable benefit
from those.
And they also experience considerable difficulty getting
access to the drugs. My office has been contacted by a mom in
Riverside, RI who has an 11-year-old, and it has had to become
really an almost daily project of the mother to try to call
around to pharmacies, see where there might be some supply, and
try to get there while there still is supply. There is a 20-
year-old in Lincoln, RI who has had a similar experience; to be
more specific, a prescription from August of this year they
have not yet been able to fill.
So let me start with Dr. Westin. When you face patients who
are having these problems, what does it do to your world and
your workflow?
Dr. Westin. In the cancer world, it is certainly different
than having to call around to pharmacies for your child to get
prescriptions. That is a very big problem. But in our line of
work, we are dealing with literally life-threatening
conditions, and so not having access to medications for us--
having to call different pharmacies would be a welcome
alternative to dealing with potentially not being able to
deliver lifesaving therapies.
Senator Whitehouse. But the point is that this work backs
up into physicians' offices.
Dr. Westin. Absolutely. This has an impact on physicians as
well; correct.
Senator Whitehouse. Whether it is cancer or otherwise, it
adds to the load and the burnout and the wear and tear on
physicians.
Dr. Westin. Absolutely.
Senator Whitehouse. The drugs I am talking about are
controlled substances. They are regulated by DEA. One of the
regulatory procedures that is used is an overall limit on
supply, which seems like an unusually blunt instrument. I am
getting a lot of head-nodding on that.
Tell me a little bit, maybe Dr. Wosinska, about the time
lag between when somebody in DEA makes a determination that a
particular supply limit should be imposed, and how long that
persists in time until it is implemented and ultimately
amended. How long can the gap between the decision and the
actuality of the limit be?
Dr. Wosinska. Thank you for this question. All I can really
speak to is the fact that these lags exist. From what I
understand, they can take months, and frequently a manufacturer
might not obtain all of the quota that they asked for. So it's
sort of this repeated process, and it is, from what I
understand, really challenging figuring out what it would take
to have DEA give you the quota that you want.
But this is probably a question much better directed at
manufacturers, and I am sure that AAM would be able to speak to
their experience of that, and I would recommend that.
Senator Whitehouse. If there were a demand surge during
that time period, the people who have the prescriptions that
make up the demand surge are just stuck, right?
Dr. Wosinska. That's right. I mean, they are--that's right.
So, one is the overall demand, and then also the process of
assigning quota to individual manufacturers and trying to sort
that out, and frequently the manufacturers are not given all of
it at once. So it is----
Senator Whitehouse. Would it make sense--you know, we have
a strategic petroleum reserve. We hold certain reserves back in
the event of an emergency need. Would it make sense for DEA to
allow supply reserves that could be released in the face of a
demand surge?
Dr. Wosinska. I will say, I do not understand why we think
the quota system in the first place is a way to deal with
misuse and abuse.
Senator Whitehouse. It's a pretty blunt instrument at the
end of the day.
Dr. Wosinska. It is a very blunt instrument that only is
used in the United States. You know, it basically puts a cap,
and then patients have to sort each other into like, well, I
need it more than you. We do not have a mechanism to do it. So
I do not even understand how the mechanism is supposed to help.
Senator Whitehouse. For the record, my office interactions
with DEA trying to get clarification for constituents have been
unsatisfactory.
Last question, Mr. Coukell. We have talked about the role
of regulatory limits with respect to controlled substances. Do
you see a risk here where you have monopolies, single
manufacturers for particular drugs, who can withhold supply to
boost their pricing prospects and capabilities and put a supply
demand in efficiency into the system to their benefit?
Mr. Coukell. Thank you, Senator. I would say, when we are
talking about drug shortages, in general what we are talking
about is actually the opposite challenge, which is there are a
number of manufacturers, and the consolidation among purchasers
drives that price down to unsustainable levels.
The time then when the price can surge is when the drug
goes into shortage, and there is only one manufacturer left
that has product to sell. And then the cost of the product can
go up 10- or 20-fold, and so it is that market instability
really that we are trying to address when we talk about the
problem of shortages.
Senator Whitehouse. Thank you.
The Chairman. I thank my colleague from Rhode Island.
Senator Warner?
Senator Warner. Thank you, Mr. Chairman. Thank you for
holding this hearing. And I hate to say good things about my
colleague from Rhode Island when he is actually physically
here.
Senator Whitehouse. I'll leave. [Laughter.]
Senator Warner. But you know, the idea of a reserve
supply--you know, frankly BARDA was part of that. And for this
host of other drugs, I think it makes an enormous amount of
sense, and I would love to work with you.
I know you have heard lots of stories. I was going to tell
a story about a constituent in Virginia Beach who loves being
in Virginia, but is experiencing a lack of access to
chemotherapy drugs. But I want to take my time actually--and I
hope, Mr. Coukell, that you have not gotten this kind of full
attention from my other colleagues.
But part of the solution, I think, to what we are talking
about today--we actually have a pretty cool idea happening in
Virginia with Civica Rx, and Civica Rx is housed in Petersburg,
VA, a community that had had Boehringer Ingelheim at one point,
but is not necessarily historically known as a center of
pharmaceutical manufacturing.
But over the last number of years, there has been a pharma
manufacturing cluster created in Petersburg. This coalition was
awarded $53 million in the Build Back Better regional challenge
grants, and it was recently named, as well, one of the 31 tech
hubs, at least in terms of the preliminary piece, by the
Department of Commerce.
So, we think this is an exciting, exciting idea. One of the
stakeholders is Civica Rx, which was founded by a series of
hospitals and philanthropists who said, ``We are going to try a
different model.'' The notional idea is a nonprofit-based model
that says, particularly around generics--because we know that
for so many manufacturers, the pricing point has gotten down so
low that they do not stay in the business.
I say this as somebody who is the father of a type 1
diabetic, and one of the drugs I know that you are looking at
is insulin. So, a group of investors came together to see how
you could get a predictable, reasonably priced supply of
certain medicines, and you know, there was a series of drugs.
Civica Rx is going to be, as I mentioned, dealing with
insulin, but other critical medications as well. So, Mr.
Coukell, it is clear that you have maybe found, if not the full
magic bullet, at least a part of the solution. If we could have
that predictable yet affordable supply of generics, I think
that is terribly important.
In the most recent Medicare hospital funding rule, CMS
proposed but did not finalize an idea to provide financial
incentives for hospitals to maintain that buffer of essential
medicines. Do you think that what Medicare and CMS are
proposing makes sense, and what else can Medicare do to make
sure that very exciting solutions like you guys are working on
can become a reality, not just in Virginia, but across the
country?
Mr. Coukell. I thank you, Senator. We are really pleased
about the growth of the pharmaceutical cluster in Richmond and
Petersburg, and proud to be part of the Commonwealth. Along
with insulin, you mentioned we have about three dozen products
in development for that facility with more to come, and we
would love to have every hospital in the country as a member.
In terms of how we think about using CMS authorities to
drive the purchasing toward more resilience, that rule that you
mentioned, I think is the right kind of idea. And essentially
what they said is, we recognize that it costs money to hold
buffer stock, but we recognize the value of that. So, we will
pay a little more so that hospitals can contract with somebody
to hold that buffer stock, or do it themselves, which I think
is probably not the way we want to do it.
But to say, yes, if you contract with somebody--you know,
pick your essential drugs and contract with somebody that is
going to hold that 6-month buffer stock for you--we will pay
you a little more, and that way we will create a market for the
entity that is holding on to that extra stock.
Senator Warner. Well, I think it is a very exciting
opportunity. I hope that, as we have talked about in the past,
there are ways we can incent other hospital systems, even from
the jawboning standpoint. But the whole idea of this coalition
of hospitals, philanthropists, and others coming together to
actually create a nonprofit approach is unusual, unique, and
long overdue.
So I hope, Mr. Chairman, it can be part of our longer-term
solution.
The Chairman. I thank my colleague.
I want to tell our witnesses what is going on, because they
have seen Senators sprinting hither and yon. Our last two
questioners will be Senator Hassan and Senator Warren. Thank
you very much for wrapping up.
I just want to pose one matter to you, Dr. Wosinska, for
the record. You know all year, we have been trying to bust
heads with DEA and FDA with respect to this drug shortage
issue, and the DEA finally, after we just pushed and pushed and
pushed, has laid out some changes to how they set quotas for
how much of these medications and other controlled substances
each manufacturer can produce.
Obviously, there is a lot more to do, and the question I
want to ask for the record, if you could get it say in a week
or so, is whether these unique challenges around shortages for
controlled substances are an area that we can tackle here in
the Finance Committee. I suspect they are, and we are going to
just ask you to do that in writing, okay?
Dr. Wosinska. I will follow up on that.
The Chairman. Great.
Senator Hassan, and then Senator Warren, and Senator Warren
will close the hearing. I thank all our guests, and sorry for
the sprint, but this is the way it is on Tuesday.
Senator Hassan. Thank you very much, Mr. Chair, and thank
you to the witnesses for being here and for your indulgence as
we balance votes and the like. I am really grateful for the
topic of today's discussion, and I want to start, Mr. Coukell,
with a question to you.
In your testimony, you point out that most drug shortages
in the United States are really predictable--highly
predictable. While manufacturers can fill gaps in the market by
investing in medications that are at risk of shortages,
companies have very little incentive to do so because the
margins on generic medications can be so low.
It is clear that the Federal Government could do more to
prepare for predictable shortages. If we already know what
medications are at risk for shortage, what role should the U.S.
Government play in preparing for inevitable shortages of
essential drugs?
Mr. Coukell. Thank you, Senator. Shortages are highly
predictable, and we can look at a range of factors in terms of
which manufacturers are making drugs and where are they getting
their active ingredients. But the strongest predicter of a
future shortage is a past shortage, and if we could just solve
for the drugs that have been in shortage over the past 10
years, we would solve a huge amount of the shortage problem
that we are dealing with.
But as you say, some of those drugs are selling at prices
so low that no U.S. manufacturer can justify the investment to
bring that drug to market, knowing that they are competing
against somebody that is selling it at 50 cents a vial. So if
the government were to say we know, based on history and based
on today's market prices, that at some point somebody is going
to step away from that drug and make something else, and we
want somebody ready to step in and deliver that drug to
patients when we need it, then the government could invest and
have manufacturers in the U.S. ready to go, to bring that drug
to market the second--or soon after--a shortage starts.
Senator Hassan. Okay; thank you.
Dr. Wosinska, let me ask you a question. Hospitals in New
Hampshire, including Dartmouth Health, are experiencing
shortages of a range of medications, including antibiotics,
steroids such as hydrocortisone, and lifesaving oncology
medications.
We have really small hospitals in New Hampshire. A lot of
our State is rural, and they are at the greatest disadvantage
during shortages because they have less buying power and fewer
staff available to navigate the shortages. Unfortunately,
hospitals often have virtually no information on the supply
chain used by a manufacturer, or the manufacturer's track
record when they are purchasing medications.
This makes it really difficult for a hospital to reduce the
risk of shortages by choosing to work with reliable
manufacturers. So how can more transparency help hospitals
avert and respond to medication shortages in the long run?
Dr. Wosinska. Thank you so much for this question. So, I
would say that it depends what is their situation, because the
information depends on the situation we are in. A hospital will
need very different information during a shortage, right? They
will want to know what is the allocation mechanism that the
wholesaler is using; when might I get more product?
There are also questions like, how long will it last? That
is a really hard question to answer. Having worked at the FDA
closely with the drug shortage staff, they frequently do not
know how long it will take, because they do not know how long
it will take the manufacturer to resolve it. The manufacturer
might not know at the beginning.
So definitely, during the shortage it is different. Before
a shortage, the questions are somewhat different. This is
actually where I do think GPOs can be really helpful, because
GPOs can help a hospital maneuver to what is more reliable.
They can participate in programs where there are actually
buffer inventories. Some of the GPOs have them. Civica
definitely is open. So there are definitely ways.
I would like to take this opportunity--since you mentioned
that you are speaking about small hospitals--I actually pushed
back against the buffer inventory idea that was mentioned a
couple of times that CMS put forward. And one big reason was
that the mechanism--it would not be enough of an incentive for
hospitals to use the program, because it would not pay enough,
and also the small hospitals are the ones that usually get left
behind in a shortage.
Senator Hassan. Yes.
Dr. Wosinska. I will tell you, I have seen data that large
hospital systems have gone from 3 weeks of drugs like cisplatin
and carboplatin in their inventory to 6 months.
Senator Hassan. Six months; okay.
Dr. Wosinska. They are in a much better position to do
this. What we need to be doing is buffering those that usually
get left behind. And you will see in my testimony, I actually
propose that that rule that CMS used, that they are also able
to potentially target who--not just which product--but who can
get that subsidy, and then we could buffer them more.
Senator Hassan. Okay. Thank you. And I am just going to
move quickly.
Mr. Coukell, how does your organization's focus on U.S.
manufacturers affect the reliability of your supply chains for
products like vials and pharmaceutical agreements, as well as
the cost of your medications, because we are talking about
transparency here? How does the focus on U.S. manufacturers
help in that regard?
Mr. Coukell. Yes; thank you, Senator. We feel strongly that
when the manufacturer is in the U.S., we can have the insight
we need into their quality system and track record, and also
that the FDA is there on a regular and consistent basis.
Which is not to say there are not good and bad
manufacturers everywhere, but we have that insight. So we do
prioritize U.S. sourcing, but we also think it is the right
thing to do from a long-term national security point of view.
Senator Hassan. Okay; thank you very much. Thank you.
Senator Cardin [presiding]. Senator Warren?
Senator Warren. Thank you. Thank you, acting Chair Cardin.
Senator Cardin. Yes. I just all of a sudden moved up in
seniority to chair the committee. [Laughter.]
Senator Warren. There we go.
So, I am glad we are having this hearing today, because
there are more than 300 drugs that are in shortage, meaning
that companies do not produce enough to meet patient demand.
That is more than at any point in nearly a decade, and
shortages can be devastating.
Shortages force patients to use less-effective
alternatives, or to switch to drugs that may have more harmful
side effects. Lots of factors can cause shortages that you all
have been talking about today: spikes in demand, a
manufacturing facility hit by a hurricane, or an inspection
problem that needs to be addressed.
But a big shortage risk occurs when there are only a small
number of companies that make the drug, and any one problem in
one of those companies can take down a chunk of the market.
Most drugs in shortage now are generics, meaning they are no
longer protected by patents and can be made by any
manufacturer. But even though generics can be made by anyone,
most have very little competition. In the U.S., 40 percent of
generic drugs are made by a single--one single company makes
the drug.
So, Mr. Coukell, you represent the nonprofit drug
manufacturer Civica Rx. So you understand the economics of the
generic drug industry. Why is there so little competition for
such a high number of generic drugs?
Mr. Coukell. Thank you, Senator. Typically, when a drug
goes off patent and companies can bring generics to market, a
lot of companies compete to bring that product to market.
Senator Warren. And that was the model we all thought would
happen.
Mr. Coukell. Right.
Senator Warren. But?
Mr. Coukell. Unfortunately, what happens is, when you have
purchaser consolidation, contracting consolidation, it drives
that price down, concentrates the market share, and so the
price goes so low that other companies may not have market
share and may not have much incentive to stay in the market.
Senator Warren. Okay. So my understanding is, part of the
problem here is that it is expensive to run a drug
manufacturing facility. But as you are saying, the margin for
many of these generic drugs is so low that domestic
manufacturers just are not interested in making them. And as a
result, we have become more reliant on foreign manufacturers to
furnish some of our most basic and essential medicines. This
obviously not only raises quality concerns, but it also poses a
risk to our national security.
So, I was glad to see the Biden-Harris administration
announce that it is expanding HHS's authority under the Defense
Production Act to bolster domestic manufacturing of essential
medicines, and that it will invest $35 million in U.S.
manufacturing of key starting materials for pharmaceutical
products.
Now, Mr. Coukell, will investments in the manufacturing of
key starting materials--that is a good thing--but will it be
enough to alleviate drug shortages, or do we also need to think
about investments in manufacturing finished drugs as well?
Mr. Coukell. Yes; thank you, Senator. I agree that it is a
good thing to invest in key starting materials. But if we are
focused on shortages, the key starting materials, the
precursors even upstream of API are way, way upstream and not
usually the thing that is causing the shortage. Most of the
shortages are caused at the level of manufacturing the finished
dosage for the vial or the syringe drug.
Senator Warren. All right. That is a really important
point, and I appreciate your making it.
To prevent drug shortages, the Biden administration, I
think, should build on these commitments to also invest in the
manufacture of finished drug products, and it is important that
the administration ensures that taxpayers get something for
these investments, for example, by negotiating contract terms
that the drugs will be made available to government programs
and patients at a fair price, if we are going to put taxpayer
dollars into this. But I am concerned that even this will not
be enough to fully address the market failures in the generic
drug industry.
So one more question, Mr. Coukell. Are there generic drugs
at high risk of shortage that are so unprofitable that Civica
cannot produce them, but would be able to produce them if you
had government assistance, a government contract to do it?
Mr. Coukell. Senator, there are certain drugs that at
today's prices, any manufacturer, even a nonprofit, would be
selling at a negative margin. And as you can imagine, even as a
nonprofit, you cannot sell very many drugs at a negative margin
and continue to operate. So yes, the answer to your question is
``yes.''
Senator Warren. All right.
So I think it is important to acknowledge that the market
alone will not fix this problem. If there are drugs that are
priced so low that even manufacturers that are dedicated to
preventing shortages will not produce those drugs, then the
government must step in.
And that is why I am reintroducing the Affordable Drug
Manufacturing Act, to direct HHS to sign contracts to
manufacture generic drugs in cases where the market has failed.
Public manufacturing presents a powerful opportunity to resolve
drug shortages, to secure the pharmaceutical supply chain, and
to ensure generic drugs are both accessible and affordable for
patients.
Thank you. Thank you, Mr. Chairman.
Senator Cardin. Thank you.
Senator Cortez Masto?
Senator Cortez Masto. Thank you, Mr. Chairman, and thank
you to the panelists. Thank you for your written testimonies. I
have listened to your testimonies today. Obviously, it is such
an important topic.
Let me jump right in here. And, Dr. Hernandez, let me start
with you, because I think we all were concerned reading The
Wall Street Journal report that patients' insurance plans are
paying thousands of dollars a month for certain specialty
drugs, and that is because health insurers and PBMs are marking
up the prices they set with pharmacies.
And you talked a little bit about that. I understand you
have a report coming out, is that correct, on this very issue?
Dr. Hernandez. Yes. We have a report published this morning
that looks at the top 50 generic drugs by Medicare spending,
and how much the main six Part D sponsors would pay for them.
So we identified as many as 16 generic drugs that have markups
of over 1,000 percent. Imatinib, which is a cancer drug which
is now available as a generic, is one example.
But another example, for instance, is aripiprazole, an
antipsychotic drug where the pill actually costs the pharmacy
less than 17 cents, but PBMs were reimbursing them as high as
$11 or $5 per tablet. While I think this is not a contributor
to shortages, and I think that is an important point to make,
these drugs are--we are talking about drugs reimbursed by Part
D, so, drugs used in the patient setting.
I think this is also another symptom of how the way we pay
for generics does not work. Just as we fail to generate
incentives for manufacturers to produce certain drugs, we are
also somehow, on the Part D side, allowing intermediaries to
unjustifiably increase the cost of certain generic drugs, which
ends up in seniors paying more for their medications. So I just
would like to make that point.
I think these are two different symptoms that show the
current shortcomings of the way we pay for generics, and both
of them need reform. But I do not think PBMs are at fault for
shortages.
Senator Cortez Masto. Right. And I think, from what I am
hearing, there are several solutions. There are several things
that we need to be doing. And, Dr. Wosinska, I thank you as
well, because I was looking at your written testimony.
One of the things you highlighted in your testimony this
morning that I want you to touch a little bit more on, is this
idea that CMS pay for a performance program to shift hospitals'
purchase decisions. You talk a little bit about this, and say
under the proposed pay-for-performance program, hospitals would
be scored on their behavior on two measures: do they buy from a
reliable manufacturer, and do they buffer their inventory?
So, if you would, talk a little bit more about that. But I
am also curious what you talked about--the buffering of the
inventory for small hospitals--because we have a lot of small
hospitals in rural Nevada, and you seem to indicate that we
have to be careful when we are talking about that, when it
comes to small hospitals. So, if you would, please elaborate.
Dr. Wosinska. Yes. So, one of the features of this pay-for-
performance program is that it allows us to be grouping--the
idea is to compare how you do to your peer. So I would not want
Mayo Clinic to be compared to a small rural hospital.
And in a program like this, when CMS then assigns payments
at the end of the year, they would be able to sort of assign a
different amount of money to the different tiers of hospitals.
So there would be opportunity to buffer certain types of
hospitals more.
Now, going back to--you know, the pay-for-performance
program would reward what hospitals do. I want to sort of
highlight one more piece, that we want to be also thinking
about what are the things that we are trying to prevent, versus
what happens in a shortage.
A buffer really is, when there is a shortage, how it is
related to the supply chain. And so it is really important that
we just do not think about just buffering. The reason why we
are looking at reliability and buying reliably is because that
is what drives manufacturing quality.
If we do not solve that problem, we will continue to have
disruptions, and the question is, are buffers enough? There is
so much panic buying right now that goes on when there is a
shortage. You would have to have really massive buffers for the
market not to be reacting the way it is.
So we really have to get at the root cause of it, which is
the manufacturing quality. And for things that we can't
predict, such as natural disasters and whatnot, or geopolitical
threats, that is where buffers really should be playing a role.
Senator Cortez Masto. Fair enough; thank you.
I have a couple of other questions, but I know my time is
almost up. I will submit those for the record. I thank you.
Senator Cardin. Thank you.
So, let me just make an observation before we close the
hearing, and that is that there is an inadequate supply of many
essential drugs. They are not particularly expensive. The cost-
benefit ratios are pretty dramatic, and it is affecting the
proper medical protocols for treating certain illnesses and
diseases.
In a Nation that spends the most for health care any way
you want to judge it, where the profit margins are pretty high
in the drug industry--and it is an area in which we see a
continuous increase in the use of prescription drugs and the
cost of prescription drugs, and yet those that are less
expensive, we find in short supply.
So, Senator Warren is absolutely right. The market is not
working in this regard. So we have to figure out how do we
affect the market? So, there are a lot of different ways that
we can take a look at that, but we must have the data. I am not
yet impressed that we have the information necessary to make
the type of judgments that we have to make. So I would just
urge us to try to get as much information as possible.
One area that I have worked on is the expiration date on
drugs, making sure that we have the maximum amount of time in
order to use a current supply. But I would be interested in
your observations as to the impact it has on traditionally
underserved communities.
I find that if you know how to manipulate the system or use
the system, et cetera, you can usually get your hands on
whatever you need to. But if you come from communities that do
not have that type of access or that type of supply chain, you
are usually at the bottom of the ring.
So I see you are nodding your head. Tell me a little bit
about the impact on underserved communities, and as we look at
solutions for supply of drugs, how we protect the communities
that have been traditionally left behind.
Dr. Wosinska. So, with retail drugs, the impact is going to
depend very much on where the product is carried. I actually do
not have--I have not seen the data, but I would not be
surprised if certain chains were able to get the product more
readily than others. To some extent, it is because the way DEA
assigns quota, you have to come in with a contract to the DEA
to say, I have a contract with this wholesaler, this
distributor, or this pharmacy chain.
And so, if the DEA does not assign quota to that
manufacturer, you are going to suddenly have, potentially, a
gap. So that is sort of part of this, sort of in which
pharmacies this happens, and to what extent, for example,
independent pharmacies are able to get access.
On the hospital side--I spoke very briefly about this--
there is a lot of anecdotal evidence. I am actually doing a
research study that we are hoping actually documents this. But
there is a lot of anecdotal evidence, especially--there is an
organization called Angels for Change, who try to actually help
coordinate and find cancer products.
And if you talk to them, they will tell you of the
incredible inequities that have resulted from this shortage,
because it is the small, the independent clinics, the small
rural hospitals that really just cannot get their hands on the
product.
What happens is, if there is any signal of a shortage,
those who have the means and have the buyers will basically try
to procure as much product as they can. And then there is so
much less on the shelves. And everybody is nervous, so
everybody tries to buffer.
I sort of compare it to COVID and toilet paper, right?
Initially, we were comfortable with maybe having four rolls of
toilet paper before COVID, and then you are down to 12 and you
have to go shopping, right? But when everybody does this, we
pull so much more of the product out of the shelves. And then
not everybody has the same ability to get to the product. So--
--
Senator Cardin. So, let me try to get to solutions here. We
recognize that we want to reduce or eliminate, as much as
possible, the lack of supply of essential medicines,
particularly those that are less expensive. But there will
always be some shortages.
So how do we put in place a system--how can government put
in place some protections and guard rails to avoid that
inequity?
Dr. Wosinska. Yes. I will let Allan speak as well. But just
really quickly, if the government is going to be creating any
type of a stockpile--any type of a stockpile--there really
needs to be an allocation mechanism in place. If you were to
create a pediatric cancer drug stockpile--you know, they are in
the 1 percent of patients among all cancer patients--that
stockpile would be tiny.
Why would we possibly think that letting this stockpile be
used in a shortage would go to pediatric patients? So we really
need to be thinking about who can get it, who can't get it
otherwise, and really have these kind of allocation mechanisms.
Even historical allocation mechanisms would go a long way,
rather than let somebody buy, you know, 10 times what they
normally buy and basically kind of buffer themselves, but leave
others behind. So I think that would be my recommendation.
Senator Cardin. Mr. Coukell?
Mr. Coukell. Senator, we have some of the largest health
systems in the country, our Civica members. But we also have
small rural hospitals that have joined as onesies, and they pay
exactly the same price for drugs from Civica.
When they commit to buy a certain volume of drug, we hold a
physical reserve inventory sitting in a warehouse of about 6
months of that drug, and that hospital, regardless of the size,
is going to get their committed volume. So I think that is the
kind of approach we need to think about as we move forward.
Senator Cardin. Well first, on behalf of the committee, we
thank all four of you for your testimony here today, and for
participating in this important debate, as we try to figure out
the best way to deal with a problem I think we have all
recognized.
For the information of the members and staff, questions for
the record are due by 5 p.m. next Tuesday, December 12th.
There being no further business, the committee will stand
adjourned, with our thanks.
[Whereupon, at 12:24 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Allan Coukell, Senior Vice President,
Public Policy, Civica Rx
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for the opportunity to speak with you today on the pressing
issue of drug shortages, and on policies to prevent and mitigate future
shortages. My name is Allan Coukell. I am a pharmacist by training, and
I lead public policy for Civica--also known as Civica Rx--which is a
nonprofit generic drug company created specifically to prevent drug
shortages.
the problem of drug shortages
Drug shortages have been a chronic and ongoing problem in the U.S.
for well over a decade. At any given time, hundreds of drugs appear on
the FDA drug shortages list. Currently, we are seeing an acute
exacerbation of shortages as a number of manufacturers have experienced
quality problems, causing them to permanently or temporarily leave the
market. Cancer drugs and penicillin and cephalosporin antibiotics are
among those products of highest current concern, but shortages cut
across therapeutic categories of generic drugs. Sterile injectable
drugs are predominantly affected, though not exclusively, due to the
complexity of manufacturing and the low profit margins associated with
these products.
Drug shortages disrupt patient care, causing procedures to be
canceled or delayed. They require treatment regimens to be adjusted to
alternate products, potentially increasing the risk of medication error
or resulting in suboptimal care. They require commitment of enormous
pharmacy and hospital staff time in attempting to source drugs that are
in shortage. And, while the low cost of drugs is the ultimate driver of
supply failures, once a shortage occurs, prices spike, adding to costs.
about civica
Civica is the only pharmaceutical company established specifically
to address generic sterile injectable drug shortages.
We were founded as a nonprofit, non-stock organization by a group
of U.S. health systems and philanthropies who, after more than a decade
of chronic shortages, recognized that the market was not self-
correcting and that a different approach is required. They created
Civica with the mission if delivering a safe, stable, and affordable
supply of essential medicines to U.S. patients.
Civica marked its fifth anniversary in September. In that time, our
hospital membership has grown to 55 health systems, accounting for one-
third of licensed beds in the United States, and we have supplied more
than 148 million containers of generic sterile injectable drugs--more
than 80 different drug products.
With substantial support from the U.S. Government, we recently
completed construction of our own state-of-the-art sterile injectable
manufacturing facility in Petersburg, VA.
Civica's member health systems have taken steps to mitigate the
risk of shortages by changing the way they purchase essential drugs.
But many other hospitals have yet to develop or implement a systemic
strategy for shortage prevention. Civica's unique model may offer a
guide to what such a strategy should look like.
the model
The drugs that Civica delivers are those that are in shortage or at
high risk of being in shortage. They are chosen by a committee of
physicians and pharmacists from Civica member hospitals. They are
typically old, low-cost, but essential medicines. They are not the
products with the highest return on investment; they are the products
required to deliver care every day in hospitals across the country.
Because our mission is to prevent shortages, several features of
the ``Civica model'' are different from the traditional generic drug
supply chain and may suggest potential improvements to the larger U.S.
system. In particular:
Civica enters long-term purchase and supply contracts that
add stability to the market.
We target a 6-month buffer inventory of every drug to ensure
continuity of supply.
We emphasize U.S. sourcing whenever possible, with the EU
and Canada as a second choice. We don't source finished drugs
or API from China unless there is no other source.
Civica performs an intensive quality audit of potential
suppliers, supplemented by ongoing review of key metrics, to
reduce the risk of a failure to supply.
Every drug is sold on a cost-plus basis, with the same price
available to any purchaser. Our prices remain stable even when
the drug is in short supply.
Lastly, Civica has built a new, state-of-the-art sterile injectable
manufacturing facility in Petersburg, VA, and is developing its own
generic drug applications to further ensure supply of essential generic
medications.
success of the model
The Civica model has demonstrated benefits. In fact, 20 of our top
25 drugs are currently in shortage nationally,\1\ but we are able to
supply without interruption.
---------------------------------------------------------------------------
\1\ ASHP Drug Shortage list as of November 28, 2023.
When a tornado recently hit a generic drug manufacturing facility
in Rocky Mount, NC, the Civica portfolio included 21 products that
overlapped with products produced in that plant. We immediately let
member hospitals know that we could supply double their committed
---------------------------------------------------------------------------
volume for all 21 drugs.
And a recently published peer-reviewed study in the journal NEJM
Catalyst showed that:
(1) Supply from Civica was more consistent than from a
traditional wholesaler model, and
(2) Sourcing from Civica produced net cost savings to the
health system.\2\
---------------------------------------------------------------------------
\2\ Dredge C, Scholtes S. ``Vaccinating Health Care Supply Chains
Against Market Failure: The Case of Civica Rx.'' NEJM Catal Innov Care
Deliv 2023;4(10). DOI: 10.1056/CAT.23.0167, https://catalyst.nejm.org/
doi/abs/10.1056/CAT.23.0167.
---------------------------------------------------------------------------
policy responses
When considering policy responses to drug shortages, it is
important to recognize that chronic drug shortages have now become a
built-in outcome of the current system. Market trends and the
resumption of FDA inspections after COVID mean shortages are more
likely to increase than to abate in the years ahead.
The immediate cause of most shortages of sterile injectable drugs
is quality problems in the manufacture of the finished dosage form. But
it is widely acknowledged that the root cause is the low cost of these
products, which reduces the incentive or ability for manufacturers to
invest in quality or in newer manufacturing facilities and pushes
production offshore to low-wage markets where quality problems
proliferate, and the FDA presence is less consistent.\3\
---------------------------------------------------------------------------
\3\ For example, see FDA, ``Drug Shortages: Root Causes and
Potential Solutions,'' 2019, https://www.fda.gov/media/131130/
download?attachment; Brookings, ``Federal Policies to Address
Persistent Generic Drug Shortages,'' 2023, https://www.brookings.edu/
wp-content/uploads/2023/06/20230621_ES_THP_GSI_Report_Final.pdf; Duke
Margolis, ``Advancing Federal Coordination to Address Drug Shortages,''
2023, https://healthpolicy.duke.edu/sites/default/files/2023-09/
Advancing%20Federal%20Coordination%20to%20Address%20Drug%20
Shortages.pdf.
Therefore, policy responses should focus on changing the current
system that causes shortages because it favors low prices over
resiliency of supply. While Civica member hospitals have taken direct
action to reduce their risk of shortages, many others have yet to take
---------------------------------------------------------------------------
steps.
Using its authority over provider reimbursement and quality, we
urge the committee to support providers in purchasing generic essential
medicines, taking into account:
Measures to ensure adequate buffer inventory;
Measures to ensure that generic sterile injectable drugs are
priced sustainably;
Measures to create market demand from manufacturers that are
less likely to have quality failures; and
Support for domestic manufacturing.
Buffer Inventory
Production of injectable medicines is relatively inelastic. If a
particular facility stops producing, others take many months to ramp up
production (assuming other companies already have approval to produce
the drug). Therefore, a system that operates on just-in-time inventory
will always be at high risk of shortages.
However, the resources required to establish and maintain access to
a buffer stock of essential medicines will generally be greater than
the resources required to establish and maintain access to these
medicines without such a buffer stock.
Congress should incentivize supply chain stakeholders to maintain
buffer inventory. Civica's experience is that a 6-month reserve is the
appropriate quantity to create added resiliency, as it allows suppliers
to deliver additional batches in the event of a supply interruption.
The cost of a holding a buffer inventory can be calculated on a
straightforward basis, by taking into account the weighted cost of
capital for the inventory held, along with the cost of the storage
facility itself.\4\
---------------------------------------------------------------------------
\4\ Weighted cost of capital is a measure of the cost companies pay
to finance their operations.
Congress could incentivize manufacturers, wholesalers, or providers
to hold extra inventory. The most practical approach would be to
provide incentives for hospitals, health systems and other providers to
contract with manufacturers or wholesalers who actually hold the buffer
stock. This maximizes the effectiveness of inventory allocation in a
shortage situation and does not require providers to directly maintain
or operate storage facilities, with the attendant cost, complexity, and
---------------------------------------------------------------------------
risk of outdated inventory.
The Centers for Medicare and Medicaid Services, in its draft
Inpatient Payment rule, recently proposed a very similar approach to
providing supplemental payments to hospitals for this purpose. While
CMS did not move the provision forward in the final rule, the committee
should consider how, with minor improvements, it could be an effective
approach.
Drug Shortage Prevention and Mitigation Strategies
Civica's hospital members have made investments and purchase
commitments to reduce the impact of drug shortages, but all hospitals
and health systems should have a drug shortage prevention strategy and
review it on a regular basis. Elements of such a strategy could
include:
Identification of a priority list essential drugs that are
at risk of shortages;
Maintenance of buffer inventory to mitigate a supply
disruption, including a contract for maintenance of inventory
on behalf of the hospital; and
Contracting procedures for those drugs that take into
account:
Supplier quality,
Diversity of supply, and
Committed volume to bring stability to the
market.
The committee should encourage and incentivize the development and
implementation of such strategies, including through the use of
Medicare payment policies.
``Insurance'' Against Future Shortages
Drug shortages are relatively predictable and therefore targeted
investments can create backup domestic manufacturing capacity as
``insurance'' against future shortages. This can be accomplished at
modest cost.
Shortages occur across drugs in all therapeutic classes, but
predominantly affect generic sterile injectable products. A variety of
predictive factors can be considered, but the strongest risk factor for
a future shortage is whether the drug has been in shortage previously.
Therefore, it is possible to create a priority list of products that
are essential medicines at high risk of shortages.
Current low market prices--often below $4 for a vial--make it
financially infeasible for U.S. manufacturers to develop many of these
products and find commercial sales at today's prices. However, it takes
a manufacturer roughly 2 years to develop a generic injectable product
and obtain FDA approval. Therefore, starting that process after a
shortage begins does not result in a timely response.
In contrast, if Congress were to create a targeted program to
support domestic manufacturers to develop essential products that are
at high risk of shortage (doing all the required studies and obtaining
FDA approval of an ANDA), domestic manufacturers would then be ready to
manufacture on short notice once a shortage starts. In this way,
Congress could create an insurance policy against future shortages at
the cost of a one-time investment of $3 million to $4 million per drug.
The committee has previously created grant programs to encourage
the growth of other sectors and could use its authority to ensure that
the United States has domestic manufacturers who are ready on short
notice to produce essential drugs.
conclusion
Thank you again for your attention to this important topic and for
the opportunity to be with you today. I welcome your questions.
______
Questions Submitted for the Record to Allan Coukell
Questions Submitted by Hon. Ron Wyden
Question. In your testimony, you recommend that Congress consider
policy measures that would help ensure adequate buffer inventory of
generic essential medicines. You also mention that Civica targets a 6-
month buffer inventory for the products you supply.
Can you elaborate more on Civica's approach to building and holding
buffer inventory for your health system members? For example, is this
inventory typically held at the provider, manufacturer, or wholesaler
level? How often do providers tap into buffer inventory for Civica
products? What are the cost implications of producing and holding 6
months' worth of buffer inventory on generic sterile injectable
medicines?
Answer. Hospitals contract with Civica to purchase specified
minimum volumes of each drug (not every hospital purchases every drug,
but those that decide to purchase commit to a specific annual volume).
This predictable volume dictates the size of the buffer inventory that
Civica establishes (equivalent to 6 months' worth of sales).
Through experience, we have found that a 6-month buffer is
appropriate, in that it allows for continuity of supply for a
disruption in the market by allowing our suppliers to produce
additional batches.
Civica manages the buffer inventory in relation to a hospital's
committed volume. Generally during a market shortage, the buffer
inventory allows us to supply hospitals at double their committed
volume (e.g., if a hospital had previously committed to purchase 50
percent of their volume for that product from Civica, we could supply
them with 100 percent of their needs; a hospital that opted in at 15
percent could receive up to 30 percent). In some circumstances, Civica
will supply more than double the committed volume; other times, if
supply is limited, we may use allocation to manage the inventory more
tightly). This approach ensures equitable and efficient distribution.
Most of the buffer inventory is owned by Civica and is stored in a
central warehouse, with some portion transferred to the wholesaler at
forward distribution centers around the country. The cost to hold
buffer inventory is essentially the cost of capital plus the cost of
warehouse space.
The cost to a manufacturer (or any entity) to hold buffer stock is
directly related to the cost of capital for the value of the inventory
held. If the Finance Committee were to model a payment incentive, it
could take into account that cost, plus a small additional
administrative fee for the cost of storage facilities. Such an approach
would allow CMS to calculate a reimbursement premium that should
exactly offset a hospital's slightly higher acquisition cost from a
manufacturer (or wholesaler) who holds extra inventory on their behalf.
By reimbursing separately for the cost of acquiring drug through a
buffer stock program, CMS would effectively create a market for this
service that values it at exactly what it costs to provide.
This effectively creates a level playing field without introducing
perverse incentives. Take a hypothetical drug sold by a manufacturer at
$2/unit price through non-buffered supply. If the manufacturer builds
in the cost of the inventory buffer and sells through a buffered
inventory program at $2.10, but the hospital receives an extra $0.10
for purchasing buffered stock, the hospital no longer has an incentive
to choose the non-buffered stock, but neither the hospital nor the
manufacturer is ``overpaid.'' The effect is to make a market for
entities that hold buffer stock.
As noted above, incremental cost can be calculated based on the
weighted average cost of capital for the inventory held, along with the
cost of the storage facility itself, for each drug and hospital.
However, companies may make different assumptions to calculate cost of
capital; therefore, the Finance committee could direct CMS to
standardize the payment premium by calculating cost of funds based on
SOFR + a fixed percent, published quarterly. Moreover, the amount of
the extra payment could be adjusted directly based on the amount of
buffer stock actually held in the prior year/quarter (e.g., an average
inventory of 6 months may dip to an average of 2 months when the drug
is in shortage and the hospital is drawing on the buffer).
In any case, inventory should be held ``upstream'' of the
individual provider by an entity that can allocate based on historical
sales or committed volume. These removes the cost, risk and
responsibility from the provider for managing a buffer inventory and
allows the manufacturer (or wholesaler) to manage the inventory buffer
in a way that prevents hoarding.
Question. Your testimony also recommends that Congress consider
policy measures to ensure that generic sterile injectable drugs are
priced sustainably.
How does Civica arrive at sustainable price points for the generic
medicines you develop? Please elaborate upon the specific input costs
and other factors Civica considers when pricing a product for your
health system members.
Answer. Civica prices on a cost-plus basis to deliver the lowest
sustainable price. The same price is available to all purchasers and
remains stable even when a drug is in short supply. Like other generic
manufacturers, we compete in a market in which price pressure on
generic drugs is intense and can result in some products being priced
with negative margins--a sure recipe for long-term shortages and
unstable supply.
______
Questions Submitted by Hon. Chuck Grassley
Question. I have heard from Iowans receiving cancer treatment about
how cancer drugs in short supply have impacted their ability to access
treatment. Some patients have even had to switch hospitals to maintain
treatment, because another hospital was getting a more consistent
supply.
Some hospitals seem to handle drug shortages better than others.
Why do you think that is? Are there parts of the supply chain that
weather shortages more effectively?
Answer. Because generic injectable drugs are chronically in
shortage, nearly every hospital and health system devotes personnel and
resources to sourcing of drugs when they are in shortage. It may be
that some hospitals have more resources able to source during a
shortage or procure in anticipation of a shortage, and also that
varying relationships with wholesalers, group purchasing organizations
and other supply chain entities result in some hospitals being able to
acquire drug while others cannot. Procurement through Civica is an
approach designed to be accessible and available to any hospital, yet
currently only about one-third of U.S. hospital beds are in Civica
member hospitals. This may suggest that many hospitals have not yet
attempted to fully optimize shortage prevention strategies.
Question. Several testimonies described the need for increased
communication and coordination across the pharmaceutical supply chain
to prevent and manage drug shortages.
Given the persistence and scale of drug shortages, does there need
to be more transparency within the supply chain? If so, by whom and how
could this improve the situation? If not, who in the supply chain
should do more with the information they have to address drug
shortages?
Answer. The underlying cause of most shortages is a market that
pursues the lowest cost at a cost to resilience of supply. Correcting
this imbalance will require changes to incentives that support
purchasing from manufacturers that are less likely to have supply
failures. This could include incentives to purchase from entities that
hold buffer inventory and incentives to choose manufacturers that are
less likely to have a failure to supply. Providers and purchasing
organizations looking to implement such an approach can already draw on
a range of available information that is sufficient to both identify
at-risk drugs and select manufacturers that are less likely to
contribute to a supply failure. While this can be accomplished without
additional supply chain transparency, we provide two examples of
changes that would be beneficial.
1. Currently, health systems generally learn about a drug shortage
once the product becomes unavailable, which may be weeks or months
after the manufacturer supply disruption has become known to the FDA.
If health systems know about shortages sooner, they may be able to
adjust utilization, such as by using drug only when necessary or
switching to alternative products for suitable patients, for example,
using an oral medication instead of an injectable. They can also
implement waste reduction, for example, repackaging contents of vials
to allow for use to treat multiple patients. However, for conservation
measures to be most effective, earlier notice of a shortage risk is
essential.
One risk of early notice of a shortage risk is that health systems
will stockpile or ``hoard'' drug product during a time of scarcity,
potentially precipitating a shortage. Therefore, we recommend that drug
distributors, which are identified as ``other stakeholders'' in the FDA
Risk Management Plan guidance, be required to have a risk management
plan that involves immediately putting a drug on allocation when
notified by FDA of a potential impending shortage.
Under an allocation strategy, no health system would be able to
order significantly above its normal order volume for a drug on
allocation without providing some justification. In this circumstance,
allocation should apply not only to the specific NDA, ANDA or BLA
product, but to therapeutically equivalent products and, in some cases,
therapeutic alternative products. This would help prevent shortages of
alternative drugs needed to treat the same condition(s).
To prevent over-ordering in a potential shortage situation,
allocation should also be part of risk management plans for
manufacturers of equivalent products and, in some cases, for
therapeutic alternatives.
Allocation of inventory is not a new measure, but currently often
happens after hoarding of product has depleted existing inventory in
the supply chain.
To take a recent example, hospitals were not given any advance
notice of the manufacturing disruptions for intravenous contrast media.
This lack of notification limited the ability and impacts of health
systems to implement repackaging programs that would allow the existing
supply to treat more patients.
When FDA notifies drug distributors to implements an allocation
strategy for specific products, the agency can also notify health
systems at large to adopt conservation strategies, potentially blunting
the impact of a shortage.
2. FDA's inspection reports--Form 483s or 483s--are a source of
existing information that, if it were more readily available, could be
used in multiple salutary ways, including:
Knowledge that a 483 would quickly become publicly available
with little or no redaction would spur manufacturers to
proactively improve quality rather than face increased public
scrutiny associated with adverse findings.
Timely access to 483s would provide a near-real-time quality
signal that could help the market anticipate or mitigate
potential shortages. For example, knowledge of quality problems
at a facility could allow Civica to increase orders with
alternate manufacturers and could allow health systems to
reduce use of a drug by using an alternate product, where
possible.
Improved access to 483 information would provide purchasers
of drugs, such as health systems and group purchasing
organizations, with a quality signal that could inform
procurement decisions and vendor selection.
Unfortunately, not all 483s for drugs are posted on FDA's website,
and those that are posted often take up to a year to appear. Moreover,
in many of the documents posted, FDA redacts information that is
critical to predicting drug shortages, including the name of the
drug(s) that are the subject of adverse findings, even though
disclosure of that information is not restricted by law.
FDA's current policy is to generally post 483s that have been the
subject of multiple FOIA requests or that FDA expects to be subject to
multiple requests. All others can be requested under the Freedom of
Information Act (FOIA), but that route is unpredictable and at best
generally takes at least 4 months, and sometimes years.
There is precedent for automatically posting a specific category of
483s where the use of FDA resources is justified by important public
health concerns. After a serious incident related to compounding
pharmacies, FDA started to post all 483s issued to compounding
pharmacies.
FDA needs to adopt a similar approach with respect to 483s that are
issued to drug/biologics manufacturers, and to post all drug-related
483s within 30 days of issuance. This could be accomplished by
dedicating a single employee to the task. Even in a year with a high
number of drug-related 483s there were 500. A single employee dedicated
to this effort would only have to redact and post on average two 483s
per day. Another advantage to having a dedicated person on this task is
greater uniformity of redactions and that the employee would gain
expertise in the issues that arise in connection with 483s, which could
lead to fewer redactions.
In some instances, FDA has redacted information where there is no
apparent legal justification, including the name of the currently
marketed drug(s) at issue and other information, including about
manufacturing, that is critical for predicting shortages and is neither
trade secret nor proprietary. Eliminating or reducing the extent of
redactions would allow more detailed information about quality risks
into the public domain. Less redaction would presumably also facilitate
speedier release of information.
However, as noted above, much relevant information on the drug
supply chain and quality already exists, but is underutilized. We urge
the Senate Finance Committee to incentivize hospitals to take active
steps, using existing information and mechanisms, to take supply
resiliency into account when procuring generic drugs.
______
Questions Submitted by Hon. Maria Cantwell
Question. Washington State has been hit hard by nationwide drug
shortages. A pediatric oncologist at Seattle Children's Hospital told
me that 75 percent of the 20 most essential pediatric drugs have been
in shortage over the last 5 years. This doctor is currently treating a
14-year-old girl with bone cancer who needs three essential
medications. However, two of those three drugs are already in shortage
and the third is running on low supply. Pediatricians and pharmacists
now have to spend hours calling around to try to find emergency
supplies of medications, while trying to avoid the unthinkable
situation of rationing drugs.
For example, the Swedish Cancer Institute in Seattle already said
this summer that it has been forced to ``conserve and prioritize
supply'' because it is running so low on cancer medications. MultiCare,
which runs 12 hospitals in Washington, has decided to prioritize
curable patients when distributing medications.
Your company, Civica, was created to help make generic medicines
accessible at an affordable price for everyone. Civica operates an
innovative model that prioritizes the long-term predictability of
supply and partners with health systems to identify potential gaps in
supply. That goal is critical and it's something that everyone in the
industry should be striving for.
We need manufacturers, providers, and everyone else in the drug
distribution system to work together to prevent drug shortages so that
patients like the 14-year-old at Seattle Children's Hospital can access
lifesaving medications.
Can you describe in detail how Civica's model differs from others
and helps reduce drug shortages?
Answer. Because our mission is to prevent shortages, several
features of the ``Civica model'' are different from the traditional
generic drug supply chain and may suggest potential improvements to the
larger U.S. system. In particular:
Civica enters long-term purchase and supply contracts that
add stability to the market. This ensures that manufacturers
have predictable demand over a period of years and therefore
commit to, and invest in, continuing to supply that product.
We target a 6-month buffer inventory of every drug to ensure
continuity of supply. While there is a cost to holding
additional inventory, having extra stock allows for continued
supply through a supply disruption, such as a quality problem
at another manufacturer making the same drug. A 6-month
inventory is generally sufficient to allow for delivery of
replacement batches before the buffer is exhausted.
We emphasize U.S. sourcing whenever possible, with the EU
and Canada as a second choice. We don't source finished drugs
or API from China unless there is no other source. Too often,
the market pursues the lowest cost drug without considering its
source.
Civica performs an intensive quality audit of potential
suppliers, supplemented by ongoing review of key metrics, to
reduce the risk of a failure to supply.
Every drug is sold on a cost-plus basis, with the same price
available to any purchaser. Our prices remain stable even when
the drug is in short supply.
Question. Two Washington State hospitals, Providence and Common
Spirit, are already members of the Civica network. How can the Finance
Committee encourage other health systems to take similar steps?
Answer. This committee has a broad range of tools at its disposal,
through oversight of Medicare and other public programs, payment
policy, quality programs, and conditions of participation.
These tools can be used to encourage and incentivize health systems
to put shortage mitigation strategies in place, such as participating
in Civica or taking similar steps toward more resilient supply.
For example, CMS recently proposed a small bonus payment to
hospitals who held, or contracted for, a buffer inventory of essential
drugs. CMS did not move forward with this proposal, but with a few
minor improvements that approach has the potential to really mitigate
shortages. The immediate cause of most shortages of sterile injectable
drugs is quality problems in the manufacture of the finished dosage
form, but the root cause is a system that pursues low prices at the
expense of supply resiliency.
Civica's approach to preventing shortages has been shown in a peer-
reviewed analysis to be both more reliable than the conventional
wholesaler channel and to produce net cost savings over time (Dredge C,
Scholtes S. NEJM Catal Innov Care Deliv 2023; 4(10)). The savings
result because when a drug is in shortage, hospitals can no longer
acquire at the GPO contract price and may have to may many times more
than the pre-shortage price. However, because Civica may not be the
lowest cost when a drug is not in shortage, many hospitals have yet to
adopt this, or similar, strategies for shortage mitigation.
The Finance Committee should use its authority over provider
reimbursement and quality to support providers in purchasing generic
essential medicines, taking into account:
Measures to ensure adequate buffer inventory,
Measures to ensure that generic sterile injectable drugs are
priced sustainably,
Measures to create market demand from manufacturers that are
less likely to have quality failures; and
Support for domestic manufacturing.
Buffer Inventory
Production of injectable medicines is relatively inelastic. If a
particular facility stops producing, others take many months to ramp up
production (assuming other companies already have approval to produce
the drug). Therefore, a system that operates on just-in-time inventory
will always be at high risk of shortages.
However, the resources required to establish and maintain access to
a buffer stock of essential medicines will generally be greater than
the resources required to establish and maintain access to these
medicines without such a buffer stock.
Congress should incentivize supply chain stakeholders to maintain
buffer inventory. Civica's experience is that a 6-month reserve is the
appropriate quantity to create added resiliency, as it allows suppliers
to deliver additional batches in the event of a supply interruption.
Congress could incentivize manufacturers, wholesalers, or providers
to hold extra inventory. The most practical approach would be to
provide incentives for hospitals, health systems and other providers to
contract with manufacturers or wholesalers who actually hold the buffer
stock. This maximizes the effectiveness of inventory allocation in a
shortage situation and does not require providers to directly maintain
or operate storage facilities, with the attendant cost, complexity, and
risk of outdated inventory.
The Centers for Medicare and Medicaid Services, in its draft
Inpatient Payment rule, recently proposed a very similar approach to
providing supplemental payments to hospitals for this purpose. While
CMS did not move the provision forward in the final rule, the committee
should consider how, with minor improvements, it could be an effective
approach.
Drug Shortage Prevention and Mitigation Strategies
Civica's hospital members have made investments and purchase
commitments to reduce the impact of drug shortages, but all hospitals
and health systems should have a drug shortage prevention strategy and
review it on a regular basis. Elements of such a strategy could
include:
Identification of a priority list essential drugs that are
at risk of shortages;
Maintenance of buffer inventory to mitigate a supply
disruption, including a contract for maintenance of inventory
on behalf of the hospital; and
Contracting procedures for those drugs that take into
account:
Supplier quality,
Diversity of supply, and
Committed volume to bring stability to the
market.
The committee should encourage and incentivize the development and
implementation of such strategies, including through the use of
Medicare payment policies.
______
Question Submitted by Hon. John Thune
Question. One of our health systems in South Dakota is a member of
Civica and has told me the value they've experienced from the model
Civica has developed. It has helped them maintain a stable supply of
drugs for patients, especially those that are commonly in shortage.
In your testimony you mention that Civica takes quality into
account when considering suppliers for drugs.
Can you tell us more about how considering quality has improved the
reliability of your drug supply? How can Medicare policies better link
payment for drugs to quality?
Answer. Civica performs an intensive quality audit of potential
suppliers, including a physical inspection, supplemented by ongoing
review of key metrics and quarterly quality reviews with each supplier,
to reduce the risk of a failure to supply. In addition, we have a
preference for U.S. sourcing, followed by other countries with mature
regulatory systems (such as in the EU). We also exclude companies that
have problematic quality histories. This approach selects for suppliers
that are less likely to be responsible for recalls or otherwise have a
failure to supply.
______
Questions Submitted by Hon. Tim Scott
Question. Although America remains the world's top innovator in
life sciences, it dramatically lags behind countries such as China and
India in the manufacture of antibiotics and active pharmaceutical
ingredients (APIs) formulated into tablets, capsules and medicines, and
vitamin C. While States like mine reap extraordinary benefits from
foreign investment by international manufacturers, returning the
manufacturing and sourcing of life sciences products to our country is
not only a powerful economic driver--it's a path to national and global
stability. My Manufacturing API, Drugs, and Excipients (MADE) in
America Act would help bring pharmaceutical manufacturing back to the
United States by incentivizing pharmaceutical manufacturing in
designated ``Opportunity Zones,'' using tax credits to encourage
production of vital products and ingredients in America.
Do you believe it to be critical to our national security to unwind
from nefarious actors like China and prioritize manufacturing of APIs,
generics/biosimilars, and essential medicines in the United States?
Answer. While we benefit in many ways from being part of a global
economy, there are risks associated with dependence for essential
medicines from China and other low-cost economies. These include both
the immediate and ongoing risk of drug shortages and supply disruptions
associated with quality problems (including, in some cases, intentional
adulteration of drugs)\1\ as well as the national security risk
associated with our inability to produce essential drugs during a
global public health crisis in which every country, understandably,
will put the needs of its own population first. In addition, we must
consider the risk to the United States if a trading partner were to use
the drug supply as an economic lever in a future trade dispute or other
conflict. It would be wise to make targeted investments and policy
decisions to improve the resilience of the drug supply and insure it
against future interruptions.
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\1\ For a discussion of intentional adulteration of drugs from
China, see Pew, ``After Heparin,'' https://www.pewtrusts.org/-/media/
legacy/uploadedfiles/wwwpewtrustsorg/reports/health/
pewheparinfinalhrpdf.pdf.
Question. Your proposal to incentivize redundant production plans
for critical drugs on the shortage list is intriguing. Could you
elaborate on how these contingency plans would function, and what role
---------------------------------------------------------------------------
they would play in preventing shortages?
Answer. The current drug shortage crisis represents a continued
failure of the U.S. and global pharmaceutical supply chain. At any
given time, dozens or hundreds of essential medicines are on the FDA
Drug Shortages list. These are generally old, off-patent, low-cost
drugs, which are nevertheless essential to the operation of the U.S.
health-care system.
Drug shortages are relatively predictable. A variety of risk
factors can be considered, but the strongest prediction of a future
shortage is whether the drug has been in shortage previously.
Shortages occur across therapeutic classes, but predominantly
affect sterile injectable drugs. The immediate cause of shortages is
generally a quality problem associated with the manufacture of the
finished drug product (e.g., vial). The root cause is economic: generic
drug prices have been driven so low that many or most domestic
producers have stopped producing the medication and the manufacturing
is being done offshore in low-wage countries that are more likely to
have quality problems and where FDA presence is less consistent.
Drug supply is relatively inelastic, so when a shortage occurs,
there is generally not a facility with the capacity or approved process
to rapidly increase production. In addition, there are no new entrants
due to the inability to recover the cost of development and approval.
Since it takes about 2 years to develop an ANDA submission and obtain
FDA approval to market the drug, the market is slow to respond to any
shortage.
Abbreviated New Drug Applications (ANDAs) are the process through
which manufacturers apply to the FDA to produce generic drugs.
Developing an ANDA for a generic injectable drug and obtaining FDA
approval costs a manufacturer roughly $3 million for development of
analytical methods, formulation development, API qualification,
manufacture of engineering and stability batches (required prior to FDA
submission), stability studies and FDA Generic Drug User Fees. For some
generic drugs, which sell for under less than $4 per vial (sometimes
less than $1), the products simply can't be produced competitively in
the U.S. at today's prices. Therefore, manufacturers are unlikely to
maintain manufacturing capacity to produce drug in the event of a
shortage.
With U.S. Government support, U.S. manufactures could develop
targeted ANDA products (those that are essential drugs at high risk of
shortage) and maintain a stockpile of active pharmaceutical ingredient
specifically for the purpose of increasing U.S. manufacturing capacity
and mitigating future drug shortages. At modest cost, a one-time
investment for each drug would create an insurance policy ensuring
backup U.S. manufacturing capacity for essential drugs to rapidly
respond to future shortages or other national security needs.
Question. Although generic medications save money for the health-
care system, they are often not profitable enough for drug
manufacturers, leaving little incentive to invest in their
manufacturing. Additionally, because of a fragile supply chain,
disruption of a single manufacturing facility can turn into a
widespread shortage. Civica Rx was launched by a group of hospital
systems in 2018 with the goal of reducing prescription drug shortages
and prices and has grown to represent 55 health systems. Civica focuses
its efforts on essential medicines that are at elevated risk of
shortage.
What role can nonprofits play in bringing low-cost generic and
biosimilar medications to market and how can this model be supported?
Answer. Nonprofit pharmaceutical companies have potential to
address patient needs that aren't adequately addressed by traditional
pharma models. This includes opportunities to increase the resilience
of the supply, develop new therapeutics that might not be attractive
for traditional investors, and to develop generic and biosimilar
products in order to deliver cost savings to consumers. For example,
Civica is developing the three insulin analogs that account for most
U.S. insulin use (insulin glargine, lispro, and aspart, which
correspond to Lantus, Humalog, and Novalog, respectively). We are
funding the development of these products through philanthropic
contributions and public-private partnerships so that the development
costs won't have to build into the price of the product. Civica intends
to make these insulins available at transformative low prices, without
engaging in rebating or other pricing strategies that distort the
market and harm consumers.
As a nonprofit, our focus on supply chain resiliency includes steps
(such as holding 6 months of inventory) that our dictated by our
mission and not by the need for quarterly profits or shareholder
returns (Civica is a nonprofit and does not have shareholders).
Congress could take a number of steps to support the emergence and
growth of nonprofit pharma models, including through tax code changes
that would make it easier to establish new 501(c)(3) or analogous
pharmaceutical companies, and through grants, cooperative agreements or
other funding mechanisms that would ensure that non-profits (which
can't seek traditional venture capital funding) are able to develop new
products that are in the public interest.
Directly related to mitigating shortages, we would like to see more
hospitals participate in Civica (or similar models) to bring stability
to the drug supply and focus on more resilient models of purchasing and
supply. In addition, the concept of funding ANDA development, discussed
above, would support the ability of Civica or another nonprofit to
develop drugs in anticipation of future shortages.
Question. Hospitals typically make their purchases on a just-in-
time instead of a just-in-case basis. Earlier this year, the Centers
for Medicare and Medicaid Services (CMS) proposed reimbursing hospitals
for creating a 3-month stockpile of essential medicines; however
industry has voiced multiple concerns. One such concern is that
reimbursement would, in reality, likely only support well-financed
hospitals that could afford a 3-month stockpile--otherwise, it will be
a significant expense for hospitals with limited liquidity and (in
worst case) exacerbate existing access disparities.
Can you discuss incentivizing the private sector to establish and
maintain reserves, and what safeguards should be in place to prevent
unintended consequences like hoarding?
Answer. The purpose of buffer stock is to allow for continuity of
supply in the event of a supply interruption by any supplier in the
market. Drug manufacturing is a relatively inelastic supply, meaning
that even if multiple manufacturers have approval to make generic
versions of the same product, it typically takes many months for
production to increase.
The Civica model makes use of buffer stock, and its success is
demonstrated by the fact that we have been able to consistently supply
Civica member hospitals, often at double their committed volume, even
when the product is in a national drug shortage. The availability of
buffer inventory enables this resiliency. A recent peer-reviewed study
found that the Civica supply model was both more reliable than the
traditional wholesaler supply and, over time, produced net cost savings
by providing stable pricing when a drug is in short supply and no
longer available at the GPO contract price (Dredge C, Scholtes S.
``Vaccinating Health Care Supply Chains Against Market Failure: The
Case of Civica Rx.'' NEJM Catal Innov Care Deliv 2023;4(10), https://
catalyst.nejm.org/doi/abs/10.1056/CAT.23.0167).
The cost to a manufacturer (or any entity) to hold buffer stock is
directly related to the cost of capital for the value of the inventory
held. Therefore, by taking into account that cost, plus a small
additional administrative fee for the cost of storage facilities, it is
possible to calculate a reimbursement premium that should exactly
offset a hospitals slightly higher acquisition cost from a manufacturer
(or wholesaler) who holds extra inventory on their behalf.
By reimbursing for the cost of acquiring drug through a buffer
stock program, CMS effectively creates a market for this service that
values it at exactly what it costs to provide. This effectively creates
a level playing field without introducing perverse incentives. Take a
hypothetical drug sold by a manufacturer at the same $2/unit price
through non-buffered supply. If the manufacturer builds in the cost of
the inventory buffer and sells through a buffered inventory at $2.10,
but the hospital receives an extra $0.10 for purchasing buffered stock,
the hospital no longer has an incentive to choose the non-buffered
stock, but neither the hospital nor the manufacturer is ``overpaid.''
If properly constructed, there is neither a practical barrier nor a
cost penalty to less-resourced hospitals for participating in a buffer
stock program. For example, Civica has both large, for-profit health
system members and individual rural non-profit hospitals participating
on the same basis. Civica offers the same price to both types of
institutions and builds a buffer stock directly proportionate to their
individual order volume.
In addition, it is important to understand that additional buffer
stock anywhere in the system benefits the entire system (even non-
participating hospitals) by mitigating the shortage and increasing
total inventory available.
To prevent hoarding, buffer stock should be held ``upstream'' of
the provider, rather than at the individual hospital level. Holding the
inventory at the individual hospital level would not be the most
efficient approach to inventory management. In general, hospitals rely
on suppliers to make frequent (often daily) deliveries of medication
and do not routinely maintain physical facilities to allow for storage
and management of large amounts of additional pharmaceutical inventory.
Nor do hospitals have the system to manage inventory or want the
financial risk of expired inventory.
In contrast, manufacturers and wholesalers already operate GMP
warehouses with inventory management systems suited to this quantity of
products. In addition, there would be substantial efficiencies in
inventory allocation by storing the buffer stock ``upstream'' where it
could be shipped as needed and hospitals would not face the risk and
potential cost of expired inventory that they do not use in a timely
manner. The upstream approach guards against ``hoarding'' at the
individual provider level, because the manufacturer or wholesaler can
allocate limited stock equitably by shipping product based on
historical purchase volumes.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. In a 2019 report from the FDA on drug shortages, the
agency notes that FDA heard from stakeholders that some contracts
currently include ``low-price clauses'' that allow group purchasing
organizations to unilaterally walk away from a contract if a competing
manufacturer is willing to supply the same product or bundle of
products for a lower price.
How do practices like ``low-price clauses'' impact drug shortages?
Answer. Civica does not participate in GPO contracts and is
therefore not subject to such clauses. However, we note that the market
for generic sterile injectables is fragile. Manufacturers that do not
have market share, or who are at high risk of losing sales even when
under a contract, have limited ability and incentive to invest in
quality or to make capital upgrades in newer facilities that may be
less likely to have quality failures and thus contribute to shortages.
If a manufacturer enters a contract at a fixed price, but is obligated
to immediately lower that price if another supplier undercuts it, it
creates a ``race to the bottom'' on price that is a well-documented
driver of shortages.
Question. Now we hear that some PBMs have chosen to start group
purchasing organizations even as PBMs use group purchasing organization
services.
How might these relationships impact drug shortages, particularly
patients' ability to access low-cost drugs that typically do not
provide much profit to manufacturers?
Answer. In general terms, it is natural and beneficial in a market
when purchasers have sufficient buying power to keep prices low.
However, when purchasing power is sufficiently consolidated, purchasers
can push prices down in a ``race to the bottom,'' at which point
suppliers may exit the market or make decisions (such as offshoring)
that result in instability of supply. This happens when the market
considers price instead of considering price alongside other important
factors such as quality and supply resiliency.
______
Question Submitted by Hon. Sherrod Brown
Question. In its 2022 report, the United States-China Economic and
Security Review Commission, or USCC, recommended that Congress direct
the FDA and other Federal agencies to identify alternative sources for
APIs and other ingredients, including utilizing Defense Production Act
Authorities.
Recently, the administration announced its plans to implement some
of these recommendations. Congress has already provided some resources
to the administration to use Defense Production Act, or DPA,
authorities to ramp up production of medical supplies--including
generic pharmaceuticals. I fought to include this funding in the CARES
Act.
One domestic company, National Resilience, has already secured a
DPA loan to expand domestic manufacturing capacity of essential
medicines in West Chester Township, OH.
What are additional authorities that the U.S. Government can use,
similar to how the Defense Production Act is being used, to bolster the
domestic manufacturing of pharmaceuticals?
Answer. To bolster the domestic pharmaceutical sector (as
governments in other countries have), the U.S. Government can consider
procurement policy, trade policy and, in some cases, targeted direct
investments to address risks that can't be addressed as a purely
commercial proposition in the current market. One opportunity is to use
DPA or ASPR funding, or a similar mechanism, to invest directly in
ensuring backup U.S. manufacturing capacity for essential drugs at high
risk of future shortages.
Drug shortages are relatively predictable. A variety of risk
factors can be considered, but the strongest prediction of a future
shortage is whether the drug has been in shortage previously.
Shortages occur across therapeutic classes, but predominantly
affect sterile injectable drugs. The immediate cause of shortages is
generally a quality problem associated with the manufacture of the
finished drug product (e.g., vial). The root cause is economic: generic
drug prices have been driven so low that many or most domestic
producers have stopped producing the medication and the manufacturing
is being done offshore in low-wage countries that are more likely to
have quality problems and where FDA presence is less consistent.
Drug supply is relatively inelastic, so when a shortage occurs,
there is generally not a facility with the capacity or approved process
to rapidly increase production. In addition, there are no new entrants
due to the inability to recover the cost of development and approval.
Since it takes about 2 years to develop an ANDA submission and obtain
FDA approval to market the drug, the market is slow to respond to any
shortage.
Abbreviated New Drug Applications (ANDAs) are the process through
which manufacturers apply to the FDA to produce generic drugs.
Developing an ANDA for a generic injectable drug and obtaining FDA
approval costs a manufacturer roughly $3 million for development of
analytical methods, formulation development, API qualification,
manufacture of engineering and stability batches (required prior to FDA
submission), stability studies and FDA Generic Drug User Fees. For some
generic drugs, which sell for under less than $4 (sometimes less than
$1), the products simply can't be produced competitively in the U.S. at
today's prices. Therefore, manufacturers are unlikely to maintain
manufacturing capacity to produce drug in the event of a shortage.
With U.S. Government support, U.S. manufactures could develop
targeted ANDA products (those that are essential drugs at high risk of
shortage) and maintain a stockpile of active pharmaceutical ingredient
specifically for the purpose of increasing U.S. manufacturing capacity
and mitigating future drug shortages. At modest cost, this one-time
investment for each drug would create an insurance policy ensuring
backup U.S. manufacturing capacity for essential drugs to rapidly
respond to future shortages or other national security needs.
For some categories of drugs, creating a U.S. manufacturing source
will require the establishment of new, dedicated facilities. For
example, penicillin antibiotics and cytotoxic cancer drugs cannot be
manufactured in facilities shared with other drugs. For some of these
products, a major capital investment cannot be justified at today's
prices (when a company is competing against products from old
facilities in low-cost economies that may have been directly subsidized
by foreign governments). Therefore, for certain priority drug classes,
the U.S. Government may need to support capital investment directly.
______
Questions Submitted by Hon. James Lankford
Question. My bill, the Ensuring Access to Lower-Cost Medicines for
Seniors Act (S. 2129), aims to mitigate disincentives for favorable
generic and biosimilar coverage. Currently, large Part D plans
routinely exclude or disadvantage lower-cost biosimilars and complex
generics and steer patients towards more expensive branded biologics
and specialty drugs, exacerbating inflationary pressures currently
facing seniors. These distorted dynamics also threaten the
sustainability and long-term viability of competitive markets, as
manufacturers confront the prospect of eroding returns, particularly
for biosimilars--increasing consumer costs in the short term, as well
as driving up health system spending in the long run.
How do current Part D plan and PBM benefit designs and coverage
strategies impact uptake and access for low-cost alternatives to
branded products, such as highly discounted biosimilars?
What impact might these types of coverage policies and formulary
designs have on the viability of competitive markets with multiple
entrants in the longer term?
Without a shift in these PBM and insurer practices, to what extent
might current uptake challenges--such as those facing biosimilars and
certain generics--signal or create shortage risks over time?
Answer. Historically, both Medicare D plans and many commercial
insurance plans have favored brand drugs with high list prices and
large rebates over competing biosimilar drugs with lower list prices
and smaller rebates. Recent changes to Medicare D design in the
Inflation Reduction Act may shift this calculation, as health plans now
have less financial incentive to see beneficiaries advance into the
catastrophic phase of coverage. However, the incentive remains in
commercial insurance, and it remains to be seen whether biosimilar
uptake will increase. As biosimilars should be a key strategy for
reducing the prices of new medicines (as generics are for small-
molecule drugs), it is important to have a market that takes advantage
of biosimilar competition when it is available. If it does not, it will
be difficult for the sector to continue to make continued investments,
resulting in less long-term competition and higher prices.
Question. Within my role serving on the Senate Homeland Security
and Governmental Affairs Committee, Chairman Peters and I have
introduced the Mapping America's Pharmaceutical Supply (MAPS) Act (S.
2364). The MAPS Act would require that the Department of Health and
Human Services work with other Federal agencies and relevant
stakeholders to map the U.S. pharmaceutical supply chain. This policy
would establish a database of critical active pharmaceutical
ingredients (APIs) and drugs to prioritize for mapping and would use
data analytics to assess threats and vulnerabilities so that we can
more proactively prevent upcoming shortages.
We largely know what the root causes are of shortages, such as
improper coverage and pricing schemes, inventory mismanagement, and
lack of supply chain transparency, but how can we best pinpoint the
most critically vulnerable supply chains? And how can we continually
monitor supply chains to prevent future shortages?
Answer. The root cause of most drug shortages is a system that
pursues low prices for sterile injectable generic drugs at the expense
of supply resiliency. This results in market instability and reliance
on manufacturers that are likely to have quality problems that result
in shortages.
To manage long-term geopolitical risks, it is important to consider
the manufacturing supply chain holistically from key starting materials
to active ingredient to finished drug. But in terms of drug shortage,
it is the finished drug manufacturing that is most likely to cause the
shortage.
Fortunately, drug shortages are relatively predictable. The
strongest predictor of a future shortage is a previous shortage.
Therefore, the overall problem of drug shortages can be substantially
addressed by tackling products that have been in shortage in the past 5
years. In addition, there are predictive models, such as a tool
developed by the United States Pharmacopeia, that take additional risk
factors into account. By focusing on drugs on the essential drugs list
that have been in shortage recently and making targeted investments (at
a one-time cost of about $4 million per drug), the United States could
create reserve manufacturing capacity for the highest-risk products in
the supply chain.
Question. How can additional public-private partnerships be helpful
here?
Answer. With U.S. Government support, U.S. manufacturers could
develop targeted ANDA products (those that are essential drugs at high
risk of shortage) and maintain a stockpile of active pharmaceutical
ingredient specifically for the purpose of increasing U.S.
manufacturing capacity and mitigating future drug shortages. At modest
cost, this one-time investment for each drug would create an insurance
policy ensuring backup U.S. manufacturing capacity for essential drugs
to rapidly respond to future shortages or other national security
needs.
Abbreviated New Drug Applications (ANDAs) are the process through
which manufacturers apply to the FDA to produce generic drugs.
Developing an ANDA for a generic injectable drug and obtaining FDA
approval costs a manufacturer roughly $3 million for development of
analytical methods, formulation development, API qualification,
manufacture of engineering and stability batches (required prior to FDA
submission), stability studies and FDA Generic Drug User Fees. For some
generic drugs, which sell for under less than $4 (sometimes less than
$1), the products simply can't be produced competitively in the U.S. at
today's prices. Therefore, manufacturers are unlikely to maintain
manufacturing capacity to produce drug in the event of a shortage.
With U.S. Government support, U.S. manufactures could develop
targeted ANDA products (those that are essential drugs at high risk of
shortage) and maintain a stockpile of active pharmaceutical ingredient
specifically for the purpose of increasing U.S. manufacturing capacity
and mitigating future drug shortages. At modest cost, this one-time
investment for each drug would create an insurance policy ensuring
backup U.S. manufacturing capacity for essential drugs to rapidly
respond to future shortages or other national security needs.
______
Question Submitted by Hon. Robert P. Casey, Jr.
Question. My colleagues and I have long called on the FDA to
address drug shortages. In 2018, before the pandemic, several Senators
and I sent a letter to the FDA to address the ongoing and worsening
drug shortage. Now, we're seeing shortages at the highest they've been
in almost a decade. I'm concerned that our current system to address
drug shortages is too reactionary, leaving patients and their families
worried about when the next drug might become unavailable.
What are some of the challenges of manufacturing drugs that are
often in shortage and your thoughts on how we can build a more robust
and resilient system to ensure drugs are always available when needed?
Answer. While FDA personnel work diligently to manage and prevent
shortages, it must now be clear that chronic drug shortages have now
become a built-in outcome of the current system of drug production and
procurement. Market trends and the resumption of FDA inspections after
COVID mean shortages are more likely to increase than to abate in the
years ahead.
The immediate cause of most shortages of sterile injectable drugs
is quality problems in the manufacture of the finished dosage form. But
it is widely acknowledged that the root cause is the low cost of these
products, which reduces the incentive or ability for manufacturers to
invest in quality or in newer manufacturing facilities and pushes
production offshore to low-wage markets where quality problems
proliferate, and the FDA presence is less consistent.
Therefore, policy responses should focus on changing the current
system that causes shortages because it favors low prices over
resiliency of supply. Using its authority over provider reimbursement
and quality, Congress should support providers in purchasing generic
essential medicines, taking into account:
Measures to ensure adequate buffer inventory;
Measures to ensure that generic sterile injectable drugs are
priced sustainably;
Measures to create market demand from manufacturers that are
less likely to have quality failures; and
Support for domestic manufacturing.
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
This year, the Finance Committee has taken unparalleled action on
prescription drug access and affordability. Our bipartisan PBM reform
legislation would cut patient costs at the pharmacy counter, strengthen
provider choice for seniors across the country, and reverse warped
incentives that currently favor higher-priced medications. Our proposed
policies would accomplish all of this--and more--while reducing the
Federal deficit. Taxpayers, consumers, and community pharmacies deserve
to see these bills passed by the full Congress, and delivered to the
President's desk, as quickly as possible.
For patients with chronic conditions, as well as independent
pharmacies at risk of potential closure, inaction is not an option. As
our PBM process has shown, bipartisan, consensus-based, and market-
driven policymaking can address a wide range of challenges facing
seniors and working families.
In that same spirit of exploring effective legislative solutions,
today we turn to another issue harming the health and finances of
Americans in every State: the surge in drug shortages. For treatments
targeting any number of conditions, from pediatric cancer to mental
health ailments, our ability to prevent and resolve shortages can mean
the difference between life and death.
To develop meaningful policy improvements to reverse the current
rise in drug shortages, however, we first need to understand and
examine the economic drivers, with a focus on the Federal programs
within our committee's jurisdiction.
While high-priced medications have received outsized attention
during prescription drug discussions in Congress, shortages
disproportionately affect low-cost therapeutics, which operate in a
largely different--and increasingly challenging--economic environment.
In fact, 84 percent of shortages occur in generic drugs, and 56 percent
of products in shortages have unit prices below a single dollar. Given
that generics comprise roughly 9 in every 10 prescriptions filled
across the United States, these shortages can inflict drastic harm on
massive populations of Americans. The average shortage affects at least
half a million consumers, forcing them to scramble for viable
alternatives or else forgo treatment entirely.
As experts and officials have broadly affirmed, the structure of
the generic drug market incentivizes a proverbial ``race to the
bottom'' on pricing. Since 2016, generics have seen price erosion in
excess of 50 percent. The razor-thin margins resulting from these
dynamics trigger a host of dire consequences, from discouraging quality
investments to spurring widespread outsourcing--including to China.
Moreover, the generic drugmaker exit rate currently exceeds the rate of
entry, and upwards of 40 percent of generic medication markets are
supplied by a single manufacturer.
Rather than reduce shortage risks, unfortunately, a number of
government policies likely make them more pervasive--and worse.
Medicaid's inflation-based rebates, for instance, can trigger massive,
uncapped losses on even low-cost generics, in addition to requiring
literal ``penny pricing'' under 340B. These and other price-control
policies warrant serious scrutiny in the context of generic products,
especially for sterile injectables, which carry high production costs
and offer minimal returns.
More broadly, our reimbursement systems, including under Medicare,
offer little opportunity or incentive for drugmakers to compete on
dimensions other than price--such as reliability and resiliency.
The House Energy and Commerce Committee's comprehensive work on
this issue thus far is welcome. Enacting effective legislation will
necessitate bipartisan, bicameral collaboration.
The Finance Committee can build on our strong track record of
solutions-oriented policymaking to address the rash of drug shortages
afflicting families across the country.
______
Community Oncology Alliance
1225 New York Avenue, NW, Suite 600
Washington, DC 2005
(202) 729-8147
https://communityoncology.org/
One Page Summary of Submitted Comments for the Record on ``Drug
Shortages: Examining Supply Challenges, Impacts, and Policy Solutions
from a Federal Health Program Perspective''
There is a shortage of critical cancer drugs that is a growing
crisis. These drugs, notably carboplatin, cisplatin, and fluorouracil,
although decades old, are mainstay treatments for many different types
of cancers, including curable cancers. As a result of these drug
shortages, Americans with cancer are facing treatment delays,
potentially receiving inferior treatments, and even having their
treatments stopped.
This is not a new crisis. I testified to Congress nearly 12
years ago and then again this year on shortages of injectable generic
drugs used to treat cancer. This crisis is more severe and is due to
denial and inaction about the root cause: financial. It is increasingly
unprofitable to manufacture these sterile injectable drugs, which are
not like making simple pills and tablets.
Solutions proposed to deal with the crisis of drug shortages
include early warnings and regulations from generic drug manufacturers,
which may well backfire because the market is already over-regulated.
The fundamental financial problems for generic drug
manufacturers are that the Medicare Part B drug reimbursement system
based on average sales price, also used by commercial payers, caps drug
prices; mandatory 340B drug pricing discounts and Medicare rebates
erode drug prices; and Inflation Reduction Act (IRA) drug price
inflation caps further put downward pressure on injectable generic drug
prices. These products at best are so unprofitable that there is little
to no margin to invest in manufacturing upgrades. At worst, there is
little manufacturing redundancy as manufacturers leave the market.
Price caps, discounts, rebates, and regulation need to be
stripped from the market or shortages will worsen. Congress needs to
stop band-aiding the problem and fix the fundamental financial problem,
as well as bring manufacturing back to the United States.
Just recently, FDA Commissioner Robert M. Califf, M.D. spoke of
drug shortages \1\ and made the following point:
---------------------------------------------------------------------------
\1\ Remarks by Commissioner Robert Califf to the Healthcare
Distribution Alliance Board of Directors meeting, November 15, 2023
``One of the many reasons for drug shortages today involves
manufacturers of older generic drugs and particularly
injectables. These manufacturers face intense price
competition, uncertain revenue streams, and investment
requirements to maintain quality conditions. If the basic
economics and contracting practices of the generic drug market
are not fixed, more patients will be impacted by these
shortages and we will miss this amazing global public health
opportunity.'' (emphasis added)
Detailed Remarks for the Record
I appreciate the opportunity to submit these comments for the record on
the Senate Finance hearing on ``Drug Shortages: Examining Supply
Challenges, Impacts, and Policy Solutions from a Federal Health Program
Perspective.''
I am the executive director of the Community Oncology Alliance (COA),
an organization dedicated to advocating for the complex care and access
needs of patients with cancer and the community oncology practices that
serve them. COA is the only nonprofit organization in the United States
dedicated solely to independent community oncology practices, which
serve the majority of Americans receiving treatment for cancer. Since
its grassroots founding 20 years ago, COA's mission has been to ensure
that patients with cancer receive quality, affordable, and accessible
cancer care in their own communities where they live and work,
regardless of their racial, ethnic, demographic, or socioeconomic
status.
My wife Susan practiced as a certified oncology nurse for 10 years,
administering cancer therapies to patients with solid tumors. Like many
Americans, we have had family and friends with cancer, living with it
and dying from the disease. I want to make it very clear that my
overriding goal is to ensure that every American with cancer has access
to the highest quality, most affordable cancer care close to home.
Through my time leading COA, including interactions with physicians,
researchers, manufacturers, and health policy experts, as well as
extensive previous experience founding and running health care delivery
companies, I have gained a firsthand understanding of the underlying
economics of our cancer care delivery system. I am submitting these
comments to share this knowledge to help the Senate Finance Committee
better understand and fix what is a true public health emergency that
needs to be urgently addressed.
Background
The focus of my comments is on describing the problem of and providing
legislative solutions to the current public health threat; namely, the
shortage of critical cancer drugs that we are now facing. This is a
growing crisis for cancer patients. As I am sure you have heard, given
all the extensive national and local news coverage of this crisis,
there is a severe shortage of low-cost generic drugs used to treat
cancer. These drugs, notably carboplatin, cisplatin, and fluorouracil,
although decades old, are mainstay treatments for many different types
of cancers, including curable cancers. As a result of these drug
shortages, Americans with cancer are facing treatment delays,
potentially receiving inferior treatments, and even having their
treatments stopped. What is especially heartbreaking, and simply
unimaginable in this country, are our fellow Americans with potentially
curable cancers who may miss the treatment and the cure because of
shortages. Our inaction in fundamentally solving the cancer drug
shortage problem, which has existed for years but is now the most
severe that we have ever faced, has already likely signed a death
sentence for some Americans.
If I sound angry in these comments, I am angry. Frustration and
outright anger do not begin to describe how I feel in reading
heartbreaking story after heartbreaking story of patients with cancer
not being able to receive treatment due to shortages of decades old,
low-cost generic drugs. My anger and frustration is exacerbated by the
fact that nearly 12 years ago I testified to Congress on the then
current cancer drug shortage crisis.\2\ Also testifying was Scott
Gottlieb, MD, who went on to become the FDA Commissioner.\3\ Although
we did not know each other before testifying, independently we arrived
at the same conclusion: The fundamental root cause of cancer drug
shortages is financial. And, as I relate in these comments, the
fundamental root cause of the current cancer drug shortages remains
financial, just more pronounced than 12 years ago.
---------------------------------------------------------------------------
\2\ ``Testimony on: Drug Shortages Crisis'' to the United States
House of Representatives Committee on Oversight and Government Reform
Subcommittee on Health Care, District of Columbia, Census, and the
National Archives,'' Ted Okon, Community Oncology Alliance, November
27, 2011, https://oversight.house.gov/wp-content/uploads/2012/01/11-30-
11_HealthCare_Okon
_Testimony_FINAL.pdf.
\3\ ``The Causes of Drug Shortages and Proposals for Repairing
these Markets,'' Testimony to the United States House of
Representatives Committee on Oversight and Government Reform
Subcommittee on Health Care, District of Columbia, Census, and the
National Archives,'' Scott Gottlieb, M.D., American Enterprise
Institute, November 27, 2011, https://oversight.house.gov/wp-content/
uploads/2012/01/11-30-11_HealthCare_Gottlieb_Testimony.pdf.
Unfortunately, solutions advanced in pronouncements from organizations,
congressional letters to the FDA, and recent legislation introduced all
deal with symptoms of the problem but none address the financial root
cause at the heart of cancer drug shortages. Imagine being very
diligent about staying out of the sun and getting regular skin
checkups. If you had a suspicious looking mole, had it biopsied, and
found out that you had melanoma, you would not be in denial and simply
put a band-aid on the mole. You would have the underlying cancer
treated. The problem is with many of the ``solutions'' being advanced
is that they involve tracking early warning signs of shortages and
placing even more regulations on generic drug manufacturers, which can
actually have unintended consequences of exacerbating the problem. At
best, these are mere band-aids. Congress is simply in denial of the
financial problems that are at the root cause of these drug shortages.
---------------------------------------------------------------------------
That denial is now costing Americans hope and even their lives.
Before describing aspects of the underlying financial problem and
proposing specific solutions, I want to note that following my
testimony on cancer drug shortages nearly 12 years ago, a concerned
then Representative Bill Cassidy, M.D. introduced the Patient Access to
Drugs in Shortage Act (H.R. 6611) in the 112th Congress. So, there has
been legislation to address some of the root financial causes of cancer
drug shortages introduced over 11 years ago. However, neither this
legislation nor any other similar to it have been acted upon. Like an
untreated cancer, the problem of cancer drug shortages is much worse
and unnecessarily now costing lives.
The Fundamental Financial Problem
This is very simple and does not require a Ph.D. in economics: if a
generic drug manufacturer cannot make a profit on a drug they will
simply stop making the drug. If a manufacturer makes a very small
margin on the drug it will cut costs, however possible. That includes
running the manufacturing facility 24/7, cutting corners on quality,
and not investing in new equipment and facilities. Cost cutting makes
drug manufacturing facilities more prone to equipment failures and/or
the kinds of problems that result in FDA inspections shutting down
plants. Unfortunately, given many of the drugs in short supply are
money losers, we have seen more and more manufacturers leave the
market. Today, not only is there no manufacturing redundancy at the
manufacturer level but there is little to no redundancy in the market
as a whole.
Let me also explain that we are dealing with shortages of sterile
injectable drugs, which are physician-administered intravenously or by
other injectable means (referred to herein as ``injectable'' drugs).
These are not pills or tablets. The manufacturing involved in producing
sterile injectable drugs is far more involved and exacting, as well as
capital intensive, than making pills or tablets. That is why, except
for specific and short-lived supply or demand issues, shortages have
not hit the pill or tablet market to the same degree as the sterile
injectable market.
Before discussing the specific financial causes, let me address the
belief by some that the current shortages were caused by the pandemic
and resultant supply chain disruptions. Certainly, the ``perfect
storm'' of the pandemic, supply chain disruptions, and resulting record
high inflation may have been the fuse that lit the current generic drug
manufacturing problem but the root cause remains financial. That is
proven by the fact that cancer drug shortages have been around for well
over a decade, before COVID, supply chain problems, and high inflation.
These drug shortages are just now more pronounced due to the current
environment and worsening financial picture, which I will describe.
I also want to be crystal clear that these comments and solutions I
propose do not let pharmaceutical brand manufacturers off the hook for
the high costs of drugs. They play a role in our health-care system,
and we cannot deny that. However, Congress must understand that we are
facing drug shortages for low cost, often money-losing, injectable
generic drugs, not headline-making new and expensive brands. Injectable
generics are a different part of our drug supply system that is
adversely impacted by the bad economics of generic drug manufacturing,
which desperately needs special consideration and immediate action.
Until we cure the fundamental financial cause of these drug shortages
many Americans with cancer will be unable to access the treatments and
cures that they deserve. That is simply unacceptable in this country!
The Reimbursement Problem
As background, the Medicare Modernization Act of 2003 (MMA) changed
Medicare Part B drug reimbursement from average wholesale price (AWP)
set by the manufacturer to average sales price (ASP), a market-based
price. Oncology facilities administering chemotherapy are reimbursed by
Medicare at ASP plus 4.3 percent, which is intended to cover drug cost,
overhead, staff, and materials. In actuality, reimbursement is lower
than ASP plus 4.3 percent due to manufacturer-to-
distributor prompt payment discounts included in the ASP calculation.
It is also important to understand there is a perpetual lag of 6 months
in updating ASPs each quarter, which results in providers subsidizing
Medicare for drug price increases.
The old AWP-based reimbursement system allowed generic drug
manufacturers to compete on the margins they established by setting a
drug's AWP and then selling the drug at a discounted price. The ASP-
based system changed generic drug manufacturers' means of competing to
solely on actual sales price. That and the 6-month lag in updating
Medicare reimbursement rates have resulted in a system that is
effectively price capped. There has been steady downward pricing
pressure on most generics since 2005, the year ASP was first
implemented.
It is important to understand that ASP-based reimbursement is also used
by commercial payers, in addition to Medicare. Additionally, ASP masks
the true decline in net prices for manufacturers because they do not
reflect other discounts and rebates exempt from the calculation of ASP.
Part of the motivation for replacing the AWP reimbursement system was
to stop drug ``arbitrage''--setting the AWP higher and selling at a
discounted price. Ironically, the old AWP system actually allowed
generic drug manufacturers pricing profitability. They could compete by
adjusting their margins. The ASP-based system essentially price caps
generic drugs. Then, when subject to mandatory government discounts and
rebates, they have products that are barely profitable or even priced
at a loss. And, just as ironically, the ASP-based system of
reimbursement was the fuse that led to the explosive growth in what was
once a little obscure government discount program--the 340B Drug
Pricing Program--that has further eroded generic drug margins.
340B Drug Discount and Medicaid Rebate Problems
Generic manufacturers have felt additional pricing pressure from an
increasing volume of 340B discounts, which they are required to extend
to 340B-eligible hospitals and other entities who qualify for the
program. Over the last 2 decades, as more independent community
oncology practices facing lower reimbursements and financial pressures
have been acquired by 340B hospitals, the scope and magnitude of these
discounts have increased. Furthermore, Medicaid best price rebates
exert further downward pricing pressure on true net prices realized by
generic drug manufacturers.
History has clearly documented that repeated and misguided cancer care
payment cuts have forced independent cancer care providers to close or
merge with expensive hospital systems.\4\ When independent practices
close, medical care almost always shifts to much more expensive
hospitals, which typically are 340B hospitals. This has caused the 340B
program to grow by over 1,600 percent from 2005--the first year of
implementation of the ASP-based reimbursement system--through 2021.
Thus, mandatory 340B discounts, coupled with Medicaid rebates, severely
push down low-cost generic drugs to pennies, if that, making them
increasingly not financially viable.
---------------------------------------------------------------------------
\4\ ``2020 Community Oncology Alliance Practice Impact Report,''
Community Oncology Alliance, April 24, 2020.
I understand that there are many in Congress who do not want to touch
the 340B program. However, 340B is simply out of control in the
hospital market. Investigative reports by The New York Times \5\ and
The Wall Street Journal \6\ demonstrate how 340B funds intended to help
patients and communities in need are simply not helping the
disadvantaged. Rather, 340B has become a veritable printing press for
hospitals. Additionally, 340B discounts incentivize the use of more
expensive drugs, which is resulting in hospitals shunning
biosimilars,\7\ which have the potential to bring down the high price
of biologics. I want to state for the record that COA supports the 340B
program as it is intended to be used; that is, support patients and
communities in need. However, although the Federal grantees--community
health, hemophilia, and HIV centers, et cetera--are using the program
to support those in need, more hospitals are simply not.
---------------------------------------------------------------------------
\5\ ``How a Hospital Chain Used a Poor Neighborhood to Turn Huge
Profits,'' New York Times, September 24, 2022.
\6\ ``Many Hospitals Get Big Drug Discounts. That Doesn't Mean
Markdowns for Patients,'' Wall Street Journal, December 20, 2022.
\7\ ``The Role of Financial Incentives in Biosimilar Uptake in
Medicare: Evidence From the 340B Program,'' Health Affairs, May, 2023.
Although some may be in denial, the reality is that mandatory 340B
discounts and Medicaid rebates are major contributors to making the
manufacturing of injectable generic drugs a losing proposition. And I
will add that Congress expanding Medicaid rebates to generics exceeding
the inflation rate was a terrible move that further compounded this
problem.
IRA Inflation Price Cap Problem
While COA has acknowledged that one of the positives in the IRA is the
inflation cap where brand drug manufacturers rebate any price increases
above the current inflation rate, the unintended consequence of this
portion of the law is that it puts further downward pressure on the
price caps that generic drug manufacturers already face with the ASP-
based reimbursement system. This inflation cap makes it virtually
impossible for a generic drug manufacturer to increase the price of
their products above the inflation rate to pay for manufacturing plant
or machine upgrades and investments that are critical to avoiding drug
shortages. This cap further contributes to the financial
unattractiveness and instability in the injectable generic drug market.
Unfortunately, the IRA provision extending Medicare rebates to generic
drugs exceeding the inflation rate doubles down on the Medicaid
inflation cap rebate. These misguided policy moves are contributing to
systematically destroying the injectable generic drug market.
Legislative Solutions
In order to fundamentally fix the chronic problem of drug shortages, I
propose the following solutions.
Changes to the Reimbursement System
The Energy and Commerce Committee needs to include similar provisions
as in H.R. 6611 (1112th Congress) in a legislative package to
fundamentally fix the drug shortages problem. This legislative solution
provides market incentives for injectable generic drugs with three or
fewer active manufacturers. For a single source drug, Medicare
reimbursement would be based on wholesale acquisition cost (WAC) rather
than ASP. WAC will provide stable market-based pricing. It is the
manufacturer's list price and is a real price, unlike AWP. WAC is used
by the Centers for Medicare and Medicaid Services (CMS) to reimburse
for new drugs that do not yet have an ASP at market launch.
Exemption from 340B Discounts and Medicaid Rebates
As in H.R. 6611, exempting low-cost injectable generic drugs from 340B
discounts and Medicaid rebates is essential to achieving pricing
stability and financial viability. These are low-cost generics, so the
overall impact on 340B and Medicaid is very small. Additionally, these
discounts and rebates are meaningless when a drug is in short supply
and cannot be procured. Pricing changes and exemptions only occur when
there are three or fewer manufacturers of these low-cost drugs. If the
market is functioning correctly, there are no changes.
Exemption from the IRA Inflation Price Cap
In order to give generic drug manufacturers more pricing flexibility as
incentive to invest in manufacturing facilities and to stay in the
market, they should be exempted from the IRA inflation price cap.
Make Each Generic Drug a Unique Product
Another issue is that injectable generic drugs have been totally
commoditized by CMS because all similar generics products are placed in
the same reimbursement category. As with pill and tablet generic drugs,
they are treated as interchangeable commodities. The result is that
manufacturers have virtually no pricing latitude to increase prices to
pay for plant and product manufacturing upgrades. Each injectable
generic drug needs to have its own product code and treated as a unique
product. Not only will this allow generic drug manufacturers more
latitude in pricing flexibility but this is a necessary requirement to
implementing the next solution.
Move Generic Manufacturing Facilities Back to the United States Via
Value-Based Incentives
Drug manufacturers need to be incentivized to manufacture injectable
generic drugs in the United States. We simply should not be relying on
countries outside the United States for our supply of critical generic
drugs used to treat cancer.
One obvious incentive is to use tax breaks. However, another way is to
create ``value'' incentives for manufacturing plants that run according
to ``quality'' standards to be rewarded with value-based payments.
Manufacturers should be rewarded for investing in plant upgrades and
hitting pre-agreed quality metrics. This is a creative approach to
rewarding manufacturing excellence and follows the trend in health care
of moving to value-based payments.
The scope of these comments is such that these are just outlines of
legislative solutions. COA welcomes the opportunity to work with the
Energy and Commerce Committee in greater detail to turn these
conceptual solutions into comprehensive legislation.
Conclusion
If Congress does not address the basic fundamental financial root cause
of generic drug shortages, the crisis will only worsen. We simply
cannot regulate our way out of this mess, which some are suggesting we
do with band-aids and more regulation. Let me be very clear that the
current market is already too regulated, which is part of the problem.
If we place any additional regulation and reporting onus on generic
drug manufacturers we risk toppling what is already a house of cards.
Band-aids will not solve the underlying financial problem. Not only are
we in denial if we try to band-aid an ailing system but regulation will
likely have negative unintended consequences and do nothing to solve
the underlying financial issues behind drug shortages. Congress has to
understand that Americans are paying a high cost for artificially low
prices for drugs that are not even available right now to treat cancer.
Just so the urgency of this crisis is not lost on any member of
Congress, as well as the administration, please consider the following
very real stories provided by oncologists of their patients struggling
with this current crisis.
Male patient, 72 years old, with stage III Merkel cell high-grade
cancer requires pre-op carboplatin and etoposide due to the size and
location of the cancer. With no carboplatin available, treatment cannot
be switched to the second option because he has a liver transplant. So,
he received the third treatment option of attenuated intensity
chemotherapy. Chemotherapy treatment has been delayed and has resulted
in an increase in the tumor size.
Female patient, 46 years old, with stage IIa poorly differentiated ER+,
PR+, Her2+ breast cancer requires pre-op docetaxel, carboplatin,
trastuzumab, and pertuzumab, which is the standard of care. She was not
able to receive the carboplatin because it is not available. This is a
curative intent regimen but the lack of carboplatin could lead to a
higher risk of recurrence of disease and death.
Female patient, 32 years old, with BRCA1+, stage IIIc (T3N1M0) triple
negative invasive ductal carcinoma who needed to receive indicated
treatment of carboplatin, paclitaxel, doxorubicin, cyclophosphamide,
and pembrolizumab. Carboplatin has had to be held due to shortages
resulting in a suboptimal regimen for this young mother of three
children with an aggressive breast cancer.
Unfortunately, there are already way too many of these heartbreaking
stories across the country now on a daily basis.
It is beyond unfortunate and unthinkable that now we have to resort to
desperate measures to address drug shortages, including importation of
these short-supply drugs from China and any other country that will
provide them urgently, as well as rely on other means to procure these
critical drugs.
COA stands ready to work with Congress on these recommendations and
others. We want to provide meaningful input on ensuring that Americans
with cancer have access to the highest quality, most appropriate
treatments. We implore Congress to put aside politics and simple
solutions, which are more feel-good sound bites, to fundamentally fix a
deteriorating cancer drug shortages crisis.
We are all concerned about high drug prices but we are now paying an
inordinately high cost for low-priced drugs that are simply not
available.
I end by quoting recent remarks by FDA Commissioner Robert M. Califf,
M.D. where he spoke of drug shortages \8\ and made the following point:
---------------------------------------------------------------------------
\8\ Remarks by Commissioner Robert Califf to the Healthcare
Distribution Alliance Board of Directors meeting, November 15, 2023
``One of the many reasons for drug shortages today involves
manufacturers of older generic drugs and particularly injectables.
These manufacturers face intense price competition, uncertain revenue
streams, and investment requirements to maintain quality conditions. If
the basic economics and contracting practices of the generic drug
market are not fixed, more patients will be impacted by these shortages
and we will miss this amazing global public health opportunity.''
---------------------------------------------------------------------------
(emphasis added)
I appreciate the opportunity to provide these comments.
Ted Okon
Executive Director
______
Prepared Statement of Inmaculada Hernandez, PharmD., Ph.D., Professor,
Division of Clinical Pharmacy, Skaggs School of Pharmacy and
Pharmaceutical Sciences, University of California, San Diego
Chairman Wyden, Ranking Member Crapo, and honorable members of the
committee, thank you for the invitation to testify about drug
shortages. My name is Inmaculada Hernandez, and I am a pharmacist and
professor at the University of California, San Diego. My testimony is
substantiated by the academic research I conduct on the drug
reimbursement system in the U.S. The opinions I offer today are my own
and do not reflect the opinions of the organization with which I am
affiliated.
Mr. Chairman, I applaud you for holding this hearing. Drug
shortages are an ongoing public health concern that threatens patients'
access to essential medications. Drug shortages have devastating
consequences, leading to delays or omission in the use of life-saving
treatments or substitution with less effective drugs, all of which
contribute to adverse health effects and even death in certain clinical
circumstances.\1\, \2\, \3\ As such, the
development of policy reforms that address drug shortages is a national
public health priority.
---------------------------------------------------------------------------
\1\ Vail E, Gershengorn HB, Hua M, Walkey AJ, Rubenfeld G, Wunsch
H. Association Between US Norepinephrine Shortage and Mortality Among
Patients With Septic Shock. JAMA. 2017;317(14):1433-1442.
\2\ US Food and Drug Administration. Drug Shortages: Root Causes
and Potential Solutions. Published 2019. Accessed November 3. 2023.
https://www.fda.gov/media/131130/download?
attachment.
\3\ Gross AE, Johannes RS, Gupta V, Tabak YP, Srinivasan A,
Bleasdale SC. The effect of a piperacillin/tazobactam shortage on
antimicrobial prescribing and Clostridium difficile risk in 88 US
medical centers. Clin Infect Dis. 2017;65(4):613-618.
In the U.S., drug shortages are disproportionately seen in the
generic product market--84 percent of the drugs experiencing a shortage
in 2017-2023 were generics.\4\ Shortages of generic drugs are a complex
interaction of many factors, including: (1) the lack of adequate
financial incentives for manufacturers to, (a) produce drugs with
limited profit margins, and (b) invest in resilient and mature drug
supply chains; and (2) the logistical and regulatory complexities
associated with drug manufacturing.\2\
---------------------------------------------------------------------------
\4\ IQVIA Institute Report. Drug Shortages in the U.S. 2023.
Published November 15, 2023. Accessed November 21, 2023. https://
www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/
reports/drug-shortages-in-the-us-2023.
My testimony focuses on the economic factors underlying shortages
of generic products rather than regulatory oversight. This does not
mean, however, that reform of the regulatory oversight of the supply
chain is not needed. To the contrary, effective policymaking to address
drug shortages requires a combination of policy reforms that address
---------------------------------------------------------------------------
both economic and regulatory drivers.
In what follows, I explain the generic supply chain and the
reimbursement model under Medicare and Medicaid. I discuss how the
generic reimbursement model generates a ``race to the bottom'' of
prices, which reduces manufacturer profitability, jeopardizing
sustainability. I outline the mechanisms through which limited profit
margins for certain drugs contribute to drug shortages. Finally, I
provide policy recommendations for addressing this major public health
risk.
i. the generic drug supply chain
Generic products make their way to patients through a complex,
global supply chain. The supply chain involves manufacturers,
wholesalers, group purchasing organizations, pharmacies, health-care
providers, and ultimately the patient. Below is a brief explanation of
the major players in the supply chain. A resilient supply chain
necessarily requires all players in the manufacturing, packaging, and
distribution process to remain financially stable.
Manufacturing
Generic sponsors submit abbreviated new drug applications to the
Food and Drug Administration (FDA). After approval, manufacturers may
produce the active ingredient and the final dosage form or may
outsource production. Increasingly, generic manufacturers purchase the
active ingredient from a supplier and outsource the manufacture of the
dosage form to contract manufacturing organizations. Thus, generic
manufacturers serve as a coordinating body of regulatory approval,
distribution and sales, but may not actually perform any
manufacturing.\5\
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\5\ Hernandez I, Hershey TB, Donohue JM. Drug shortages in the
United States: Are some prices too low? JAMA. 2020;323(9):819-820.
All generic products marketed in the U.S. must adhere to the
Current Good Manufacturing Practices. Current Good Manufacturing
Practices are the minimum level of requirements for drugs to access the
U.S. marketplace but are not necessarily indicators of resilience and
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maturity of the supply chain, needed to ensure supply continuity.
The U.S. heavily relies on foreign manufacturing of generic drugs,
with 87 percent of active ingredients and 60 percent of final dosage
forms produced overseas.\6\ Foreign manufacturing of drugs is
associated with increased quality issues--an analysis of warning
letters issued by the FDA in 2010-2020 found that the majority of
letters reporting violations of Current Good Manufacturing Practices
were issued to manufacturers based in Asian countries.\7\
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\6\ Shivdasani Y, Kaygisiz NB, Berndt ER, Conti RM. The geography
of prescription pharmaceuticals supplied to the USA: Levels, trends,
and implications. J Law Biosci. 2021;8(1):lsaa085.
\7\ Rathore AS, Li Y, Chhabra H, Lohiya A. FDA Warning Letters: A
Retrospective Analysis of Letters Issued to Pharmaceutical Companies
from 2010-2020. J Pharm Innov. Published online August 15, 2022:1-10.
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Oral and Injectable Products
The market and manufacturing of generic drugs are markedly
different for oral and injectable products. Oral products consist
largely of tables, capsules, and liquid dosage formulations.
Injectables include products that are administered subcutaneously
(under the skin), intramuscularly (into a muscle), or intravenously
(into a vein). Injectable products require specialized manufacturing to
ensure sterility, among other requirements that oral products are not
required to meet.\8\
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\8\ Center for Drug Evaluation, Research. Sterile Drug Products
Produced by Aseptic Processing--Current Good Manufacturing Practice.
U.S. Food and Drug Administration. Published September 29, 2023.
Accessed November 30, 2023. https://www.fda.gov/regulatory-information/
search-fda-guidance-documents/sterile-drug-products-produced-aseptic-
processing-current-good-manufacturing-practice.
The market size of generic oral products, as measured in sales, is
200 times the market for generic injectable products.\9\ Additionally,
the market for injectable products is considerably more concentrated--2
years after loss of exclusivity, generics oral products in the highest
third of sales had an average of 13 generic manufacturers, compared to
2 for those in the lowest third of sales. In comparison, injectable
generics in the highest third of sales had an average of four
manufacturers, and those in the lowest third, only one manufacturer.\9\
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\9\ Frank RG, McGuire TG, Nason I. The evolution of supply and
demand in markets for generic drugs. Milbank Q. 2021;99(3):828-852.
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Purchasing of Generic Drugs by Pharmacies and Health-care Providers
Wholesalers purchase generic products from manufacturers and
distribute them to pharmacies and health-care providers, including
physician offices, ambulatory clinics, and hospitals. The wholesaler
market is highly concentrated, with over 90 percent of drugs
distributed through only three wholesalers.\10\ Given the large volumes
of purchases, when wholesalers design their lists of preferred
generics, they consider the manufacturer's ability to supply sufficient
volume to meet customer demand. This ultimately leads to the
concentration of the manufacturer market, as only manufacturers who
consistently produce large volumes of products are competitive enough
to have preferred relationships with the primary wholesalers dominating
the market. This highly concentrated market leaves limited room for
smaller firms who might otherwise create competition and provide an
alternative source of supply.
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\10\ Deloitte 2019 Report: The Role of Distributors in the US
Health Care Industry. Published August 9, 2019. Accessed September 22,
2023. https://www2.deloitte.com/us/en/pages/life-sciences-and-health-
care/articles/the-role-of-distributors-in-the-us-health-care-
industry.html.
Pharmacies, health-care providers, and the clinics or institutions
they work for purchase drugs from wholesalers. Often, the prices at
which pharmacies and providers purchase generic products are negotiated
by group purchasing organizations. Group purchasing organizations are
buying consortiums that, through the use of their aggregate purchasing
power, achieve greater discounts than individual members would on their
own. The market of group purchasing organizations is highly
consolidated, with the four larger group purchasing organizations
accounting for 90 percent of the market.\11\
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\11\ Bruhn WE, Fracica EA, Makary MA. Group Purchasing
Organizations, Health Care Costs, and Drug Shortages. JAMA.
2018;320(18):1859-1860.
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ii. generic drug reimbursement
Generic Drug Reimbursement Under the Medicare Program
For reimbursement purposes, we distinguish between two types of
drugs: (a) drugs that patients receive from a pharmacy (``pharmacy-
dispensed drugs''), and (b) drugs that are administered to a patient in
the clinical setting, incident to a provider service (``provider-
administered drugs''). Injectable drugs are more likely to be
administered in the clinical setting, as only selected injectable
formulations are designed for self-administration. In what follows, I
provide a simplified summary of the reimbursement of each type of
product under Medicare.
Reimbursement of Pharmacy-Dispensed Drugs
Generic drugs are interchangeable by law as they are therapeutic
equivalent versions of the same drug but manufactured by different
companies. Thus, when a patient presents a prescription for a generic
drug, the dispensing pharmacist selects among all generic versions
approved by the FDA. Pharmacy-dispensed drugs are covered under
Medicare Part D, which is administered through private insurers called
Part D organizations. Pharmacy benefit managers administer prescription
drug coverage on behalf of Part D sponsors or may act as Part D
sponsors themselves, offering their own stand-alone prescription drug
plans. As part of their services, pharmacy benefit managers reimburse
pharmacies for the submitted claims. Generic drug reimbursement is
based on the rates specified on contracts between pharmacy benefit
managers and pharmacies. Importantly, these rates are generally the
same regardless of the manufacturer of the generic product dispensed.
Since pharmacies are reimbursed the same amount regardless of the
generic version selected, pharmacies are incentivized to purchase
generic versions with low acquisition costs.
Reimbursement of Provider-Administered Drugs
The reimbursement of provider-administered generic drugs under
Medicare depends on the clinical setting in which the drug is
administered.
1. Medicare Part A payments for inpatient hospital services
are bundles that cover all services provided under a
hospitalization, including drugs. In other words, drugs
administered during an inpatient admission are not separately
reimbursed. The payments for bundles are based on Medicare
severity diagnosis related groups (MS-DRG), which represent the
average resources to care for cases that fall within the MS-
DRG. This bundling of payments is meant to dissuade the
provision of unnecessary care and improve efficiency. In some
cases, there may be additional add-on payments for new high-
cost technologies to correct for costs incurred before codes
and payment rates are updated to reflect new technologies.
2. Drugs administered in hospital outpatient departments with
an estimated per-day cost below the packaging threshold ($135/
day in 2023) are not reimbursed separately. Just like in the
case of inpatient admissions, hospital outpatient departments
receive a bundled payment that accounts for all procedures and
services delivered.
3. Drugs that qualify for coverage under Medicare Part B,\12\
are administered in hospital outpatient departments, and have
estimated per-day costs above the packaging threshold ($135/day
in 2023) are reimbursed separately. This reimbursement follows
the ``buy and bill model,'' under which providers purchase the
drug product and then bill Medicare using Healthcare Common
Procedure Coding System (HCPCS) codes. Medicare reimburses such
drug products at 106 percent of the average sales price.\13\
The average sales price is a statutory price benchmark net of
manufacturer discounts. Importantly, multisource products have
a unique weighted average sales price that includes all branded
and generic versions of a product. The average sales price is
calculated quarterly, and there is a 2-month lag in its
application, meaning that reimbursement rates in Q4 2023 are
based on Q2 2023 average sales price.
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\12\ Includes drugs furnished incident to a physician's service,
drugs used with durable medical equipment, antigens, vaccinations,
erythropoiesis-stimulating agents for end-stage renal disease, blood
clotting factors, immunosuppressive agents, oral-antiemetic drugs, oral
cancer drugs, parenteral and enteral nutrition.
\13\ Because of sequestration, actual payment rates since 2013 are
estimated at 104.3 percent of average sales price.
4. Drugs that qualify for coverage under Medicare Part B \12\
and are administered in physician offices are reimbursed
separately. This reimbursement also follows the ``buy and bill
model'' and is calculated as 106 percent of the average sales
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price.\13\
Regardless of whether reimbursement for a generic provider-
administered drug is based on a medical service bundle or a separate
payment, providers are incentivized to procure drugs at the lowest
acquisition cost. This allows them to maximize margin, as the
reimbursement (if any) is the same for all generic versions of a drug.
These reimbursement incentives are unlike those for single-source
products, where providers are incentivized to select more expensive
products, as the 6-percent markup results in larger margins for more
expensive drugs.\14\ The reimbursement model for generic drugs is also
different from the reimbursement of biosimilar products, which have
their own average sales price, separate from originator biologics.
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\14\ The Medicare Payment Advisory Commission. Report to the
Congress: Medicare and the Health Care Delivery System. Chapter 3: Part
B Drug Payment Policy Issues. Published June 2015. Accessed December 1,
2023. https://www.medpac.gov/wp-content/uploads/import_data/
scrape_files/docs/default-source/reports/chapter-3-part-b-drug-payment-
policy-issues-june-2015-report-.pdf.
As all generics marketed in the U.S. must meet regulatory
requirements for adherence to Current Good Manufacturing Practices, the
partiality of pharmacies and providers towards less expensive generic
versions should not compromise quality of the product dispensed.\2\
However, as explained above, these regulatory requirements are
considered a minimum threshold for accessing the U.S. marketplace and
do not necessarily reflect the resilience and maturity of the supply
chain.
Generic Drug Reimbursement Under the Medicaid Program
The reimbursement of generic drugs under the Medicaid program
presents certain peculiarities:
1. State Medicaid agencies have flexibility in the
administration of the pharmacy benefit and the reimbursement of
both pharmacy-dispensed and
provider-administered drugs. For example, some States ``carve
in'' the coverage of pharmacy-dispensed drugs by including it
as a benefit under Medicaid Managed Care Organizations, while
others administer it on a fee-for-service basis.
When Medicaid directly administers the drug benefit on a
fee-for-service basis, the reimbursement is estimated based on
the ingredient cost and a dispensing fee. The ingredient cost
is meant to reflect the pharmacy acquisition cost.
2. The Medicaid Drug Rebate Program requires manufacturers to
enter a rebate agreement for covered outpatient prescription
drugs in exchange for Medicaid coverage of the manufacturer's
drugs (Sec. 1927(a)(1)). Rebates are defined by statute, and
for generic drugs, are estimated as the sum of:
a. A base rebate, which equals 13 percent of the average
manufacturer price. The average manufacturer price is the
average price paid to the manufacturer by wholesalers for drugs
sold to retail pharmacies.
b. An inflationary rebate, which penalizes increases in
prices above general inflation. The inflationary rebate on
generic drugs was implemented in January 2017 under the
Bipartisan Budget Act of 2015. For drugs brought to market
after April 1, 2013, the inflationary rebate is estimated using
as baseline the average manufacturer price for the fifth full
calendar quarter after which the drug was marketed. For drugs
marketed before April 1, 2013, it is calculated based on the
average manufacturer price in Q3 2014.
3. For provider-administered drugs to be eligible for
manufacturer rebates under the Medicaid Drug Rebate Program,
they need to be billed separately (Sec. 1927(k)(3)). This
policy has strongly incentivized the separate reimbursement of
outpatient provider-administered drugs, which States generally
estimate using the average sales price.\15\ It should be noted
that a 2023 CMS proposed rule would make drugs reimbursed as
part of bundles eligible for rebates, as long as they are
separately itemized in the invoice.\16\
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\15\ U.S. Government Accountability Office. Physician-administered
Drugs: Comparison of Payer Payment Methodologies. Published August 1,
2016. Accessed November 26, 2023. https://www.gao.gov/assets/gao-16-
780r.pdf.
\16\ Medicaid Program; Misclassification of Drugs, Program
Administration and Program Integrity Updates Under the Medicaid Drug
Rebate Program. 88 F.R. 34238 (proposed May 26, 2023).
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The 340B Drug Pricing Program
Manufacturers that participate in the Medicaid Drug Rebate Program
are required to offer covered outpatient drugs to safety net providers
at a discounted price. The discounted price is estimated using the
rebate calculated under the Medicaid Drug Rebate Program explained
above. The 340B program has substantially expanded in recent years,
driven by the expansion of contract pharmacy
arrangements.\17\, \18\ In recently published work, I
documented large variation across therapeutic classes in the share of
drug sales that are subject to 340B discounts, highest for antivirals
and anticancer agents.\17\
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\17\ Dickson S, Gabriel N, Hernandez I. Trends in proportion of
Medicare Part D claims subject to 340B discounts, 2013-2020. JAMA
Health Forum. 2023;4(11):e234091.
\18\ Nikpay S, McGlave CC, Bruno JP, Yang H, Watts E. Trends in
340B Drug Pricing Program Contract Growth Among Retail Pharmacies From
2009 to 2022. JAMA Health Forum. 2023;4(8):e232139.
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Reimbursement Practices and Contribution to Shortages
Downward Pricing Pressure
As generic drug reimbursement is the same across all
therapeutically equivalent versions of a product, generic manufacturers
solely compete to sell their product at the lowest price, generating a
``race to the bottom.'' Price erosion is aggravated by the
consolidation of purchasing entities.\19\ It should be noted that,
unlike branded drugs, prices of generic products are generally lower in
the U.S. than other countries.\20\
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\19\ Sardella A. U.S. Generic Pharmaceutical Industry Economic
Instability. Published April 21, 2023. Accessed November 29, 2023.
https://apicenter.org/wp-content/uploads/2023/07/US-Generic-
Pharmaceutical-Industry-Economic-Instability.pdf.
\20\ Mulcahy AW, Whaley C, Tebeka MG, Schwam D, Edenfield N,
Becerra-Ornelas AU. International prescription drug price comparisons.
Accessed November 22, 2023. https://www.
rand.org/content/dam/rand/pubs/research_reports/RR2900/RR2956/
RAND_RR2956.pdf.
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Limited Ability to Raise Prices
Inflation penalties under the Medicaid Drug Rebate Program and the
340B program limit manufacturers' ability to raise prices when
manufacturing costs increase, especially for drugs with a large share
of sales under these two programs. This is particularly problematic for
the subset of generic products marketed before April 1, 2013, for which
inflation penalties are estimated based on an arbitrary period (Q3
2014) instead of the fifth full calendar quarter after marketing. Some
manufacturers may have lowered their prices to near marginal cost by
this arbitrarily set baseline period, so any increase in production
costs would generate a penalty.
The reimbursement of generic products by Medicare Part B puts
manufacturers that raise prices at a competitive disadvantage. This is
because there is a two-
quarter lag in the application of the average sales price to Medicare
reimbursement rates (for example, reimbursement rates for Q4 2023 are
based on the average sales price in Q2 2023). As a result, providers
would be less willing to purchase drugs that have recently raised
prices, as reimbursement rates are not updated for two quarters.
Contribution to Shortages
Reimbursement practices that were meant to create an efficient
marketplace for generics and keep costs down have led to marked price
compression, threatening market sustainability and supply continuity:
1. According to experts, price pressure induces manufacturers
to engage in cost-reduction strategies, such as reduced
investments in factory maintenance, equipment upgrading and
off-shoring,\21\, \22\, \23\ which
increase the risk of quality issues. Quality issues create
vulnerabilities across the supply chain and ultimately
contribute to shortages.\23\, \24\
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\21\ Wosinska ME, Frank RG. Federal Policies to Address Persistent
Generic Drug Shortages. Published 2023. Accessed November 8, 2023.
https://www.brookings.edu/wp-content/uploads/2023/06/
20230621_ES_THP_GSI_Report_Final.pdf.
\22\ Sardella A. Testimony Before the House Committee on Energy and
Commerce, Subcommittee on Oversight and Investigations Examining the
Root Causes of Drug Shortages: Challenges in Pharmaceutical Drug Supply
Chains. Published May 9, 2023. Accessed November 29, 2023. https://
d1dth6e84htgma.cloudfront.net/
Witness_Testimony_Sardella_5_11_23_b932ed112
a.pdf?updated_at=2023-05-10T18:13:11.412Z.
\23\ Drug Shortages. A report from The Pew Charitable Trusts and
the International Society for Pharmaceutical Engineering. Published
January 2017. Accessed November 22, 2023. https://www.pewtrusts.org/-/
media/assets/2017/01/drug_shortages.pdf.
\24\ Woodcock J, Wosinska M. Economic and technological drivers of
generic sterile injectable drug shortages. Clin Pharmacol Ther.
2013;93(2):170-176.
2. Limited profitability generates a lack of incentives for
manufacturers to invest in drug supply redundancies and quality
management systems.\2\ Redundancies enable manufacturers to
quickly ramp up manufacturing at the back-up line while
resolving issues affecting the primary line, and thus prevent
manufacturing issues from ultimately disrupting product supply.
Quality management systems proactively identify issues before
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they lead to shortages.\2\
3. Reduced profitability may ultimately lead manufacturers to
discontinue the production of less profitable drugs.\23\ Market
withdrawals increase the concentration of generic
manufacturers,\25\ which limits the market ability to respond
to disruptions in the supply chain by a single manufacturer.
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\25\ U.S. Government Accountability Office Report to Congressional
Addressees. Drug Shortages: Public Health Threat Continues, Despite
Efforts to Help Ensure Product Availability. Published February 2014.
Accessed November 8, 2023. https://www.gao.gov/assets/gao-14-194.pdf.
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Generic Injectable Drugs--The Perfect Storm
The peculiarities of the manufacturing and marketing of generic
injectable drugs generate a ``perfect storm'' that explains their
vulnerability to drug shortages--67 percent of drugs on shortage in
recent years were generic injectable products.\4\
1. Generic injectables have reduced profit margins due to the
small market size \9\ and the requirements for specialized
manufacturing, which make them costlier to manufacture than
oral drugs.
2. Generic injectable markets have fewer entrants than generic
oral markets.\9\
3. Rates of market exit are markedly higher for generic
injectable products.\9\ An analysis of molecules that lost
patent production in 2010-2013 found that, for generic products
with small markets, more than half of generic manufacturers had
exited the market by the end of the fourth year after loss of
exclusivity.\9\
4. The manufacture of generic injectable products is
particularly vulnerable to maintenance cost-reduction
strategies due to the requirement for specialized manufacturing
processes that ensure sterility.\24\
5. Supply redundancies are particularly uncommon for generic
injectable drugs, which require specific facilities and
rooms.\23\, \24\
6. The requirement for specialized manufacturing lines limits
the ability of other manufacturers to ramp up production in the
setting of a drug shortage.
The time needed to establish production of injectable drugs is one
of the factors that has limited the role of 503B outsourcing facilities
in filling supply gaps for drugs on shortage.\26\, \27\ 503B
compounding facilities, often denominated outsourcing facilities,
compound drug products in large volume without the need for patient-
specific prescriptions. 503B facilities are only allowed to compound
products that include bulk drug substances for which the FDA has
determined there is clinical need, or products that appear in the FDA
drug shortage list. 503B facilities are required to follow Current Good
Manufacturing Practices and to compound at least one sterile
product.\28\ The role of 503B facilities in the manufacturing of drugs
on shortage has been limited.\27\ This has been attributed to the
unpredictability around the occurrence and duration of shortages, which
generate uncertainty around the profitability associated with the
reassignment of production lines to products on shortage.\26\
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\26\ Drug shortages roundtable: Minimizing the impact on patient
care. Am J Health Syst Pharm. 2018;75(11):816-820.
\27\ Mattingly AN. The role of outsourcing facilities in overcoming
drug shortages. J Am Pharm Assoc (2003). 2021;61(1):e110-e114.
\28\ United States Code: Federal Food, Drug, and Cosmetic Act, 21
U.S.C. Sec. 353b (2014).
---------------------------------------------------------------------------
Other Shortcomings Associated With the Current Generic Drug
Reimbursement Model
The failure to incentivize pharmacies and providers to purchase
products with resilient supply chains is a major shortcoming of the
generic reimbursement model, but not the only one. Earlier this year,
Chairman Wyden brought attention to the provision of unjustifiably high
reimbursements for certain generic drugs by Medicare Part D sponsors,
an issue that I recently studied.\29\ In collaboration with colleagues
at the University of Washington, I evaluated reimbursement rates for
the top 50 generic drugs by Medicare spending. I identified 16 generic
drugs reimbursed in 2021 at a markup of 1,000 percent or higher by at
least one of the six leading Part D organizations. For instance,
aripiprazole 5mg, an antipsychotic drug, was purchased by pharmacies at
an average of $0.17 per tablet in 2021. However, Rite Aid reimbursed
pharmacies at point-of-sale at an average of $11.7 per tablet (over
7,000 percent markup), Cigna at $4.6 per tablet (over 2,700 percent
markup), and CVS Health at $4.5 per tablet (over 2,600 percent markup).
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\29\ Hernandez I, Gabriel N, Kaltenboeck A, Boccuti C, Hansen RN,
Sullivan SD. Reimbursement to Pharmacies for Generic Drugs by Medicare
Part D Sponsors. JAMA 2023 doi:10.1001/jama.2023.21481.
Due to the confidential nature of post-sale adjustments, it was not
possible to study to what extent these unjustifiably high
reimbursements were offset by clawbacks. Nevertheless, the described
reimbursement practices are concerning because point-of-sale
reimbursement rates are the basis for patient cost sharing. As a
result, it is likely that the provision of these unjustifiably high
reimbursements rates resulted in increased out-of-pocket costs for
Medicare beneficiaries.
iii. policy recommendations
The drug supply chain heavily relies on foreign manufacturing,
which is a national public health risk. The drug reimbursement model
fails to generate sufficient incentives for the manufacturing of
certain drugs with limited profit margins, yet allows intermediaries to
unjustifiably inflate costs of generic products covered under Medicare
Part D. These major shortcomings warrant policy intervention to
reenvision the way how we pay for generic drugs. In what follows, I
focus on the aspects of the reform that more closely relate to drug
shortages. These are not, however, the only reforms needed to the
generic reimbursement model. The recommendations proposed below should
be complemented by reforms to the Medicare Part D program to align
patient and payer financial incentives, ensure fair pricing and
reimbursement practices, prevent and penalize anticompetitive behavior,
foster pharmacy sustainability, guarantee pharmacy access, and promote
transparency. I applaud the efforts of the committee in the drafting
and passage of legislation to achieve these goals earlier this year.
Effective policymaking requires a combination of policy reforms
that address both economic and regulatory factors underlying drug
shortages. My discussion is limited to policy solutions that address
economic drivers of drug shortages. These interventions should be
accompanied by the strengthening of the FDA oversight of the supply
chain.
Federal policy intervention is urgently needed to: (1) rebuild the
domestic infrastructure for the manufacturing of generic drugs, and (2)
create incentivizes for manufacturers to invest in resilient supply
chains to ensure long-term sustainability.
1. Government funding to rebuild the domestic manufacturing
infrastructure. The provision of government funding is a short-
term solution to rebuild the domestic infrastructure for the
manufacturing of both generic active ingredients and final
dosage forms. Funds would be destined for the establishment or
upgrading of domestic facilities, purchasing of equipment,
development of supply chain redundancies, and development of
quality management systems. As suggested by Wosinska and Frank,
funds could be provided in the form of low-interest loans,
which would be eligible for forgiveness based on performance.
Performance would capture the manufacturer's ability to meet
supply guarantees and the achievement of high levels of supply
chain maturity and resilience, as monitored by the FDA.\21\
Funds destined to the establishment or upgrading of production
lines for a list of eligible products would be fully
forgivable. The list of eligible products would be assembled by
the Department of Health and Human Services (HHS) based on
prices per unit, market concentration, recent history of
shortages, vulnerability of the existing supply chain, and
criticality of the product.\30\
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\30\ Wosinska ME, Joseph Mattingly T II, Conti RM. A Framework for
Prioritizing Pharmaceutical Supply Chain Interventions. Health Affairs
Forefront. doi:10.1377/forefront.20230912.93
8681.
2. Revision of generic reimbursement models to reward supply
chain resilience and maturity. I recommend a revision of
generic drug reimbursement models to incentivize the selection
of products manufactured in resilient and mature supply chains.
Supply chain resilience and maturity are crucial for supply
stability and continuity. Supply stability and continuity are
elements of value because, when we initiate a patient on a
treatment, we not only value the product available for the
initial dose, but also the continuity of supply so that a
patient can complete the treatment course. The value of supply
continuity differentiates the generic market from the common
commodity market and justifies variable payment based on the
resilience and maturity of the supply chain of the generic
---------------------------------------------------------------------------
version selected.
The reform of the current generic reimbursement model to
reward supply chain resilience and maturity would involve:
a. Development of a rating system measuring supply chain
resilience and maturity for each generic product. The rating
system would be developed by the FDA and would measure key
elements for supply chain resilience and maturity. Such
elements may include factory maintenance, upgrading of
equipment, presence of manufacturing redundancies, and
monitoring of manufacturing variability.\2\ This system would
differentiate from the Current Good Manufacturing Practices in
that it would measure attributes of the supply chain that are
not needed to ensure minimum levels of quality but are relevant
to supply stability and continuity.
The ratings would be measured at the manufacturer-
generic product level, would be mandatory for all generic
products marketed in the U.S., and would be made publicly
available by the FDA. Measurement at the manufacturer-generic
product level is preferred over manufacturer-level measures, as
the latter would incentivize manufacturers to invest in
resilient supply chains for high-utilization profitable
products but not necessarily for generic drugs most vulnerable
to shortages.
b. Application of the rating as a value-based modifier
to generic products reimbursed under Medicare Parts A and B.
The manufacturer-generic product rating would be transformed
into a value-based modifier applied to claims for generic
products separately reimbursed by Medicare Parts A and B.
Reimbursement would still be based on the weighted average
sales price capturing all branded and generic versions of a
product. The value-based modifier would be operationalized as
the mark-up for the average sales price, with different tiers
for different ratings. For instance, reimbursement could be
calculated as 125 percent of the weighted average sales price
for generic versions scoring three out of three stars, 115
percent for products with two out of three stars, and 106
percent for products with one out of three stars. (Note: these
markups are provided for illustration purposes; the
incorporation of value-based modifiers would necessitate
further research to identify the optimal magnitude of modifiers
that incentivizes providers to purchase products with high
ratings while limiting budget impact).
Claims would incorporate national drug codes in
addition to HCPCS codes to enable identification of the generic
version selected, as is currently done in Medicaid for rebate
collection. The value-based modifier would be applied at the
claim level. The alternative--the derivation of average value-
based modifiers capturing product mix for a given provider--
would disproportionately incentivize providers to purchase high
rating generic versions for high-utilization drugs, but not
necessarily for drugs most vulnerable to shortages.
The incorporation of value-based modifiers would
increase provider reimbursement rates when selecting generic
versions with high ratings, which would ultimately result into
higher acquisition costs and higher profit margins for
manufacturers of generic versions with resilient and mature
supply chains.
c. Establishment of eligible drugs with daily costs
under the packaging threshold as separately payable products
under Medicare Part A and Part B, independent of clinical
setting. Drug shortages disproportionately affect low-priced
generic injectable drugs, which are not separately reimbursed
under Parts A or under Part B when administered in outpatient
hospital departments, as further detailed above. The
incorporation of value-based modifiers at the drug claim level
would require the separate reimbursement of eligible drugs with
daily costs under the packaging threshold under Medicare Parts
A and B, independent of clinical setting. Eligible products
would include those in a list elaborated by HHS based on prices
per unit, market concentration, recent history of shortages,
vulnerability of the existing supply chain, and criticality of
the product.\30\
I recognize that this proposal would only generate incentives for
providers to purchase drugs with resilient and mature supply chains,
and not pharmacies. The creation of similar incentives in Medicare Part
D would necessitate legislation that requires pharmacy benefit managers
to incorporate value-based modifiers into Part D reimbursement rates.
Other Policy Solutions to Generate Incentives for the Manufacture of
Selected Generic Drugs
The incorporation of value-based modifiers to the reimbursement of
generic
provider-administered drugs is a major overtaking, yet the necessary
step to reward supply chain resilience and maturity. In what follows, I
offer less sophisticated policy solutions that would have a limited
impact in generating incentives for the manufacture of selected generic
products:
1. Creation of incentives for generic manufacturing through
regulatory benefits. Regulatory benefits could be explored as
incentives for investments in supply chain resilience and
maturity and for the manufacture of less-profitable products.
Examples of these benefits include:
a. Manufacturers could be rewarded for investments in
supply chain maturity and resilience through the development of
tiers for generic user fees based on supply chain maturity and
resilience ratings.
b. Waiver of generic user fees, award of priority review
vouchers, or conferral of extended market exclusivity periods
could be considered as incentives for manufacturers who enter
the market of eligible products and commit to supply
guarantees. Eligible products would include those in a list
elaborated by HHS based on prices per unit, market
concentration, recent history of shortages, vulnerability of
the existing supply chain, and criticality of the product.\30\
2. Reform of the inflation penalty. Several reforms to the
calculation of the Medicaid inflationary rebate could be
considered to partially mitigate the inability of manufacturers
to raise prices in the context of manufacturing cost increases:
a. One-time reestablishment of the inflation penalty
baseline for eligible generic products contingent on
investments in manufacturing upgrades. Legislation could allow
a one-time reestablishment of the baseline period for the
measurement of inflation penalties for selected generic
products in exchange for manufacturers' investment in upgrading
production lines to meet a predetermined threshold of
resilience and maturity. Eligible products would be selected as
discussed under section 1b.
b. Reestablishment of the baseline period for calculation
of the inflation penalty for generic drugs marketed before
April 1, 2013 to the fifth full calendar quarter after
marketing. As explained above, the baseline period for the
calculation of the inflation penalty for generic products
marketed before April 1, 2013 was arbitrarily set to Q3 2014.
Drugs marketed before April 1, 2013 may have had prices close
to marginal costs by Q3 2014, and thus any increase in
production costs would generate a penalty. The reestablishment
of the baseline period to the fifth full calendar quarter after
marketing would mitigate the differentiation with drugs
marketed after April 1, 2013 introduced by the Bipartisan
Budget Act of 2015.
c. Redesign of the inflation penalty for eligible generic
products to a trigger-based model. As explained above,
inflation penalties limit manufacturers' ability to raise
prices when manufacturing costs increase, especially for drugs
with large share of Medicaid and 340B sales. To mitigate this
problem while preventing price hikes, the inflation penalty
could be redesigned to only penalize large increases in prices,
for instance, above 3 times the rate of general inflation in a
year. Eligible products would be selected using parameters
discussed under section 1b.
Comment
Drug shortages are not a problem of the masses, but a problem of
the exceptions. Many drugs have no substitutes. The shortage of a
single product can trigger a major public health disruption \31\ and
have devastating consequences on population health.\1\ Policy
intervention should aim to prevent drug shortages across the entire
therapeutic arsenal of drugs approved by the FDA. Policymaking should
refrain from solutions that only incentivize supply chain resilience
for high utilization products or for drugs within certain therapeutic
classes.
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\31\ Choi Y, Santhireswaran A, Chu C, et al. Effects of the July
2018 worldwide valsartan recall and shortage on global trends in
antihypertensive medication use: a time-series analysis in 83
countries. BMJ Open. 2023;13(1):e068233.
Drug shortages are a terribly complex problem. My policy
recommendations address economic drivers of drug shortages that can be
influenced through reform of Federal health insurance programs. There
are however many factors contributing to shortages that are outside of
the influence of Federal health program policy levers, the subject of
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this hearing.
I acknowledge that the solutions proposed will likely result in
increased government spending. I am unaware of any budget-neutral
policy solutions that would effectively address the economic drivers of
drug shortages. This spending is a necessary investment in our
country's health and national security. Just as we invest in the
construction and maintenance of roads and bridges for economic
prosperity, we must invest in generic manufacturing infrastructure to
further our health and well-being and protect national security.
______
Questions Submitted for the Record to
Inmaculada Hernandez, PharmD., Ph.D.
Questions Submitted by Hon. Maria Cantwell
Question. The American Medical Association and the Association for
Accessible Medicines have noted that pharmacy benefit managers, or
PBMs, may contribute to practices that hinder access to lifesaving
medication. PBMs are middlemen in the prescription drug industry with
powerful influence over the price and distribution of prescription
medications. The three largest PBMs control 80 percent of the total
market share. The four largest PBMs also own their own affiliate
insurers and pharmacies, which creates a clear conflict of interest.
Even when drugs are not in shortage, patients may still face access
barriers caused by PBMs. PBMs that own their own pharmacies use unfair
tactics that steer patients to those pharmacies while reducing market
access for other unaffiliated ones. This decreases competition, limits
patient choice, and causes smaller independent pharmacies to go out of
business.
That is why I introduced legislation to increase transparency in
the PBM market and encourage them to stop using discriminatory and
predatory practices.
My bill, the PBM Transparency Act, would prohibit deceptive
practices like reimbursement claw backs and spread pricing, while
requiring PBMs to disclose data including any discrepancies between
what they reimburse their affiliate pharmacies compared to non-
affiliate pharmacies.
Can you talk about the access barriers that PBMs impose on patients
trying to obtain necessary medications?
Answer. There are multiple business practices of pharmacy benefit
managers (PBMs) that create or exacerbate access barriers to
medications.
1. PBMs often favor medications with high list prices and large
rebates over medications with lower list prices.\1\, \2\
These practices reduce premiums if, after discounts, the net costs of
the high-list-price products are lower than those of alternatives with
lower list prices. Nevertheless, this preference towards high-list-
price high-rebate products translates to increased out-of-pocket costs
for patients,\1\, \2\ as patient coinsurance is calculated
using the list price. The magnitude of confidential rebates negotiated
between PBMs and manufacturers has increased exponentially in recent
years,\3\, \4\, \5\, \6\ supporting an
increasingly opaque reimbursement system for branded products.
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\1\ U.S. Government Accountability Office Report to Congressional
Requesters. Medicare Part D: CMS Should Monitor Effects of Rebates on
Plan Formularies and Beneficiary Spending. Published September 2023.
Accessed December 28, 2023. https://www.gao.gov/assets/gao-23-
105270.pdf.
\2\ Murrin S. U.S. Department of Health and Human Services Office
of Inspector General. Medicare Part D and Beneficiaries Could Realize
Significant Spending Reductions With Increased Biosimilar Use.
Published March 2022. Accessed December 29, 2023. https://oig.hhs.gov/
oei/reports/OEI-05-20-00480.pdf.
\3\ Dickson S, Gabriel N, Hernandez I. Contextualizing the Price of
Biosimilar Adalimumab Based on Historical Rebates for Humira. JAMA
Network Open. 2023;6(7):e2323398.
\4\ Dickson S, Gabriel N, Gellad WF, Hernandez I. Estimated Changes
in Insulin Prices and Discounts following Entry of New Insulin
Products, 2012-2019. JAMA Health Forum. 2023;4(6):e231430.
\5\ Dickson S, Gabriel N, Gellad WF, Hernandez I. Assessment of
Voluntary and Mandatory Discounts in the Gross-to-Net Bubble for
Leading Insulin Products, 2012-2019. JAMA Netw Open. 6(6):e2318145.
\6\ Hernandez I, San-Juan-Rodriguez A, Good CB, Gellad WF. Changes
in List Prices, Net Prices, and Discounts for Branded Drugs in the
U.S., 2007-2018. JAMA. 2020;323(9):854-862.
2. Some PBMs have been shown to pay unjustifiably high
reimbursement rates to pharmacies for generic products.\7\,
\8\, \9\ In a paper recently published in JAMA, my
colleagues and I identified 16 generic drugs that were reimbursed in
2021 at a markup of 1,000 percent or higher by at least one of the
leading Part D sponsors.\7\ As patient coinsurance is based on the
point-of-sale reimbursement, this practice likely results in increased
out-of-pocket expenses for patients.
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\7\ Hernandez I, Gabriel N, Kaltenboeck A, Boccuti C, Hansen RN,
Sullivan SD. Reimbursement to Pharmacies for Generic Drugs by Medicare
Part D Sponsors. JAMA. Published online December 5, 2023. doi:10.1001/
jama.2023.21481.
\8\ Sunshine in the Black Box of Pharmacy Benefits Management:
Florida Medicaid Pharmacy Claims Analysis. Published January 27, 2020.
Accessed March 3, 2023. http://ncpa.co/pdf/florida-3aa-medicaid-
pharmacy-analysis.pdf.
\9\ Maine Health Data Organization Prescription Drug Transparency
Report. Published December 14, 2022. Accessed March 20, 2023. https://
mhdo.maine.gov/_pdf/MHDO%20Rx%20Trans
parency%20Report_221213.pdf.
3. PBMs have established preferred-pharmacy networks, which hinder
pharmacy access and contribute to closures of independent pharmacies
through two mechanisms: First, through preferred-pharmacy networks,
PBMs can steer patients to fill prescriptions at PBM-owned pharmacies
by offering lower out-of-pocket costs.\10\ Second, independent
pharmacies who accept contracts to participate in preferred pharmacy
networks often receive reimbursement rates that are insufficient to
cover drug acquisition costs and operating expenses. Beyond
contributing to closures of independent pharmacies, preferred-pharmacy
networks limit patient access because beneficiaries need to opt between
traveling further to access preferred pharmacies or pay increased out-
of-pocket costs at non-preferred pharmacies.
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\10\ Surya S, Seeley E. Competition, Consolidation, and Evolution
in the Pharmacy Market. Published August 12, 2021. Accessed January 19,
2023. https://www.commonwealthfund.org/publications/issue-briefs/2021/
aug/competition-consolidation-evolution-pharmacy-market.
4. PBMs engage in non-transparent reimbursement practices that
threaten the sustainability of independent community pharmacies, as in
some cases, after post-adjudication adjustments (clawbacks), pharmacies
are reimbursed by PBMs less than the drug acquisition
amount.\10\, \11\ It should be noted that, effective January
2024, the Centers for Medicare and Medicaid Services (CMS) eliminated
PBM use of retroactive fees in Medicare Part D. Fees will instead be
charged at point of sale. Commercial plans may however continue to
apply fees retroactively.
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\11\ Oregon Health Authority Pharmacy Benefit Managers Poor
Accountability and Transparency Harm Medicaid Patients and Independent
Pharmacies. Published August 2023. Accessed December 28, 2023. https://
sos.oregon.gov/audits/Documents/2023-25.pdf.
Question. How would bills that encourage transparency, like my PBM
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Transparency Act, improve patient access to prescription drugs?
Answer. I support the PBM Transparency Act, which includes
important provisions to address the opacity of the drug reimbursement
system. The PBM Transparency Act prohibits claw backs from pharmacies
to PBMs and spread pricing (the practice of charging health plans or
payers higher amounts for prescription drugs than what PBMs reimburse
pharmacies for). PBMs would not be in violation of the Act if: (1) PBMs
passed 100 percent of rebates to health plans or payers; and (2) PBMs
fully disclosed to pharmacies and health plans or payers the cost,
price, and reimbursement of drugs, and all fees, markups, and discounts
imposed to health plans or payers and pharmacies; or PBMs disclosed to
health plans or payers and Federal agencies aggregate remuneration fees
from manufacturers.
Additionally, the PBM Transparency Act requires PBMs to report to
the Federal Trade Commission: (1) the aggregate figure for the
difference between the amount the health plan paid the PBM and the
amount the PBM reimbursed pharmacies; (2) the aggregate amount of fees
and clawbacks charged to pharmacies; (3) for PBMs that are affiliated
with pharmacies, differences in reimbursement rates, fees, and
clawbacks between affiliated and non-affiliated pharmacies. The passage
of the PBM Transparency Act would be an important step towards
increased transparency in the PBM industry. I have some additional
recommendations that build on this important policy:
1. While prohibiting pharmacy clawbacks is important to improve
transparency, it is insufficient to ensure pharmacy sustainability, as
PBMs may simply respond by adjusting point-of-sale reimbursement rates
accordingly. Additional legislation is needed to ensure that
reimbursement rates are sufficient to cover drug acquisition costs and
pharmacy operating expenses.
2. PBMs could game the requirement for the 100-percent rebate
pass-through rate by redefining what counts as rebate. Recently, PBMs
established group purchasing organizations (GPOs), which could be
leveraged to recategorize rebates, ensuring compliance with the 100-
percent rebate pass-through rate while deviating discounts through
alternative income streams.\12\ Provisions that prevent PBMs from using
affiliated entities to circumvent this provision would be crucial for
the effectiveness of the policy.
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\12\ Joseph S. The Opportunity to Unbundle and Disrupt Pharmacy
Benefit Managers (Part 1). Forbes Magazine. Published online November
13, 2022. Accessed January 2, 2024. https://www.forbes.com/sites/
sethjoseph/2022/11/13/how-to-get-away-with-corporate-murder-unbundling-
and-disrupting-pharmacy-benefit-managers-part-1/?sh=2844dc137bc0.
3. The mandatory disclosure of aggregate amounts of differences in
reimbursement rates, fees, and clawbacks between affiliated and non-
affiliated pharmacies is insufficient to address concerns around the
consequences of PBM and pharmacy affiliation. Aggregate amounts can
mask concerning reimbursement practices for certain products and market
sectors. For instance, there is a concern that the over-reimbursement
of generics may help PBMs affiliated with pharmacy chains shift profits
to the pharmacy side of the conglomerate.\7\ The testing of this
hypothesis requires claim- or product-level data for differences in
reimbursement rates, fees, and clawbacks between affiliated and non-
affiliated pharmacies. If only aggregate amounts are reported, any
potential signal of differential reimbursement for generic drugs would
be masked by data for branded and specialty products, which account for
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the largest share of spending.
4. The PBM Transparency Act could be strengthened if it regulated
preferred pharmacy networks and directly addressed the preference of
PBMs towards drugs with high list prices and high rebates.
I applaud the Senator's efforts to improve transparency on the
business practices of PBMs. I encourage the introduction and support of
legislation that (1) aligns the financial incentives of patients,
health plans or payers, and PBMs, preventing practices that increase
out-of-pocket costs for patients; (2) regulates preferred-pharmacy
networks, and prevents anticompetitive behavior associated with PBM and
pharmacy affiliation, guaranteeing pharmacy access and sustainability
of independent pharmacies.
I remain at the service of the Senator to assist with legislative
efforts that address these relevant goals.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. In a 2019 report from the FDA on drug shortages, the
agency notes that FDA heard from stakeholders that some contracts
currently include ``low-price clauses'' that allow group purchasing
organizations to unilaterally walk away from a contract if a competing
manufacturer is willing to supply the same product or bundle of
products for a lower price.
How do practices like ``low-price clauses'' impact drug shortages?
Answer. There are two key stakeholders in the purchasing of generic
drugs: (1) generic drug buying groups; and (2) group purchasing
organizations (GPOs). Both of them exert pressure on generic
manufacturers, thus contributing to price erosion.
generic drug buying groups
Traditionally, large pharmacy chains directly contract with generic
manufacturers to purchase drugs. In the last decade, large pharmacy
chains have partnered with leading wholesalers to create joint ventures
for generic sourcing. These entities include Red Oak Sourcing (Cardinal
Health + CVS), Walgreens Boot Alliance Development (AmerisourceBergen +
Walgreens), and ClarusOne/McKesson (McKesson + Walmart). The
establishment of these entities has resulted into a highly concentrated
market: it is estimated that, in 2018, these three buying groups
accounted for over 90 percent of U.S. generic drug purchases.\13\ The
large concentration of generic buying groups reduces prices \13\ and
limits the ability of generic manufacturers to raise prices when costs
of production increase.
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\13\ Fein AJ. The Big Three Generic Drug Mega-Buyers Drove Double-
Digit Deflation in 2018. Stability Ahead? (rerun). Accessed December
26, 2023. https://www.drugchannels.net/2019/07/the-big-three-generic-
drug-mega-buyers.html.
Due to the lack of publicly available data on contracting
practices, I am not able to comment on how the specific terms of
agreements between generic manufacturers and buying groups contribute
to shortages. It should be noted, however, that the Association for
Accessible Medicines, which represents generic and biosimilar
manufacturers, reports a long list of contract terms that contribute to
generic price erosion.\14\ For example, they report that contracts
often include failure-to-supply agreements that require generic
manufacturers to pay penalties if they fail to supply product.\14\
These agreements may have incentivized manufacturers to discontinue the
production of less profitable products, instead of bearing the risk of
penalties in the setting of a shortage.
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\14\ Association for Accessible Medicines. Comments to the Federal
Trade Commission and Antitrust Division of the Department of Justice.
Published March 21, 2022. Accessed December 26, 2023. https://
accessiblemeds.org/sites/default/files/2022-03/AAM-Public-Comments-RFI-
Merger-Enforcement-Version-3-18-22.pdf.
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group purchasing organizations
GPOs negotiate purchasing rates for products on behalf of their
members. Unlike the generic buying groups described above, GPOs do not
take title to the product. Contracts between GPOs and generic
manufacturers include low-price clauses that give GPOs the flexibility
to purchase products from other manufacturers who may offer the product
at a lower price than negotiated. Due to the lack of transparency
around contracting practices, it is unclear with which frequency GPOs
contract with manufacturers undercutting the market and offering lower
prices than negotiated with the original supplier. It should be noted,
however, that even if GPOs do not contract with generic manufacturers
undercutting the market, these suppliers are accessible to health
systems and providers via wholesalers. In other words, members of GPOs
may purchase product from generic manufacturers with lower prices
outside of the GPO contract. These purchasing practices are allowed by
the infrequent inclusion of minimum purchase requirements in contracts.
In summary, low-price clauses included in GPO contracts with
generic manufacturers are only one of multiple purchasing practices
that create price pressure on manufacturers. Price pressure is
exacerbated by the consolidation of purchasing entities, particularly
of generic buying groups. Downward price pressure interacts with the
limited ability to raise prices when costs of production increase,
threatening market sustainability and continuity:
1. Price erosion foments the adoption of cost-containment
strategies, which increase the risk of quality issues.\15\,
\16\, \17\ Quality issues create vulnerabilities across the
supply chain and ultimately contribute to shortages as production must
be halted until issues are resolved.\17\, \18\
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\15\ Wosinska ME, Frank RG. Federal Policies to Address Persistent
Generic Drug Shortages. Published 2023. Accessed November 8, 2023.
https://www.brookings.edu/wp-content/uploads/2023/06/
20230621_ES_THP_GSI_Report_Final.pdf.
\16\ Sardella A. Testimony Before the House Committee on Energy and
Commerce, Subcommittee on Oversight and Investigations Examining the
Root Causes of Drug Shortages: Challenges in Pharmaceutical Drug Supply
Chains. Published May 9, 2023. Accessed November 29, 2023. https://
d1dth6e84htgma.cloudfront.net/
Witness_Testimony_Sardella_5_11_23_b932ed112
a.pdf?updated_at=2023-05-10T18:13:11.412Z.
\17\ Drug Shortages. A report from The Pew Charitable Trusts and
the International Society for Pharmaceutical Engineering. Published
January 2017. Accessed November 22, 2023. https://www.pewtrusts.org/-/
media/assets/2017/01/drug_shortages.pdf.
\18\ Woodcock J, Wosinska M. Economic and technological drivers of
generic sterile injectable drug shortages. Clin Pharmacol Ther.
2013;93(2):170-176.
2. Limited profitability generates few incentives for
manufacturers to invest on redundant manufacturing capacity and quality
management systems, which can prevent and restore supply disruptions
---------------------------------------------------------------------------
before they result in shortages.
3. Limited profitability may ultimately result in manufacturers'
determination to discontinue production, increasing market
concentration and limiting the ability of the market to respond to
disruptions in the supply chain by a single manufacturer.
Now we hear that some PBMs have chosen to start group purchasing
organizations even as PBMs use group purchasing organization services.
Question. How might these relationships impact drug shortages,
particularly patients' ability to access low-cost drugs that typically
do not provide much profit to manufacturers?
Answer. The establishment of GPOs by PBMs is a new example of
increased vertical integration that gives the resulting conglomerates
additional control over the drug supply chain. The primary reason
underlying the establishment of GPOs by PBMs is to increase their
ability to negotiate rebates with manufacturers for brand-name
products.\19\ As noted above, the establishment of GPOs can also help
redefine what counts as rebates, providing flexibility for PBMs to
respond to potential new requirements for transparency.\12\ Drug
shortages disproportionately affect generic products.\20\ As a result,
it is unclear how the establishment of PBM-led GPOs focused on branded
products could contribute to shortages of generic drugs.
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\19\ Heron E. Peeking Behind the PBM-lead GPO Curtain. Eversana.
Published April 13, 2023. Accessed December 26, 2023. https://
www.eversana.com/insights/peeking-behind-the-pbm-led-gpo-curtain/.
\20\ IQVIA Institute Report. Drug Shortages in the U.S. 2023.
Published November 15, 2023. Accessed November 21, 2023. https://
www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/
reports/drug-shortages-in-the-us-2023.
It should be noted, however, that PBMs participate in generic drug
buying groups through direct or indirect ways. For example, the PBM
Express Scripts participates in the generic buying group Walgreens Boot
Alliance Development through a subsidiary called Innovative Product
Aligment.\21\ The alignment of wholesalers, large pharmacy chains, and
PBMs increases control over the entire chain of distribution and
reimbursement of generic drugs.
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\21\ Express Scripts. Express Scripts Subsidiary to Join Walgreens
Boots Alliance Development Group Purchasing Organization. PR Newswire.
Published May 18, 2017. Accessed January 2, 2024. https://
www.prnewswire.com/news-releases/express-scripts-subsidiary-to-join-
walgreens-boots-alliance-development-group-purchasing-organization-
300459770.html.
______
Question Submitted by Hon. Sherrod Brown
Question. In its 2022 report, the United States-China Economic and
Security Review Commission, or USCC, recommended that Congress direct
the FDA and other Federal agencies to identify alternative sources for
APIs and other ingredients, including utilizing Defense Production Act
Authorities.
Recently, the administration announced its plans to implement some
of these recommendations. Congress has already provided some resources
to the administration to use Defense Production Act, or DPA,
authorities to ramp up production of medical supplies--including
generic pharmaceuticals. I fought to include this funding in the CARES
Act.
One domestic company, National Resilience, has already secured a
DPA loan to expand domestic manufacturing capacity of essential
medicines in West Chester Township, OH.
What are additional authorities that the U.S. Government can use,
similar to how the Defense Production Act is being used, to bolster the
domestic manufacturing of pharmaceuticals?
Answer. This question is outside of my area of expertise. I applaud
the Senator's efforts to leverage the Defense Production Act to support
the expansion of domestic manufacturing of drug products. I am unable
to speak from experience on this topic. However, anything that can be
done to expand domestic manufacturing capacity to boost production of
generic drugs would help alleviate shortages.
______
Questions Submitted by Hon. James Lankford
Question. My bill, the Ensuring Access to Lower-Cost Medicines for
Seniors Act (S. 2129), aims to mitigate disincentives for favorable
generic and biosimilar coverage. Currently, large Part D plans
routinely exclude or disadvantage lower-cost biosimilars and complex
generics and steer patients towards more expensive branded biologics
and specialty drugs, exacerbating inflationary pressures currently
facing seniors. These distorted dynamics also threaten the
sustainability and long-term viability of competitive markets, as
manufacturers confront the prospect of eroding returns, particularly
for biosimilars--increasing consumer costs in the short term, as well
as driving up health system spending in the long run.
How do current Part D plan and PBM benefit designs and coverage
strategies impact uptake and access for low-cost alternatives to
branded products, such as highly discounted biosimilars?
Answer. I wish to start with a very brief explanation of the
economics of the biosimilar market in the U.S. First, a large share of
biosimilar drugs marketed in the U.S. are provider-administered drugs,
which are primarily covered under the medical benefit of an insurance
policy (Medicare Part B). Second, in the biosimilar market, there are
typically fewer competitors as compared to the generics market. Only in
2023 did the market see the entry of multiple biosimilars for
adalimumab, the first biologic product with a number of competitors
comparable to that seen in the small-molecule generics market. Third,
according to the limited experience with self-administered biosimilars
representing the period before the entry of biosimilar adalimumab,
rates of price erosion are considerably lower than those observed for
small-molecule generics.\22\, \23\
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\22\ Mulcahy AW, Hlavka JP, Case SR. Biosimilar cost savings in the
United States: Initial experience and future potential. RAND Health Q.
2018;7(4):3.
\23\ Stern AD, Chen JL, Ouellet M, et al. Biosimilars and follow-on
products in the United States: Adoption, prices, and users. Health Aff
(Millwood). 2021;40(6):989-999.
There are several reasons that explain these market dynamics.
First, in the U.S., a large share of the biosimilar market is supplied
by traditional brand-name manufacturers (e.g., Amgen, Biogen, Novartis,
Pfizer, Roche).\24\ These manufacturers have the manufacturing capacity
and technical skill to produce and distribute biologic products, which
require complex manufacturing processes and cold chain distribution and
storage. Second, manufacturers of originator reference products offer
increased rebates to payers in response to biosimilar
competition.\1\, \25\, \26\ Thus, biosimilars
compete not only among themselves but also with the originator product.
This is a major difference with the behavior of small-molecule non-
complex branded products, which rarely attempt to compete with
generics.\27\ Third, while the market share of small-molecule non-
complex branded products falls by up to 90 percent in the year after
generic entry,\27\, \28\ originator biologic products are
able to retain substantial market share after biosimilar
entry.\2\, \23\
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\24\ Biosimilars: Top 10 pharma companies leading the way. Clinical
Trials Arena. Published January 20, 2022. Accessed December 29, 2023.
https://www.clinicaltrialsarena.com/features/biosimilars-the-top-10-
pharma-companies-leading-the-way/.
\25\ San-Juan-Rodriguez A, Gellad WF, Good CB, Hernandez I. Trends
in list prices, net prices, and discounts for originator biologics
facing biosimilar competition. JAMA Netw Open. 2019;2(12):e1917379.
\26\ Maini L, Feng J, Hwang T, Klimek J. Biosimilar Entry and the
Pricing of Biologic Drugs. Published online January 4, 2021.
doi:10.2139/ssrn.3760213.
\27\ Grabowski H, Long G, Mortimer R, Boyo A. Updated trends in US
brand-name and generic drug competition. J Med Econ. 2016;19(9):836-
844.
\28\ Berndt ER, Aitken ML. Brand Loyalty, Generic Entry and Price
Competition in Pharmaceuticals in the Quarter Century After the 1984
Waxman-Hatch Legislation. Published online October 2010. doi:10.3386/
w16431.
Several reports have documented the preference of Part D plans
towards originator products with high list prices and large rebates
over complex generic or biosimilar versions with lower list
prices.\1\, \2\ These practices are the result of several
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factors:
1. The standard benefit parameters that define phases in the Part
D program, including entry into the catastrophic phase, are determined
by gross drug costs that do not account for discounts negotiated
between manufacturers and payers. PBMs operating in the Part D market
are incentivized to favor drugs with high list prices and high rebates,
which shift spending into the catastrophic phase, where plans are only
responsible for 15 percent of drug costs. This share will change with
the passage of the Inflation Reduction Act: After 2025, Part D plans
will be responsible for 60 percent of drug costs once beneficiaries
reach the $2,000 out-of-pocket cap.
2. Part D plans may also favor originator biologics because of the
so-called ``rebate trap.''\29\ Often, manufacturers provide greater
rebates to payers if their drug is the only one or one of two products
with preferred status.\1\ If payers include non-interchangeable
biosimilar products in their preferred tier, they risk losing rebates
from the reference biologics for all patients who fail to switch to the
biosimilar.
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\29\ Hakim A, Ross JS. Obstacles to the adoption of biosimilars for
chronic diseases. JAMA. 2017;317(21):2163-2164.
3. Prices offered by biosimilar manufacturers may not be low
enough to incentivize their preferred placement. At comparable net
prices, Part D plans are expected to favor originator products, as, in
addition to benefiting from the Part D benefit structure defined above,
they also prevent patient and provider concerns around medication
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switching in chronic treatment regimens.
The preferred placement of originator drugs with high list prices
and rebates on formularies reduces premiums and taxpayer spending if,
after discounts, net costs of originator drugs are lower than net costs
of biosimilar products. However, this practice results into increased
out-of-pocket payments for Medicare beneficiaries, as coinsurance is
calculated using the list price.\2\
It should be noted that preference for originator products with
high list prices and high rebates is not unique to the Part D market.
In a study published in the Journal of Managed Care and Specialty
Pharmacy, I demonstrated that Medicaid programs that administer
pharmacy benefits on a fee-for-service basis heavily favored originator
products.\30\ This was also the case for Medicaid programs that carved
in pharmacy benefits under Medicaid Managed Care Organizations, but had
preferred-drug lists. The preference towards drugs with high list
prices and high rebates by Medicaid programs does not necessarily
result in increased beneficiary cost sharing, as it is minimal in
Medicaid, but also impacts uptake of biosimilar products.
---------------------------------------------------------------------------
\30\ Hernandez I, Gellad WF. Differences between managed care and
fee-for-service Medicaid in the use of generics for high-rebate drugs:
The cases of insulin glargine and glatiramer. J Manag Care Spec Pharm.
2020;26(2):154-159.
Question. What impact might these types of coverage policies and
formulary designs have on the viability of competitive markets with
---------------------------------------------------------------------------
multiple entrants in the longer term?
Answer. Only a share of biosimilar products are self-administered
drugs covered under the pharmacy benefit of an insurance policy (Part D
in the case of Medicare). This is an important caveat, as the insurer
factors described above do not apply to the provider-administered
market, which concentrates a large share of the biosimilar products
marketed in the U.S.
It is difficult to predict how preference for high-list-price high-
rebate products will affect the uptake of self-administered biosimilars
and the viability of a competitive market place in the long term. This
is because it was not until earlier this year that the market saw the
entry of multiple biosimilars for adalimumab, the first biologic
product with a large number of biosimilar competitors.
Nevertheless, the preferred formulary placement of originator
products in Part D plans cannot be solely attributed to PBM preference
for products with high list prices and high rebates. As described
above, manufacturers of originator products respond to biosimilar
competition through increased rebates.\4\ It is possible that prices
offered by biosimilar manufacturers have not been low enough to
incentivize their preferred placement. Part D plans are expected to
favor originator products if manufacturers match the net prices of
biosimilars through increased rebates. It is worth noting that, even if
biosimilar uptake is modest, the increased rebates offered for
originator products decrease net spending, and are evidence of a
competitive market place on the rebate space. In other words, the long-
term viability of a competitive biosimilar market is not solely
dependent on the preference of PBMs for products with high list prices
but also on the pricing strategies that biosimilar manufacturers adopt
over time.
Question. Without a shift in these PBM and insurer practices, to
what extent might current uptake challenges--such as those facing
biosimilars and certain generics--signal or create shortage risks over
time?
Answer. The primary economic driver of drug shortages is
insufficient incentives for manufacturers to produce drugs with limited
profitability. Commonly, drugs on shortage have prices near marginal
cost after decades of competition. For biosimilars to be at risk of
shortage, their prices would have to drop to near or below long-run
marginal cost. There has not been any evidence to date of shortage
risks for these biologic products.
There is insufficient data to speculate on the long-term
sustainability of the self-administered biosimilar market. Before the
entry of biosimilars for adalimumab, Part D biosimilars presented few
market entries and rates of price erosion were considerably lower than
those seen in the small-molecule non-complex generic space.\22\,\23\ It
should be noted that, while the prices of biosimilars are compared to
those of originator biologics at the time of entry, in many cases, the
reference products sustained large increases over time since launch,
which distorts the comparison. For instance, in a report published in
JAMA Health Forum, my colleagues and I compared the price of Amjevita,
the first biosimilar for adalimumab, to the net price of Humira after
rebates.\3\ After accounting for rebates, the 2023 price of the
discounted version of Amjevita was only 14 percent lower than the net
price of Humira in 2020.\3\ Moreover, Amjevita's price was twice as
high as the launch price of Humira.\3\
I share the Senator's concerns on the effect of preferred placement
of high-list-price products on out-of-pocket costs faced by Medicare
beneficiaries. However, the biosimilar experience to date is
insufficient to discuss how these insurance dynamics could contribute
to the long-term sustainability of the self-administered biosimilar
market and the potential occurrence of drug shortages.
______
Prepared Statement of Jason R. Westin, M.D., MS, FACP, Director,
Lymphoma Clinical Research Program, and Section Chief, Department of
Lymphoma and Myeloma, M.D. Anderson Cancer Center
introduction
Chairman Wyden, Ranking Member Crapo, and members of the committee,
it is my pleasure to appear before you to discuss the ongoing drug
shortage crisis facing patients today. I am Dr. Jason Westin, professor
of medicine, director of Lymphoma Clinical Research and section chief
at M.D. Anderson Cancer Center in Houston, TX. Today, I am speaking on
behalf of the Association for Clinical Oncology (ASCO), the leading
oncology professional organization representing nearly 50,000 oncology
professionals, including physicians, researchers, and other health-care
providers dedicated to improving cancer care. We appreciate the
committee's bipartisan dedication to addressing the root causes of drug
shortages.
Today, I aim to provide a firsthand account of the challenges faced
by cancer patients and their health-care providers amid some of the
worst oncology drug shortages to date. This crisis is impacting whether
patients receive lifesaving and life-prolonging oncology drugs on
schedule and in the established doses or whether we're left to use
suboptimal alternatives, reduce doses, delay treatments, and in the
worst situations, unable to provide any of the necessary therapies.
Many of my colleagues have been forced to make impossible choices,
including to choose which patients will be prioritized to receive
potentially curative therapy. Patients and their families look to their
providers as a trusted source, and we're left with no explanation.
In the summer of 2022, I started to feel the impact of a potential
shortage of a drug called fludarabine, a crucial component of CAR T-
cell therapy--an innovative, lifesaving technology that teaches a
patient's immune system to combat cancer. Fludarabine is a cheap and
generic drug, initially approved over 30 years ago, and it is an
essential component of CAR T-cell therapy. CAR T is a lifesaving,
cutting-edge, ``almost science fiction-like technology'' that
weaponizes the patient's own immune cells to fight their cancer by
seeing the cancer cells, the wolf in sheep's clothing hiding in plain
sight, but its efficacy is dependent upon being given with fludarabine.
Unfortunately, fludarabine has no known effective substitutes.
My patients with rapidly progressing, aggressive blood cancers,
oftentimes only get one chance at CAR T treatment because they may not
be well enough to try treatment again. Due to the shortages, I don't
know if CAR T will work without fludarabine, and we can't wait to try
again when fludarabine is back in stock. Moreover, CAR T is a one-time
treatment, and because it is expensive, insurance plans won't cover it
twice. In other words, the absence of a generic and cheap drug like
fludarabine can mean the difference between life and death.
I recently treated a young mother of three who was battling an
aggressive refractory cancer that grew despite multiple chemotherapy
lines. Contemplating hospice care, she joined my CAR T clinical trial
and is now in a long-term remission, offering her the potential for
decades of life and her children the security of having their mom alive
and well. Her story--and others like it--would not be possible without
common, affordable drugs currently in short supply nationwide.
A colleague in Ames, IA is treating a 21-year-old with testicular
cancer. Cisplatin is essential for curing testicular cancer. When he
first saw the patient in May of this year, he was able to treat him
with Cisplatin, but by August, he had no drug and was forced to
withhold care. It's not a situation where we don't know how to treat
your cancer, it's that we can't get the drug because it's not being
made. We have drugs that are lifesaving and shortages that are life-
threatening.
Shortages force impossible choices. The oncology care team is
forced to work outside of the recommended practice guidelines or must
choose how to allocate scarce resources. When physicians must use
treatments that may not be standard of care, prior authorization--
already an untenable burden--becomes even more intrusive. This added
stress to patients and their families is unacceptable.
The United States needs a more reliable generic drug supply chain
to avert future shortages of lifesaving and life-prolonging
medications. Most oncology drugs in shortage are old, generic
injectables that sell for anywhere from $1 to $8 per dose, leaving
these drugs with slim profit margins, sometimes to the point of
production costs exceeding the selling price.\1\ Many of these drugs do
not have alternatives. There are few manufacturers of these sterile
injectables, and the ones that remain in the market face significant
costs to remain in business. The leading cause of drug shortages is
manufacturing quality issues, which are largely driven by economic
factors. Often, any disruptions from quality issues leave the
manufacturer unable to ramp up production for several months and at
significant expense, that is, if they even choose to resume production.
When one experiences quality issues, it has an impact on the entire
supply chain. Some manufacturers decide to leave the market completely,
while others take weeks or months to make expensive repairs, or they
shift production to other more profitable drugs. There is little
incentive for companies to enter the market, knowing they may be unable
to make any profit on these lifesaving drugs.
---------------------------------------------------------------------------
\1\ https://accessiblemeds.org/resources/blog/2022-savings-
report#::text=91%25%3A%20Por
Fon%20of%20U.S.,country%27s%20spending%20on%20prescripFon%20drugs.
Fundamentally, current drug payment policies compound quality
issues. Purchasers have limited information--typically only price
data--and do not have access to quality or supply information. This
creates adverse market incentives for manufacturers to prioritize cost
cutting over quality improvements or capital investments. These are
particularly challenging for oncology drugs in shortage, as generic
manufacturers often operate on a slim or negative profit margin
---------------------------------------------------------------------------
compared to brand drugs.
The current Medicare payment system bases drug reimbursement on
average sales prices (ASP) plus 6 percent (ASP+6). These amounts are
updated using data from previous quarters. Multiple-source drugs can
experience artificially low reimbursement because of delays in updating
ASP. This creates a barrier to entry for new manufacturers of multiple-
source drugs, for increasing production, and potentially for correcting
quality issues. Congress should consider alternative payment
methodologies that would provide immediate relief from artificially low
rates and encourage a more reliable supply of drugs.
While CMS is constrained by statute in how it pays for drugs, it
could use its authority to investigate innovative reimbursement
structures for sterile generic injectable drugs under the Center for
Medicare and Medicaid Innovation's (CMMI's) current authority. For
example, CMMI could develop and test demonstration projects that set a
reimbursement floor on critical drugs that have been in and out of
shortage; investigate novel methods of tying increased reimbursement to
guaranteed supply by the manufacturer; or link increased reimbursement
to the expansion of quality management maturity pilots already
underway, such as the FDA's Center for Drug Evaluation and Research
pilot program to promote quality manufacturing and minimize risks to
reliable drug supply. At least one public-private utility has already
shown proof of concept that purchasers will be willing to pay above
spot market prices in return for guaranteed buffer supply.
Additionally, policymakers could incentivize changes to the drug
supply chain in several areas:
1. Encourage the adoption of advanced manufacturing technology and
the development of continuous manufacturing for critical drugs and
active pharmaceutical ingredients (APIs). Incentives could include tax
credits or government contracts for domestic manufacturing.
2. Consider coupling enforcement mechanisms to the existing
requirement that manufacturers of certain drugs develop risk management
plans.
3. Incentivize purchasers to realign contracts with manufacturers
with reliable supply. This will require additional transparency in the
drug supply chain.
The Department of Health and Human Services (HHS) could incentivize
the creation of private-sector reserves of essential medicines, medical
devices, and supplies. HHS recently proposed consideration of
additional payments to hospitals that acquire and maintain a buffer
supply of certain drugs. While such proposals are worthy of
consideration, they should be implemented in a manner that does not
promote hoarding or create additional shortages or supply chain
challenges. They must also include independent and private practices,
with consideration of their different needs. Any incentive programs
should be enough to cover the cost of participation, focusing on
improved reliability and quality, and should not be budget-neutral.
The proposed solutions are immediate steps toward a comprehensive
solution. We recognize concerns around increased costs to the health-
care system. But we will pay a greater long-term cost in the form of
delayed or denied care if we do not address underlying economic forces
driving shortages of generic drugs.
The shortage of critical cancer drugs is an urgent crisis. My
patients, and their families, deserve to know that they will get the
care they need without delay. Providers shouldn't have to make
impossible choices about patient care.
Thank you for the opportunity to testify on this timely issue. We
at ASCO appreciate the committee's continued efforts to enhance the
pharmaceutical and medical supply chain to protect our Nation's most
vulnerable patients. This is an urgent crisis, and we stand ready to
collaborate with you to advance comprehensive solutions that ensure
individuals with cancer receive the lifesaving and life- prolonging
treatments they require.
______
Questions Submitted for the Record to Jason R. Westin, M.D., MS, FACP
Questions Submitted by Hon. Chuck Grassley
Question. I have heard from Iowans receiving cancer treatment about
how cancer drugs in short supply have impacted their ability to access
treatment. Some patients have even had to switch hospitals to maintain
treatment, because another hospital was getting a more consistent
supply.
Some hospitals seem to handle drug shortages better than others.
Why do you think that is?
Answer. We are dealing with a chronic maldistribution of both
resources and information across the U.S. health-care system in the
context of shortages. Better-resourced institutions and health systems
have the human and financial capital to better plan for drug shortages.
They are more likely to be able to afford to routinely keep more stock
on hand, bundle purchases of shortage drugs along with other drugs, and
have the staff dedicated to constantly monitor and manage patient
workflow. This disadvantages smaller and less resourced practice
settings, such as Iowa's rural hospitals, exacerbating inequities
already present in our health-care system.
Question. Are there parts of the supply chain that weather
shortages more effectively?
Answer. Much of the breakdown in the drug supply chain comes at the
final stage: the final dose form sometimes referred to as ``fill and
finish.'' The majority of shortages are caused by quality issues
identified either by the manufacturers themselves or by the Food and
Drug Administration (FDA) via audits. While it is critical to ensure a
steady, high-quality supply of upstream items, such as key starting
materials and active pharmaceutical ingredients (APIs), the strongest
upstream supply chain in the world will not matter if the final step in
manufacturing is not functioning well.
______
Questions Submitted by Hon. John Thune
Question. From your experience working in a health system, what
challenges exist currently for hospitals to obtain information about
manufacturers facing disruptions in drug production?
Answer. Hospitals are faced with nearly zero visibility regarding
which specific drugs will go into shortage until a shortage is publicly
announced. The only publicly available information is posted on the FDA
website, the information provided by organizations, such as the
American Society of Health System Pharmacists (ASHP), and what the
manufacturer says publicly (sometimes in the form of a ``Dear
Healthcare Professional'' letter). When there are adverse findings from
an FDA inspection, communications from the FDA to the manufacturer are
posted on the FDA website, which could increase the likelihood of a
shortage. Further, these communications are redacted so that most of
the time it is not possible to identify the specific drugs affected.
Question. Are there ways Congress can further promote increased
transparency around generic drug production?
Answer. The pharmaceutical supply chain currently operates with a
significant lack of transparency. While the FDA possesses information
about finished product manufacturers and active pharmaceutical
ingredients (APIs), it is not always aware of which API supplier(s) a
manufacturer utilizes or the quantities involved. Moreover, visibility
into earlier stages of the supply chain, such as key starting materials
(KSMs) and refined chemicals, is severely limited. This opacity extends
to manufacturers' quality improvement initiatives and investments in
production quality.
To address these issues, there is a pressing need for enhanced
reporting mechanisms concerning manufacturers' quality efforts.
Establishing more robust quality reporting and risk assessments--
overseen by external sources--would contribute to a more comprehensive
understanding of the pharmaceutical supply chain. This proactive
approach is crucial to fortifying the health-care system against
potential disruptions in the availability of critical drugs.
Organizations like the Association for Clinical Oncology (ASCO)
have long advocated for increased insight into the pharmaceutical
supply chain. Their recommendations include compelling manufacturers to
provide more actionable information to the FDA. This not only aids the
FDA in obtaining a comprehensive and timely overview of the current and
anticipated supply of specific drugs but also facilitates a holistic
understanding of the entire manufacturing process. By implementing such
measures, we can work towards creating a more transparent and resilient
pharmaceutical supply chain, ultimately ensuring the consistent
availability of vital medications in the healthcare system.
______
Questions Submitted by Hon. Tim Scott
Question. Although America remains the world's top innovator in
life sciences, it dramatically lags behind countries such as China and
India in the manufacture of antibiotics, active pharmaceutical
ingredients (APIs) formulated into tablets, capsules and medicines, and
vitamin C. While States like mine reap extraordinary benefits from
foreign investment by international manufacturers, returning the
manufacturing and sourcing of life sciences products to our country is
not only a powerful economic driver--it's a path to national and global
stability. My Manufacturing API, Drugs, and Excipients (MADE) in
America Act would help bring pharmaceutical manufacturing back to the
United States by incentivizing pharmaceutical manufacturing in
designated ``Opportunity Zones,'' using tax credits to encourage
production of vital products and ingredients in America.
Incentivizing advanced manufacturing technology adoption and new
continuous manufacturing processes is one of your proposed solutions to
addressing critical drug shortages. How could these technological
advancements contribute to a more resilient prescription drug supply
chain, and what incentives would encourage their implementation?
Answer. In addition to the myriad financial pressures facing
manufacturers of sterile generic injectable drugs, there are very
practical considerations that impact their ability to ramp up
production of drugs in shortage. It can take weeks or longer for a
manufacturer to change production processes. This is especially true
for chemotherapy drugs, as they are often highly toxic and require
special handling to ensure high-quality, safe processes. Advanced
manufacturing technologies would allow for a significant improvement in
turnaround times, which would reduce the risk of or duration of
shortages. Continuous manufacturing, a form of advanced manufacturing
technology, allows a manufacturer to more easily adapt supply to demand
and has the added advantage of a smaller footprint. However, to
transition to these technologies, manufacturers will need to see a path
forward to a return on investment before committing the necessary
resources, as these changes require significant up-front investments.
Given the critical nature of these drug shortages, ASCO has been
supportive of trying several different incentive structures, whether
they be linked to tax incentives, guaranteed volume contracts, pricing
floors, and/or novel payment structures that could be tested through
CMMI.
Question. For nearly a year, millions have experienced difficulty
in accessing the prescribed medications they need. In some cases,
doctors have been forced to choose less-effective treatment plans for
patients whose need is deemed less critical.
Can you share specific examples from your experience as an oncology
health-care provider where drug shortages have directly impacted
patient outcomes, and what challenges did you face in finding suitable
alternatives?
Answer. In the summer of 2022, I started to feel the impact of a
potential shortage of a drug called fludarabine, a crucial component of
CAR T-cell therapy. CAR T-cell therapy is an innovative, lifesaving
technology that teaches a patient's immune system to combat cancer.
Fludarabine, initially approved over 30 years ago, is an inexpensive
generic drug--and it is an essential component of CAR T-cell therapy.
CAR T's lifesaving, cutting-edge, ``almost science fiction-like
technology'' weaponizes the patient's own immune cells to fight their
cancer by seeing the cancer cells--the ``wolf in sheep's clothing''--
hiding in plain sight. To be effective, CAR T must be given in
combination with fludarabine. There are no known effective substitutes
for fludarabine.
My patients with rapidly progressing, aggressive blood cancers,
often have only one chance at CAR T treatment because they may not be
well enough to try a second time. I don't know if CAR T will work
without fludarabine, and the disease won't wait for us to try again
when fludarabine is back in stock. Moreover, CAR T is a one-time
treatment, and because it is expensive, insurance plans won't cover it
twice. In other words, the absence of a generic and cheap drug like
fludarabine can mean the difference between life and death.
I recently treated a young mother of three who was battling an
aggressive cancer that grew despite multiple chemotherapy lines.
Contemplating hospice care, she joined my CAR T clinical trial and is
now in a long-term remission, offering her the potential for decades of
life and her children the security of having their mom alive and well.
Her story--and others like it--would not be possible without common,
affordable drugs currently in short supply nationwide.
Question. Hospitals typically make their purchases on a just-in-
time instead of a just-in-case basis. Earlier this year, the Centers
for Medicare and Medicaid Services (CMS) proposed reimbursing hospitals
for creating a 3-month stockpile of essential medicines; however,
industry has voiced multiple concerns. One such concern is that
reimbursement would, in reality, likely only support well-financed
hospitals that could afford a 3-month stockpile--otherwise, it will be
a significant expense for hospitals with limited liquidity and (in
worst case) exacerbate existing access disparities.
Can you discuss incentivizing the private sector to establish and
maintain reserves, and what safeguards should be in place to prevent
unintended consequences like hoarding?
Answer. CMS proposed consideration of additional payments to
hospitals that maintain a buffer supply of certain drugs. While such
proposals are worthy of consideration, they must be implemented in a
manner that does not promote hoarding or create additional shortages or
supply chain challenges. It is also important that they include
independent and private practices, with consideration of their
different needs.
It requires resources for hospitals and oncology practices to
acquire and store drugs, including both financial and human capital. If
CMS were to pursue reimbursement for strategic reserves, special
consideration would have to be given to smaller physician practices
that administer chemotherapy but may lack the space or resources to
take advantage of such a program. These practices especially rely on
just-in-time inventory and are often the first and hardest hit when
shortages emerge.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. In a 2019 report from the FDA on drug shortages, the
agency notes that FDA heard from stakeholders that some contracts
currently include ``low-price clauses'' that allow group purchasing
organizations to unilaterally walk away from a contract if a competing
manufacturer is willing to supply the same product or bundle of
products for a lower price.
How do practices like ``low-price clauses'' impact drug shortages?
Answer. In addition to the existing opacity of the supply chain,
the market for prescription drugs is incredibly complex and likewise
lacking in transparency. Many institutions and practices join group
purchasing organizations (GPOs), which negotiate drug prices on their
behalf. Because they can leverage the purchasing power of scale, GPOs
often obtain more favorable pricing than that available on the ``open''
market. The specifics of each contract are confidential and proprietary
and often involve the ``bundling'' of drugs and rebates for specific
preferred drugs. Manufacturers may sell certain drugs at very thin
margins, or even at a loss, to procure guaranteed purchasing for other
drugs. Finally, much of this purchasing power has been consolidated
into just three GPOs, which serve most of the market, giving them yet
more leverage. All these forces are at work behind the scenes,
compounding the ``race to the bottom'' inherent in our current generic
market competition. This reduces the competition and resilience in the
underlying supply chain and market.
The ``race to the bottom'' for pricing regardless of quality forces
manufacturers to deprioritize investments in improving their
manufacturing resilience, thus increasing the risk of shortages.
Therefore, issues like ``low-price clauses'' directly increase the risk
of drug shortages.
Now we hear that some PBMs have chosen to start group purchasing
organizations even as PBMs use group purchasing organization services.
Question. How might these relationships impact drug shortages,
particularly patients' ability to access low-cost drugs that typically
do not provide much profit to manufacturers?
Answer. The market for purchasing prescription drugs is heavily
consolidated. This consolidation gives a small handful of powerful
purchasers the ability to negotiate favorable pricing, which is
effective in lowering prices. In the context of sterile generic
injectable shortages, however, it has the effect of making
manufacturing of generic sterile injectable medications like essential
chemotherapies less and less economically viable. Today, purchasers of
these medications prioritize the lowest price possible, regardless of
other factors like manufacturing quality. End users of these drugs
(hospitals, clinics, etc.) should be incentivized to purchase drugs
based not on price alone, but instead based on price and quality and
reliability of supply. ASCO has long advocated for a framework in which
quality and reliability of supply is reflected in drug pricing; the
current FDA pilot programs in quality management maturity (QMM) is a
step in the right direction of laying the groundwork.
______
Question Submitted by Hon. Sherrod Brown
Question. In its 2022 report, the United States-China Economic and
Security Review Commission, or USCC, recommended that Congress direct
the FDA and other Federal agencies to identify alternative sources for
APIs and other ingredients, including utilizing Defense Production Act
Authorities.
Recently, the administration announced its plans to implement some
of these recommendations. Congress has already provided some resources
to the administration to use Defense Production Act, or DPA,
authorities to ramp up production of medical supplies--including
generic pharmaceuticals. I fought to include this funding in the CARES
Act.
One domestic company, National Resilience, has already secured a
DPA loan to expand domestic manufacturing capacity of essential
medicines in West Chester Township, OH.
What are additional authorities that the U.S. Government can use,
similar to how the Defense Production Act is being used, to bolster the
domestic manufacturing of pharmaceuticals?
Answer. Congress could use its authority to incentivize advanced
manufacturing technology and develop new continuous manufacturing
technology for critical drugs and active pharmaceutical ingredients
(APIs), including support for advanced manufacturing grant
appropriations. We need to improve drug and device manufacturing
quality and focus on outcomes that improve the overall resilience of
our Nation's medication and device supply chains. Congress could
require the FDA to provide ratings of the quality management processes
of medication and device manufacturers that are predictive of supply
chain and manufacturing vulnerabilities and to make the ratings
publicly available.
While CMS is constrained by statute in how it pays for drugs, it
could use its authority to investigate innovative reimbursement
structures for sterile generic injectable drugs under the Center for
Medicare and Medicaid Innovation's (CMMI's) current demonstration
authority. For example, CMMI could develop and test demonstration
projects that set a reimbursement floor on critical drugs that have
been in and out of shortage; investigate novel methods of tying
increased reimbursement to guaranteed supply by the manufacturer; or
link increased reimbursement to the expansion of quality management
maturity pilots already underway, such as the FDA's Center for Drug
Evaluation and Research pilot program to promote quality manufacturing
and minimize risks to reliable drug supply. At least one public-
private utility has already shown proof of concept that purchasers will
be willing to pay above spot market prices in return for guaranteed
buffer supply.
______
Question Submitted by Hon. Robert P. Casey, Jr.
Question. You spoke about the impacts that cancer drug shortages
have on providers and their patients. The FDA has 16 cancer drugs
classified as currently in shortage, and I've heard from hospitals in
Pennsylvania that these shortages are impacting patient access to care.
We've even heard of providers in several States having to ration cancer
drugs by rounding down doses. We must do everything we can to ensure
that while patients are struggling with terrible illnesses like cancer
that they aren't also worried about if there's enough of a drug for
them and their neighbor.
What are some of the challenges hospitals face in procuring drugs
that treat cancer and the impact that these shortages have on patients
seeking lifesaving treatments?
Answer. In 2022, approximately 100,000 Americans were diagnosed
with ovarian, bladder, and testicular cancers, cancers which may rely
on Cisplatin or Carboplatin for potentially lifesaving treatment, where
shortages could have dramatic consequences. In addition to ovarian,
testicular and bladder cancers, these chemotherapies are also
frequently used in cervical, endometrial, lung, head and neck, bladder,
esophageal, gastric, breast, and more cancers, impacting up to 500,000
Americans each year. Even worse, these shortages impact children with
cancer: 80 percent of drugs to treat acute lymphoblastic leukemia--the
most common curable childhood cancer--were temporarily unavailable
between 2010 and 2020. Americans with cancer should get the best
treatments possible, but shortages force impossible choices.
For example, a colleague in Ames, IA is treating a 21-year-old with
testicular cancer. Cisplatin is essential for curing testicular cancer.
When he first saw the patient in May of this year, he was able to treat
him with Cisplatin, but by August, he had no drug and was forced to
withhold care. It's not a situation where we don't know how to treat
your cancer, it's that we can't get the drug because it's not being
made.
Beyond drugs, shortages in medical devices and supplies have also
caused barriers to delivering high-quality care. In oncology, we have
experienced shortages of glass vials, IV tubing, saline bags, and more.
Device shortages include fluid containers to dilute medications for
infusion.
The cause of breakdowns in the drug and medical supply chain are
multifaceted and require a comprehensive approach. Factors such as
manufacturing disruptions, quality control issues, regulatory
challenges, supply chain vulnerabilities, and market dynamics
contribute to the persistent shortage of critical cancer medications.
While some shortages may be short-lived, others last and leave American
lives at risk.
______
Prepared Statement of Marta E. Wosinska, Ph.D., Senior Fellow,
Schaeffer Initiative on Health Policy, The Brookings Institution \1\
---------------------------------------------------------------------------
\1\ The views I express in this testimony are my own and do not
necessarily reflect the views of other Brookings staff members,
officers, or trustees of the Institution.
---------------------------------------------------------------------------
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for inviting me here today. My name is Marta Wosinska, and I
am an economist and a senior fellow in economic studies at the
Brookings Institution, where I am affiliated with the Schaeffer
Initiative on Health Policy. My research explores the economics and
regulation of prescription drug markets. Much of my work focuses on the
topic of this hearing--drug shortages.
I would like to begin by thanking Chairman Wyden and Ranking Member
Crapo for holding this hearing. As I will discuss, the persistence of
drug shortages is primarily rooted in economics, driven by how we pay
for and buy generic drugs. This is not the first time we have had
cancer drug shortages, and it will not be the last unless Congress
steps in to address the economics through CMS. Getting at drug
shortages through CMS is critical because CMS is much better positioned
than FDA to address the economics driving the issue.
But as I will discuss, CMS needs support from Congress, and this
committee in particular.
In this testimony, I focus on low-cost generic sterile injectable
(GSI) drugs. These drugs are the staple of hospital care, with almost
every inpatient stay involving treatment with at least one GSI drug.
Shortages of these drugs can affect patients in emergency rooms, ICUs,
cancer clinics, and outpatient elective surgery departments.
I begin this testimony by describing why GSI drugs are the most
likely drugs to experience shortages. I then describe how Federal
health-care programs affect GSI drug profitability, followed by a
specific set of recommendations for how this committee can support CMS
in addressing drug shortages. I conclude with a discussion of other
areas where Congress can make the greatest impact.
My testimony is based on over a decade of research and extensive
engagement with stakeholders on all sides of the issue: manufacturers,
wholesalers, group purchasing organizations (GPOs), hospital
executives, clinicians, and hospital pharmacists. Much of what I
describe in this testimony is contained in a recent analysis \2\
published through The Hamilton Project \3\ at the Brookings
Institution.
---------------------------------------------------------------------------
\2\ https://www.brookings.edu/articles/federal-policies-to-address-
persistent-generic-drug-shortages/.
\3\ https://www.hamiltonproject.org/.
In short, I recommend that the Senate Finance committee take three
---------------------------------------------------------------------------
actions:
Establishing a CMS pay-for-performance program that would
shift hospital purchase decisions towards more reliable
manufacturers;
Enabling Medicaid rebate exemptions for certain drugs; and
Strengthening the authority that CMS used for the domestic
N95 rule.
There are also many actions that other congressional committees
should take, the most important of which I describe in this testimony
and summarize here:
Properly funding the CMS efforts;
Allowing FDA to disclose the culprit of each shortage;
Supporting FDA's efforts to improve signals about
manufacturing quality and reliability;
Supporting the HHS supply chain coordinator role;
Supporting forgivable loans (not tax credits) for
strengthening key drug infrastructure; and
Supporting well-targeted buffering mechanism proposals.
Where and why are shortages occurring?
Drug shortages occur when demand exceeds available supply. Drug
shortages can result from a rapid demand increase, as we saw with
ventilator drugs during the early months of COVID and what we currently
see with Ozempic and related diabetes drugs as their use for weight-
loss skyrockets. Shortages can also occur when supply disruptions are
significant enough that available inventories or ramping up production
on existing lines do not suffice.
Supply disruptions due to manufacturing quality problems dominate
\4\ as a cause of drug shortages. The share of other causes varies over
time, but generally manufacturing quality problems have been followed
by increases in demand, natural disasters, product discontinuations,
and disruptions in availability of inputs, not necessarily always in
this order.
---------------------------------------------------------------------------
\4\ https://www.fda.gov/drugs/drug-shortages/report-drug-shortages-
root-causes-and-potential-solutions.
GSI drugs have persistently represented the largest share of drugs
\5\ in shortage, many lasting \6\ months if not years. Although no
detailed statistics exists, it is well understood that GSI shortages
primarily result from manufacturing quality problems at facilities
where the final product is made.
---------------------------------------------------------------------------
\5\ https://www.brookings.edu/articles/drug-shortages-and-rebates/.
\6\ https://healthpolicy.duke.edu/sites/default/files/2020-02/
presentation_slides__0.pdf.
Unlike shortages caused by natural disasters or pandemics,
shortages caused by manufacturing quality problems are essentially
self-inflicted and thus avoidable. They result not from external
shocks, but from choices in how hospitals buy GSI drugs and the
underinvestment in reliability of manufacturing operations that
---------------------------------------------------------------------------
results.
As I describe in next section, GSI drug reimbursement mechanisms
across all payers give hospitals incentives to use the lowest price GSI
available. These reimbursement mechanisms rest on the assumption that
two versions of the same generic drug are therapeutically equivalent
(TE) and therefore can be readily substituted. This assumption is not
without merit--these products met bioequivalence requirements at the
time of FDA approval. But reliability of production is much more than
meeting bioequivalence at the time of approval.
These reimbursement mechanisms also rest on the presumption that
FDA can assure that all approved products are made to exact
specifications. However, FDA is not able to continually monitor
facilities, instead relying on manufacturers to report problems. If
problems are identified, whether by FDA or the manufacturer, FDA may
find itself in a bind--to prevent disruptions in production of
medically necessary drugs, FDA will be compelled \7\ to allow product
release from noncompliant facilities that make large share of medically
necessary drugs, often GSIs. That FDA does everything to mitigate an
impending shortage is expected by Congress and by the American public,
even though those actions send the wrong signal to manufacturers.
---------------------------------------------------------------------------
\7\ https://pubmed.ncbi.nlm.nih.gov/23337525/.
The price pressures, coupled with inconsistent FDA oversight,
create a dynamic for manufacturers where there is little room for and
return on investing in facilities, staffing, and oversight. This is
particularly problematic with GSI drugs because there is less room for
error in the final production stage than in production of oral dose
products--the drugs are injected into the body, often directly into the
blood stream, and therefore they must be sterile and free of
particulates. This lower margin for error requires that the final fill-
and-finish manufacturing stage be done in specialized facilities with
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employees following complex manufacturing processes and controls.
Running such complex operations in a cost-cutting environment
challenges the reliability of GSI facility operations. If problems with
systems or product batches are uncovered, often after FDA inspections,
companies may need to discard or recall large batches of compromised
product, and temporarily or permanently shut down lines or entire
facilities. Any of these scenarios can result in shortages.
How do Federal programs affect profitability of GSI drugs?
There are two ways in which CMS programs affect profitability of
GSI drugs: by enhancing price competition and by penalizing input cost
pass-through.
reimbursement mechanisms
Most hospital payment arrangements for GSI drugs encourage
hospitals to minimize spending on them. Medicare, the largest payer for
hospital stays, bundles reimbursement for GSI drugs with other hospital
services provided during an inpatient stay, which incentivizes
hospitals to keep cost for the inputs to the service low. Such
incentives also exist in outpatient settings. In some outpatient
settings, payment rate is based on the average cost across
manufacturers, providing incentives to buy the lowest cost version. In
other outpatient settings, GSI drugs are bundled if the daily drug cost
is under $135 and otherwise separately payable on average cost. Other
payers create similar reimbursement schemes.
These reimbursement mechanisms incentivize hospitals to find the
lowest price available at a given time. Hospitals typically do that by
pooling their bargaining power through GPOs. The contracts GPOs
negotiate for GSI drugs typically have terms of 1 to 3 years. Those
contracts generally neither provide a purchase guarantee to the
manufacturer nor do they fix the price over the contract term. Instead,
the contracts frequently include best-price guarantees that allow the
contract price to drop if the GPO finds a better price elsewhere. GPO
contract participation is voluntary for hospitals so hospitals can buy
off contract.
One place where GPO contracts are not used is 340B hospitals
because of a prohibition \8\ in place since the ACA. 340B hospitals
will still hold GPO contracts for their inpatient use, but will use the
340B vendor, Apexus, to obtain 340B drugs at 340B prices. The GPO
prohibition need not be a disadvantage to hospitals from a cost
perspective because 340B discounts can be larger than the GPOs
discounts.
---------------------------------------------------------------------------
\8\ https://www.hrsa.gov/sites/default/files/hrsa/opa/prohibition-
gpo-participation-02-07-13.
pdf#::text=340B%20covered%20entities%20subject%20to%20the%20GPO%20prohi
bition,drugs%
20and%20listed%20on%20the%20OPA%20340B%20database.
Whether or not GPOs are involved, hospital purchasing practices
encourage cost cutting on the part of manufacturers. In a highly
competitive environment with limited demand stability, companies have
little incentive to buffer supply chains through dual sourcing or
maintaining buffer inventory. The instability of demand means that
manufacturers switch between products more often--a risk factor in
complex sterile facilities. To cut costs, companies have opened
operations in lower-cost environments such as India. Some companies
have continued to invest in U.S.-based facilities, but other facilities
have closed. Less-profitable products continually are discontinued.\9\
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\9\ https://www.accessdata.fda.gov/scripts/drugshortages/
default.cfm.
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inflation rebates and discount programs
Even if product price can stay above marginal cost, well-
intentioned rebate and discount programs may push a product into
unprofitable space. Consider for example a GSI drug selling for $2 per
unit with input and production costs totaling at $1.80. Suppose that
this product experiences a $1 cost increase. If the manufacturer were
to pass on the full cost increase, which is what we would expect in a
highly competitive market, the resulting price increase would be 50
percent (i.e., the full $1), well above the CPI. This means an
inflation rebate--which requires manufacturers to rebate the price
increase--could make the product unprofitable depending on the market
share to which that penalty applies. This could lead a manufacturer to
phase out the product or drop it entirely.
Medicare and Medicaid handle inflation rebates for competitive
generics markets differently.
In its concern about drug shortages, Congress exempted drugs facing
fierce price competition from Medicare inflation drug rebates.
Specifically, all multiple source drugs are exempt from Part B
inflation rebates and all multiple source generics are exempt from Part
D inflation rebates. In addition, Congress directed CMS to reduce the
newly required Medicare inflation rebates for single-sourced drugs in
shortage. Elsewhere, I have written \10\ how CMS should use the
flexibilities afforded under the IRA to balance amelioration of
shortages of non-exempt drugs with the risk that waiving rebates might
exacerbate shortages.
---------------------------------------------------------------------------
\10\ https://www.brookings.edu/articles/drug-shortages-and-
rebates/.
In contrast, Medicaid inflation rebates cover all drugs. The
Medicaid inflation rebate affects manufacturers of the same product
asymmetrically--products on the market in 2016 have a benchmark set for
that year but more recent products have a benchmark set near their
market entry date when the market dynamics and equilibrium prices may
have also been different. The program includes no exceptions or
---------------------------------------------------------------------------
waivers.
If the Medicaid share of the market is sufficiently low, profit
losses from Medicaid sales can potentially be absorbed. However,
Medicaid rebates become the basis for the 340B price. This means that
for GSI drugs that have large presence in the 340B program, such as
cancer drugs, the Medicaid inflation provision can have significant
profitability implications that go beyond Medicaid.
The mechanism by which Medicaid inflation rebates affect GSI drug
break-even does not directly cause shortages. Instead, the effect is
indirect: as manufacturers find certain products to be unprofitable,
they phase them out and ultimately drop production entirely. The
products are more likely to be unprofitable and therefore dropped when
there are many competitors. If a product is dropped when its share is
low, there will be no shortage, but fewer competitors will be left in
the market, making it less resilient to a future shock.
How should the Senate Committee on Finance support CMS's role in
addressing shortages?
Solutions to drug shortages need to reflect the nature of those
shortages. For shortages caused by external events, such as pandemics
or natural disasters, any actions are largely limited to buffering
strategies such as identifying ways to scale up production and creating
buffer inventories. But for shortages where triggers are economic, it
is imperative that the root causes be addressed.
Here I present three proposals that the Senate Finance committee
should undertake to support CMS in addressing the economic drivers of
GSI drugs. As I will describe below, these proposals can also support a
government response to offshoring, which also has its roots in
economics.
establish a cms pay-for-performance program to
shift hospital purchase decisions
To address the root cause of persistent GSI drug shortages,
hospitals must reorient the overt emphasis on low prices in favor of
manufacturing quality and reliability.
As the largest payer for hospital stays and outpatient visits, CMS
is well positioned to influence how hospitals buy. Specifically, CMS
should encourage hospitals to place more weight on reliability of
manufacturing supply through a pay-for-
performance program under Medicare. Below, I summarize key elements of
such a program, referring readers for more detail to a June 2023 report
\11\ from The Hamilton Project at the Brookings Institution.
---------------------------------------------------------------------------
\11\ https://www.hamiltonproject.org/publication/policy-proposal/
federal-policies-to-address-persistent-generic-drug-shortages/.
Under the proposed pay-for-performance program, hospitals would be
scored on their behavior on two measures: do they buy from reliable
manufacturers and do they buffer their inventory. Hospitals would be
measured on their performance retroactively, on their behavior before
the first signal of each shortage that occurs. The scorecard would then
feed into an end-year sliding-scale payment adjustment based on a
hospital's performance relative to its peers. Hospitals should largely
expect to cover their participation costs, with top performing
---------------------------------------------------------------------------
hospitals exceeding those cost.
Under the proposal, hospitals would not need to take the
responsibility for identifying which manufacturer's products are less
likely to be in shortage, instead relying on their GPOs to do this work
for them. GPOs already conduct such assessments but have strong
financial incentives to continue heavily weighing low-cost producers
because otherwise hospitals buy off contract. But if hospitals weigh
reliability more, they will not only encourage GPOs to assess
reliability, but be willing to buy higher-priced but more reliable on-
contract products. By putting at least two GPOs in each hospital peer
group, GPOs would be incentivized to perform better on predicting
reliability and securing product through quantity commitments.
One nuance in the proposal is that GPOs cannot play the envisioned
role for outpatient drugs in 340B hospitals because of the GPO
prohibition I described in the previous section. Unless this
prohibition is lifted or waived for high-risk shortage drugs of which
GSI drugs are part, 340B hospitals would have the first-line
responsibility for assessing which drug manufacturers selling 340B
products are more reliable.
To start purchasing from reliable manufacturers, hospitals could
leverage current but underutilized programs that vet manufacturers on
reliability. Greater interest from hospitals in identify which
manufacturers are reliable would also drive development and utilization
of tools to identify reliability of different suppliers and the
vulnerability of specific products to shortages--some of which exist
today but are underutilized. The program would also incentivize greater
adoption of currently underutilized programs hold buffer inventory
through wholesalers or manufacturers (as in the case of Civica Rx or
through a GPO private-label program).
The proposed pay-for-performance program would build on a long
history of such programs in Medicare. If there is one lesson learned
from those programs is that the financial incentive must be
sufficiently large to change behavior. For this reason, the proposed
program should not be budget-neutral. The June 2023 Hamilton Project
proposal identifies ways to assess the level of necessary support.
There are important reasons why I propose a pay-for-performance
proposal instead of the oft-recommended ``add-on payment,'' which would
add a fixed reimbursement percentage to what CMS reimburses or a
``payment adjustment'' program that reimburses CMS share of a
difference between two alternatives. One reason add-on payments are not
workable is that such payments require separately billable items, which
is not the case with inpatient setting where the majority of GSI drugs
are used. Second, both add-on and payment adjustment programs require
clear identification of where the additional payment applies. However,
CMS is not well positioned to identify which manufacturers are more
reliable.
To address the latter shortcoming, some propose waiting for FDA to
develop a system of metrics on which CMS could rely. However, even with
funding (which FDA does not currently have), that system will likely
take several years to develop. In addition, the FDAs proposed system of
metrics will focus on measures of facility reliability and not product
reliability. However, products from the same facility can be at
different risk of shortages because of their upstream supply chains and
other factors not currently envisioned in FDA's quality management
maturity program.
In turn, GPOs already have various tools at their disposal and
therefore a pay-for-performance program can be implemented before FDA's
quality metrics system is ready. FDA's ratings can be added to the pay-
for-performance program later. But even there the proposed pick-right
measures should continue to exist in the pay-for-performance program
because facility reliability is not the only predictor of product
supply reliability.
Currently, CMS does not have the authority to stand up the pay-for-
performance program I described here, but this committee can change
that.
create medicaid rebate exemptions for certain drugs
As I described above, well-intentioned rebate programs can have
adverse impact on the profitability and therefore availability of
products in highly competitive markets. To address this issue, I
recommend that this committee authorizes Medicaid drug rebate
exemptions for multisource drugs. GSI drugs, due to their shortage
risk, are at the front of the list for exemptions.
strengthen the provision on which the n95 domestic mask rule relies
As I described above, payment adjustments are not well suited for
identifying which manufacturer is more reliable in supplying a product.
However, payment adjustments can be helpful in other settings where
eligibility for the adjustment can be easily ascertained. For example,
payment adjustments can be a straightforward way to incentivize
hospitals to purchase products that the HHS in collaboration with DOD
and State Department may deem important from a national security
perspective, giving specific guidance to CMS to which products it
apples.
I recommend this committee strengthen sections 1886(d)(5)(I) \12\
and 1833(t)(2)(E) \13\ of Social Security Act because the authorities
that enable adjustment payments have significant shortcomings. Below, I
identify those shortcomings using two examples where CMS has leaned on
that authority: domestic production of N95 masks \14\ and a now-
abandoned hospital buffer inventory \15\ of select essential drugs.
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\12\ https://www.ssa.gov/OP_Home/ssact/title18/1886.htm.
\13\ https://www.ssa.gov/OP_Home/ssact/title18/1883.htm.
\14\ https://www.cms.gov/files/document/mm13052-new-payment-
adjustments-domestic-n95-respirators.pdf.
\15\ https://www.govinfo.gov/content/pkg/FR-2023-07-31/pdf/2023-
14768.pdf.
First, the IPPS authority can only reimburse the IPPS share \16\ of
the expense, meaning that a typical hospital purchasing domestic N95
masks will only be reimbursed for about half of the added spending.
Under these circumstances, a rational economic agent (such as
hospital), would choose the less expensive non-domestic N95 mask, even
before the hospital considers administrative burdens to file paperwork.
I have not seen statistics on the uptake of the N95 mask rule, but my
analysis suggest that it should be very limited if non-domestic masks
have been widely available.
---------------------------------------------------------------------------
\16\ https://www.govinfo.gov/content/pkg/FR-2022-11-23/pdf/2022-
23918.pdf#page=298.
Another problem with the IPPS provision is the seeming inability to
target IPPS supplemental payments. Recently a colleague and I argued
against \17\ CMS implementing the buffer inventory proposal because the
proposal would provide insufficient incentives to hospitals that
currently suffer most from shortages (see above), instead buffering
hospitals that already have much greater ability to procure product
during shortages. If CMS could target the program to independent
clinics and smaller, independent, and often rural, hospitals face
inventory program, the program would get closer to reaching its primary
goal.
---------------------------------------------------------------------------
\17\ https://www.brookings.edu/articles/cms-hospital-payment-
proposal-for-maintaining-a-buffer-stock-of-critical-medicines/.
For OPPS, payment adjustment also needs to be prorated. There also
appears to be the added complication that any such reimbursement
programs be budget-
---------------------------------------------------------------------------
neutral. However, there appears to be room for targeting.
To address these shortcomings, I recommend that Congress allow CMS
to target the IPPS authority. Additionally, Congress should consider
allowing CMS to pay more than IPPS and OPPS share because properly
subsidizing products in the program is key to their uptake.
As indicated above, these payment adjustments are not a substitute
for a pay-for-performance program described above. In fact, the
proposed pay-for-performance program may be necessary for supplementing
the payment-adjustment program described in this section because the
payment-adjustment, even if reimbursing the full cost differential,
falls short of accounting for administrative costs. CMS could work
payment adjustment program participation rate into the pay-for-
performance program, with it adding further incentives to participate
in the payment adjustment program.
Where do the CMS recommendations fit in the broader response plan
to shortages?
I consider empowering CMS with a pay-for-performance program
authority as the most important step that Congress can take to address
the persistent shortages that have plagued our health-care system for
well over a decade.
There are other opportunities for congressional involvement that
may fall outside the jurisdiction of this committee, but which I
highlight here for context. Some of those efforts complement and
support the pay-for-performance program I described. Other efforts are
concerned with risks that have not thus far caused shortages but may.
efforts to support the cms pay-for-performance program
In addition to appropriations to set up the pay-for-performance
program, Congress should support FDA's efforts to improve signals about
manufacturing quality and reliability, with it aiding hospital and GPO
decision-making. There are a variety of steps FDA can take,\18\ all of
which are within FDA's current authorities. However, FDA cannot take
these steps without additional congressional appropriations.
---------------------------------------------------------------------------
\18\ https://www.hamiltonproject.org/publication/policy-proposal/
federal-policies-to-address-persistent-generic-drug-shortages/.
To further support hospital decision-making, Congress should also
authorize public disclosure of which manufacturer had a production
disruption that triggered a given shortage. Because the proposed
scorecard creates measures based on multiple shortages--in recent years
around 30 to 40 a year--the pay-for-performance proposal minimizes
inadvertent disclosure of what could be considered business-
confidential data. Congress should formalize disclosure by CMS of the
shortage trigger, however, so that there is a feedback mechanism to
hospitals for when they picked right and when they did not.
efforts to address other supply chain vulnerabilities
To address the deterioration of the domestic GSI infrastructure,
Congress should set up partially forgivable loans. The proposed loan
program does not direct manufacturers to specific technologies, instead
focusing on establishing a path to quality operations. To reinforce
quality outcome goals, part or entire loan is forgiven if the company
achieves agreed-on milestones that reflect manufacturing quality
principles of proper employee processes and controls.
The main alternative, tax credits, which are within this
committee's authority, are not well suited to address this problem for
two reasons. First, it is difficult to identify eligibility criteria
that will yield the desired outcome: neither do all companies have the
same path for enhancing quality nor is purchasing equipment sufficient
because most failures ultimately are human error. Second, tax credits
provide meaningful incentives only if there is sufficient taxable
profit. But manufacturers that could benefit from such investments have
very low profitability and sometimes are making no profits at all.
Tax credits for building new facilities on U.S. soil have a
different concern: there are simply so many foreign facilities to
potentially move that it would be fiscally irresponsible to allow for
such credits without prioritizing carefully. Not only could the expense
be immense, but onshoring without a broader strategy could be
ineffectual. For example, if the U.S. Government subsidizes an API
facility in the U.S. but all the key starting materials and reagents
still come from a country with high geopolitical risk, then the
investment did little to lower that risk. In this example, not the
whole upstream chain needs to be onshored, but consideration needs to
be given to alternate sources of key starting materials and reagents.
The enormity and complexity of U.S. drug supply chains means that
the U.S. Government must take a strategic approach in its dealing with
broader drug supply chain and medical product supply chain issues. This
requires assessing which drugs and medical products are essential,
which of these are vulnerable and how. For more information on what
such a strategic framework could look like, I refer readers to the
following Health Affairs Forefront article: ``A Framework for
Prioritizing Pharmaceutical Supply Chain Interventions.''\19\
---------------------------------------------------------------------------
\19\ https://www.healthaffairs.org/content/forefront/framework-
prioritizing-pharmaceutical-supply-chain-interventions.
These strategic efforts are broader than pandemic and CBRN threats
preparedness and therefore fall outside of ASPR's authority. The
recently announced position of an HHS supply chain coordinator \20\ is
an encouraging step that can only yield results with a statutory
mandate and resources.
---------------------------------------------------------------------------
\20\ https://www.hhs.gov/about/news/2023/11/27/biden-harris-
administration-announces-actions-bolster-medical-supply-chain.html.
Lastly, I will comment on the role of buffer inventories. Such
inventories are generally recognized as an important buffering strategy
therefore many proposals have been put forward. What those proposals
generally do not address is the panic buying that ensues at the first
sign of a potential shortage. Such panic buying has two effects. First,
stockpiling during a shortage amplifies the shortage. Second, the
``bank run'' on product is uneven, usually with the large hospital
systems able get to the product first. For this reason, any government-
funded stockpile should have allocation mechanisms in place, even if
they are simply historical allocations. Otherwise, providers most
likely to currently suffer from shortages will continue to suffer.
conclusion
To address the root cause of persistent GSI drug shortages,
hospitals must be encouraged to reorient the overt emphasis on low
prices in favor of manufacturing quality and reliability. Without
significant progress on that front, we will continue to experience
shortages of these drugs. The CMS pay-for-performance program is our
best chance for changing the tide.
Beyond persistent GSI drug shortages, Congress must empower the
administrative branch of the government to be strategic in its approach
to secure drug and medical product supply chains, prioritizing supply
chains for greatest impact. Without a strategic approach to prioritize
the immense yet vulnerable supply chains, the United States will be
vulnerable to potentially wide-reaching shortages.
______
Questions Submitted for the Record to Marta E. Wosinska, Ph.D.
Questions Submitted by Hon. Ron Wyden
Question. Your testimony recommends Congress create new
performance-based payment incentives for hospitals related to drug
shortage prevention and mitigation.
Please list examples of specific measures that you recommend
including in the scorecard, along with a rationale for why each measure
should be included.
Answer. Under the proposed program \1\ in question, CMS would score
hospitals on purchasing based on vendor reliability and inventory
practices during non-shortage times. The scorecard would then feed into
an end-year payment adjustment based on a hospital's performance
relative to its peers.
---------------------------------------------------------------------------
\1\ https://www.brookings.edu/articles/federal-policies-to-address-
persistent-generic-drug-shortages/.
The Medicare drug shortage scorecard would reflect a combination of
two measures: a hospital inventory index and a reliable manufacturer
index. The inventory index would measure the level of buffering in
which a hospital would engage in advance of potential shortages. The
reliable manufacturer index is meant to shift the average reliability
of manufacturers by rewarding those that are more reliable. The former
would help mitigate shortages, the latter would get at the root of the
---------------------------------------------------------------------------
problem, preventing shortages.
As described in the proposal, ``the hospital inventory index would
measure the level of inventory when a supply disruption occurred. This
index would be a retroactive measure for shortages added to the FDA's
drug shortage website in the relevant year. The eligible inventory
would be inventory held at the hospital, committed wholesaler inventory
(other than historical allocation), or committed inventory held by the
contracted manufacturer (as in the case of Civica Rx or through a group
purchasing organization [GPO] private-label program).
``At the end of each calendar year, hospitals would report
inventory at [a trigger date determined at the end of the year by CMS,
with FDA's input]. That trigger point date, different for each
shortage, would be the earlier date of the manufacturer's report of
disruption to FDA in 21 U.S.C. 356c \2\ or other public signals of the
shortage. We recommend that Medicare structure the index with greater
weights for drugs that are used more and for drugs that do not have
therapeutic substitutes.
---------------------------------------------------------------------------
\2\ https://www.law.cornell.edu/uscode/text/21/356c.
``The reliable manufacturer index we propose is a composite measure
comprising two elements: whether a hospital is picking manufacturers
that are not having production disruptions (picked-right) and whether a
hospital is procuring product from manufacturers rated above a certain
---------------------------------------------------------------------------
level of the yet-to-be-developed FDA QMM measure (QMM measure).
``Like the hospital buffer inventory index, the picked-right
measure would look back to the trigger point date of an FDA-listed
shortage and then assess the share of purchases that the hospital
procured from manufacturers other than the one triggering the shortage
(as reported under 21 U.S.C. 356c). In some cases, there may be no at-
fault manufacturers (as with a demand shock) or there could be multiple
(as with an active ingredient shortage). In contrast, the QMM measure
would apply to all GSI drugs throughout the full year, irrespective of
whether any of them ends in shortage, also looking at the share of
sales coming from QMM manufacturers.''
Question. How might these measures need to be adapted if the FDA
Quality Management Maturity (QMM) program is not fully operationalized?
Answer. As we describe in our proposal, Medicare could set up the
scorecard based solely on the inventory and picked-right measures
because GPOs already have various tools at their disposal to assess the
likelihood of a supply disruption. We also anticipate rapid development
of such tools if there is demand for them.
It might be, however, beneficial to give CMS flexibility to
supplement the picked-right measures with additional indicators of
quality. For example, CMS could work with FDA to develop a set of
metrics for high-risk suppliers from which hospitals would be advised
not to purchase. Such suppliers might include those that refused an FDA
inspection, have no inspection history in last 3 years preceded by
concerning inspection history, or a particularly problematic
combination of violations (specific violations found during
inspections, import alerts, and poor history of efforts to remedy
problems).
As an outcome measure, the picked-right measure will remain the
most accurate measure of performance because it encompasses all forms
of vulnerability: manufacturing disruptions, reliability of vendors,
risk of discontinuation, and vulnerability to natural disasters. For
that reason, we recommend keeping it even if other measures (such as
QMM) are developed.
Question. What special considerations should Congress keep in mind
to create a fair program for small independent and rural hospitals?
Answer. The proposed pay-for-performance (P4P) program has two
features that make it a fair program for small independent and rural
hospitals. First, it leverages the role that GPOs already play in
assessing manufacturers during contracting process. Small hospitals
using GPOs can benefit from these assessments, with the only decision
left to the hospital is whether to follow those recommendations (as a
reminder, the picked-right metric is about the share of volume procured
from more reliable manufacturers). Small hospitals not affiliated with
GPOs can leverage programs such as Civica Rx.
Second, the payment is relative to performance of the hospital's
peers. In this case, a small rural hospital would be compared to like
hospitals, not large teaching hospitals part of a health system.
To further support the needs of smaller, independent hospitals,
Congress should consider three additional flexibilities:
1. Give CMS flexibility to assign different weights in the
scorecard for different peer groups. Large hospitals and
systems should be weighted more on the picked-right measure,
while smaller independent hospitals should be encouraged to
buffer against shortages.
2. Allow the payment adjustment to deviate from prescription
volume. For smaller entities, administrative costs associated
with this P4P program may represent a greater share of
participation cost than for larger entities than leverage
sophisticated data systems and can spread administrative costs
across many units.
3. Allow for a phased-in approach, with peer groups that
include small independent hospitals to be phased in a year or
two later.
Question. In addition, if Congress were to try to create a similar
model for clinic and physician office settings, how might the scorecard
and the specific measures you identify need to be adapted?
Answer. The pay-for-performance model can be readily extended to
the outpatient settings that are part of health systems and perhaps
physician practice networks. Such systems and networks have integrated
data, which improves adoption of the P4P program and lowers reporting
costs. The same scorecard measures could work, but for drugs only used
on the outpatient side of 340B entities, wholesalers would need to take
over the assessment role from GPOs because of GPO prohibition in the
340B program. Motivating wholesalers to perform well for this narrow
set of outpatient-only set of generic sterile injectable drugs would
necessitate structuring outpatient payment peer groups with at least
two major wholesalers per peer group (in addition to the two GPOs per
peer group).
When it comes to smaller independent outpatient providers, such an
arrangement is more complicated operationally and would benefit from a
different arrangement that would focus solely on buffering. This focus
is appropriate because with small market power, independent outpatient
clinics and physician practices are less likely to influence the
quality equilibrium in the market. This could be done by strengthening
the authority previously used for the domestic N95 mask rule.\3\ In my
written testimony, I recommend Congress adjust sections 1886(d)(5)(I)
and 1833(t)(2)(E) of Social Security to cover not just the Medicare
share of qualified expenses, but all the qualified costs that relate to
supply chain resilience.
---------------------------------------------------------------------------
\3\ https://www.cms.gov/files/document/mln8990453-new-domestic-n95-
respirator-payment-adjustments.pdf.
One consideration is whether the outpatient setting requires
financial bonuses or penalties. Unlike under a DRG payment, doctors and
clinics under Medicare Part B collect margins on their purchases, not
even considering 340B. This means that there is less concern with
resilience requirements leading to financial losses and therefore
---------------------------------------------------------------------------
policy instruments may reasonably encompass both bonuses and penalties.
A final consideration is how Medicaid inflation rebates may affect
the effectiveness of the program on the outpatient side. Medicaid
inflation rebates (and by extension the 340B discounts that follow)
penalize manufacturers on any cost increases beyond CPI (which for a
low-cost product might be on the order of a few dollars or less). The
P4P, if implemented on the outpatient side, could change hospital
behavior, but the impact on manufacturer behavior may be limited as
there is no incentive to invest in reliability if those costs cannot be
passed on to buyers. To address this structural problem, my written
testimony \4\ includes the recommendation to exclude multisource
generic sterile injectable drugs from Medicaid inflation rebates.
---------------------------------------------------------------------------
\4\ https://www.brookings.edu/articles/marta-wosinskas-testimony-
before-the-senate-finance-committee/.
Question. Are there unique challenges around shortages for
controlled substances we should consider from a Finance Committee
---------------------------------------------------------------------------
perspective?
Answer. The policy challenge with controlled substances used for
treating ADHD or pain is that there is, at the same time, both
``overuse'' (inappropriate use) and ``underuse'' of these products.
This complicates responses to shortages and public health policy
generally. To address overuse and underuse, policymakers need to
distinguish appropriate from inappropriate use and then develop
mechanisms that steer utilization towards the former and away from the
latter.
In the opioids context, CMS addressed Medicare Part D over-
prescribing by instituting a set of utilization management ``edits'' to
its approval of prescription drug payment processes. Simple indicators
related to dosages and durations of prescriptions were used to create
the edits, and the result was a significant reduction in high-risk
prescribing. Likewise, some commercial and State Medicaid health plans
have instituted requirements that for controlled substances (like
stimulants for ADHD) that were initiated via telehealth, a face-to-face
visit take place within a prescribed period.
Because reducing inappropriate use when a shortage arises serves to
boost the effective supply of the product, similar approaches hold
promise for improving appropriate use of controlled substances
generally and when shortages arise. The impact of above-described
efforts should be more fully assessed, pointing way towards broader
implementation of such tools.
______
Questions Submitted by Hon. Chuck Grassley
Question. Given the persistence and scale of drug shortages, does
there need to be more transparency within the supply chain?
If so, by whom and how could this improve the situation?
If not, who in the supply chain should do more with the information
they have to address drug shortages?
Answer. The first step toward transparency is assessing who needs
which information and for what purpose. Not all information sharing is
equally useful and, in some cases, could be counterproductive.
There are many stakeholders we could consider, but here I discuss
two key ones: the Federal Government and hospitals and providers.
On the Federal Government side, there are two areas of need I would
like to highlight.
First, FDA would benefit from greater transparency into when
manufacturers face a demand spike to implement prevention or mitigation
efforts. I describe my recommendations on such notifications in my
response below.
Second, the Federal Government needs better transparency into the
vulnerability of various supply chains, so that it prioritizes where to
engage, thereby maximizing the impact on taxpayer dollars. In my
response below, I describe my recommendations regarding the strategic
approach that should be deployed and the role that Congress should play
there.
On the hospital and provider side, I would distinguish between
three different needs.
First is the need to know how the shortage is likely to progress
and when it is likely to end. This need however is difficult to fulfil
because shortages are dynamic, potentiated through panic buying, and
with the path to recovery often taking weeks if not months to assess by
the companies involved. Congress could improve what FDA can share by
improving the transparency of the notifications that manufacturers
currently submit to FDA under 21 U.S.C. 356c. I further describe this
recommendation in my response below.
Second is the hospitals' interest in early warning systems that
identify impending shortages. This kind of transparency, however, is
one that policymakers should be extremely cautious about providing. It
is critical that FDA knows as early as possible that a manufacturer has
a disruption in production so it can work with that manufacturer to
restore production and with others. It would be important for
wholesalers to know the same so they could put product on allocation.
However, to a hospital, an early warning signal of shortage is a signal
to start stockpiling, precipitating the shortage.
Third is transparency to hospitals about which manufacturer is
reliable. More transparency on this front is a common recommendation,
as review \5\ of literature suggests. I agree that information about
manufacturing quality can be improved and have proposed various ways
FDA can help on that front with support of congressional appropriation.
But I emphasize that currently there is sufficient information
available to enable resilience purchasing. Individual hospitals do not
directly contract with manufacturers, but the GPOs that contract on
their behalf can leverage their market power, can compel manufacturers
to share confidential business information that is otherwise not
publicly available. Similarly, GPOs can do the homework on behalf for
hospitals by tapping into reliability and risk measures through
syndicated sources such as Redica Systems,\6\ Medicine Supply Map,\7\
or RISC Ratings.\8\ Hospitals can also rely on the vetting (and
contracting) of organizations such as Civica Rx.\9\
---------------------------------------------------------------------------
\5\ https://www.healthaffairs.org/content/forefront/building-
resilience-into-us-prescription-drug-supply-chains.
\6\ https://redica.com/.
\7\ https://www.usp.org/supply-chain/medicine-supply-map.
\8\ https://riscratings.com/home/riscs.
\9\ https://civicarx.org/.
Much relevant information already exists, but it is underutilized
because hospitals are reluctant to pay for resilience. Congressional
priority, especially with Senate Finance, should be on incentivizing
hospitals to utilize the wealth of information and the programs that
already exist. Only then will additional transparency measures help.
For recommendations on priority transparency measures that FDA should
provide, please see ``Federal policies to address persistent generic
---------------------------------------------------------------------------
drug shortages,'' Brookings.
Question. Drug companies harden their manufacturing facilities to
be resilient against natural disasters like hurricanes and tornadoes.
What role do drug companies have in preparing for drug shortages
caused by economic factors or a pandemic?
Do they do enough to prepare for the unexpected?
Answer. Perhaps the most basic premise in economics is that
rational economic actors balance the costs and benefits of the actions
they take. Along these lines, it is rational for companies to balance
the costs and benefits of investing in risk mitigation against
potential supply chain disruptions.
This cost-benefit calculus looks very different for manufacturers
of branded and generic drugs. For high-margin branded products, losing
production capacity for any reason means lost profits in the short term
and a potential longer-term loss of market share to competitors. In
contrast, for generic products, foregone profits due to productions
disruptions of low-margin products would not be significant.
For these reasons, branded manufacturers work to lower the risk of
disruptions by investing more in manufacturing quality oversight than
their generic counterparts. Manufacturers also buffer supply chains of
branded products more: they will vet their suppliers more closely,
diversify their supply chain with multiple suppliers and multiple
production sites, carry greater inventory of raw materials and finished
product, and maintain a lower utilization rate on production lines. But
the low margins resulting from price competition makes these kinds of
steps economically prohibitive for manufactures of generic drugs.
Given the impact that shortages have on patients, their families,
and communities, it is also worthwhile to compare the manufacturers'
risk calculus with that from a social perspective. For one, neither
branded manufacturers nor generic manufactures fully internalize the
harm that results from poor supply chain resilience. Private
manufacturers also do not internalize such concepts as national
security.
To the extent that policymakers want manufacturers to make their
supply chains more resilient than their economic circumstances dictate,
they will need to provide economic incentives. They can be in the form
of subsidies or penalties, but it is important to consider that
penalties (requirements) imposed on low-cost producers can lead to
market exit if those additional costs make production unprofitable.
Question. Can alternative payments for drugs under Medicare reduce
the number of shortages?
Answer. To address the persistent shortages of generic sterile
injectable drugs, we need to change how hospitals buy such drugs. By
modifying how CMS pays for drugs most at risk for shortage, CMS can
steer hospitals away from their heavy emphasis on price and towards
reliability of supply.
It matters greatly how Congress implements such programs--not every
alternative payment system will be equally effective or could be made
functional in the same time frame. Some proposals could even make
things worse. For example, paying hospitals more when drugs are in
shortage would do nothing to encourage hospitals to buy from more
reliable manufacturers. In fact, hospitals might see buffering and
other prevention efforts not worth the effort when the hospital can get
a higher payment during a shortage.
The payment models needed to improve reliability of generic sterile
injectable supply are procurement-based. In that way, they differ
standard alternative payment models (APMs) that give an added incentive
payment to provide high-quality and cost-efficient care. Ultimately
preventing shortages is about preventing patient harm but designing
proper quality measures would be challenging given adverse health
outcomes vary greatly for each of the many dozens of drugs in shortage,
with outcomes often not observable in the time frame observed within a
hospital.
There are two primary proposals for how to incentivize hospitals to
buy reliably: an add-on payment for purchasing from reliable
manufacturers and a pay-for-
performance program that adds a year-end payment based on hospital's
relative performance on shortage prevention and shortage mitigation
measures.
The add-on payment would apply to manufacturers qualifying as
reliable. The effectiveness of such an add-on payment in preventing
shortages would depend on CMS's (or FDA's) ability to identify which
manufacturers are reliable. The better the predictive power of such
measures, the greater the impact of an add-on payment program tied to
such a list. If those measures are not reliable, CMS would be
increasing government spending without making a difference on the
shortage front.
Currently no validated measures of supply reliability exist. FDA
has been developing a set of forward-looking metrics. However, even
with funding (which FDA does not currently have), that system will
likely take several years to develop and would only be a general
facility measure and not the specific product supply reliability
measure that is needed. Another alternative is to use FDA compliance
records to construct a measure of reliability. Just as with QMM, the
predictive ability of such measures would need to be established.
An alternative mechanism--one that I explained in my written
testimony--is a pay-for-performance program, under which hospitals are
scored on their behavior on two measures: what share they buy from what
turned out to be (in retrospect) reliable manufacturers and did they
buffer their inventory for the affected drugs. Hospitals would be
measured on their performance retroactively, on their behavior before
the first signal of each shortage that occurs. The scorecard would then
feed into an end-year payment adjustment based on a hospital's
performance relative to its peers. Hospitals should largely expect to
cover their participation costs, with payments to top performing
hospitals exceeding those costs.
Unlike an add-on payment where CMS needs to identify which
manufacturers are reliable, the pay-for-performance program harnesses
market ingenuity. To start purchasing from reliable manufacturers,
hospitals could leverage current but underutilized programs that assess
manufacturers on reliability, including those done by their GPOs.
Greater interest from hospitals in identifying which manufacturers are
reliable would also drive development and utilization of new tools. The
program would also incentivize greater adoption of currently
underutilized programs that hold buffer inventory through wholesalers
or manufacturers (as in the case of Civica Rx or through a GPO private-
label program).
I should also add that any drug shortage resilience project should
be separate from other hospital quality programs. It would be possible,
perhaps, to expand the Hospital Value-Based Payment (HVBP) program to
encompass procurement measures. Bundling shortage with other measures
would lower the visibility that the shortage measures deserve and
require. Also, HVBP is budget-neutral, but the shortage proposal needs
a strong financial boost across the board.
______
Questions Submitted by Hon. Maria Cantwell
Question. Do you agree that the current GPO business model is
ultimately unsustainable and weakens the drug supply chain in the long
run?
Answer. Because generic versions of the same drug are
therapeutically equivalent and therefore can be readily substituted,
buyers can place tremendous pressure on manufacturers to lower price.
The resulting race to the bottom leads manufacturers to shift
production to lower-cost environments and challenges manufacturers'
ability to invest in maintenance, upgrades, staffing, and oversight.
This dynamic leads to a fragile supply chain, with potential for highly
disruptive drug shortages.
GPOs play a significant role in driving prices down, enabled by the
market power they represent--three GPOs represent around 80 percent of
hospital beds. Generally, the contracts GPOs negotiate neither provide
a purchase guarantee to the manufacturer nor do they fix the price over
the contract term. Instead, the contracts frequently include best-price
guarantees that allow the contract price to drop if the GPO finds a
better price elsewhere.
It is important to note that GPOs are incentivized to weigh price
heavily over reliability of supply because their hospital customers
demand that. Currently, while GPOs assess supply reliability of many
manufacturers, they will be hard pressed to contract with a higher-
priced but more reliable manufacturer because GPO contract
participation is voluntary for hospitals. Hospitals can and do buy off
contract if they find a lower price. GPOs try to incentivize hospitals
to buy through the contract (which is the way the GPO makes money) but
the strongest tool GPOs have for contract compliance is securing the
lowest price possible.
Question. Is it possible to find a balance between keeping costs
down for providers and using the GPOs' market leverage to enforce the
resiliency of the drug supply chain? What would that look like?
Answer. Under the pay-for-performance proposal described in my
written testimony, hospitals would not need to take the responsibility
for identifying which manufacturer's products are less likely to be in
shortage, instead relying on their GPOs to do this work for them. GPOs
already conduct such assessments but have strong financial incentives
to continue heavily weighing low-cost producers because otherwise
hospitals buy off contract. If hospitals weigh reliability more, they
will change GPO's incentives for how to award contracts to
manufacturers. By putting at least two GPOs in each hospital peer
group, GPOs would be incentivized to perform better on predicting
reliability and securing product through quantity commitments.
Leveraging GPO's market power is helpful in that three GPOs can do
the assessment for virtually all hospitals and then compete for
hospital business by excelling at these assessments.
______
Question Submitted by Hon. John Thune
Question. Some individuals have asserted that the 340B program is
causing drug shortages. In your testimony, the drugs you state are most
commonly in shortage are generic sterile injectables. 340B purchases
make up only 7 percent of total U.S. purchases of generic sterile
injectables.
With such a low volume of overall drug spending, is there evidence
that 340B has a direct effect on drug shortages?
Answer. Because of lack of data transparency around the 340B
program, there are no well-designed studies of the impact of that
program on drug supply chain resilience and drug shortages. This does
not mean, however, that there is not a problem.
It is indeed the case that drug shortages disproportionately affect
generic sterile injectable drugs used in the inpatient setting. But
this is due to the preponderance of those drugs in that setting, not
the fact that somehow outpatient generic sterile injectable drugs are
at less risk.
Just like inpatient generic sterile injectable drugs, outpatient
generic sterile injectable drugs (including generic injectable cancer
drugs) can face fierce price competition, with prices trending towards
marginal cost. However, outpatient drugs face an additional pressure:
manufacturers of those drugs are limited in their ability to pass on
cost increases, including input costs increases driven by supply
shocks, and infrastructure improvements, maintenance, quality
oversight, and staffing investment.
With low margins, manufacturers have little ability to absorb these
costs, and with 340B, they have limited ability to pass on costs,
however legitimate they might be. The cost increases need not be high
to hit the penalty threshold--the penalty threshold can be less than $1
for a $20 generic sterile injectable drug. The penalty will then apply
not to the 7 percent mentioned in the question, but to the drug's
volume of 340B sales. For a cancer drug, a third or half of volume
could be going through the 340B program--a potentially consequential
financial hit that could lead the manufacturer to phase out and
ultimately discontinue the product. This in turn makes the market more
vulnerable to future shortages.
The inability of manufacturers to pass on legitimate costs becomes
even more consequential if Congress attempts to change the hospitals'
existing emphasis on price towards reliability of supply. The only
reason that paying hospitals more for reliability helps prevent
shortages is that such a system enables manufacturers to differentiate
therapeutically equivalent products on reliability, carrying a price
premium for that added reliability. However, in the outpatient setting,
a manufacturer cannot pass any quality improvements on to the prices of
340B products.
To address this structural problem that constrains generic
manufacturers from passing on legitimate costs, my written testimony
recommends excluding multisource generic sterile injectable drugs from
Medicaid inflation rebates.
On the hospital side, the potential financial losses to 340B
entities are lower than the 7-percent volume statistic might suggest.
First, single-source generic sterile injectables should not be included
in the calculation because those are not included in my recommendations
to Congress. Second, the loss in the 340B dollar savings will be less
after adjusting for the fact that per unit 340B savings on a $10,000
drug will quite likely be much larger than on a $20 drug. Third,
relevant losses should net out compliance burden relating to 340B
requirements, particular in mixed-use areas such as emergency rooms.
Fourth, the losses would be even lower if Congress were to eliminate
the GPO 340B prohibition for drugs that are exempt from Medicaid
inflation rebates. In that case, hospitals would be swapping 340B
savings for GPO rebates.
Given the limited financial consequences for improving supply chain
resilience, I strongly question the rationale for the strong pushback
from 340B providers regarding Medicaid inflation rebates for multiple-
source generic sterile injectable drugs.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. My legislation, the Drug Shortages Prevention and Quality
Improvement Act, would require manufacturers to notify the FDA no later
than 30 days after the manufacturer knows of an increase in demand for
a drug that is likely to lead to a shortage.
How would this kind of authority impact the drug shortages and
wholesale alerts?
Answer. Notifying FDA about supply or demand shocks is helpful to
the extent that it gives FDA time to work with manufacturers to restore
or ramp up production.
Demand increase reporting (or rather reporting in the number of
orders a given manufacturer receives) can be grouped in two categories.
First are across-the-board demand increases, such as what we saw with
ventilator drugs in early COVID or with amoxicillin early last year.
Second are spillover demand increases when orders for a given
manufacturer's product increase because another manufacturer (for the
same drug or a substitute drug) had a supply disruption. In the latter
case, manufacturers that experienced disruptions should be reporting,
but reporting of spillover can serve as backup and another market
signal.
To maximize the effectiveness of the demand notification
requirement, I would recommend that FDA be authorized to require that a
manufacturer report when orders exceed by a certain level what the
manufacturer can fulfill. This is different from reporting a demand
increase within 30 days because the signal to the manufacturer can
occur much earlier than 30 days. If a manufacturer waits the full 30
days, the information might not be useful to the FDA. Congress should
determine the level which triggers reporting in consultation with FDA
and industry.
I am not aware of the existence of wholesaler alerts from the FDA
to wholesalers or vice versa. However, FDA would benefit from
information sharing from wholesalers when they see unusual order
patterns. I would recommend FDA set up a pilot program to test this
kind of information sharing.
Question. Are there other data gaps that exist regarding the causes
of drug shortages that would be important for providers to have as they
plan to care for patients who may need a drug that is in shortage?
Answer. Congress should improve the transparency around the causes
of shortages. FDA knows the precipitating events leading to each
shortage, but they are unable to share them publicly because it
interprets the information as business confidential. Instead, FDA
discloses what category specified in 21 U.S.C. 356c the manufacturer
chose to select. Those categories, however, are not helpful, especially
the ``Other'' category.
Enabling FDA to share more information could help providers plan
better for patient care. Such sharing would also be important for
supporting the pay-for-
performance program that I presented in my written testimony. It is
possible for CMS to protect manufacturer confidentiality and score
hospitals on whether they picked right across 30-50 shortages, however,
hospitals and GPOs should have a clear feedback mechanism for whether
they are indeed picking right.
Question. In a 2019 report from the FDA on drug shortages, the
agency notes that FDA heard from stakeholders that some contracts
currently include ``low-price clauses'' that allow group purchasing
organizations to unilaterally walk away from a contract if a competing
manufacturer is willing to supply the same product or bundle of
products for a lower price.
How do practices like ``low-price clauses'' impact drug shortages?
Answer. Those kinds of contracts may exist for hospital and retail
drugs alike, but given the focus of FDA's drug shortage report on
generic sterile injectables, I will focus my answer on the latter. I am
unable to comment on the frequency with which such contracts (sometimes
called best-price clauses or MNF clauses) are deployed for drugs
administered in hospitals, but I have heard those contracts exist.
Standard economics suggests such contracts terms would push prices
down between contract cycles. They also decrease demand predictability
for manufacturers because a manufacturer may not be able to match the
lower price. Without guarantees for stable demand, manufacturers have
little incentive to buffer their supply chains. Frequent changes in
demand for specific products also lead to more frequent changes on
production lines, which is a key risk factor in manufacturing.
I should note that the importance of ``low-price'' provisions is
lower than it would be if hospitals were committed to buy though GPO
contracts. But GPO contracts are not binding, so hospitals can and
often will buy off contract if they find a more attractive price. If
``low-price'' provisions were banned from GPO contracts, hospitals
would simply buy off contract if a more attractive price were available
elsewhere. For this reason, elimination of such provisions would be
consequential for manufacturers only if hospitals were also prohibited
from buying off contract.
Question. Now we hear that some PBMs have chosen to start group
purchasing organizations even as PBMs use group purchasing organization
services. How might these relationships impact drug shortages,
particularly patients' ability to access low-cost drugs that typically
do not provide much profit to manufacturers?
Answer. The GPOs that have been set up by PBMs are very different
than the GPOs that operate in the hospital setting. In the hospital
setting, GPOs negotiate contract terms on behalf of hospitals, which
hospitals then can use to purchase products at negotiated prices or buy
off contract if they find a better price through the wholesaler. In
turn, the role of the retail GPOs is not well understood. The ongoing
FTC section 6b study will hopefully shed more light on those new
entities.
______
Questions Submitted by Hon. Sherrod Brown
Question. Can you comment on how consolidation among purchasers of
generic drugs has led to ``race to the bottom pricing'' and is driving
drug shortages?
Answer. Price competition in the generics industry can be fierce.
At the heart of this competition is therapeutic equivalence, meaning
that different manufacturer's versions of the same drug can be readily
substituted. Using therapeutic equivalence, buyers can play
manufacturers against each other to obtain better prices and better
contract terms. Concentration on the buyer side, be it through GPOs,
wholesalers, pharmacy chains, or mail pharmacies, means that buyers
have more bargaining power in that negotiation.
This price competition drives manufacturers to cut costs. The price
pressures create incentives to move operations to lower cost
environments. They also create a dynamic where there is little room for
and return on investing in facilities, staffing, and oversight.
These price pressures, however, have different consequences for
injectable and oral dose generics.
With generic sterile injectables, there is little room for error in
the final production stage. The drugs are injected into the body, often
directly into the blood stream, and therefore they must be sterile and
free of particulates. This lower margin for error requires that the
final fill-and-finish manufacturing stage be done in specialized
facilities with employees following complex manufacturing processes and
controls.
In contrast, oral dose products, by definition, need not be sterile
because our digestive system can get rid of most microbes and
impurities. The manufacturing footprint is less concentrated and the
manufacturing technologies more fungible. Even if manufacturing
problems arise and a facility must close, the supply chain for these
products is more resilient and can absorb the manufacturing disruption.
For these reasons, generic oral dose products are less likely to be
in shortage due to manufacturing problems than generic sterile
injectable products. On the other hand, vulnerability to geopolitical
disruptions may not differ much between oral dose and injectable
products because key starting materials for all drugs primarily are
sourced outside of the United States.
Question. In a 2019 House Energy and Commerce Committee hearing,
the FDA outlined competitive cost ``advantages'' that China and India
have over the U.S.
Would speeding up implementation of advanced manufacturing
approaches in the pharmaceutical manufacturing industry help lower drug
prices?
Answer. The short answer is ``no'' for branded products and highly
unlikely for generics. As for any product, manufacturers of branded
products set prices based on demand elasticity, which reflects how
sensitive buyers are to price changes. Because branded products are
patent protected, they do not have close substitutes and therefore face
inelastic demand, with profit maximizing prices far above the cost of
production. Changing the marginal cost of production for patent-
protected brand-name products could increase profit margins for those
manufacturers but would have no discernable impact on drug prices.
In turn, manufacturers of generic products face highly elastic
demand, which drives prices close to marginal cost. In this setting,
lowering marginal cost would drive prices down. However, advanced
manufacturing--continuous manufacturing in particular--does not, in its
current state, appear to provide a cost advantage in manufacturing of
generics. For one, the technology has great advantages when used
continually for one product. But this advantage does not translate well
to generic manufacturing, where the unstable nature of the demand can
lead to 20-30 products being run on a single line over a course of a
year, leading to frequent switchovers. The up-front costs of these
technologies are also prohibitive at this stage, making the return on
investment quite unclear.
For more information about the potential role of advanced
manufacturing technologies in addressing generic drug supply chain
resilience, please see the summary from the proceedings of a workshop,
which colleagues and I organized in March 2023 (https://
www.brookings.edu/articles/workshop-summary-technology-solutions-for-
improving-the-resilience-of-generic-prescription-drug-manufacturing/).
Question. What can we to do encourage the implementation of
advanced manufacturing, and are there other ways to help reduce the
cost of manufacturing drugs?
Answer. Given the offshoring context of this question, I presume
the question is about making domestic manufacturing sustainable,
whether through lowering the cost of production in the U.S. or through
other means.
As I describe in my response below, economics is what has driven
production offshore, so countering these economic forces would require
the U.S. Government to subsidize any reversal of offshoring. Similarly,
manufacturers lack economic incentives to adopt technologies that would
improve reliability of manufacturing (for which advanced manufacturing
is oft touted)--the return on investment is not there for them. For
these reasons, if policymakers want greater supply chain resilience,
they will need to subsidize manufacturers, ultimately passing on the
cost either through higher taxes, higher health-care premiums, or
higher generic drug prices.
There are many ways to do it, but all come with a cost. First, the
government can provide grants or loans for upgrading or building new
infrastructure, keeping in mind that sometimes the highest return on
investment can be through relatively low-cost improvements and not
through sophisticated advanced manufacturing technologies. Second, even
with subsidies of fixed costs, manufacturers may struggle to keep the
marginal cost of production competitive and therefore may require
marginal subsidies. In my written testimony, I describe how the
statutory provisions used to create the N95 domestic mask rule could be
leveraged in this space if Congress were to enhance those provisions.
The government could also strategically use direct purchasing (such as
through the VA or DOD) to support domestic manufactured products or to
fund buffer inventories of drugs using domestic manufacturers (all
these with the caveat that those manufacturers meet appropriate
manufacturing quality standards).
Question. What are additional authorities that the U.S. Government
can use, similar to how the Defense Production Act is being used, to
bolster the domestic manufacturing of pharmaceuticals?
Answer. Before considering authorities, it is critical that we
first establish the role that domestic manufacturing should play in
creating greater supply chain resilience. This analysis will then
inform possible policy solutions and whether and which new authorities
are needed. In that context, it is important to distinguish between
current persistent drug shortages of generic sterile injectable drugs
and potential shortages due to geopolitical conflicts.
Generic sterile injectable shortages are primarily caused by
manufacturing quality problems at the final stage of production. As
indicated in the graph below (courtesy of USP Medicine Supply Map),
that stage of production for generic sterile injectable drugs is
primarily done in the United States, followed by Europe. Although the
recent cancer drug shortage was caused by a production disruption at a
site in India, U.S. facilities, which produce 2.5 times as many units
of generic sterile injectable drug units, are also plagued by
manufacturing quality problems that lead to shortages.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsBuilding more domestic capacity in the U.S. is not an
appropriate solution to the persistent shortages of generic
injectables, but improving the existing U.S. infrastructure can be.
Even there, improving infrastructure with government support will be
reversed if there is no change in how hospitals buy drugs. For this
reason, changing how hospitals buy should take precedence in addressing
persistent shortages of generic sterile injectables, with some
supplemental infrastructure funding. For more information, I recommend
reviewing the discussion of infrastructure funding in this report:
``Federal policies to address persistent generic drug shortages,''
Brookings.
In turn, addressing potential geopolitical threats requires a
different approach. A major geopolitical conflict could expose many
more supply chains, potentially quite different from the ones currently
at high risk of shortage. It may also expose production sites along
many different stages of production, unlike the more limited set of
finished dose facilities that are at the heart of most current
shortages.
Decreasing reliance on countries that pose geopolitical threats is
key to lowering the risk of shortages that could result, but how it is
done matters greatly. The pharmaceutical and chemical industries are
immense and global. We have many thousands of drug products, each with
dozens of inputs made in facilities spanning the globe.
Economics is what drove this expanding web of production, so
countering these economic forces would require the U.S. Government to
subsidize any reversal of offshoring. But given the size of the
pharmaceutical industry and the chemical industry that feeds the key
starting materials for drugs, government subsidies should be based on a
highly strategic approach--otherwise, with limited resources,
government intervention can easily become a feel-good strategy that
does little to lower geopolitical risk to supply chain resilience where
it matters most.
The strategic approach requires the following:
1. Reconsidering which supply chains to support. The FDA
Essential Medicines list focuses on pandemics and CBRN treats,
but our health-care system could be readily disrupted if drugs
or components not on the list were unavailable.
2. Thinking about all stages of production. Much attention has
been given to Active Pharmaceutical Ingredients (API) but
moving API production to the U.S. will not address geopolitical
risks if all the key starting materials and reagents still come
from a country with high geopolitical risk.
3. Supporting strategic diversification. Lowering geopolitical
risk means lowering exposure to certain countries, not moving
all production onshore. Not all countries have the same risk,
and therefore a proper risk mitigation strategy would consider
the differential risk across countries. Friend-shoring and
near-shoring should be an integral part of U.S. government
strategy in response to geopolitical threats.
4. Not assuming that domestic production equates with quality.
The economic incentives to drive costs down for generic drugs
exist for domestic manufacturers as well, especially if they
continue to compete with manufacturers from lower-cost
environments. For this reason, any government subsidies to
bolster domestic manufacturing should come with strings
attached on quality outcomes.
The recently announced HHS Supply Chain Coordinator \10\ is in the
best position to lead this strategic approach to U.S. Government
engagement, helping to implement a data analytic approach to
prioritizing supply chains for intervention (an approach we describe in
``A Framework for Prioritizing Pharmaceutical Supply Chain
Interventions,'' Health Affairs).\11\ However, to be effective, this
role will require congressional support through a statutory mandate and
resources. The MAPS bill is an important step in that direction.
---------------------------------------------------------------------------
\10\ https://www.hhs.gov/about/news/2023/11/27/biden-harris-
administration-announces-actions-bolster-medical-supply-chain.html.
\11\ https://www.healthaffairs.org/content/forefront/framework-
prioritizing-pharmaceutical-supply-chain-interventions.
In terms of authorities, my written testimony includes a discussion
on why tax credits are a less effective tool for accomplishing greater
---------------------------------------------------------------------------
supply chain resilience than loans or grants.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
This morning the Finance Committee gathers to discuss the drug
shortages that are harming Americans in communities around the country.
In America today, if you receive a cancer diagnosis, chances are
scientists and doctors have developed effective treatments to fight or
beat this awful disease. While most of the spotlight tends to fall on
new, cutting-edge innovations, some of the most vital treatments for
millions of Americans suffering from cancer and other chronic diseases
are lower-cost generic medicines that have been around for many years.
These are the products where the shortages are felt the most, and it's
threatening the health and wellness of the country.
Earlier this year the Finance Committee began to investigate what
was causing a widespread shortage of ADHD medications in Oregon and
around the country. What we found shocked me. The supply chains for
these prescriptions that millions of Americans count on to work and
learn were bogged down in what can only be called a bureaucratic
bedlam. Manufacturers, the Drug Enforcement Agency, and the Food and
Drug Administration all offered conflicting explanations for why the
shortages for Adderall and its generics have persisted, and patients
were left in the dark without clear answers. We're pushing to resolve
these shortages and add transparency and flexibility so it doesn't
happen again.
Today the Finance Committee will examine the causes of these
devastating drug shortages. In particular, the committee needs to look
to the power of Medicare and Medicaid, which covers millions of
Americans and pays for hundreds of billions in health spending each
year. It is urgent business for the Finance Committee to find
bipartisan solutions that will get at the causes of a persistent and
tragic problem.
The consequences of drug shortages are not abstract. I hear about
them at pharmacies in Oregon and town halls all over the State, landing
especially hard in rural communities. There has been story after story
of drug shortages resulting in rationing, inappropriately low doses, or
alternative treatments that aren't as safe or effective as the product
that's experiencing a shortage. These shortages can be life or death
for children, especially when it comes to cancer drugs.
The evidence shows that the vast majority of drug shortages are
caused by market failures. Right now they exist across the prescription
drug supply chain, from manufacturers to providers, as well as
middlemen like PBMs and drug wholesalers. A substantial portion of
these market failures are driven by the consolidation of generic drug
purchasing among a small group of powerful health-care middlemen.
There are many companies that manufacture generic drugs, but they
must compete for the attention of highly consolidated middlemen, such
as drug wholesalers and hospital group purchasing organizations (GPOs),
to gain access to the market. In the case of drug wholesalers, three
companies control 90 percent of the pharmaceutical market in this
country, and all three of those companies are among the top 15 largest
businesses in America by revenue. The generic manufacturers that are
awarded contracts by these middlemen do so by offering penny-on-the-
dollar prices that mean they can't invest in the capacity or equipment
needed to make reliable, high-quality medications. This ``race to the
bottom'' price war for generics leads to quality control problems and
factory shutdowns, which leads to shortages of generic drug products
that are in high demand.
The Finance Committee is in a prime position to adopt policies to
correct this mess. The committee oversees Medicare Parts A and B, which
pay for services in doctors' offices and hospitals, including
prescription drugs that are administered there, like chemotherapy
treatments and related injectable drugs. Some of these injectable
products are facing the most severe shortages. In Part D, 90 percent of
prescriptions dispensed are generics.
As the committee has found through its work on pharmacy benefit
managers, even if manufacturers are selling generics at low prices,
middlemen have free rein to mark up prices along the way, leaving
seniors with high costs. While middlemen get rich and consumers pay
more than they ought to for these generics, manufacturers may decide
it's not worth the trouble to produce these medicines and exit the
market altogether.
In my view, there are a lot of possibilities to work in a
bipartisan way to resolve drug shortages, and I look forward to
continuing the productive partnership Democrats and Republicans have
demonstrated on this committee this Congress with respect to health
care.
______
Communications
----------
Alliance for Pharmacy Compounding
100 Dangerfield Road, Suite 401
Alexandria, VA 22314
Phone: (281) 933-8400
Fax: (281) 495-0602
https://a4pc.org/
December 14, 2023
U.S. Senate Committee on Finance
Rm. SD-219 Senate Dirksen Office Bldg.
Washington, DC 20510-6200
Dear Chairman Wyden and Ranking Member Crapo:
The Alliance for Pharmacy Compounding (APC) appreciates the opportunity
to provide input to the Senate Committee on Finance on the subject of
the hearing on December 5, 2023, entitled ``Drug Shortages: Examining
Supply Challenges, Impacts, and Policy Solutions from a Federal Health
Program Perspective.''
APC is the voice for pharmacy compounding, representing more than 600
compounding pharmacies and facilities, including compounding
pharmacists and technicians in both 503A and 503B settings, as well as
prescribers, educators, researchers and suppliers. Pharmacists' ability
to compound medications from pure ingredients is authorized in federal
law and for good reason: manufactured drugs don't come in strengths and
dosage forms that are right for everyone, and prescribers need to be
able to prescribe customized medications when, in their judgment, a
manufactured drug is not the best course of therapy for a human or
animal patient.
Beyond its role in providing customized medications when a commercially
available drug is not suited to a patient, pharmacy compounding can
play an essential role in addressing disruptions in our nation's drug
supply chain--and empowering pharmacy compounders to alleviate
temporary drug shortages must be a component of any drug shortage
legislation.
In this era of rampant drug shortages, the focus of Congress has
rightly been on root causes and long-term fixes. But we urge that
Congress also attend to alleviating supply chain gaps in the near-
term--the shortages that are resulting here and now in patients not
receiving urgently needed medications. There already exists a system
for addressing such temporary shortages--the components are in place--
but certain restrictions hinder the ability of those components to act.
What is needed--and what we propose--is a regulatory framework that
facilitates rapid and urgent response by compounding pharmacies and
outsourcing facilities, in tandem, to meet the immediate medication
needs of patients in hospitals and clinics when those drugs are
commercially unavailable.
Here are four ways Congress and/or the FDA could safely expand the
ability of compounding pharmacies to alleviate drug shortages in the
short term while longer term, broader supply chain issues can be
addressed:
1. Update the statutory definition of drug shortages to include
regional shortages and input from hospitals and other health care
practitioners.
There is widespread agreement among health care providers that there
are problems with the current process used by FDA to establish the
agency's drug shortage list. In addition to taking substantially longer
for drugs in shortage to make it on the FDA list than the list
established by the American Society of Health System Pharmacists
(ASHP), the FDA list also fails to consider regional shortages and to
consider direct input from health care practitioners.
This lag between the FDA list and the ASHP list was unfortunately
recently illustrated by a July 19, 2023 tornado that damaged the Pfizer
manufacturing facility in Rocky Mount, NC. Most of the damage caused by
the tornado was not to the production area of the facility but to the
warehouse facility where raw materials, packing supplies, and finished
medicines were stored. In a July 21, 2023 letter to customers, Pfizer
identified drugs manufactured at the facility for which they anticipate
supply disruptions due to the damage caused to the facility by the
tornado.\1\ Of the 66 drugs identified in the Pfizer letter to
customers many of the drugs appeared on the ASHP drug shortage list
days or weeks prior to making it onto the FDA drug shortage list.
---------------------------------------------------------------------------
\1\ See Pfizer Inc. customer letter.
The delay and limited scope of the process to establish the FDA list
created an unnecessary gap in patient access to critical medications
for the patients of health systems relying on drugs from the Rocky
Mount Pfizer facility. The vast majority of the drugs impacted were
intended for distribution to hospitals or other clinical settings for
administration to patients without a patient-specific prescription.
While 503B outsourcing facilities would have been authorized under the
FDCA to compound those drugs once they made it onto the FDA shortage
list and distribute to hospitals and other clinical settings, 503A
pharmacies would be limited under current law to only compounding
pursuant to a patient-specific prescriptions, and only under the
---------------------------------------------------------------------------
enforcement discretion granted through FDA guidance.
For these reasons, APC recommends amending the FDCA definition of
``drug shortage'' to include regional shortage and input from health
care practitioners to better align the process used by the FDA to
establish the shortage list with that used by ASHP and to expedite and
improve that process at FDA. Specifically, we request and recommend the
following amendment to the FDCA:
``(a) In General.--Section 506C(h)(2) (21 U.S.C. 356c(h)(2)) of
the Federal Food, Drug, and Cosmetic Act is amended by striking
``exceeds the supply of the drug'' and inserting ``or a region
of the United States exceeds the supply of the drug as reported
by manufacturers and health care practitioners.''
2. Codify FDA's current guidance that states 503A pharmacies can
compound drugs on FDA's shortage list without violating rules against
copying FDA approved drugs.
As discussed above, in FDA's January 2018 Guidance for industry
entitled ``Compounded Drug Products That Are Essentially Copies of a
Commercially Available Drug Product Under Section 503A of the Federal
Food, Drug, and Cosmetic Act'' the agency clarifies that they ``do not
consider a drug product to be commercially available if the drug
product has been discontinued and is no longer marketed or if the drug
product appears on the FDA drug shortage list in effect under section
506E of the FD&C Act. A drug `appears on the drug shortage list in
effect under section 506E' if the drug is in `currently in shortage'
status (and not in `resolved' status) in FDA's drug shortage
database.''\2\
---------------------------------------------------------------------------
\2\ See FDA Guidance for Industry ``Compounded Drug Products That
Are Essentially Copies of a Commercially Available Drug Product Under
Section 503A of the Federal Food, Drug, and Cosmetic Act,'' page 5.
The guidance includes FDA's interpretation of what they consider
``commercially available`` under the conditions established by 503A for
compounding, specifically the provision that states that ``(t)he
licensed pharmacist or licensed physician does not compound regularly
or in inordinate amounts any drug products that are essentially copies
of commercially available drug products (section 503A(b)(1)(D) of the
FD&C Act).''\3\ 503A traditional compounding pharmacies compounding
drugs on the FDA shortage list to meet critical patient needs should be
able to rest assured that they are performing a legal activity
specifically authorized by the FDCA. Indeed, the uncertainty of this
provision was recently cited in patent litigation pursued by Novo
Nordisk against compounding pharmacies, arguing that the guidance did
not carry the weight of law and therefore the provision about
compounding drugs on the shortage list should not be considered as a
valid exception to the statutory prohibition on compounding inordinate
amounts of what are essentially copies of commercially available drugs.
---------------------------------------------------------------------------
\3\ See FDA Guidance for Industry ``Compounded Drug Products That
Are Essentially Copies of a Commercially Available Drug Product Under
Section 503A of the Federal Food, Drug, and Cosmetic Act,'' page 2.
Page one of the guidance states clearly the standard disclaimer each
guidance contains for the industries regulated by the FDA. ``In
general, FDA's guidance documents do not establish legally enforceable
responsibilities. Instead, guidances describe the Agency's current
thinking on a topic and should be viewed only as recommendations,
unless specific regulatory or statutory requirements are cited. The use
of the word should in Agency guidances means that something is
suggested or recommended, but not required.''\4\ Stamped at the top of
that page and each subsequent page are the words, in bold and
italicized, ``Contains Non-Binding Recommendations.''
---------------------------------------------------------------------------
\4\ See FDA Guidance for Industry ``Compounded Drug Products That
Are Essentially Copies of a Commercially Available Drug Product Under
Section 503A of the Federal Food, Drug, and Cosmetic Act,'' page 1.
For these reasons, APC recommends amending the FDCA to codify the
agency policy now expressed in guidance that drugs on the FDA shortage
list are not ``commercially available'' and therefore compounding of
those drugs does not violate the FDCA provision against compounding
``drug products that are essentially copies of commercially available
drug products.'' Specifically, we request and recommend the following
---------------------------------------------------------------------------
amendment to the FDCA:
Paragraph (2) of section 503A(b) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 353a(b)(2)) is amended to read as
follows:
``(2) DEFINITION.--For purposes of paragraph (1)(D), the term
`essentially a copy of a commercially available drug product'
does not include--
``(A) a drug product in which there is a change, made for an
identified individual patient, which produces for that patient
a significant difference, as determined by the prescribing
practitioner, between the compounded drug and the comparable
commercially available drug product; or
``(B) At the time of compounding, distribution, or dispensing,
the drug product appears on the drug shortage list in effect
under section 506E.''
3. Establish a narrow pathway, through law or policy guidance,
allowing 503As to compound shortage and other drugs urgently needed for
treatment of patients by practitioners when unavailable from 503B
outsourcing facilities.
APC understands and supports the system created by the DQSA whereby
503B outsourcing facilities are subject to more stringent cGMP
standards and FDA registration and are allowed under the statute to
compound shortage and other drugs needed by hospitals and other
practitioners for administration to patients. But 503Bs alone have not
been sufficient to address temporary drug shortages. Traditional 503A
compounding pharmacies must also be empowered in law to assist--a sort
of cascading system in which the 503A fills the temporary gap in supply
until the 503B can ramp up production. Currently, the FDA does not seem
to recognize the simplicity of such a systematic approach to temporary
drug shortage. The agency touts 503Bs, but without seeming to recognize
the lengthy ramp up time to produce certain drugs in shortage. What
about in the interim? Also, earlier this year the agency very publicly
engaged a Chinese manufacturer to provide urgently needed cancer drugs
and did so without conversation with or consideration of what 503Bs,
much less 503As, could do to help.
That must change.
APC supports the inclusion of additional provisions in any drug
shortage legislation developed by the committee that will improve the
ability of compounding pharmacies to help respond to drug shortages,
including those that will undoubtedly occur with the next public health
emergency.
There is clear precedent for the approach we propose. In the early days
of the COVID pandemic, gravely ill patients began to fill America's
hospitals. Hospitals ran short of essential treatment medications and
were unable to source those drugs from manufacturers or from the
outsourcing facilities that had been authorized by Congress in 2013 to
``fill the gap'' in such situations. At the urging of the APC, FDA
issued temporary guidance (citation to guidance) allowing traditional
503A compounding pharmacies to prepare 13 COVID drugs, within tight
regulatory guardrails, from pure ingredients to meet hospitals' urgent
need.\5\ That action almost certainly saved hundreds of lives, and an
FDA official has indicated that no adverse events were reported.
---------------------------------------------------------------------------
\5\ See FDA Guidance for Industry ``Temporary Policy for
Compounding of Certain Drugs for Hospitalized Patients by Pharmacy
Compounders not Registered as Outsourcing Facilities During the COVID-
19 Public Health Emergency.''
Last autumn, as a triple-threat epidemic afflicted America's children
and resulted in a shortage of amoxicillin suspension, APC asked FDA for
a pathway to allow 503A pharmacies to compound amoxicillin suspension
and other beta lactam antibiotics from FDA-approved tablets or
capsules--something that existing FDA guidance made very difficult for
compounders to do without risking disciplinary action. Three weeks
later, FDA issued a guidance document that provided such a pathway, and
compounding pharmacies and hospital pharmacies across the country were
better able to prepare urgently needed treatments for children.\6\
---------------------------------------------------------------------------
\6\ See FDA Guidance for Industry ``Compounding Certain Beta-Lactam
Products in Shortage Under Section 503A of the Federal Food, Drug, and
Cosmetic Act.''
More recently, many children suffered as pharmacies across the country
were unable to stock FDA approved, over-the-counter ibuprofen and
acetaminophen suspension. Compounding could have helped here, too,
easily creating compounded ibuprofen and acetaminophen suspension from
pure ingredients--but they could not because ibuprofen and
acetaminophen never appeared on the FDA Drug Shortage List, and FDA did
not relax temporarily its requirement that pharmacies only dispense
compounded medications pursuant to a prescription. Few prescribers even
knew to write a prescription for a compounded version of those over-
---------------------------------------------------------------------------
the-counter medications.
While 503B outsourcing facilities are ramping up testing and production
of a shortage drug, 503A pharmacies must be allowed to compound
urgently needed drugs, in limited quantities and within tight
regulatory guardrails, and to distribute those to prescribers when
urgently needed for administration to patients--but only until such
time that the outsourcing facilities are able to provide the drug. This
model is quite similar to the framework established under FDA temporary
emergency guidance during COVID. And, as we have indicated, the
components are already in place: 503A sterile compounding pharmacies
are already equipped to do this if allowed to do so under the law.
It is a common-sense solution that would make an immediate impact on
this unnecessary gap in patient access in the current legal and
regulatory framework.
Amid continuing drug supply chain disruptions, we know pharmacy
compounding can play an essential role in alleviating shortages of
urgently needed medications if allowed to do so. These examples we've
shared demonstrate that. But it shouldn't take a plea from a trade
association and then a weeks-long lapse in time for FDA to act when
patient health is at stake. Changes to federal law are needed so that
when shortage drugs are urgently needed, compounders may assist
immediately, without bureaucratic delays and impediments.
That's why we urge the committee to include in any legislation
addressing drug shortages and drug supply chain issue provisions to
equip state-licensed pharmacy compounders to provide urgent-use
medications to hospitals and for in-clinic administration--within tight
regulatory guardrails similar to those in FDA's temporary COVID-era
guidance--when those drugs are in shortage or otherwise unavailable
from a traditional drug manufacturer or a licensed outsourcing
facility. We also urge that FDA's Drug Shortage list, which tends to
lag the market, be supplemented by the shortage list maintained by the
ASHP, which has proven to be a much better real-time indicator of
national and regional drug shortages. (If the ASHP list was currently a
legal indicator of shortages, pharmacies would already be compounding
many of these drugs to meet the need).
Legislation has been introduced in the House, H.R. 167, the Patient
Access to
Urgent-Use Pharmacy Compounding Act of 2023, that would put this
framework into federal law to help address temporary drug shortages
like those discussed above, but not only those above. As the recent
pandemic has shown, there are patient access gaps in our health care
system that occur when critical drugs go into shortage, including those
needed for administration to patients in hospitals and other clinical
settings. We ask that the Senate Committee on Finance consider
including the provisions of this important legislation in the drug
shortage legislation now under consideration.
FDA has interpreted Section 503A of the FDCA to require pharmacies to
obtain a patient-specific prescription for each drug they compound
before the drug leaves the pharmacy. This requirement for a patient-
specific prescription for an urgent patient need is hampering patient
care. For instance, certain patients may need anti-
bacterial, anti-fungal, and anti-viral compounded medications to treat
eye-infections in immediate if not emergency circumstances. These drugs
are often unavailable commercially or from 503B outsourcing facilities
authorized to compound without a patient-specific prescription.
Because a delay in providing the medication can result in patient harm,
in limited circumstances when a drug is in shortage it is appropriate
and necessary for 503A pharmacies to compound the medication without
having a patient specific prescription--and ensure that within seven
days after the fact the patient-specific information is relayed from
the provider to the compounding pharmacy. The patient information can
then be married to the pharmacy's records. When the FDA published its
temporary COVID-related guidance document \7\ the agency acknowledged
that urgent patient need should outweigh prescription requirements for
503A compounding, provided that other safeguards are in place. So,
there is precedent for what this bill does. It strikes that critical
balance.
---------------------------------------------------------------------------
\7\ See FDA Guidance for Industry ``Temporary Policy for
Compounding of Certain Drugs for Hospitalized Patients by Pharmacy
Compounders not Registered as Outsourcing Facilities During the COVID-
19 Public Health Emergency.''
4. Provide flexibility in the manufacturing standards that apply to
503B outsourcing facilities for drugs on the FDA shortage list so they
---------------------------------------------------------------------------
can react more quickly when shortages occur.
As discussed above, although 503B outsourcing facilities, which are
subject to cGMP standards and are registered with FDA are the
appropriate facilities to compound larger batches of shortage and other
drugs for distribution to hospitals and other providers for
administration to patients. However, those cGMP requirements, including
lengthy testing and validation periods, strict limits on the bulk
ingredients they can use, along with longer production ramp-up periods
means that outsourcing facilities are often unable or unwilling to make
the economic investment required to help alleviate short term drug
shortages.
To this end, APC is supportive of the inclusion of language in any drug
shortage legislation developed by the committee that would allow 503B
outsourcing facilities to distribute and dispense compounded drugs
within 180 days of such drug appearing on the drug shortage list. This
provision would strengthen the economic incentive for outsourcing
facilities to make the time and financial investment and undertake
testing required under current Good Manufacturing Practices (cGMP)--
which is why it often takes several months for 503Bs to begin
production--with a higher level of assurance that they will be able to
distribute or dispense those shortage drugs with a longer lag period.
Again, we thank you for this opportunity to provide input to the Senate
Committee on Finance. We urge you to develop and pass legislation
intended to address drug shortages that will put a permanent framework
into law that will allow 503A and 503B compounding pharmacists to help
address drug shortages within tight guardrails that protect patient
safety.
Please contact me at Scott@A4PC.org with questions or if the committee
would like additional input from APC.
Sincerely,
Scott Brunner, CAE
Chief Executive Officer
Resources
Pfizer Inc. customer letter.
January 2018 GFI ``Compounded Drug Products That Are Essentially
Copies of a Commercially Available Drug Product Under Section 503A of
the Federal Food, Drug, and Cosmetic Act''--https://www.fda.gov/media/
98973/download.
April 2020 GFI ``Temporary Policy for Compounding of Certain
Drugs for Hospitalized Patients by Pharmacy Compounders not Registered
as Outsourcing Facilities During the COVID-19 Public Health
Emergency''--https://www.
regulations.gov/document/FDA-2020-D-1136-0006.
November 2022 GFI ``Compounding Certain Beta-Lactam Products in
Shortage Under Section 503A of the Federal Food, Drug, and Cosmetic
Act''--https://www.fda.gov/media/163367/download.
______
American Academy of Dermatology Association
1201 Pennsylvania Avenue, NW, Suite 540
Washington, DC 20004-2401
MAIN: (202) 842-3555
FAX: (202) 842-4355
https://www.aad.org/
Chairman Wyden and Ranking Member Crapo, on behalf of the more than
17,000 U.S. members of the American Academy of Dermatology Association
(Academy), thank you for the opportunity to submit a statement for the
record regarding your hearing, Drug Shortages: Examining Supply
Challenges, Impacts, and Policy Solutions from a Federal Health Program
Perspective.
Dermatologists diagnose and treat more than 3,000 diseases, including
skin cancer, psoriasis, immunologic diseases, and many genetic
disorders.\1\ They are committed to delivering high-value, cost-
effective, and innovative care to patients. As dermatologists are at
the forefront in the fight against skin cancer and treating numerous
skin diseases, the Academy appreciates the Committee's efforts to
understand the root cause of drug shortages in the United States and
improve the resilience of the current supply chain.
---------------------------------------------------------------------------
\1\ The Academy's Burden of Skin Disease briefs are a set of
informational resources that capture the scope and importance of
various skin conditions, and can be accessed at https://www.aad.org/
about/burden-of-skin-disease/burden-of-skin-disease-briefs.
The limited drug supply and rising drug prices have made it
increasingly difficult for dermatologists to prescribe cost-effective
and life-saving medications and for their patients to access affordable
treatment. Generic oral and topical prescription drugs and drugs
administered intravenously, such as antibiotics, flu therapeutics,
saline, morphine, and certain cancer drugs, are the most vulnerable to
shortages because of manufacturing and quality issues, the lack of
incentives for manufacturers to produce less profitable drugs, and
unique market dynamics.\2\
---------------------------------------------------------------------------
\2\ https://www.fda.gov/media/131130/download.
Patient access and physician practices are significantly impacted by a
dermatologist's ability to obtain local anesthetics due to critical
shortages. For several years, dermatologists have faced reduced access
to essential drugs for dermatological procedures due to the national
shortage of vital medications, like lidocaine. Currently, numerous solo
and small group dermatology practices, including those in medically
underserved areas, have reported limited to no supplies of lidocaine
and lidocaine with epinephrine, two local anesthetics essential for
dermatologic procedures. Some dermatologists are also facing limited
supplies of sodium bicarbonate, which is often used for buffering
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lidocaine to decrease the pain of injection.
This ongoing drug shortage has resulted in the delay of medically
necessary procedures for patients with critical needs, like skin cancer
patients undergoing curative surgery in the office to remove cancerous
cells from their skin using a local anesthetic. Without the requisite
dosage of lidocaine or lidocaine with epinephrine, there will be
increased pain and bleeding at the surgical site prolonging the
procedure and increasing potential post-operative complications, or an
inability to perform these curative office procedures at all.
In recent years, the shortage of drugs has only been exacerbated by
limited production capacity and lack of competition in the
pharmaceutical industry. The lidocaine shortage has worsened since a
July 2023 tornado caused damage to the Pfizer manufacturing facility in
Rocky Mount, NC. Now, dermatologists are running out of stock before
they can obtain replacements. Drug manufacturers and suppliers are
filling backorders at an unpredictable and slow pace, leaving many
patients without the medications they need. It is troubling that
commonplace medications that are used in physicians' offices every day
are no longer available in the United States.
On behalf of the Academy and its member dermatologists, we urge
Congress to put patients' health and well-being first and use its
authority and influence to have more oversight of drug manufacturers
and the Food and Drug Administration (FDA). Congress must direct the
FDA to implement additional processes that require manufacturers to
provide more information on the circumstances surrounding the shortage.
These data points and their justification for a reduction of supply
will help inform policymakers as they seek to provide long-term
solutions to the shortage.
Thank you for holding this hearing and providing the opportunity for
stakeholders to submit a statement for the record, and for your
commitment to maintaining timely access to affordable and effective
medications for patients. The Academy looks forward to working with you
and asks you to consider policies to improve the drug supply chain and
ensure the physician's perspective on helping patients access needed
and affordable treatments.
______
American College of Emergency Physicians
901 New York Avenue, NW, Suite 515E
Washington, DC 20001-4432
202-728-0610
800-320-0610
https://www.acep.org/
December 5, 2023
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
Committee on Finance Committee on Finance
United States Senate United States Senate
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Wyden and Ranking Member Crapo,
On behalf of the American College of Emergency Physicians (ACEP) and
our nearly 40,000 members, thank you for holding today's critical
hearing entitled, ``Drug Shortages: Examining Supply Challenges,
Impacts, and Policy Solutions from a Federal Health Program
Perspective.'' Shortages of everyday, lifesaving emergency medications
are one of the most significant and persistent problems that emergency
physicians encounter, and unfortunately, they have been dealing with
these shortages for years. ACEP appreciates the opportunity to share
our perspective on this critical issue that adversely affects emergency
physicians' ability to provide the lifesaving emergency care our
patients need and deserve.
Drug shortages pose numerous challenges in the practice of emergency
medicine, requiring emergency physicians to actively monitor what
medications may be available on any given day, constantly find
alternatives for drugs that are not available (if alternatives even
exist), and train and retrain on what drugs to use and what new
protocols may be in place each time a new drug shortage is announced.
Exploring the viability of alternative treatments and medications
diverts clinicians from the bedside (e.g., using a computer,
consulting, or coordinating with other experts, etc.) when that time
could otherwise be devoted to direct patient care. This exacerbates
already-substantial stresses on emergency departments (EDs) throughout
the country that are overwhelmed due to the ongoing ``boarding''
crisis, where patients continue to occupy an ED bed even after being
seen by a physician while they wait to be admitted to an inpatient bed.
This has led to significant strain on emergency physicians, emergency
nurses, and other staff, draining limited and critical resources and
resulting in more delays in care. Particularly in emergency medicine
where life or death can be a matter of minutes or even seconds, changes
or delays in treatment can be life threatening. Furthermore, medication
substitutes often prove less effective or induce different side
effects, potentially compromising the quality of care, patient comfort,
and satisfaction. Unfortunately, in many cases, there are simply no
substitutes that exist.
This been a persistent issue for emergency medicine for years. In 2018,
ACEP conducted a survey \1\ of our membership and found that 9 out of
10 emergency physicians had experienced shortages or absence of
critical medicines in their EDs within the last month. Additionally,
nearly all respondents (93 percent) indicated that their EDs were not
fully prepared for patient surge capacity in the event of a natural or
man-made disaster or other mass casualty incident, and with fewer than
half reporting that they were ``somewhat'' prepared. Unfortunately,
these theoretical disaster scenarios would become all too real just a
few short years later as the COVID-19 pandemic pushed our health care
system to a breaking point (or beyond, in many cases).
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\1\ https://www.emergencyphysicians.org/press-releases/2018/5-22-
2018-90-percent-of-Emergency-Physicians-have-Experienced-Drug-
Shortages-in-Past-Month.
Also in 2018, ACEP supported a bipartisan, bicameral congressional
letter, led by Representatives Brett Guthrie (R-KY) and Mike Doyle (D-
PA) and Senators Bill Cassidy, M.D. (R-LA) and Chris Murphy (D-CT),
urging U.S. Food and Drug Administration (FDA) Commissioner Scott
Gottlieb to identify the root causes of drug shortages, develop
recommendations for Congress to address them, and take appropriate
action to ensure these medications remain available. In response,
Commissioner Gottlieb announced the creation of the FDA Drug Shortages
Task Force in June 2018. ACEP was invited to participate in a listening
session with the Task Force, attended the public meeting it convened,
and submitted comments \2\ to the Task Force. In October 2019, the Task
Force issued a report entitled, ``Drug Shortages: Root Causes and
Potential Solutions.''\3\ This report (revised February 2020) found
three major, foundational root causes for drug shortages: a lack of
incentives to produce less profitable drugs; no recognition or reward
for manufacturers for investing in and implementing mature quality
management systems; and logistical and regulatory challenges that make
it difficult for the market to recover after a disruption. The report
further notes that these root causes are driven by a wide variety of
economic factors driven both by the public and private sector.
---------------------------------------------------------------------------
\2\ https://www.acep.org/siteassets/new-pdfs/advocacy/acep-
comments-on-fda-meeting-on-drug-shortages.pdf.
\3\ https://www.fda.gov/drugs/drug-shortages/report-drug-shortages-
root-causes-and-potential-solutions.
With respect to emergency medicine, drug shortages exist across the
spectrum of emergency care, including pre-hospital emergency care and
emergency medical services (EMS). Shortages of commonly-used but
essential medications remain an acute problem and tend to
disproportionately affect emergency medicine due to its reliance upon
generic medications for rapid sequence intubation, seizures, antidotes,
resuscitation, as well as analgesics, antiemetics, and anticoagulants.
EMS systems and hospital systems track and report shortages, adapting
protocols in real-time to mitigate the effects of these challenges.
Drug shortage reports typically include the drug/preparation in
shortage, possible substitutes, and estimates of when the shortage will
be resolved or when backorders are expected to clear (as reported by
the manufacturer). In tracking shortages, what has become clear over
the last decade, is that these shortages are not only severe but also
persistent. One study conducted in 2015 found that half of all reported
drug shortages from 2002 to 2014 involved acute care drugs used in ED,
and these shortages are increasingly frequent and prolonged.\4\
---------------------------------------------------------------------------
\4\ Chen, S.I. et al. (2015). National Shortages of Drugs Used in
the Emergency Department, 2002-2014, Annals of Emergency Medicine,
Volume 66, Issue 4, S64.
Drug shortages can often last for several months or longer,
constituting a significant risk to patients. While there is a mostly
predictable demand for essential emergency medications, the supply is
becoming increasingly unpredictable. Not having access to critical
life-saving medications and drugs such as local anesthetics, injectable
pain management drugs for acute pain and trauma, anti-nausea drugs, and
even sterile intravenous (IV) fluids is disastrous and potentially
devastating in terms of patient outcomes. There should never be
shortages of essential and life-saving, but simple, products such as
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sterile saline, sodium bicarbonate, or epinephrine.
The clinical impact of a shortage is highly variable, depending on the
drug. For example, amoxicillin is a common antibiotic to treat
bacterial infections and is used across the entire age spectrum, but
shortages particularly affect pediatric populations. While there is a
current nationwide shortage of amoxicillin, fortunately, this appears
to be improving somewhat in recent weeks. Shortages of common topical
anesthetics, frequently referred to as the ``caines''--lidocaine,
bupivacaine, etc.--have existed for years, but are worsening throughout
the country. These drugs are used every single day in EDs everywhere to
numb lacerations and other similar injuries, but their availability is
so unpredictable that supply can change daily. And recent, well-
documented shortages of albuterol, an inhaled bronchodilator used for
treatment of asthma, chronic obstructive pulmonary disease (COPD), and
other lung diseases, limit both patients' and clinicians' ability to
treat exacerbations of their conditions, which can result in ED visits
and longer stays that would otherwise be preventable. Shortages of
opioids and sedatives persist in the palliative care space, impacting
the ability to relieve acute pain and discomfort.
In many cases, shortages may not be due to a lack of the medication
itself, but rather the container. Some emergency physicians are
currently reporting shortages of sodium bicarbonate syringes both in
the 4.2 percent syringes used for pediatric patients and 8.4 percent
syringes. As an alternative, their hospital pharmacy will likely supply
vials, rather than syringes, until the shortage resolves. However, this
also requires an additional layer of precaution to avoid medication
errors, with the facility placing the pediatric vials in a separate
location to prevent any possible confusion between the two
concentrations. This is the currently the case for many other
medications, where the container itself is in shortage and the
medication may be available in different volumes or concentrations--but
constantly changing protocols and different container sizes and
concentrations increase the risk of medication errors and negative
patient outcomes.
Consider the following example from just several years ago. In June
2017, there were 69 preparations of 28 emergency care medications in
shortage, including most forms of adenosine, atropine, bicarbonate,
calcium, dextrose, dopamine, epinephrine, fentanyl, furosemide,
labetalol, magnesium, lorazepam, and paralytic agents.\5\ The shortages
were exacerbated by the devastation wrought by Hurricane Maria on
Puerto Rico in late 2017. The damage resulted in the largest drug
manufacturing hub in the country grinding to a halt, with nearly all of
the more than 50 pharmaceutical manufacturing facilities located on the
island knocked offline by the storm. With little to no redundancy in
the supply chain, manufacturers were not able to produce many of the
essential products need throughout the health care system. By July of
2018, those shortages peaked at 170 emergency medication preparations
and 50 intravenous fluid preparations that were not available. By
December 2018, more than 110 drugs for emergency care remained in
shortage. These conditions have not improved since--as of June 2023,
there are 117 essential emergency medications in shortage.
---------------------------------------------------------------------------
\5\ Augustine, James J. (2017). ``Emergency Departments Need Plan
to Deal with Drug Shortages,'' ACEPNow https://www.acepnow.com/article/
emergency-departments-need-plan-deal-drug-shortages/
?singlepage=1&theme=print-friendly.
Even before Hurricane Maria, sterile saline solution was already in
short supply. Again, this is a simple, inexpensive product used every
single day in every hospital in the country for nearly any patient,
including countless patients in the ED. Saline typically comes in
either small- or large-volume bags, both of which were in shortage
prior to Hurricane Maria. The U.S. health care system relies on just
three suppliers for saline (Baxter International, B. Braun Medical, and
ICU Medical), with Baxter supplying small-volume bags to half of all
U.S. hospitals alone.\6\ As any manufacturing problems for just one
producer can overwhelm the system, Baxter's Puerto Rico facility going
offline was extraordinarily disruptive--there was no redundancy built
into their supply chain, other facilities cannot simply convert
production lines for one product to another, and other manufacturers
were not able to increase production capacity to meet the increased
demand.
---------------------------------------------------------------------------
\6\ Mazer-Amirshahi, M. & Fox, E. (2018). Saline Shortages--Many
Causes, No Simple Solution. The New England Journal of Medicine.
378:1472-1474. https://www.nejm.org/doi/full/10.1056
/NEJMp1800347.
Another more recent example (Fall and Winter 2022) of how shortages can
contribute to complications and worsen outcomes throughout the health
care continuum are the severe shortages of commonly-used medications,
such as liquid formulations of ibuprofen, acetaminophen, and
amoxicillin. Shortages of these drugs left many parents unable to
manage mild symptoms for their children's illnesses, resulting in
increased visits to the ED and prolonged stays that could have been
avoided with proper access to necessary medications. It also
contributed to countless phone calls from pharmacies to EDs, urging
emergency physicians to change prescriptions as they could not fill the
---------------------------------------------------------------------------
orders.
Additional reasons for drug shortages cited by the Government
Accountability Office (GAO), the FDA, Pew Agency for Charitable Trusts,
and others, include greater scrutiny and regulatory oversight on the
manufacturing process and quality controls, as well as additional
factors such as consolidation of manufacturers (especially for generic
injectables), low profit margins, shortages of raw materials, absences
of redundancies in the supply chain, increased demand, and product
discontinuations. The 2017 Pew report on drug shortages for example
found that while quality factors are one of the most significant
driving factors, it is not the only issue leading to shortages, and
that other key factors are market withdrawals, supply chain design,
purchaser-manufacturer incentives, limited market insights into future
demands, and managing regulatory expectations.\7\
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\7\ The Pew Charitable Trusts, ``Drug Shortages An exploration of
the relationship between U.S. market forces and sterile injectable
pharmaceutical products: Interviews with 10 pharmaceutical companies,''
January 2017, https://www.pewtrusts.org/-/media/assets/2017/01/
drug_short
ages.pdf.
The 2016 GAO report, ``Drug Shortages: Certain Factors Are Strongly
Associated with This Persistent Public Health Challenge,'' also found
that two factors were strongly associated with shortages of sterile
injectable anti-infective and cardiovascular drugs--a decline in the
number of suppliers, and failure of at least one establishment making a
drug to comply with manufacturing standards resulting in an FDA warning
letter.\8\ According to the GAO, this suggests that ``. . . shortages
may be triggered by supply disruptions.'' The report also indicates
that a third factor, drugs with sales of a generic version, is
associated with shortages in that low profit margins for generic drugs
mean that ``manufacturers are less likely to increase production,
making the market vulnerable to shortages.''
---------------------------------------------------------------------------
\8\ United States Government Accountability Office, ``Drug
Shortages: Certain Factors Are Strongly Associated with This Persistent
Public Health Challenge,'' July 2016, https://www.gao.gov/assets/680/
678281.pdf.
The ongoing price increases of certain essential medications also
present a major challenge to the budgets of emergency care providers,
such as EMS organizations. For example, a critically-needed drug for
emergency care is naloxone, the rescue medicine for patients suffering
respiratory depression due to an opiate overdose. As you well know,
this frequently-used medication has been employed as a first-line
response for opioid overdose treatment for more than 50 years but has
recently become prohibitively expensive or difficult to source,
especially at the higher doses or in formulations now needed to treat
many patients with opioid use disorder (OUD) or individuals who have
overdosed on fentanyl or fentanyl analogues that are significantly more
potent. Various factors may contribute to this particular price
increase: higher overall rates of opioid overdoses, increased awareness
and promotion of naloxone as an overdose reversal agent, or even recent
state and federal policies enacted to encourage co-prescribing of
---------------------------------------------------------------------------
naloxone.
In the FDA Drug Shortages Task Force report, logistical and regulatory
challenges are identified as one of the three key root causes of drug
shortages, as they hinder the market's ability to recover after
disruptions in production or elsewhere in the supply chain. Many of
these regulatory considerations fall under the purview of the FDA.
However, like nearly any modern supply chain, the drug manufacturing
supply chain has grown increasingly complex and is a global enterprise.
As a result, manufacturers not only have to seek FDA approvals for
things such as alternative manufacturing sites or alternative suppliers
of active pharmaceutical ingredients (API), but also ``. . . many post-
approval changes to regulatory fillings require prior approval by the
regulatory authority of every country individually, and this can be
over 100 countries for globally marketed products.'' Additional details
on the various regulatory considerations are included in the report.
Innovative payment models can help encourage the development of new
drugs to address future needs, better prepare us against emergencies,
disasters, and mass casualty events, or better equip our health care
system to resolve drug shortages of essential emergency medications in
a timely manner. As Congress considers any such approaches, ACEP
believes a key piece of any new solution or payment model should ensure
that essential emergency medications are prioritized and made available
for emergency departments and EMS that maintain the health care safety
net. EMS agencies in particular have still not fully recovered from the
effects of the pandemic and struggle to respond to steep price
increases or price gouging for everyday medications like naloxone or
epinephrine autoinjectors (EpiPens), so Congress should consider
policies that ensure EDs and EMS units are protected and not left to
absorb severe price increases.
The FDA report noted that consolidation of group purchasing
organizations (GPOs) resulted in the four largest GPOs accounting for
approximately 90 percent of all medical supplies in the U.S., adding
that as a result of this growing consolidation, GPOs are able to exert
control over the market and ``. . . have been able to negotiate low
prices, especially for multi-source generics.''\9\ With manufacturers
unable to raise prices or compete with other manufacturers seeking to
gain market share, this often results in a ``race to the bottom'' where
manufacturers sell a drug at or below cost. As the report states, this
is a contributing factor to unfavorable pricing dynamics that
discourage manufacturers by limiting their profitability:
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\9\ Drug Shortages: Root Causes and Potential Solutions.
When market conditions limit manufacturers' profitability, they
reduce a firm's motivation to maintain a presence in, or enter
the market for older prescription drugs, and to invest in
manufacturing quality and redundant capacity. Manufacturers of
older generic drugs, in particular, face intense price
competition, uncertain revenue streams, and high investment
requirements, all of which limit potential returns. Current
contracting practices contribute to a `race to the bottom' in
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pricing.
Many GPOs include ``failure to supply'' clauses in contracts with
manufacturers, ostensibly intended to provide an incentive for
manufacturers to invest in efforts to ensure a reliable and consistent
supply chain for drugs. However, even despite growing GPO consolidation
and outsized market presence, the report further notes that these
clauses are ``generally weak,'' and that manufacturers face few or no
repercussions beyond minimal revenue losses or reputation impacts.
As the FDA Drug Shortages Task Force, the Government Accountability
Office (GAO), and numerous other analyses and studies have found, drug
shortages are complex and multifactorial, and the issues described here
are only pieces of a larger puzzle. There is only limited understanding
and study of the broader, system-wide impacts of GPO contracting
practices, including on how they may contribute to drug shortages.
Given the already challenging economics of producing generic drugs,
especially generic sterile injectables, it is possible that the
significant downward pressure exerted by GPOs on already-low margin
generic products could force manufacturers out of the market.
Additionally, ``sole-source'' exclusive contracts could prevent some
facilities, particularly drug compounders, from mitigating drug
shortages.\10\ While not a key driver of drug shortages, it could
potentially be an underlying factor. One issue Congress could examine
in more detail is any role of GPOs in drug shortages, including whether
the safe harbor provisions under federal anti-kickback statutes
afforded to GPOs contribute to shortages, and consider repeal of the
provisions if so.
---------------------------------------------------------------------------
\10\ Barlas S. (2019). Do GPOs Play a Role in Drug Shortages? Long-
Standing Allegations Disputed by the GPOs. Mar;44(3):94-121. PMID:
30828227; PMCID: PMC6385730 https://www.ncbi.nlm.nih.gov/pmc/articles/
PMC6385730/.
With respect to business practices, many stakeholders throughout the
health care system--drug manufactures, GPOs, distributors, and health
systems alike--have employed ``just-in-time'' inventory management
practices, driven by financial incentives and potential operational
efficiencies. While this may provide short-term benefits in normal,
day-to-day operations, the Task Force noted that there is ``. . .
little redundancy in the supply chain when a disruption occurs,'' and
that resulting shortages cannot be easily addressed because of
difficulties in ramping up production, expanding capacity, or sourcing
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necessary components including API.
Given that drug shortages are complex and multifactorial, and that
there are numerous stakeholders involved in manufacturing,
distribution, and utilization, we must be strategic and intentional
about determining aligned incentives and cooperative initiatives that
focus on providing quality patient care.
Any solutions should look at both short- and long-term needs--resolving
existing shortages and insulating our health care system from future
shortage scenarios. As ACEP has noted in responses to Congress
regarding efforts to reauthorize the Pandemic and All-Hazards
Preparedness Act (PAHPA), growing antimicrobial resistance and the
reduction of remaining effective antimicrobial armamentarium represent
a critical threat to public health and the health of patients in
emergency departments throughout the U.S. and the world.
The Presidential Advisory Council on Combating Antibiotic-Resistant
Bacteria (PACCARB) noted in a 2021 letter to HHS Secretary Xavier
Becerra that the U.S. continues to face a ``. . . severe lack of new
antimicrobial drugs.'' This growing deficit is exacerbated by
increasing antimicrobial resistance to existing treatment options,
leaving health care professionals more limited ability to treat
infections. To help address the investment and development pipeline
challenges for new antimicrobial drugs, ACEP urges Congress to include
the Pioneering Antimicrobial Subscriptions to End Upsurging Resistance
(PASTEUR) Act in PAHPA. The PASTEUR Act would establish an innovative,
subscription-based payment model for novel antimicrobials, allowing the
federal government to enter purchasing contracts with companies that
delinks payment from sales volume. This will help reduce risks for
companies seeking to develop new antimicrobials, while also ensuring
the federal government only pays for successful FDA-approved treatments
that are available to patients and meet unmet antimicrobial resistance
needs. The PASTEUR approach is similar to Project Bioshield, which
helps support the development and procurement of medical
countermeasures for other biological and radiological threats. Similar
approaches for essential emergency medications or other drugs
frequently in shortage could be employed as well.
Ensuring redundancy and resiliency within the pharmaceutical supply
chain is critical for everyday needs as well as emergency preparedness
needs, and as we have experienced directly, major natural disasters or
disease outbreaks have pushed our health care system to or beyond its
breaking point. Further incentives are undoubtedly essential to
encourage manufacturers, primarily to ensure a consistent supply of
essential medications at all times, particularly for low-cost/low-
margin drugs. Additionally, these incentives should promote investment
in equipment and technologies to facilitate efficient and rapid
scalability of medication production. Moreover, they should incentivize
domestic production and sourcing of active pharmaceutical ingredients
(APIs) to reduce dependence on intricate and fragmented global supply
chains. Overall, ACEP believes there are several overarching objectives
that federal agencies should focus upon:
1. Routine measurement in the way of inventory surveillance
2. Broadly applied transparency as related to manufacturing and
distribution practices to ensure adequate competition (including how
existing federal laws may affect transparency and competition)
3. Flexibility in terms of granting authority to adjust protocols
to fit the needs of real-time circumstances
4. Incentives or requirements to promote greater redundancy and
resiliency
5. Comprehensive strategies to increase the manufacturing of drugs
in shortage, especially generic sterile injectables (such as developing
regulatory or process incentives to accelerate the development of new
manufacturing sites)
Once again, thank you for holding this important hearing and for the
opportunity to share our comments and experiences with how drug
shortages affect care for our patients in need of lifesaving emergency
care. ACEP remains hopeful that we can build upon our collective
efforts to ensure stable, predictable, and affordable supplies of
emergency medications for both everyday operation and disaster
preparedness and response. Should you have any questions, please do not
hesitate to reach out to Ryan McBride, ACEP Congressional Affairs
Director, at rmcbride@acep.org.
Sincerely,
Aisha T. Terry, M.D., MPH, FACEP
President
______
American Hospital Association
800 10th Street, NW
Two CityCenter, Suite 400
Washington, DC 20001-4956
(202) 638-1100
https://www.aha.org/
On behalf of our nearly 5,000 member hospitals, health systems and
other health care organizations, and our clinician partners--including
more than 270,000 affiliated physicians, 2 million nurses and other
caregivers--and the 43,000 health care leaders who belong to our
professional membership groups, the American Hospital Association (AHA)
thanks you for the opportunity to submit comments to the Senate
Committee on Finance regarding the important topic of drug shortages.
America's hospitals and health systems have long been concerned about
shortages of a wide range of drugs used to treat patients. Of
particular concern to hospitals are the cascading impact of drug
shortages on patients and the heightened stress on scarce hospital
resources. Shortages can adversely affect patient care by causing
delays in treatment, increasing the risk of medication errors and
requiring the use of less effective alternative treatments. As a
result, diseases that are curable or manageable for most patients, such
as childhood leukemia, may not be able to be treated effectively.
When a drug is in shortage, hospitals must find an alternative drug to
provide their patients. This process of finding and procuring an
alternative drug can result in significant costs to the hospital. An
analysis published in 2019 estimated that drug shortages result in at
least $359 million annually in additional labor costs to hospitals.\1\
Due to the increased cost and necessity of treating patients in a
timely manner, especially in cases of cancer and other serious illness,
it is important to ensure the pharmaceutical supply chain is protected
and priority drugs are identified and given special attention so that
continual access is ensured for patients.
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\1\ https://wieck-vizient-production.s3.us-west-1.amazonaws.com/
page-Brum/attachment/c9dba
646f40b9b5def8032480ea51e1e85194129.
However, it has become increasingly clear that our national
pharmaceutical supply chain is fragile; this fragility poses
significant risk to the patients and communities served by America's
hospitals and health systems. Various businesses make up the
pharmaceutical supply chain, including suppliers, manufacturers,
distributors and group purchasing organizations. A disruption anywhere
in the chain can create prolonged difficulties in pharmaceutical supply
acquisition for providers, which can directly affect their ability to
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treat patients.
Exacerbating these difficulties is the ``lean'' or ``just-in-time''
framework of supply chain operations. There is effectively little
buffer when disruptions occur. Distributors, manufacturers and health
care providers have pursued this just-in-time supply chain approach
with the goal of lowering costs so that health care is more affordable;
however, during large scale emergencies and other disruptions in
supply, the risks and added costs of such a strategy is clear. When
those disruptions occur, providers often have little or no notice and
can be left scrambling to acquire products necessary to care for the
sick and injured.
To mitigate these challenges, strengthening the supply chain is
crucial. A focus on increasing manufacturing redundancy, diversifying
where raw materials are sourced and where products are manufactured,
and ``fattening'' the overall supply chain will provide significant
improvements. It will allow the supply chain to withstand expected and
unexpected fluctuations in the supply of, and demand for,
pharmaceutical products and protect it against future public health
emergencies and natural disasters.
This year, the AHA has supported multiple bills in the Senate that take
steps to address drug shortages and shore up the pharmaceutical supply
chain, including the following.
Mapping America's Pharmaceutical Supply (MAPS) Act (S. 2364). A
critical step in protecting America's drug supply chain is
understanding its vulnerabilities from the beginning of production to
the moment a drug is administered to a patient. The MAPS Act creates a
plan for the Food and Drug Administration and the Department of Defense
to map the U.S. pharmaceutical supply chain. The act also includes use
of data analytics to identify and predict supply chain vulnerabilities
and other national security threats. With the information collected and
analyzed through the MAPS Act, it will be possible to begin addressing
weaknesses in the pharmaceutical supply chain.\2\
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\2\ AHA Letter of Support for the Mapping America's Pharmaceutical
Supply Chain, or MAPS, Act of 2023 | AHA.
Rolling Active Pharmaceutical Ingredient and Drug (RAPID) Reserve Act
(S. 2510). Pharmaceutical shortages and supply chain failures can have
a devastating impact on patients. The RAPID Reserve Act would establish
a program to improve supply chain resiliency for critical generic drug
products, ensuring adequate supply is available even in the event of a
shortage. The legislation awards contracts to eligible drug
manufacturers requiring them to maintain a 6-month buffer of these
critical drugs and their active pharmaceutical ingredients to ensure
continuous production flow. With adequate supply of necessary drugs,
providers will be equipped to administer necessary, often lifesaving,
drugs to patients.\3\
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\3\ AHA Letter of Support for the Rolling Active Pharmaceutical
Ingredient and Drug, or RAPID, Reserve Act of 2023 | AHA.
Pharmaceutical Supply Chain Risk Assessment Act of 2023 (S. 1961). The
Pharmaceutical Supply Chain Risk Assessment Act of 2023 would require a
comprehensive risk assessment of the entire U.S. pharmaceutical supply
chain. This overarching project will help provide critical information
necessary to mitigate and prevent drug supply shortages. A disruption
anywhere in the supply chain can create prolonged difficulties in
pharmaceutical supply acquisition for providers, and avoiding these
disruptions before they occur will benefit providers and the patients
they serve.\4\
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\4\ AHA Letter of Support for the Pharmaceutical Supply Chain Risk
Assessment Act of 2023 | AHA.
We thank you for the opportunity to submit comments the Senate
Committee on Finance regarding drug shortages and look forward to
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continuing to work with you on this important issue.
______
American Pharmacists Association
2215 Constitution Ave., NW
Washington, DC 20037
800-237-2742
https://www.pharmacist.com/
The Honorable Ron Wyden The Honorable Mike Crapo
Chair Ranking Member
The U.S. Senate Committee on
Finance The U.S. Senate Committee on
Finance
219 Dirksen SOB 219 Dirksen SOB
Washington, DC 20510 Washington, DC 20510
Chair Wyden, Ranking Member Crapo, and Members of the Committee:
On behalf of our nation's over 310,000 pharmacists, the American
Pharmacists Association (APhA) is pleased to submit the following
Statement for the Record to the U.S. Senate Committee on Finance
hearing ``Drug Shortages: Examining Supply Challenges, Impacts, and
Policy Solutions from a Federal Health Program Perspective.''
APhA is the largest association of pharmacists in the United States
advancing the entire pharmacy profession. APhA represents pharmacists
and pharmacy personnel in all practice settings, including community
pharmacies, hospitals, long-term care facilities, specialty pharmacies,
community health centers, physician offices, ambulatory clinics,
managed care organizations, hospice settings, and government
facilities. Our members strive to improve medication use, advance
patient care, and enhance public health.
APhA applauds the Committee's ongoing leadership and recognition of the
need to address ongoing drug shortage issues. APhA has recently
responded to congressional requests for information,\1\ proposed
legislation,\2\ and the FDA \3\ on ways to partner with our nation's
pharmacists to address ongoing drug shortages.
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\1\ https://www.pharmacist.com/
DNNGlobalStorageRedirector.ashx?egsfid=lShzV4LvadQ%3d.
\2\ https://www.pharmacist.com/
DNNGlobalStorageRedirector.ashx?egsfid=-BuDhOnzBpk%3d.
\3\ https://www.pharmacist.com/
DNNGlobalStorageRedirector.ashx?egsfid=sY1w_PYlpZ8%3d.
APhA also supports the recommendation from today's pharmacist witness,
Inmaculada Hernandez, PharmD., Ph.D. for ``reforms to the Medicare Part
D program to . . . ensure fair pricing and reimbursement practices,
prevent and penalize anti-competitive behavior, foster pharmacy
---------------------------------------------------------------------------
sustainability, guarantee pharmacy access, and promote transparency.''
Drug shortages impact pharmacy teams and patients in all practice
settings. Health systems across the country have dedicated staff that
focus specifically on addressing and mitigating the impact of potential
and current drug shortages. They scour the country for short-supply
drugs and develop protocols and allocation schemes for precious drugs,
such as those for cancer and emergency care.
Impact of Drug Shortages on the Vital Role of Community Pharmacies
The effect on community pharmacies of drug shortages, particularly
small independent pharmacies, is often hardest because they lack the
buying power that larger chains or health systems have to purchase or
stock up on short-supply drugs. During the recent amoxicillin and
children's fever drug shortages, many chain pharmacies had drugs
available for weeks and months after independent pharmacies, who have
smaller on-hand inventories, quickly ran out and could not restock.
This left many parents scrambling from pharmacy to pharmacy to find
medicines for their sick children. While compounding pharmacies could
have alleviated this issue, FDA did not implement APhA's
recommendations, which could have mitigated the shortage, including:
adding ibuprofen and acetaminophen pediatric oral suspensions to the
FDA drug shortage list, issuing temporary guidance for the compounding
of acetaminophen and ibuprofen pediatric oral suspensions, and
providing enforcement discretion regarding the essential copies and
prescription requirement provisions for these products until sufficient
supply was available across the country.
Amend the FDCA Definition of ``Drug Shortage'' and What Goes on the
Drug Shortage List to Enable Faster and Broader
Prevention and Mitigation Response
The term ``drug shortage'' is defined in the Food, Drug, and Cosmetic
Act (FDCA) in section 506C(h)(2) as: ``the term `drug shortage' or
`shortage,' with respect to a drug, means a period of time when the
demand or projected demand for the drug within the United States
exceeds the supply of the drug;'' FDA's drug shortage response is
commendable. FDA can reach into their drug shortage toolbox and use
various tools to deflect or mitigate drug shortages. There are many
times when a demand exceeds supply throughout the country or in pockets
of the country, however, the product does not appear on the FDA drug
shortage list. This limits FDA's ability to use some of the effective
tools in its toolbox.
The University of Utah/ASHP drug shortages list is broader and more
reflective of what's happening in the marketplace. It contains drug
shortage information that is reported by healthcare professionals
around the country and is investigated and verified before it is added
to their list. FDA uses information that is provided by manufacturers
to determine whether the product is in shortage or at risk of shortage.
Although FDA does query the marketplace, significant reliance on this
narrow source of information unnecessarily keeps the bar high for a
product to get on the drug shortage list and, consequently, slows
prevention and mitigation response efforts.
APhA recommends that the scope of the FDA drug shortage list required
under section 506E of the FDCA be broadened to reflect more sources of
information. The list should be nimbler and resilient in identifying
drug shortages in the U.S., whether widespread or in pockets of the
country. Additionally, as experience shows, it takes a while for
availability to stabilize across the country. Therefore, we recommend
that the definition incorporate a stabilization period to ensure that
the drug shortage has resolved and is not still in a fragile state. For
example, the definition of what is reported and what goes on the list
could be amended in the following way:
the term ``drug shortage'' or ``shortage,'' with respect to a
drug, means a period of time when the demand or projected
demand for the drug, as reported by manufacturers, wholesale
distributors, and health care practitioners, within the United
States or a region of the United States exceeds the supply of
the drug; and continues until six months starting on the day
all manufacturers have stabilized market availability across
the United States.
Enable Compounding Pharmacies to Help Earlier
Currently, under certain conditions, compounded drugs can be made and
distributed by state-licensed compounding pharmacies when the drug
appears on the FDA drug shortage list. These pharmacies are able to
produce products when commercial manufacturers are not able to meet
market demand. Because pharmacies compounding under 503A of the law
oftentimes compound products for local patients, they are able to more
quickly fill in gaps in availability, particularly if a shortage is
identified regionally due to specific market demands. For example, if
there is misaligned distribution of products across the U.S. because of
concentrated cases of an infection, weather, or other acts of nature
that surge demand in a region, or during the early or latter stages of
a more widespread drug shortage. Unfortunately, current law does not
support the ability of 503A pharmacies to fill these gaps. By modifying
the definition of ``drug shortage,'' as noted above, the FDA drug
shortage list will reflect the dynamics in the marketplace and trigger
the ability of 503A pharmacies to compound to prevent or mitigate a
shortage.
Reform PBM Business Practices That Contribute to Drug Shortages
Another cause of drug shortages is the impact and influence of rebates
and pharmacy benefit managers (PBMs). PBMs negotiate with manufacturers
to get their drugs on formulary. In doing so, the manufacturers raise
prices and provide the PBMs with large rebates, which are kept by the
PBMs. This cycle of rebates continues even after a drug loses its
patent protection and generics are approved for marketing. By keeping
the higher-priced brand version on a plan formulary, the PBM can
continue to get rebates, blocking out generic versions from getting on
formularies. This disincentivizes generic manufacturers from producing
their version, leading to fewer options and creating a greater risk of
shortage if there is a problem meeting market demand.
Accordingly, APhA strongly supports the Committee's recently passed PBM
reform legislation to reign in PBM practices, however, more must be
done to mitigate the influence that PBM economic antics contribute to
drug shortages by shifting preferences away from lower-cost generic
drugs.
DEA/FDA Collaborative Forecasting and Surveillance
APhA appreciates that the FDA and DEA continue to work closely with
hospitals, pharmacists, Congress, and others to prevent or reduce the
impact of drug shortages.
For example, on August 1, 2023, the FDA and DEA released a rare joint
public letter \4\ to provide an update on the recent attention deficit
hyperactivity disorder (ADHD) drug shortage. The two agencies announced
they are working with multiple manufacturers, agencies, and others in
the supply chain to reduce the impact of these shortages and asked drug
manufacturers to increase production. FDA is also taking steps to
support alternative treatment options while there is a shortage and
recommends the use of non-stimulant medications. FDA and DEA also
stated that some drug manufacturers have allotted production quota they
have not fully used and are on track to fall one billion doses below
their allocated quota. Both agencies are asking for unused product
quota to be reallocated to manufacturers who could produce these drugs.
---------------------------------------------------------------------------
\4\ https://www.dea.gov/sites/default/files/2023-08/
DEA%20and%20FDA%20Issue%20Joint
%20Letter%20to%20the%20Public.pdf.
On November 1, 2023, the DEA announced \5\ changes to its quota
allocation process to be more flexible and resilient in allocation
management. DEA reduced the amount that manufacturers must keep in
inventory to make it easier to relinquish their quote allotments in
case they are not able to produce a drug. DEA also took steps to
increase manufacturer transparency and receive better real-time data on
the status of drug production going forward.
---------------------------------------------------------------------------
\5\ https://www.dea.gov/sites/default/files/2023-11/Quota-
Shortages%20Letter.pdf.
It is essential that FDA and DEA continue with close communication and
collaboration in exchanging forecasting and market surveillance data to
be nimbler in addressing or mitigating drug shortages. We appreciate
that DEA will be moving to a quarterly allocation system, however, by
the time quotas are redistributed, it may be too late since
manufacturers may not be able to ramp up production fast enough to
prevent a shortage.
APhA Recommendations to Assist in Addressing Drug Shortages
APhA makes the following recommendations to the Committee to assist in
addressing drug shortages, including:
Amend the FDCA definition of ``drug shortage'' and what goes on
the drug shortage list. to enable faster and broader prevention and
mitigation response.
Enable compounding pharmacies to help earlier.
Reform PBM business practices that are contributing to drug
shortages.
Increasing transparency and accountability in drug manufacturing
and oversight to help prevent and mitigate shortages and help
purchasers make appropriate decisions based on the quality and reliable
availability of drugs.
Increase incentives to domestically manufacture generic drugs.
Congress would also need to provide the FDA with additional funding to
increase inspection coverage and review of new manufacturing facilities
(e.g., hiring more FDA staff to conduct these inspections and assess
compliance and quality of drugs produced in these facilities, as well
as the ability for personnel working on drug shortage prevention and
mitigation to quickly address potential shortages).
APhA appreciates the opportunity to provide this Statement for the
Record for the recent hearing to address drug shortages. Pharmacists
play a critical role in helping to manage drug shortages for their
patients. APhA encourages members of the Committee to leverage the
expertise of our nation's pharmacists as you consider solutions for
addressing drug shortages for our patients in the United States. Please
contact Doug Huynh, JD, APhA Director of Congressional Affairs, at
dhuynh@
aphanet.org if you have any additional questions or need additional
information.
______
EPCOT International
29150 Bryce Road
Pepper Pike, OH 44124
(216)-292-0626 (W)
(216)-292-0626 (F)
https://epcotint.com/
December 6, 2023
My name is Girish Malhotra. I am President of EPCOT International, a
consulting company.
Middlemen are PBMs subsidiaries. None of the panel members or the
legislators know about the manufacturing technologies, e.g., continuous
manufacturing or advanced manufacturing practices. PBMs should be held
accountable of distributing less than quality products. They are not.
It is ironic that three Executive Orders have been not implemented.
1. Executive Order 13588 Reducing Prescription Drug Shortages
(https://obamawhitehouse.archives.gov/the-press-office/2011/10/31/
executive-order-13588-reducing-prescription-drug-shortages), October
31, 2011, Accessed August 31, 2020
2. Executive Order 13944 (https://www.govinfo.gov/content/pkg/FR-
2020-08-14/pdf/2020-18012.pdf), Accessed April 26, 2022
3. Executive Order on America's Supply Chains (https://
www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/
executive-order-on-americas-supply-chains/), Feb. 21, 2021 Accessed May
30, 2022
USA has held such hearings over and over again but then nothing
meaningful has happened.
November 25, 2023
USA's Annual Ritual of Drug Sourcing/Pricing and Shortages:
In fourth quarter of every year in USA, there is a euphoria of finding
the right prescription drug sourcing (\1\) plan.
With number of players offering their plans one has to be careful to
pick the right plan for their needs. It is interesting to note that we
are given a filled price for the drug. Generally there is no breakdown
of the components that make the payment to be made.
It is generally accepted that the drugs will be available or shipped
from the selected pharmacy and all will be good. It is worth noting
that about 90% of the drugs dispensed are generic drugs
(\1\, \2\) and sourced through various
suppliers under Medicare healthcare plans. According to US Census
Bureau about 92.1% of the US population has healthcare
coverage.(\3\) The numbers suggest that majority
of the US population has access to generic drugs. However, issues of
shortages and unaffordability prevails. Brand drug prices are not part
of the discussion. Due to lack of any immediate competition they set
their own sale prices.
Pathway of the generic drug to the patient and pricing needs some
explaining. PBMs (pharmacy benefit managers and their partners)
purchase the drugs from manufacturers and distribute them. Their
mission is maximize profits.
Prescribers generally do not know the breakdown of the monies they pay,
i.e., cost of the drug, handling and shipping etc. Patient pays the
price their drug provider charges. Table 1 reviews the price breakdown
for two drugs.
One of the age old trading practices is to pressure the manufacturer to
lower their selling price. If the manufacturer does not make their
desired profit, they will not sell the drug to PBMs and this will
result in shortages. Patients will experience these. For PBMs drug
becomes an ``ITEM'' of trade rather than a person's life depends on it.
To them profits are more important than the life of the patient/
customer.
Generally a cost breakdown of any drug is not in public domain. Their
discussion is healthy as many ambiguities can be cleared. A cost
breakdown and comparison with and without insurance
(\4\) gives us the landscape. CostPlusdrugs.com
(\5\) drug price breakdown is reviewed here.
Prices of GoodRx.com (\6\) can be used for
comparison. A review clears any misconception one could have.
Perspective here reviews the cost of the generic drugs from the factory
floor to the patient. Similar but different scale of numbers apply for
the brand drugs. I am not influenced by any for or non-profit entity.
Observations presented are my own.
With such a large population being covered by various healthcare drug
programs it is my belief that number of patients going outside their
healthcare system to purchase drugs is going to be minimal. For patient
going out of the network would be an anomaly. It would be same as an
impulse purchase. It is well known fact that such purchases are high
priced.(\4\) Thus listing of ``retail prices'' on
respective sites (\5\, \6\) seems more
like a scare tactic than a reality as very limited number will purchase
drugs at retail prices.
Lately drug shortages are increasing in the news. Has anyone analyzed
why? Most likely no. They have a simple explanation. It is the profit
at manufacturer level. Table 1 in the referred post
(\4\) and this post clearly show the drug price
component of each drug sell price.
Even if manufacturing companies make a concerted effort to lower their
manufacturing costs by using better processing technologies that can
significantly lower their current environmental emission impact and are
able to improve profits at their level, landscape will not change much.
US will continue to see generic drug shortages
(\7\) as PBMs will continue to pressure
manufacturers to lower their selling prices.
An analysis of adventure by Amazon, Berkshire Hathaway and J.P. Morgan
(\8\) was bound to fail from the onset as they
had no comprehensive and rational plan. ``Out of the box thinking'' was
needed but not considered.(\9\, \10\)
Only viable alternate is that drug manufacturers take over the
distribution and compete.(\7\) Competition will
lower overall drug prices and will be an overall win for the country.
Generally it is.
Table 1 is a comparison of factory drug prices and what a customer
would pay if they bought the drugs from Costplus Drug Company
(\5\) and/or Amazon. Amazon does provide
medications at discounted prices but details are not available unless
one signs up.(\11\)
It is interesting to note that the drug component even after
manufacturer making 200% profit are a small percentage of the drug
selling price after including handling and shipping. These charges can
be as much as 700+% above the drug manufacturer's selling price. My
conjecture is that such markups apply across the generic drug sale
landscape. Better API and formulation manufacturing technologies
(\12\) and shipping and handling technology
combination present an opportunity to improve profits and lower prices
of drug manufacturers and their distributors.
There are two notable features of Costplus Drug and GoodRx companies.
Unlike other drug plans patients do not have to become their
subscriber.
Two Selected Drug Formulation Cost & Sell Prices
----------------------------------------------------------------------------------------------------------------
Metformin Lipitor
-----------------------------------------------------------------------
Percent of Percent of
formula Cost $/kg $/kilo formula Cost $/kg $/kilo
----------------------------------------------------------------------------------------------------------------
API (active pharma ingredient) 10 4.00 0.40 10 206.00 20.6
----------------------------------------------------------------------------------------------------------------
Inert (includes packaging) 90 4.00 3.60 90 100.00 90
----------------------------------------------------------------------------------------------------------------
Total 100 4.00 100 110.6
----------------------------------------------------------------------------------------------------------------
Service & Expense * Cost % of40% 1.60 60% 40% 44.24
total API
+ inerts
----------------------------------------------------------------------------------------------------------------
Packaged cost per kilo 5.60 154.84
----------------------------------------------------------------------------------------------------------------
Factory Profit % Packaged cost ** 200% 11.20 200% 309.68
----------------------------------------------------------------------------------------------------------------
Drug Bulk price P$/kg. 16.80 464.52
* Service & Expense include Hourly labor, Salaried labor, Utilities, Maintenance, Depreciation & Corporate
overhead. If service & expense is more than 40% of the factory cost, it is an indication that the process is
not optimum.
----------------------------------------------------------------------------------------------------------------
** Extra profit of 200% is included.
----------------------------------------------------------------------------------------------------------------
One kilo of drug produces ONE million tablets of One milligram
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Milligrams/tablet 500 20
------------------------------------------------------------------------
Number of tablets per kilo 2,000 50,000
------------------------------------------------------------------------
Factory sell price is based on the illustrated calculations above
------------------------------------------------------------------------
Factory sell price/finished tablet, $ 0.008 0.009
------------------------------------------------------------------------
Where does difference between factory sale price to patient price go?
----------------------------------------------------------------------------------------------------------------
# of Tablets Metformin Lipitor
----------------------------------------------------------------------------------------------------------------
Appr. Appr.
Selling Costplus Costplus (\5\) Selling Costplus (\5\) Costplus (\5\)
Metformin MFG.(\5\) customer price, Lipitor MFG. MFG. price, $ customer price,
MFG. price, $ price, $ $ *** price, $ $ ***
----------------------------------------------------------------------------------------------------------------
30 0.25 0.30 5.60 0.28 0.60 5.90
----------------------------------------------------------------------------------------------------------------
60 0.50 0.60 6.20 0.56 1.20 6.80
----------------------------------------------------------------------------------------------------------------
90 0.76 0.90 6.80 0.84 1.80 7.70
----------------------------------------------------------------------------------------------------------------
*** This price DOES NOT include $5.00 shipping cost per order which is added when the order is placed. This
increases out of pocket cost and would need to be compared against other seller prices.
GoodRx (5) prices are variable for drug at each participating drug store
and are generally higher than Costplus prices.
Amazon Pharmacy prices (\11\)
------------------------------------------------------------------------
Metformin, 500 mg tablets Lipitor, 20 mg tablets
------------------------------------------------------------------------
Days price $ Days price $
------------------------------------------------------------------------
30 2.25 30 9.00
------------------------------------------------------------------------
90 5.23 90 14.00
------------------------------------------------------------------------
Table 1: Price comparisons
US healthcare system has serious issues. My conjecture is that US
Legislators and policymakers have no real knowledge and/or grasp of the
landscape. If they have any knowledge, it has been ignored. Drastic re-
think is need. However, due to political and vested influence of many,
an ``ALL HANDS'' re-think effort to handle the drug pricing, shortages
and bring manufacturing home (\7\) would be
needed. Patient to have the best pricing has to have knowledge of all
offerings to make the best decision for themselves. This is not an easy
task. Question is ``Do we have what it takes to address the issues and
simplify drug purchases?'' or policy makers, bureaucrats will just talk
about it and succumb to political pressures and do nothing?
Girish Malhotra, PE
President
1. Editorial Board Bloomberg: Are Generics Too Cheap for Their Own
Good? November 16, 2023, https://www.bloomberg.com/opinion/articles/
2023-11-16/drug-shortages-are-generics-too-cheap-for-their-own-good
2. https://www.fda.gov/drugs/generic-drugs/office-generic-drugs-2021-
annual-report
3. https://www.census.gov/library/publications/2023/demo/p60-281.html
4. Malhotra, Girish: Systematic Demystification of Drug Price Mystique
and the Needed Creative Destruction, Profitability through Simplicity,
October 2, 2019 https://pharmachemicalscoatings.blogspot.com/2019/10/
systematic-demystification-of-drug.html
5. Costplus Drug Company https://costplusdrugs.com/
6. GoodRx https://www.goodrx.com/
7. Malhotra, Girish: Roadmap to Reduce Drug Shortages and Bring Pharma
Manufacturing Home (US), Profitability through Simplicity, October 30,
2023
8. Malhotra, Girish: Could Amazon (A), Berkshire Hathaway (B) and J.P.
Morgan Chase (M) be the Anti-Ballistic Missile (ABM) needed to Control/
Curb Rising Healthcare Costs? Profitability through Simplicity,
February 9, 2018 https://pharmachemicalscoatings.blogspot.com/2018/02/
could-amazon-berkshire-hathaway-b-and.html
9. Malhotra, Girish: Opportunities to Lower Drug Prices and Improve
Affordability: From Creation (Manufacturing) to Consumption (Patient),
Profitability through Simplicity, March 9, 2018 https://
pharmachemicalscoatings.blogspot.com/2018/03/opportunities-to-lower-
drug-prices-and.html
10. Malhotra, Girish: Improving Drug Affordability for the United
States Populous through Alternate Business Models, Profitability
through Simplicity, May 4, 2018 https://
pharmachemicalscoatings.blogspot.com/2018/05/improving-drug-
affordability-for-united.html
11. Amazon: Courtesy Dr. Albinus D'Sa Senior Advisor November 19, 2023,
https://www.linkedin.com/
authwall?trk=gf&trkInfo=AQHDU0co2y3qUgAAAY3ZAmPIY0A4
WbWTRveIgnlO-OT9-TB8dDPgISJIw_ZyMjuuI2vnihQVCg87ejXFQzXxx3llMz2d6A6
JTWW-vKcAvgyMoUyVf_gfk-ODgCAcGBPin48pXVc=&original_referer=&sessionRe
direct=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fabi-d-sa-0b91aa6%3Flipi%3
Durn%253Ali%253Apage%253Ad_flagship3_profile_view_base_contact_details%2
5
3BDz%252Folfy2Tfi0I%252Fpsmk7wtQ%253D%253D
12. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing:
Nondestructive Creation De Gruyter April 2022 https://
www.degruyter.com/document/doi/10.1515/9783110702842/html
Following has been sent to many of the legislators earlier in 2023.
June 22, 2023
Drug Shortages: Causes and Potential Remedy Plans
In the recent years US has been almost at a point where its citizenry
due to shortages cannot buy drugs for their ailments and if they can
drugs are overly priced compared to same drugs in other developed
countries. All this has come about due to our own doings. In this write
up I have identified entities that are responsible for the shortages
and also have laid out my perspective/plan to solve short and long-term
the problem. Perspective presented is my own and not influenced by any
entity.
There are four entities that have and should be held responsible for
the current landscape. They are:
1. PBMs and their allies
2. US Food and Drug Administration
3. Our Legislators
4. Manufacturing companies
PBMs and their allies:
Cause: In our current system these entities purchase drugs from Brand
and Generic producers. Since Brand companies dictate their term for
each single drug, PBMs dance to their tune. However, for Generics, PBMs
due to many companies offering the same drug, have the companies dance
to their tune. They beat them up on purchase prices, i.e., force them
to the lowest sell price. Listing on Formularies is another way for the
PBMs to drive the seller on prices down. This is where the problem
starts. In this situation if the supplier company cannot make their
profit on the drug, they will stop supplying, i.e., leading to
shortages. Once the drug is FDA approved, it should be available to
anyone but since PBMs dictate who gets listed, price negotiation is
used as weapon and results in shortages.
Remedy: Once the drug is US FDA approved, it should be available to
patients through direct sale. US does not have systems set up for
direct sale to patients. It should be there and value of such system is
discussed later. Direct marketing will bring competition which will
lead to higher product quality and use of better manufacturing
technologies to pharma manufacturing as it is still stuck in methods
used about 70+ years ago.
USFDA:
USFDA is set up to assure efficacy of drugs and control of the product
quality. Initial intent was great and such a system was needed.
However, the system and approval process has become complex for Brand
and Generic drugs. Brand drugs, as they are not in the market and are
needed by a small population compared to generics, FDA's approval time
is generally over FIVE years. Same would have happened for COVID-19
test kits and vaccines but Executive Branch had to intervene for faster
approval.
Bottom line: Current systems are antiquated and suffer from ``red-tap''
bureaucracy. FDA has made no effort to review the current system and
shorten the ``filing and approval'' process and time. If improved, it
can reduce shortages. This is discussed later.
Filing and approval process for the Generic drugs, since their brands
are already approved, needs to be reviewed. No one will admit and/or
agree but the current process can still take 3-5+ years. I do not
believe any effort has been made to fix the issues, i.e., reduce the
filing and approval time. This along with direct sale could reduce
shortages. I am afraid that no one at FDA can as a person or a small
team can file the necessary paperwork needed for approvals. They do not
understand the impact their decisions have. Templets that detail as to
what is need for fast approval could minimize the commercialization of
generics. This process has significant advantages. Companies would know
how much time would be expended and they can invest in appropriate
processes and plants.
FDA has another issue. It keeps suggesting the kinds of technologies
companies should use when they do not understand their applicability
for various products. They have no experience in development, design
and commercialization of the suggested technologies.
Basically FDA wants to tell companies what they should do for
manufacturing and other technologies when they do not understand their
value. They have not made any attempt to modernize their application
filing and approval processes.
To top it off it issues non-compliance citations and suggests
manufacturing companies to use consultants, who happen to be its ex-
employees. Who like FDA's current employees have no process
development, design and manufacturing experience. Irony is that same
sites are cited again for non-compliance.
Over the years FDA has talked about drug shortages (congressional
testimonies) and proposed nothing meaningful to simplify the processes
so that companies would invest in USA to produce drugs. Testimonies in
front of Congress are just smoke and mirrors.
Our Legislators:
Our legislators hold hearings about drug shortages. They are
meaningless as nothing meaningful results. Lobbyists have their ears
and their constituents die as they have no drugs to live on.
Legislators need to rein in PBMs but there is no effort. Collusion of
lobbyists with Legislators is detrimental to health of constituents.
Manufacturing companies:
World learnt US's insatiable demand for generic drugs. Companies
overseas due to lower costs could do make and sell at profits. PBMs
jumped on the opportunity for higher profits. That has resulted in
better than 70% of Generic drugs coming from overseas. Lower
environmental regulations helped the exodus from US. Companies rather
than invest in better processes/technologies and keep the manufacturing
home shut down facilities in US. All this along with long approval
times to get adequate ROI speeded up exodus from US. No one is going to
invest in processes and equipment due to long regulatory approval
times.
Pharma companies have relied on ``mortar and pestle'' technologies to
produce drugs. These technologies are labor intensive. Companies have
never invested in better manufacturing technologies. All this has
helped and allowed PBMs to flourish unabated. PBMs make the top FIVE of
the top TEN Fortune 500 companies.
Remedies:
All said and done we in USA need to review and change the landscape.
PBMS, FDA and Legislators have to be corralled in the same room and
make better policies and pathways for generations to come. If we do not
with increasingly worsening global political situation day of reckoning
is speeding up when US may have to beg its adversaries for the survival
of its population.
There are pathways to bring pharmaceutical, especially generic, home.
Concerted effort and meticulous thinking uninfluenced by vested
interests would be needed.
1. http://bit.ly/34RYypH (2019) This establishes 90 approvals of
ANDAs. FDA is going to balk on this when they have been talking of
improving things. This also holds PBMs and allies responsible for
distributing less than quality drugs. They are not held accountable for
distributing less than quality drugs but take all the profits of
selling less than quality drugs. Manufacturing companies after two
strikes are barred from supplying drugs from supplying to US. Only
FINANCIAL hurt will fix quality issues.
2. https://bit.ly/3KbTSzP (2022) This refers to establishing a
FOUR STATE Model like we had in Puerto Rico. This will establish
manufacturing in USA.
3. https://bit.ly/39jBQdd (2018) This discusses direct sale to
patients. This will bring competition which brings bring better
manufacturing technologies, quality lowers costs and improves profits
to the companies and bypasses the middle men. PBMs, FDA and our
politicians will detest this.
4. https://bit.ly/3nxOlIz (2020) Lays out a ROAD MAP to bring
pharma manufacturing home.
5. https://bit.ly/3NUxhsP (2022) Reviews NAS (National Academy of
Science) report which is a disaster as it suggest US should have
foreign country supply alliances.
For success independent technocrats and bureaucrats are needed. US
science and engineering talent is unsurpassable and can accomplish the
most arduous task if politicians and career regulators do not
intervene.
Please ask questions. Thank you.
Warm regards,
Girish Malhotra, PE
______
Federation of American Hospitals
750 9th Street, NW, Suite 600
Washington DC 20001-4524
https://www.fah.org/
The Federation of American Hospitals (FAH) submits the following
Statement for the Record in response to the Senate Finance Committee's
(Committee's) full committee hearing ``Drug Shortages: Examining Supply
Challenges, Impacts, and Policy Solutions from a Federal Health Program
Perspective.'' We appreciate the Committee's commitment to tackling
this issue and agree that action should be taken to address the care
delays and challenges caused by drug shortages.
The FAH is the national representative of more than 1,000 tax-paying
community hospitals and health systems throughout the United States.
FAH members provide patients and communities with access to high-
quality, affordable care in both urban and rural areas across 46
states, plus Washington, DC, and Puerto Rico. Our members include
teaching, acute, inpatient rehabilitation, behavioral health, and long-
term care hospitals and provide a wide range of inpatient, ambulatory,
post-acute, emergency, children's, and cancer services.
The healthcare supply chain is complex, with many active participants
involved in ensuring adequate access to drugs used to provide hospital
care. Hospitals aggregate drug sourcing and contracting through group
purchasing organizations (GPOs) and don't typically contract directly
with manufacturers. In turn, GPOs provide various services for their
hospital members, including creating long-term contracts with generic
drug manufacturers to achieve a sustainable and resilient supply chain.
GPOs must partner with manufacturers that offer a robust pedigree
channel that allows for redundancy when possible. To alleviate
shortages, incentives are needed to bolster production and improve
transparency and collaboration with manufacturers and distributors to
support a robust supply of products. We encourage the Committee to
extensively assess the drug supply chain and look for ways to
strengthen the process to ensure that any proposed policies address
drug shortages and safety without creating unintended, harmful
consequences.
We look forward to working with the Committee on these critical issues.
If you have any questions or would like to discuss these comments
further, please do not hesitate to contact Ryann Hill, Vice President
of Government Relations, at RHill@
FAH.Org or (202) 624-1514.
Sincerely,
Ryann D. Hill, MPH
Vice President, Government Relations
______
Healthcare Leadership Council
750 9th Street, NW, Suite 500
Washington, DC 20001
(202) 452-8700
https://www.hlc.org/
December 18, 2023
The Honorable Ron Wyden The Honorable Mike Crapo
Chair Ranking Member
Senate Finance Committee Senate Finance Committee
Washington, DC 20510 Washington, DC 20510
Dear Chair Wyden and Ranking Member Crapo,
The Healthcare Leadership Council (HLC) thanks you for holding a
hearing on, ``Drug Shortages: Examining Supply Challenges, Impacts, and
Policy Solutions from a Federal Health Program Perspective'' on
December 5, 2023.
HLC is a coalition of chief executives from all disciplines within
American healthcare. It is the exclusive forum for the nation's
healthcare leaders to jointly develop policies, plans, and programs to
achieve their vision of a 21st century healthcare system that makes
affordable high-quality care accessible to all Americans. Members of
HLC--hospitals, academic health centers, health plans, pharmaceutical
companies, medical device manufacturers, laboratories, biotech firms,
health product distributors, post-acute care providers, homecare
providers, group purchasing organizations, and information technology
companies--advocate for measures to increase the quality and efficiency
of healthcare through a patient-centered approach.
Access to the appropriate medications when a patient needs them is
critical to the best patient outcome and a central element in the U.S.
healthcare delivery system. HLC and our member companies are united in
our commitment to work with the public sector to ensure a resilient
supply chain.
The U.S. is facing a nearly 10-year peak in drug shortages. In spring
2023, medications in shortage surpassed 300 for the first time since
2014.\1\ There are concerning shortages across clinical care, including
oncology treatments, local anesthetics and basic hospital drugs, asthma
medications, ophthalmic medication, attention deficit hyperactivity
disorder (ADHD) treatments, and others.
---------------------------------------------------------------------------
\1\ Drug Shortages Statistics, American Society of Health System
Pharmacists (ASHP), (accessed December 4, 2023), https://www.ashp.org/
drug-shortages/shortage-resources/drug-shortages-statistics.
Generic drugs comprise the majority of drug shortages, with generic
sterile injectables (GSIs)--including older platinum oncology drugs in
current shortage--accounting for the lion's share of generic shortages.
The Food and Drug Administration (FDA) reports that generics comprise
70 percent of drug shortages, and 62 percent of the drugs on the FDA
shortage list in January 2023 GSIs.\2\
---------------------------------------------------------------------------
\2\ Drug Shortages: Root Causes and Potential Solutions, U.S. Food
and Drug Administration (2019), www.fda.gov/media/131130/download and
Federal Policies to Address Persistent Generic Drug Shortages,
Brookings' Hamilton Project (June 2023), www.brookings.edu/wp-content/
uploads/2023/06/20230621_ES_THP_GSI_Report_Final.pdf.
The current drug shortages are most acute in the GSI market, which is
experiencing a confluence of drivers in the persistent shortage. Chief
among them is the low profit margins in GSI markets, which limits
supply chain resilience. Moreover, production of GSIs requires robust
quality control measures. Lack of supply chain resilience results in
manufacturers pausing production for long periods of time or exiting
the market. Additional factors contributing to shortages include
workforce shortages and lingering supply chain disruptions from the
---------------------------------------------------------------------------
COVID-19 pandemic.
As the shortages continue, providers are making difficult decisions,
including providing alternative treatments and rationing, with
potential adverse outcomes for patients. Hospitals regularly experience
drug shortages. A 2019 Vizient survey found that all hospitals
experienced shortages in 2018, with two-thirds experiencing 20 or more
shortages at a given time.\3\ Hospitals routinely work with prescribers
to offer therapeutically equivalent alternatives; however, these
alternatives may be less familiar to the provider or have unfamiliar
side effects for the patient. In more extreme circumstances, when faced
with a shortage of oncology medications in particular, hospitals engage
their ethics departments to make difficult allocation decisions.
Evidence of efficacy and tolerability are considered in tandem with
ethical principles including beneficence, non-maleficence,
transparency, fairness, distributive justice, responsible stewardship,
and others. Allocation decisions prioritize patients with potential for
cure over those receiving the drug for palliation. These devastating
decisions may hasten the end of life--potentially by many months--or,
in some cases, years for palliative patients who may achieve unexpected
benefits with the drug.
---------------------------------------------------------------------------
\3\ New Study Shows Drug Shortages Have a Large Impact on
Hospitals, Pharmacy Times (July 2, 2019), https://
www.pharmacytimes.com/view/new-study-shows-drug-shortages-have-a-large-
impact-on-hospitals.
The likely substantial impact the current shortage of chemotherapy
drugs is having on patients is yet to be measured. For example, a 2009
shortage of mechlorethamine which led providers to use cyclophosphamide
as an alternative in treating Hodgkin's lymphoma in children, was
associated with a decrease of the 2-year survival rate from 88 percent
to 75 percent.\4\
---------------------------------------------------------------------------
\4\ The Impact of Drug Shortages on Children with Cancer--The
Example of Mechlorethamine, New England Journal of Medicine (December
27, 2012), https://www.nejm.org/doi/10.1056/NEJMp1212468.
While direct patient treatment is the most critical consequence of drug
shortages, research, and development (R&D) and healthcare costs are
also impacted. Clinical trials take years to meticulously develop. The
results of a clinical trial may be affected if researchers must
substitute the drug or otherwise alter the design of the clinical trial
at the onset or during the course of the study period in response to a
drug shortage. Shortages are costly both for manufacturers working to
increase supply and for hospitals that must purchase alternative
medications and otherwise compensate for drugs in scarcity. Shortages
---------------------------------------------------------------------------
increase pharmaceutical spending for hospitals by 6 percent on average.
As Congress explores mechanisms to increase drug supply resiliency,
please consider the following policy solutions:
Invest in a Robust Government Stockpile and a Targeted Buffer
Inventory
HLC took a leadership role on disaster readiness even before the
pandemic. HLC worked with the Duke-Margolis Health Policy Center and a
broad array of organizations to develop recommendations focused on
three key areas: improving data and evidence generation, strengthening
innovation and supply chain readiness, and innovating care delivery
approaches. This initial report (https://www.ndhi.org/files/1816/1281/
7553/disaster_preparedness_report_FINAL.pdf) was released in February
2021. Many of these recommendations have been implemented through
legislative or administrative action. As Congress considered
reauthorization of the Pandemic and All Hazards Preparedness Act
(PAHPA), we once again partnered with the Duke-Margolis Center for
Health Policy and other organizations to release updated
recommendations (https://www.hlc.org/wp-content/uploads/2023/04/Final-
HLC-Duke-Report.pdf) in May 2023 specific to PAHPA reauthorization. One
key recommendation we make is to substantially and consistently fund
the Strategic National Stockpile (SNS). It is also critical to engage
manufacturers in longer-term committed contracts with frequent,
scheduled ordering rather than occasional bulk purchases. Guaranteeing
a reliable market of a certain level for goods that may have more
episodic demand in commercial or other markets ensures ready
availability of drugs and medical goods that are certainly needed
sometimes, though otherwise too seldom to justify steady production.
We strongly urge Congress to reauthorize PAHPA before the end of the
calendar year in the same bipartisan fashion it has been supported
since the original authorization 17 years ago.
HLC also supports the government funding a targeted buffer inventory. A
June 2023 Brookings report proposing federal solutions to the GSI
shortage recommends the Department of Health and Human Services
purchase GSI products and hold a buffer inventory.\5\ Unlike an
emergency stockpile, the buffer inventory would be held by a wholesaler
and immediately disbursed when production is disrupted. Criteria to
hold a drug in the buffer inventory would include lack of substitutes,
unavailability would lead to immediate and significant adverse health
outcomes, and vulnerable supply chains. Oncology GSIs meet each
criterion. As a first step, we support an essential medicines stockpile
pilot program which would cross reference with FDA's Essential
Medicines list. HLC recommends transparency and close coordination with
the private sector.
---------------------------------------------------------------------------
\5\ Federal Policies to Address Persistent Generic Drug Shortages,
Brookings' Hamilton Project (June 2023), www.brookings.edu/wp-content/
uploads/2023/06/20230621_ES_THP_GSI_Report
_Final.pdf.
---------------------------------------------------------------------------
Review and Enhance FDA Supply Chain Resilience Efforts
HLC supports the following policy solutions for Congress to bolster FDA
supply chain resiliency efforts:
Build on recent FDA supply chain resiliency efforts. Before
creating new reporting requirements, we urge Congress to review and
build upon recent efforts undertaken by the FDA. Recent measures
include expedited reviews of new drug and biologics applications,
expedited requests to facilitate expanded manufacturing capacity, and
exercising regulatory flexibility and discretion to increase supplies
of critically needed medications.\6\ Congress should expand these
efforts by allowing the FDA to fast-track abbreviated new drug
applications (ANDAs) and expedite manufacturing inspections and
approvals for drugs facing a critical shortage.
---------------------------------------------------------------------------
\6\ Ibid.
Update the FDA Essential Medicines list. HLC supports more
transparency from the FDA regarding the process and data sources used
to develop the FDA's Essential Medicines list. We urge the FDA to work
with stakeholders, including group purchasing organizations (GPOs) and
distributors, to update the Essential Medicines list and make use of
---------------------------------------------------------------------------
other lists in shortage prevention efforts.
Fund incentives for generic manufacturers to meet quality
management maturity (QMM). We urge Congress to provide funding for the
FDA to develop incentives for generic/biosimilar drug manufacturers to
achieve QMM. These incentives should be developed with industry
stakeholder input. Congress should also allow the FDA to share generic
manufacturers' QMM-related information with various entities in the
supply chain, including GPOs, distributors, and hospitals, to help
inform purchasing and contracting decisions.
Support a Resilient Global Supply Chain
Global, diversified supply chains are important to enable a consistent
response to external stressors, including natural disasters, health
emergencies, or supplier disruptions. HLC supports the following three
policy approaches to streamline global supply chain collaboration:
(1) The free flow of goods to support robust business continuity
processes, strong partnerships, and the ability to actively monitor
end-to-end supply chain using digital tools;
(2) Improved country-to-country global cooperation within supply
chains to enhance resiliency and flexibility and reduce over-reliance
on any one market for any aspect of manufacturing or supply; and
(3) Accelerated adoption of Fourth Industrial Revolution
technologies to digitalize supply chains, allowing for better
information sharing and enabling better signals of disruption.
Provide Reimbursement Incentives
HLC suggests that Congress and the Centers for Medicare and Medicaid
Services consider payment adjustments (i.e., N95-like policy and/or
add-on payments) for generic essential medications frequently in
shortage, such as GSIs, where the manufacturer agrees to certain supply
chain mitigation and resiliency requirements.
Thank you for your efforts to increase the drug supply chain
resiliency. In the coming months, HLC plans to work with our diverse
membership to continue to offer solutions on this important topic. We
look forward to working with you on our shared priorities. If you have
any questions, please do not hesitate to contact Debbie Witchey at
(202) 449-3435 or dwitchey@hlc.org.
Sincerely,
Mary R. Grealy
President
______
Healthcare Supply Chain Association
750 9th St., NW, Suite 650
Washington, DC 20001
Phone (202) 629-5833
Fax (202) 466-9666
Web https://supplychainassociation.org/
Email info@SupplyChainAssociation.org
December 19, 2023
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
Committee on Finance Committee on Finance
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
Re: Statement for the Record on the Senate Finance Committee's ``Drug
Shortages: Examining Supply Challenges, Impacts, and Policy Solutions
from a Federal Health Program Perspective'' Hearing on December 5, 2023
Dear Chairman Wyden and Ranking Member Crapo:
On behalf of the Healthcare Supply Chain Association (HSCA), which
represents the nation's leading healthcare group purchasing
organizations (GPOs), we appreciate the opportunity to provide a
statement for the record regarding the December 5, 2023, hearing on
examining supply challenges, impacts, and policy solutions for drug
shortages. HSCA supports your continued efforts to address this
pressing problem, and we look forward to continuing to work with you to
determine long-term solutions to prevent and mitigate drug shortages
and preserve access to high-quality care.
Healthcare providers initially formed GPOs in the early 1900s as an
efficient means to aggregate purchasing volume, drive competition among
suppliers, and reduce healthcare costs. Today, traditional healthcare
GPOs serve as the sourcing and contracting partners to hospitals, long-
term care facilities, surgery centers, clinics, and other healthcare
providers across the country. GPOs secure high-quality medical products
at fair prices for the benefit of patients, providers, Medicare,
Medicaid, and taxpayers. Both independent and industry funded studies
(https://www.supply
chainassociation.org/wp-content/uploads/2019/05/HSCA-Group-Purchasing-
Organizations-Report-FINAL.pdf) confirm the effectiveness and
tremendous value of GPOs, finding that GPOs deliver annual cost savings
of 12-18%.\1\, \2\ GPOs allow smaller providers to obtain
critical supplies at the same value as large providers while allowing
all healthcare providers to focus on their core mission: providing
first-class patient care.
---------------------------------------------------------------------------
\1\ Burns, Lawton R, and J Andrew Lee. ``Hospital purchasing
alliances: utilization, services, and performance.'' Health care
management review vol. 33, no. 3, 2008, pp. 203-15 2008: 203-15.
doi:10.1097/01.HMR.0000324906.04025.33.
\2\ Dobson, Allen, and Joan DaVanzo, ``A 2018 Update of Cost
Savings and Marketplace Analysis of the Health Care Group Purchasing
Industry,'' Dobson DaVanzo & Associates, LLC, Apr. 2019.
---------------------------------------------------------------------------
The GPO Business Model and Value Proposition.
The GPO business model is voluntary, flexible, and clinically driven.
We work in close collaboration with our member hospitals and healthcare
providers to develop sourcing policies and contract award decisions.
GPOs take a comprehensive approach to sourcing and contracting that not
only accounts for the competitive price offered, but also the quality,
reliability, and stability of supply. We recognize that market
conditions change, and when they do, GPOs work with suppliers to adjust
contracts. GPOs work diligently to ensure member hospitals and
providers can select the products they need to care for their
communities and patients most efficiently and provide clinical
resources across their network of providers.
American hospitals are continuing to operate at razor thin margins and
face an increasing number of closures, particularly among small and
rural hospitals. GPOs allow these small and rural healthcare
providers--who often lack the negotiating power to access competitive
pricing for essential supplies--to take advantage of the same
efficiencies and discounts as large providers, enabling them to focus
on providing necessary care to their communities.
Health systems and independent physician offices often depend on GPOs
for much more than their ability to collectively aggregate purchasing
power. GPOs provide a range of services, including broad clinical
feedback and providing supply chain analytics, which are especially
important in rural and underserved areas. Individual practices and
community hospitals do not have the resources, scale, and expertise to
perform themselves.
The Scope and Impact of Drug Shortages.
Drug shortages place significant strain on hospitals, health systems,
healthcare providers, and their patients. In 2022, the University of
Utah Drug Information Service (UUDIS) identified a total of 160
national drug shortages. This figure is likely an underestimate,
however, as many shortages go unreported and may occur in smaller
geographic areas. A survey of manufacturers by UUDIS offered insight
into the causes of drug shortages. More than half of those surveyed
(56%) either did not know the cause of the shortage or would not
provide this information. Those manufacturers that did respond cited
supply/demand (19%), manufacturing (18%), business decisions (5%),
regulatory issues (1%), and raw material issues (1%) as reasons behind
shortages.
The U.S. Food and Drug Administration (FDA) identifies manufacturing
quality control issues as the primary cause of drug shortages, along
with production delays, lack of raw materials, and manufacturer
business decisions to discontinue products. HSCA and its member GPOs
are committed to collaborating with healthcare providers and suppliers
to bolster the resiliency of the healthcare supply chain and to ensure
that patients and providers have consistent access to the drugs,
products, and devices they need.
GPOs Take Steps to Prevent and Mitigate Drug Shortages.
Despite some limitations on existing data, GPOs track all available
data on shortages and raw materials, including active pharmaceutical
ingredients (API). GPOs track this data on a global scale to anticipate
possible supply disruptions and to provide suppliers with notice to
plan for production capability. GPOs also identify and help bring to
market additional manufacturers of at-risk drugs, ensuring that there
are auxiliary suppliers of essential medications and products.
GPOs routinely evaluate drug suppliers on the consistency of product
availability, fill rates, recall frequency and management, disaster
preparedness, secondary supply lines, and manufacturing transparency.
GPOs recognize and reward quality while encouraging a healthy market,
and when shortages do occur, GPOs identify and support alternative
sources and clinically appropriate substitutes.
GPOs recognize the cost and impact of drug shortages on their member
hospitals and the patients they serve, and we are leaders in working to
prevent and mitigate drug shortages. Every HSCA member GPO has
innovative programs that are operating effectively to prevent and
minimize the impact of shortages. The GPO business model creates a
vigorously competitive and healthy market among GPOs and suppliers, and
competition among GPOs is essential to preventing drug shortages.
Shortages are antithetical to the GPO model, as without sufficient
products, suppliers, or competition, GPOs are unable to provide their
services.
Given our unique line of sight into the healthcare supply chain, HSCA
and its member GPOs respectfully offer the following recommendations
and comments to the Committee:
Re: Proposed policy solutions to prevent and mitigate drug shortages.
We understand that solving the ongoing drug shortage crisis is a
complex task. HSCA proposes the following recommendations to help
prevent and mitigate drug shortages, several of which build on existing
congressional authorities:
Investing in quality and building secondary supply lines. HSCA
recommends incentivizing not just production, but also investment in
quality and capacity, including the addition of secondary supply lines
and having alternate or backup sources of API, to support long-term
access to generic medications.
Creating incentives to increase domestic manufacturing. HSCA recommends
that if Congress elects to create incentives related to domestic
manufacturing that the incentives be tied to quality and the amount of
product sold in the U.S. For incentives to tangibly impact pricing
dynamics, they must align with the quality products being made and sold
in the U.S.
Refine authority related to the Strategic National Stockpile's (SNS)
ability to enter into vendor contracts. HSCA encourages congress to
refine the authority pertaining to the Fiscal year Consolidated
Appropriations Act (Pub. L. 117-328), which authorized the Strategic
National Stockpile (SNS) to enter into contracts to assist with the
rotation of soon-to-be expired products so supply chain stakeholders
can work collaboratively with agency officials to help identify when
and where product should be released.
Maintain and/or require buffer inventory. To increase critical access
to drugs, HSCA recommends that the federal government, through the
Administration for Strategic Preparedness and Response (ASPR) and SNS,
create, maintain, and/or require buffer inventory for critical
medications and devices.
Increasing transparency. HSCA recommends transparency regarding buffer
inventories and that input from GPOs and other private industry
stakeholders be used to determine which drugs, and if possible, which
products, should be considered for buffer inventory.
Fund and implement FDA's Quality Management Maturity (QMM) program.
HSCA recommends that Congress fully fund FDA's quality management
maturity (QMM) program and require manufacturer participation and
implementation as soon as possible. HSCA further recommends that FDA
share its QMM ratings with appropriate supply chain stakeholders,
including GPOs, to best inform purchasing decisions.
Increase ongoing visibility into manufacturing locations and API
sources. HSCA recommends that manufacturers be required to include on
their package inserts and boxes the finished product manufacturing
location, including for contract manufacturers, and API source(s) on
all products.
Increasing facility inspections. HSCA recommends that Congress increase
funding for and encourage the FDA to increase the number of
inspections. HSCA further recommends that Congress encourage FDA to
begin unannounced foreign inspections for API supplies and drug product
manufacturers.
Re: Consolidation among Group Purchasing Organizations (GPOs).
It is important to recognize that traditional healthcare GPOs are
distinct entities from pharmacy benefit managers (PBMs), PBM rebate
aggregators, and large retail buying groups such as wholesalers/
distributors. Traditional provider-aligned healthcare GPOs serve
healthcare providers, are fully transparent with their healthcare
provider members, do not take title to product, do not participate in
the Medicare Part D prescription drug program, and are net-price
driven. GPOs negotiate point-of-sale price reductions, and any rebates
members earn on their purchases are passed entirely through to them.
Flexibility for providers and suppliers is integral to the GPO business
model, and actual purchases are made by GPO member providers, not GPOs.
The interests of GPOs are completely aligned with their healthcare
provider members, and some GPOs are owned by providers. Pharmacy
benefit managers work primarily in the retail prescription market with
health insurance and plan sponsors, and PBM-operated ``GPOs'' aggregate
rebates. Pharmaceutical wholesalers/distributors--known as ``buying
groups''--also aggregate purchasing and compete in the drug supply
market, but they do purchase and take possession of products and are
not subject to the transparency requirements of traditional provider-
aligned healthcare GPOs. GPOs operate in a vigorously competitive
market and competition among GPOs is essential to preventing and
mitigating drug shortages.
Additionally, it is worth noting that the statistic about GPO market
share that Dr. Hernandez referenced in her written testimony is
inaccurate and is sourced incorrectly.\3\, \4\ We believe
the original source for this statistic actually refers to the market
share of drug wholesalers, and not GPOs. There are hundreds of
traditional healthcare GPOs in the United States. Definitive Healthcare
reports data on 150 GPOs, which is likely a conservative estimate.
Eighty of them are considered regional GPOs, or ``regional purchasing
coalitions,'' and 70 are national GPOs. The market share percentage of
total spend through the contract portfolios of the seven largest GPOs
in 2020 was between 54.1% and 60.5%, while the share of the three
largest GPOs was 41.5%.
---------------------------------------------------------------------------
\3\ Bruhn, William E., et al. ``Group Purchasing Organizations,
Health Care Costs, and Drug Shortages.'' JAMA, vol. 320, no. 18, 13
Nov. 2018, p. 1859, https://doi.org/10.1001/jama.2018.
13604.
\4\ Drug Shortages Task Force. ``Drug Shortages: Root Causes and
Potential Solutions.'' U.S. Food and Drug Administration, Oct. 2019.
Many healthcare providers maintain membership with more than one GPO at
a time and can shift their purchasing from one GPO contract portfolio
to another. GPO contracts with healthcare providers are voluntary, and
providers can shift to new areas, customers, or product focus, which
helps maintain vigorous competition among GPOs. GPOs help create a
fair, open, and competitive marketplace and compete for business on a
variety of factors including, but not limited to, supplier product
pricing, strength of supplier contract terms, breadth of contract
portfolio, supply chain and clinical analytical assistance, and
---------------------------------------------------------------------------
customer service.
We appreciate the opportunity to provide you with our comments and
recommendations and appreciate the subcommittee's willingness to learn
about the GPO industry, our role in the healthcare supply chain, and
how we work to prevent and mitigate drug shortages. We look forward to
continuing to serve as a resource to Congress and all stakeholders as
we all work to continue improving the healthcare system.
Please do not hesitate to contact me directly if HSCA can be a resource
on this issue moving forward. I can be reached at (202) 629-5833 and
tebert@supplychain
association.org.
Sincerely,
Todd Ebert, R. Ph.
President & CEO
______
Physicians Against Drug Shortages Inc.
330 East 38th St. #16Q
New York, NY 10016
Statement for the Record of Phillip L. Zweig, MBA,
Executive Director/Co-founder
Senate Finance Committee Hearing: ``Drug Shortages: Examining Supply
Challenges, Impacts, and Policy Solutions from a Federal Health Program
Perspective''
Thank you for the opportunity to comment on the cause, impact, and
solution to the decades-long artificial shortages and inflated prices
of essential generic drugs, mostly sterile injectables. These mainstay
medications include lifesaving cancer drugs, antibiotics, anesthetics,
nutritional IV fluids, even sterile saline (salt water) and dextrose
solution (sugar water). My comments also apply to the deadly shortages
of N95 masks, gowns, gloves and other personal protection equipment
(PPE) and medical supplies during the pandemic. To put it bluntly,
Congress created this travesty, and it's up to Congress to fix it. More
on that later.
First, some background. I'm a financial journalist (former American
Banker, Wall Street Journal, Bloomberg, BusinessWeek etc.) and national
best-selling author turned patient advocate. In October 2012, I co-
founded Physicians Against Drug Shortages Inc. (PADS), a pro bono
patient advocacy group, with seven anesthesiologists who were outraged
that they couldn't get propofol and other drugs that they needed to put
their patients to sleep, but they didn't understand why. I did. Since
then, I've served as unpaid executive director. Our mission is to
expose and address the real root cause of the shortages: the
exhaustively documented anticompetitive contracting and pricing
practices, self-dealing, conflicts of interest, ``legalized'' kickbacks
and ``share backs'' of giant hospital group purchasing organizations
(GPOs).
My PADS colleagues and I have written numerous articles and have
submitted countless comments on drug shortages and the misbegotten GPO
anti-kickback safe harbor in response to requests by the FDA, the HHS
Office of Inspector General (OIG), and the Federal Trade Commission
(FTC) and congressional committees--obviously to little effect. We've
also been quoted widely on this issue in health care publications. For
an overview, read our op-eds in The New York Times of Sept. 3, 2013
(``How a Cabal Keeps Generics Scarce'')\1\ and The Wall Street Journal
of May 8, 2018 (``Where Does the Law Against Kickbacks Not Apply? Your
Hospital'').\2\ More recently, we worked closely with 60 Minutes \3\ on
a May 22, 2022 segment examined how these predatory middlemen caused
shortages of lifesaving chemo agents by demanding that suppliers pay
them huge ``fees'' (aka kickbacks) in return for access to their member
hospitals. PADS Chair Mitch Goldstein M.D. MBA was featured in the
program, entitled ``In Short Supply.'' Three days later, in his
testimony on the baby formula shortages before the House Energy and
Commerce Committee, FDA Commissioner Robert Califf M.D. repeatedly
urged members to watch it. He has testified that to end this crisis we
must address the underlying economics. In recent speeches, he's pointed
the finger directly at GPOs.
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\1\ http://www.nytimes.com/2013/09/03/opinion/how-a-cabal-keeps-
generics-scarce.html?mod
ule=Search&mabReward=relbias:r,%7B%221%22:%22RI:6%22%7D.
\2\ https://nebula.wsimg.com/
fe4916f65b3cd1d2e8052ee95960260a?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
\3\ https://www.youtube.com/watch?v=0VdEFWq1P0I&t=48s.
On November 22, 2022, our coalition of nine advocacy groups, including
the American Economic Liberties Project, PADS, and Public Citizen sent
a letter to FTC Chair Lina Khan (https://www.economicliberties.us/
press-release/advocates-urge-the-ftc-to-investigate-gpos-impacts-on-
drug-medical-equipment-shortages-and-rising-healthcare-costs/) urging
the agency to conduct an investigation into the role of GPOs in causing
---------------------------------------------------------------------------
the shortages and inflating prices.
On October 31, 2011, when President Obama announced his executive order
to the FDA to end the drug shortage crisis, I was unaware that there
was one, but I knew what had caused it. As an editor at BusinessWeek, I
had initiated and co-written the first article, entitled ``Locked Out
of the Hospital'' \4\ (3/16/98) on how GPOs block entrepreneurial
medical device companies that made innovative and often cheaper devices
from marketing them to thousands of hospitals. About 18 months later,
the CEO of the company that was Exhibit A in the article asked me if I
would consider taking a sabbatical from journalism to try to reform
this corrupt system. I agreed, and soon began working with 60 Minutes
\5\ on a segment with legendary correspondent Mike Wallace, entitled
``Needles,'' on how these practices denied health care workers safer
syringes and other ``sharps'' devices. Producer Walt Bogdanich, now a
three-time Pulitzer Prize winner, then accepted a job as an
investigative editor at The New York Times and launched a year-long
series on GPO abuses that won a prestigious George Polk award. The
entire series is posted on the ``Media Reports'' page of our website,
www.physiciansagainstdrugshortages.com.
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\4\ https://nebula.wsimg.com/
81a188a2312890198579e3ce8a24332c?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
\5\ https://www.youtube.com/watch?v=E1fTC2djVmk.
The media coverage focused primarily on anticompetitive GPO practices
that undermine competition, innovation, and patient care in the
entrepreneurial medical device sector. But one article in the Times of
March 26, 2002, entitled ``When a Buyer for Hospitals Has a Stake in
the Drugs It Buys'' \6\ foretold the destruction GPOs would wreak on
the generic drug industry, patients, clinicians, and our healthcare
system generally. It revealed how Premier Inc., now the second largest
GPO, had begun to seize control of the generic drug business by co-
founding American Pharmaceutical Partners and taking it public in late
2001. According to the Times, Premier transformed a $100 investment in
1996 into shares valued at $46 million, enabling at least two Premier
executives with stock options to hit the jackpot. Sen. Herb Kohl (D-
WI), then chairman of the Senate Antitrust Subcommittee, called this
arrangement ``scandalous'' and forced Premier to divest its stake in
APP.
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\6\ https://www.nytimes.com/2002/03/26/business/when-a-buyer-for-
hospitals-has-a-stake-in-drugs-it-buys.html.
This coverage resulted in four Senate Antitrust Subcommittee hearings
on GPO abuses from 2002 to 2006; federal and state investigations,
including a Justice Department criminal investigation of Novation
(since renamed Vizient), which ended without charges; multiple
successful antitrust lawsuits filed by medical device entrepreneurs
against GPOs and/or their dominant supplier partners; independent
research; a book by S. Prakash Sethi, a university distinguished
professor at the Zicklin School of Business, Baruch College [``Group
Purchasing Organizations: An Undisclosed Scandal in the U.S. Healthcare
Industry,'' Palgrave/MacMillan 2009], and even a barely fictionalized
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2011 feature film, PUNCTURE, starring Captain America's Chris Evans.
The original and sole purpose of GPOs was to save hospitals money by
purchasing supplies in bulk. The first one was founded in 1910 when
several New York City hospitals, including Bellevue, banded together to
form a nonprofit co-op. Member hospitals paid dues to cover salaries,
rent, and other administrative expenses. By all accounts, this worked
fine for more than 80 years.
But Congress couldn't allow a terrific idea like that to continue. In
1987, at the behest of hospital lobbyists, Congress enacted what became
known as the Medicare anti-kickback ``safe harbor,'' which exempted
GPOs from criminal prosecution for taking kickbacks from suppliers.
Lobbyists claimed that GPOs would somehow save more money if suppliers
paid the fees. What's more, they argued that since suppliers were
already paying illegal kickbacks, why not just ``legalize'' them? This
amendment to the Social Security Act upended the entire supply chain,
creating perverse incentives that led to higher, not lower, prices for
hospital goods. That's because GPO kickbacks are calculated based on
price times volume purchased. Congress awarded GPOs a ``Get Out of Jail
Free Card,'' becoming the only industry we know of that has received
such a gift. It is no coincidence that the generic drug industry is
also the only industry we're aware of that has experienced debilitating
chronic shortages in the post-WWII economy. Any freshman economics
student knows that we're simply not supposed to have shortages in what
is otherwise a market economy. But the GPOs have turned our drug and
health supply industries into a vestige of the disgraced ex-Soviet
economy. They are the oligarchs of American health care.
The HHS OIG was designated to write and monitor the safe harbor rules,
which it issued July 29, 1991. The rules called for a ``soft cap'' of
3% for ``admin fees'' and authorized the OIG to request data on fees
that exceeded this amount. The GPOs, however, cleverly circumvented
this cap by inventing other fees: advance, conversion, licensing,
marketing fees, even fees to sit next to a GPO contracting officer at
dinner. The unsafe ``safe harbor'' transformed the GPO business model
from nonprofit cooperatives that saved hospitals money to predatory
middlemen that exist only to make money for top GPO insiders and
executives of major GPO shareholder hospitals. They make their money by
literally selling market share, in the form of sole-source contracts,
for outrageous fees to the highest bidder. According to Novation
``Excess Fee Reports,''\7\ which were obtained in discovery in a 2003
federal whistleblower lawsuit, these fees have often amounted to double
digits and sometimes more than half of a company's total revenue for a
single drug. GPOs perform no medically, socially or financially useful
function. They are nothing more than a sophisticated ``pay-to-play''
scheme--a ``legalized'' fraud.
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\7\ https://nebula.wsimg.com/
c15ea9a527af70ceaaaf434f3cd3ce0e?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
The analysis is actually quite simple. GPO middlemen, who do nothing
but award exclusionary contracts, are making all the money, while the
companies that actually produce the drugs are closing shop. There is
something terribly wrong with this picture. Compare, for example, the
2019 financial statements (SEC 10K) and seven-figure executive
compensation of publicly-held Premier Inc. [PINC] with those of Akorn
Pharmaceuticals, which filed for bankruptcy under Chapter 7 in February
after more than 50 years manufacturing prescription ophthalmic drugs
---------------------------------------------------------------------------
and other essential medications, exacerbating existing shortages.
One document that was obtained by plaintiffs in an ongoing antitrust
lawsuit against Vizient tells the whole story. Incredibly, Vizient's
marketing material boasts that one of the services it offers contracted
suppliers is ``Protection from Competitive Threats and Rebidding!''
[exclamation point added].
What's more, there is virtually no disclosure, transparency, oversight
or regulation of this powerful industry. Today, three giant companies--
Vizient (formerly Novation), publicly-held Premier Inc., and
HealthTrustPG--control purchasing for about 90% of an estimated $300
billion in annual GPO contract volume. Nearly half of the amount is for
drugs and supplies for patients covered by Medicare, Medicaid, and
other government health care programs. The OIG is ostensibly
responsible for overseeing the safe harbor. But it has proven to be a
paper tiger. For example, it is authorized to request data on excess
GPO ``fees'' from GPOs, but to the best of our knowledge, it has never
done so. This was underscored in a March 30, 2012 GAO report entitled
``Group Purchasing Organizations: Federal Oversight and Self-
Regulation.''\8\
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\8\ https://www.gao.gov/products/gao-12-399r.
In 2005, Senators Kohl and Mike DeWine (R-OH), who presided over four
hearings, from 2002 to 2006, on GPO abuses, drafted a bipartisan bill,
called the ``Ensuring Competition in Hospital Purchasing Act,''\9\ that
would have restored free, fair and open competition to the supply chain
by repealing the ill-conceived safe harbor. But it died in the
Subcommittee because of fierce opposition by the GPO and hospital
industries. We later learned why the American Hospital Association and
state hospital associations opposed it: CEOs of certain major GPO
shareholder facilities get a piece of the action, in the form of six to
seven figure ``share backs'' or ``equity distributions.'' I would be
pleased to provide documentation, with names and dollar amounts, on
request.
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\9\ https://nebula.wsimg.com/
a862289b485f16554cfb4f8d8567221a?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
If the safe harbor had been repealed in 2005, the drug shortage crisis
that triggered President Obama's executive order would not have
happened. Contrary to statements by GPO industry executives, repeal
would not have eliminated GPOs. It would only have ended the perverse
GPO ``pay-to-play'' system. With generic drug makers foundering or
exiting the business at a rapid clip, it would make domestic production
of generic drugs financially viable again. Tax breaks, government
subsidies, low interest loans, various convoluted and unworkable
quality rating systems, or a federal takeover of the generic drug
business, as some members of Congress have proposed, are not the
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answer. They would be a total waste of taxpayers' money.
Besides creating chronic shortages, GPOs have inflated prices of drugs
and other hospital goods by at least 30%, or upwards of $100 billion
annually. While they and their cohorts claim that they save hospitals
billions, the only documentation they can present are bogus ``sponsored
research studies'' produced by ethically-challenged academics and
consultants. Over the years, at least three government studies have
found that there isn't a single shred of independent evidence that they
save hospitals a dime. They include:
GAO pilot study of April 30, 2002 \10\ that found that prices of
certain devices purchased through GPO contracts were often up to 39%
higher than when they were bought off-contract.
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\10\ https://www.gao.gov/products/gao-02-690t.
May 2, 2003 letter from Senators Kohl and DeWine \11\ to
Secretary of Defense Donald Rumsfeld, advising him against hiring a GPO
to purchase medical supplies for the military.
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\11\ https://nebula.wsimg.com/
2c05bf026ed6c9ae9cd03339d59efe78?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
2010 Senate Finance Committee \12\ Minority Staff Report
requested by Sen. Chuck Grassley.
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\12\ https://nebula.wsimg.com/
32ce499df16ad66aede1ee5b4ed7d2a0?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
In 2021, I reviewed all of the available empirical and anecdotal
evidence on GPO pricing over more than 20 years and concluded that they
actually inflate prices of supplies by at least 30%, or roughly $100
billion annually. My analysis is attached. Some well-informed supply
chain practitioners have told me that my estimate is too low.
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Competition reduces prices. Cartels inflate them.
Since 2011, when drug shortages became page one news, the GPO industry
and their proxies have disseminated various bogus explanations for the
shortages, all of which have been thoroughly discredited by government
or other independent researchers. Their basic mantra is that the causes
are ``complex and multifactorial,'' or a ``perfect storm.'' This is
absolute nonsense. There is a cause and a solution: repeal of the safe
harbor. Other bogus GPO explanations appear below:
Alleged ``price-gouging, gray market'' drug distribution
companies. These are mostly small to mid-sized ``mom and pop'' firms
that provide smaller quantities of essential drugs to physicians,
hospitals and other medical facilities, often in emergencies or on
weekends. They perform a perfectly legitimate market function. But they
can't compete on price with the ``Big Three'' GPO-authorized
distributors, notably McKesson, Amerisource Bergen, and Cardinal,
because they're not permitted to get ``chargebacks'' from GPO
contracted suppliers. Premier Inc. demonized them in a bogus August
2011 report. The FBI investigated and found no wrongdoing, as reported
in the inaugural February 10, 2014 GAO report on drug shortages, which
was mandated by the Food and Drug Administration Safety and Innovation
Act of 2012. That report identified GPOs as a potential ``underlying
cause.'' It concluded correctly that manufacturing and quality problems
and other issues were secondary or intermediate causes. [For more on
GPO pricing, read ``Connecting the Dots''\13\ of January 4, 2012, a
white paper by drug distribution consultant Pat Earl and me.]
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\13\ https://nebula.wsimg.com/
fbedc9449e9b7c932054548798378f8a?AccessKeyId=62BC662C928
C06F7384C&disposition=0&alloworigin=1.
340B Program and Medicaid Rebates. Another red herring. In a
normal market, suppliers would be able to incorporate regulatory
requirements into their prices. But the pharmaceutical and medical
---------------------------------------------------------------------------
goods supply chain is a rigged market.
Overzealous FDA inspections. I began to hear this in late 2011
around the time Bedford, OH-based Ben Venue Laboratories shuttered,
causing acute shortages of methotrexate and other chemo drugs. The FDA
inspection report suggests otherwise. Inspectors even found a 10 gallon
bucket of urine near the production area. According to an expert in
sterile drug production, this was a cost-saving measure that was
intended to reduce the time workers needed to de-gown, do their
business, re-gown, scrub back in and return to the production area. In
a Linkedin search, I located someone familiar with Ben Venue's collapse
and the FDA inspection. Fearing retribution, this person initially
declined to speak with me. I asked this individual to answer just one
question: Were these allegations against the FDA true? This person, who
requested anonymity, said, ``Absolutely not. They were professionals.
They did their job.'' Some of the cancer meds that had been
manufactured for years by Ben Venue were later made by a troubled plant
in China.
Change in the Medicare reimbursement formula from wholesale
acquisition cost (WAC) to average sales price (ASP) plus 6% under the
Medicare Modernization Act of 2003. Former HHS Assistant Secretary
Sherry Glied Ph.D., who had conducted a formal study on this issue,
walked me through it in person after she left office. The Medicare
reimbursement formula has nothing to do with drug shortages, she
explained, because it doesn't affect monies received by suppliers. And
contrary to popular belief, Medicare reimbursement prices weren't
subject to price controls. She explained that in a December 23, 2014
letter to the editor of the Journal of Oncology Practice.
FDA backlog in approving generic drug applications. Yes, there
was a backlog in applications. But as a 2016 study by the Center for
American Progress found, very few of those applications were for drugs
in short supply. They were scarce because drug makers couldn't earn a
reasonable profit and stopped making them.
Just-in-time inventory practices. Totally false and illogical. A
red herring. Just-in-time inventory works when supply is adequate and
reliable, but no supplier would continue to use this practice for drugs
in short supply.
Hurricane Maria. When the hurricane devastated Puerto Rico in
September 2017, Baxter's plants, which produced sterile saline and
other critical drugs, were heavily damaged. So the GPOs blamed the
shortages on Maria. However, for several years before Maria the U.S.
Had been importing sterile saline from Spain, Germany and Norway.
Afterwards, the U.S. had to import it from several additional
countries. The real reason: sole-source contracts. In fact, in 2007
Baxter boasted in a press release about its sole-source Novation (now
Vizient) contract, attached. For more on this, see the chapter on GPOs
in MONOPOLIZED,\14\ a 2020 book by American Prospect editor in chief
David Dayen.
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\14\ https://prospect.org/culture/books/monopolies-are-why-salt-
and-water-in-a-bag-became-scarce-dayen-monopolized-book/.
COVID-19. The pandemic gave GPOs a convenient alibi for
shortages of many drugs and supplies, including N95 masks. To be sure,
COVID exacerbated drug shortages. But the GPOs caused the shortages of
N95 masks and other PPE. In a remarkably prescient October 4, 2008
article in Infection Control Today,\15\ Mike Bowen, EVP of Prestige
Ameritech, a small Texas mask maker, was quoted as saying that the U.S.
wouldn't be prepared for a future pandemic because of the GPO
``chokehold'' on the medical supplies industry.
---------------------------------------------------------------------------
\15\ https://www.infectioncontroltoday.com/view/us-pandemic-could-
severely-strain-face-mask-other-ppe-supply-pipeline.
``Race to the Bottom'' in pricing. This is a catchy but
misleading buzz phrase. It suggests that the ``low prices'' received by
drug makers are real prices. They're rigged prices. Real prices adjust
according to the law of supply and demand. But the GPOs have undermined
this immutable principle. In fact, the outrageous kickbacks GPOs have
extorted from generic drug makers have made this business a money-
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losing proposition.
I should add here that while the number of big GPOs has consolidated
from more than six in the late 1990s to the ``Big Three,'' the primary
problem is the corrupt ``pay-to-play'' business model. I'm all in favor
of breaking up the ``Big Three,'' but that would have to be accompanied
by repeal of the safe harbor.
The GPO industry exists only because of its highly aggressive lobbying
and PR activities. They have literally bought the silence or active
support of medical ``thought leaders,'' former top federal officials,
academics, even medical societies and prominent media personalities.
They include former FDA Commissioner Scott Gottlieb M.D. In 2018, he
told the Associated Press of July 12 2018,\16\ that GPOs had caused the
shortages. Then after he left office, he went silent on the GPO issue.
He also became a speaker, presumably well-compensated, at an elaborate
Vizient conference. For the details, see ``Buckraking''\17\ by Matt
Stoller, research director of the American Economic Liberties Project,
a respected anti-monopoly think tank.
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\16\ https://apnews.com/998a244e3ac849b787bcd3c893eb6806.
\17\ https://mattstoller.substack.com/p/buckraking-did-a-medical-
monopolist?utm_source
=substack&utm_medium=email&utm_content=share.
By far the most visible GPO hired gun is so-called ``drug shortage
expert'' Erin Fox, D.Pharm, who collects data on shortages as director
of the University of Utah Drug Information Service (UUDIS). I was well-
aware of her conflicts of interest with the GPO industry, notably
Vizient. In October 2017, we had a conference call with FTC staff who
were organizing a November 8 conference on drug market competition.
They denied our request to participate as panelists, saying that the
speakers had already been selected. They declined to name names, but
they did tell us the occupations that would be represented, including a
pharmacist. ``Erin Fox?,'' I asked. There was stone silence at the
other end of the line. I then enumerated her conflicts of interest.
She's a lobbyist, PR spokesperson, and consultant to Vizient, and an
employee of the University of Utah Medical Center, a major Vizient
shareholder facility. She has persistently denied, at least in
interviews and public forums that GPOs have anything at all to do with
drug shortages, when in fact they have everything to do with drug
shortages. FTC staff apparently prevailed on her to disclose these
conflicts at the conference. Here's my recent Linkedin post on her
conflicts: https://www.linkedin.com/in/phillip-l-zweig-491ba83/recent-
---------------------------------------------------------------------------
activity/all/.
So we were appalled when she appeared as the lead witness in the March
22, 2023 Senate Homeland Security and Governmental Affairs hearing on
the national security implications of drug shortages.
Those they can't buy, including PADS, they've harassed and even
threatened. In 2018, someone presumably affiliated with the GPO
industry hired a bogus ``investigative'' outfit called ``Checks and
Balances'' to try to intimidate me and certain physician members. His
targets were mostly PADS doctors who practiced at academic medical
centers and had written negative articles about GPOs. Its principal,
Scott Peterson, a former Wall Street PR rep, sent letters to the heads
of their schools or hospitals falsely alleging egregious conflicts of
interest. Nothing came of the resulting ``investigations,'' but our
members wasted precious clinical and research time responding to these
unfounded charges.
In late 2018, after the November 27, 2018 FDA conference on drug
shortages, Peterson posted this item about my actions at the all-day
meeting: https://checksandbalancesproject.org/philip-zweig-disrupts-
health-policy-forum/. He accused me of disrupting the meeting with my
persistent commentary on GPOs from the floor during the Q&A. To that I
plead guilty.
Everyone who works in the health care supply chain knows that it is
broken, and they know why it's broken and who broke it: Predatory GPO
middlemen. So do members of Congress, including members of the Senate
Finance Committee. Some of the same committee members who attended the
December 5, 2023 hearing were present at the first one on December 7,
2011, almost exactly 12 years earlier. It's high time that members of
Congress worked up a fit of courage and ended the kickbacks (aka
bribes, payola etc) and ``share backs'' (dividends, patronage fees,
rebates) by repealing the unsafe safe harbor.
Please feel free to contact me if you have any questions or would like
to discuss this urgent issue further.
FULL DISCLOSURE: PADS and I have no financial conflicts of interest. We
have no budget and cover expenses out of our own pockets.
______
Society of Gynecologic Oncology
230 W. Monroe St., Suite 710
Chicago, IL 60606-4703
main: 312-235-4060
fax: 312-235-4059
The Society of Gynecologic Oncology (SGO) applauds the Senate Committee
on Finance for holding the recent legislative hearing, Drug Shortages:
Examining Supply Challenges, Impacts, and Policy Solutions from a
Federal Health Perspective. Our members and their patients have been
profoundly affected by the recent chemotherapy shortages, and SGO has
been actively engaged in finding policy solutions to prevent future
shortages and welcome the opportunity to work with the committee to
address this issue.
SGO is the premier medical specialty society for healthcare
professionals trained in the comprehensive management of gynecologic
cancers. Our more than 2,800 members include physicians, advanced
practice providers, nurses, and patient advocates who collaborate with
the Foundation for Women's Cancer to increase public awareness of
gynecologic cancers and improve the care of those diagnosed with
gynecologic cancers. Our primary mission focuses on supporting
research, disseminating knowledge, raising the standards of practice in
the prevention and treatment of gynecologic malignancies, and
collaborating with other organizations dedicated to gynecologic cancers
and related fields, all with the ultimate vision of eradicating
gynecologic cancers.
Scope of the Problem
As you know, this year we faced one of the worst chemotherapy drug
shortages in the country's history, with 15 indispensable chemotherapy
drugs in short supply simultaneously. Carboplatin and cisplatin, which
are both generic, sterile injectable drugs and have been in shortage
since mid-February 2023, are first-line therapies for ovarian,
endometrial, and cervical cancers. Carboplatin serves as a backbone
drug for most gynecologic cancer therapies. At the peak of the
shortages earlier this year, SGO estimated that over 500,000 patients
were affected by chemotherapy drug shortages. Moreover, although the
data is not yet available, we believe that individuals in marginalized
communities and rural areas have likely borne the brunt of the impact
caused by drug shortages, and we are currently evaluating if the
chemotherapy shortages have negatively affected survival outcomes for
people with gynecologic cancers. The bottom line is that patients
deserve better than having to wonder whether they will have access to
standard of care cancer treatments.
Legislative Solutions
Since the onset of the shortages, SGO has been working with
policymakers and other stakeholders to mitigate the current shortages
and prevent future shortages. Over a decade ago, we witnessed a similar
shortage of generic chemotherapies. Patients with cancer deserve better
and must not be subjected to the unnecessary uncertainty regarding the
availability of standard of care therapies. Therefore, we recommend
that a comprehensive legislative solution be developed to avoid future
shortages and include the following components.
Provide incentives to realign hospital purchasing practices to promote
the purchase of high-quality generic drugs:
Currently, hospitals purchase drugs from group purchasing organizations
(GPOs), pharmacy benefit managers (PBMs), and entities that provide the
lowest prices because there are no incentives for purchasing drugs from
more reliable manufacturers at higher prices. The information from
Quality Management Maturity (QMM) and Risk Management Programs (RMPs)
programs discussed below could be used to inform standards and best
practices for contracts with GPOs and PBMs and allow the Centers for
Medicare & Medicaid Services (CMS) to establish a voluntary reporting
system that would include financial rewards for purchasing drugs from
manufacturers with more resilient supply chains. Dr. Marta Wosinska
from the Brooking Institution discussed this concept in detail at the
recent hearing as well as in the recent article titled ``Federal
Policies to Address Drug Shortages.''\1\ We believe this policy would
empower hospitals to be informed consumers of essential medicines,
providing a concrete benefit to the patients they treat.
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\1\ https://www.brookings.edu/articles/federal-policies-to-address-
persistent-generic-drug-shortages/
Additionally, authorized tax incentives, grants, and loans will
encourage the manufacturing of generic drugs and required active
pharmaceutical ingredients as part of more resilient supply chains. The
increased funds will allow generic manufacturers to invest in new
facilities and expand existing operations, adopt newer innovations, and
ultimately improve the redundancy in their manufacturing processes; the
lack of investment in generic drug manufacturing and the supply chain
are key drivers of the current shortage. As drug shortages are often
caused by quality issues at manufacturing facilities, these incentives
should be conditioned upon achievement of quality and supply chain
resilience metrics such as Food and Drug Administration's (FDA) QMM
---------------------------------------------------------------------------
program.
Authorize and appropriate funding for the FDA's quality management
maturity (QMM) program:
SGO believes that a robust QMM program, regulated by the FDA's Center
for Drug Evaluation and Research, is critical to supporting resilient
supply chains and preventing future drug shortages, particularly for
generic chemotherapies. QMM is the state attained when drug
manufacturers have consistent, reliable, and robust business processes
to achieve quality objectives and promote continual improvement;
through a QMM program, assessments would be conducted to support
manufacturers' achieving higher levels of QMM by integrating high
quality practices and technological advancements to optimize
manufacturing process performance and product quality, enhance supply
chain reliability, and foster proactive continual improvement. We agree
with the FDA that the root cause for many drug shortages is the absence
of incentives for manufacturers to strive for more than simply meeting
current good manufacturing practice regulations and to develop mature
quality management systems.
The QMM rating system will help incentivize manufacturers to attain
higher levels of QMM at their facilities and address many issues we
faced during the most recent chemotherapy shortage. Currently, the only
information available to purchasers is the price of drugs. Absent any
additional information, purchasers do not have a rationale to purchase
a drug with a higher price if the same drug is available elsewhere at a
lower price. A voluntary QMM program would provide purchasers with
helpful additional information with which to guide their purchasing
decisions. A purchaser could, for example, justify paying more for a
drug if the manufacturer is part of a QMM program instead of paying
less for a drug whose manufacturer is not part of a QMM program with
the expectation that the product from the QMM manufacturer would be
less likely to go into shortage or have history of contamination or
recall.
Additionally, a QMM program would emphasize the importance of high-
quality drug production and quality control measures, which would
minimize the risk of shortages caused by operational inefficiencies or
lapses in quality control. We believe that this is particularly
important for the manufacture of generic drugs. Lack of transparency
related to drug shortages also would be addressed by the QMM program.
The FDA, hospitals, and providers would be able to better anticipate
shortages and develop rapid guidelines to optimize drug supply,
including strategies such as dose reduction, identification of
alternative therapies with similar efficacy, and the initiation of
pharmacy drug preservation protocols. This enhanced transparency would
ensure a more agile response to potential shortages, mitigating the
impact on patients.
Establish a Drug Supply Chain Reliability (DSCR) Program
Once a QMM program is established, the SGO recommends piloting a
product-level DSCR program, which should be established and led by an
independent third party. This pilot should be overseen by the
Department of Health and Human Services Supply Chain Resilience and
Shortage Coordinator and other federal agencies. This program would
include drug shortage prevention factors like backup raw material
suppliers, manufacturing flexibilities and redundancies, inventory
buffers, domestic and nearshore manufacturing capabilities, and risk
management plans. This information would enable product-specific
assessments that would help prevent shortages and inform drug
purchasers.
Support and appropriate funding for inspection of RMPs for high-
priority essential generic medicines, including rating the strength of
the RMP, like the FDA assigns a site status after site inspections:
The FDA already has guidance on RMPs, which are designed to prevent
drug shortages, but a more robust RMP would provide drug purchasers
with meaningful evaluations of manufacturers' practices so they could
purchase drugs from companies that invest in their supply chains. This,
in turn, would encourage manufacturers to invest in and prioritize
improvements of their supply chain practices. Given the shortages
stemming from issues with generic manufacturers, an enhanced program
should focus on these manufacturers. This attention would involve more
rigorous inspections, ensuring that these manufacturers adhere to the
highest standards of quality control and supply chain management.
Additional Recommendations
Establishing and Maintaining a Stockpile of Chemotherapies
The SGO supports the establishment of a government funded stockpile
that is strategically maintained by the Administration for Strategic
Preparedness and Response to address potential disruptions in the
supply chain of chemotherapies and other essential medicines. However,
if Congress mandates this, it is crucial that there is an allocation
mechanism in place to ensure that small and rural community hospitals
that may be least equipped to navigate the market during shortages are
able to treat their patients without forcing them to travel to larger
hospitals and academic medical centers. During the current chemotherapy
shortages, we have witnessed that some institutions have been more
capable of maintaining supply than others placing additional burden on
patients.
Additionally, it is important to note that chemotherapies are currently
missing from most essential medicines lists. Prior to acquiring a
stockpile of essential medicines, these lists must be updated by
closely determining which drugs are most essential and vulnerable to
shortage. Additionally, SGO recommends that if a stockpile of
chemotherapy drugs or other essential medicines were to be established,
it should not be implemented until the current shortages are resolved
completely.
Thank you again for the opportunity to submit this statement and for
your commitment to addressing this issue. SGO looks forward to working
with you to develop a comprehensive, bipartisan solution to this
complex issue to ensure patients have timely access to the required
medications.
______
STAQ Pharma
255 Phillipi Road
Columbus, OH 43228
(833) 397-0106
https://staqpharma.com/
December 6, 2023
Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Written Testimony for Hearing: ``Drug Shortages: Examining Supply
Challenges, Impacts, and Policy Solutions from a Federal Health Program
Perspective,'' December 5, 2023
Dear Chairman Wyden and Ranking Member Crapo:
Thank you for holding a hearing on the important and timely issue of
drug shortages. STAQ Pharma is an experienced 503B Pharmaceutical
Outsourcing Facility, leading a new generation of sterile-injectable
medical preparations. Based in Colorado and Ohio, our facilities have
been built from the ground up to comply specifically with the rigorous
Current Good Manufacturing Practices set by the Food and Drug
Administration. Our goal is to anticipate the needs for and develop
injectable medical treatments to avoid severe domestic drug shortages.
We have already contributed to the critical shortage in the production
of Albuterol for children in respiratory distress, concentrated
Electrolytes to provide life sustaining nutrition in newborns and
infants, and lifesaving medication for hemophilia patients through our
work with the National Hemophilia Foundation. STAQ will be looking to
expand our product offering next year to meet the ongoing shortages in
life-saving oncology treatments. For many pediatric and adult hospital
systems, STAQ Pharma is the only solution for shortage medications. Our
facilities are built to be flexible and offer a readily available
manufacturing capacity on domestic soil that can address drug
shortages. We are currently expanding our Columbus OH facility which
will create an additional 125,000 sq. ft. of manufacturing space to
address drug shortages here in the U.S.
We were heartened to learn about President Biden's November 27th
Executive Order, which invokes the Defense Production Act to make more
essential medicines in America and mitigate drug shortages. It also
emphasizes the importance of domestic manufacturing of essential
treatments, broadening the authority and available funding within the
U.S. Department of Health and Human Services (HHS). We view these as
critical steps forward in the effort to ensure a strengthened supply
chain to advance public health. The Committee should continue to
encourage the Administration to fund public-private partnerships with
the goal of eliminating domestic drug shortages, particularly within
ASPR-BARDA and ARPA-H.
As you know, drug shortages of any kind can significantly impact
patient care and public health. According to a recent report \1\ by the
Senate Committee on Homeland Security and Governmental Affairs, drug
shortages increased by almost 30% between 2021 and 2022, reaching a 5-
year high with 295 active shortages at the end of 2022. Currently, STAQ
Pharma produces 15 sterile injectable treatments on the FDA Drug
Shortage list, filling a critical role in the nation's healthcare
infrastructure and meeting the needs of major hospital systems across
the country in order to best treat their patients.
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\1\ https://www.hsgac.senate.gov/hearings/drug-shortage-health-and-
national-security-risks-underlying-causes-and-needed-reforms/.
As a recent white paper \2\ issued by the Duke University affiliated
Margolis Center for Health Policy points out, Congress should consider
authorizing a multi-agency coordinated effort, appropriately funded by
Congress, to solve the drug shortage problems our country will face in
the coming years. This will require a stronger synergy amongst federal
agencies, in particular the FDA (which has oversight on cGMP
standards), DOD, and other divisions of HHS.
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\2\ https://healthpolicy.duke.edu/publications/advancing-federal-
coordination-address-drug-shortages.
On behalf of STAQ Pharma, thank you for your attention to this
important issue and your commitment to improving health care and
quality. We look forward to making our presence known in Washington DC
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and hope to meet with Committee staff in 2024.
Sincerely,
Joe Bagan
Chief Executive Officer
______
United States Pharmacopeia
12601 Twinbrook Parkway
Rockville, MD 20852-1790
+1-301-881-0666
https://www.usp.org/
The United States Pharmacopeia (USP) is pleased to submit the following
statement for the record on the hearing ``Drug Shortages: Examining
Supply Challenges, Impacts, and Policy Solutions from a Federal Health
Program Perspective.''
USP is an independent, scientific, global non-profit organization
founded in 1820 when 11 physicians took action to protect patients from
poor-quality medicines. Convening in the old U.S. Senate Chamber, they
published the first-of-its-kind, national, uniform set of guidelines
for medicines and formed the organization now known as USP. Our
organization is governed by more than 500 entities, including
scientific, healthcare practitioner, consumer, and industry
organizations, as well as dozens of government agencies, who together
comprise the USP Convention.\1\ A core pillar of USP's work is to help
strengthen the global supply chain so that the medicines that people
rely on for their health are available when needed and meet USP's
quality standards as expected and/or required.
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\1\ USP's governing bodies, in addition to the Council of the
Convention, include its Board of Trustees and Council of Experts.
The Federal Food, Drug, and Cosmetic Act of 1938 created the statutory
requirement that medicines sold in the United States generally must
adhere to USP's public quality standards to help ensure the quality of
medicines and the safety of patients. Currently, USP standards are
developed by nearly 800 scientific and healthcare experts who volunteer
their time on USP's standard-setting committees, which also include
more than 200 U.S. Food and Drug Administration (FDA) government
liaisons. In these and other ways, USP works closely with the FDA,
other government agencies and across health and science communities to
develop USP standards (more than 6,000 today) that are enforced by the
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FDA.
Drug shortages continue to pose a significant threat to our nation's
patients and public health. Mitigating and preventing drug shortages
requires the identification of vulnerabilities in the pharmaceutical
supply chain to pinpoint the investments and policy and payment system
reforms required to make measurable progress against the continued
proliferation of shortages. As policy makers consider solutions to drug
shortages, it is imperative to take steps to foster a more resilient
supply chain to effectively reduce shortages over the long term. A more
resilient medicines supply chain will enhance our national security,
improve our ability to respond to medical and public health crisis, and
most importantly, will help ensure that patients have access to the
quality medicines that are essential for both critical and routine
patient care. Now is the time to act.
Understanding Factors Driving Medicine Supply Chain Vulnerabilities
Over the past year, there have been more 300 drugs experiencing ongoing
shortages, the highest in a decade. The impact on patients has been
significant, causing treatment delays or the use of less effective
treatments, often with suboptimal outcomes. Using the Medicine Supply
Map,\2\ USP found four risk categories to be correlated with drug
shortages, which singularly or in combination can increase a
medication's risk for shortage:
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\2\ In determining the four primary factors contributing to drug
shortages, the Medicine Supply Map used multiple sources of information
to identify worldwide sites of pharmaceutical ingredient and finished
dose medicine manufacturing. More than 40 datasets from USP, U.S. Food
and Drug Administration (FDA), the Centers for Medicare & Medicaid
Services, European Medicines Agency, World Health Organization, and
private sector sources are utilized by the Medicine Supply Map
platform. These data are enriched with information about risk drivers
such as price and ingredients and cover 92 percent of FDA-approved
generic prescription drugs. The Medicine Supply Map includes over 250
million aggregated datapoints to evaluate indicators of drug shortage
risk, including geographic concentration, manufacturing complexity,
price, and quality. The model is also informed by insights on the use
of USP quality standards in over 80 percent of FDA-registered finished
dose and API manufacturing facilities.
1. Low prices: Drug products with low prices (most commonly older
drug products which are usually generics) have a higher risk of drug
shortage.
2. Manufacturing complexity: Drugs with more manufacturing
complexity, such as sterile injectables, have an increased
vulnerability to shortage. Examples of manufacturing complexity include
product categories that require dedicated manufacturing facilities
(e.g., certain antibiotics) and complex chemical synthesis of the
active ingredient.
3. Geographic concentration: Drugs with greater geographic
concentration of sourcing of active pharmaceutical ingredient (API)
and/or finished dose manufacturing are more susceptible to shortages.
4. Quality concerns: Quality failures, accounted for in the
Medicine Supply Map as outcomes of FDA inspections and a history of
recalls, predict increased vulnerability to drug shortages.
These four risk factors are often interrelated, and, in combination,
can exacerbate economic challenges for manufacturers of low-margin drug
products and impact business decisions about whether to continue
manufacturing some drug products. For example, manufacturing complexity
increases the cost to manufacture a medicine, which, when combined with
low prices of certain drug products, can yield a margin that is
unsustainable. To improve margins, industry has sought to reduce
manufacturing costs by concentrating production in lower-cost
geographies. This concentration creates a range of vulnerabilities.
Moreover, the low price/low margin dynamic impedes industry's ability
to invest in increased manufacturing capacity and may lead to
underinvestment in quality management systems. To increase resiliency,
it is essential to account for these dynamics.
Lower-priced drugs
Lower-priced drugs have a higher likelihood of being in shortage. The
association between pricing and drug shortages is well documented. For
instance, Root Cause 1 in the 2019 FDA report ``Drug Shortages: Root
Causes and Potential Solutions'' was the ``lack of incentives for
manufacturers to produce less profitable drugs'' which included
``unfavorable pricing dynamics'' among other market conditions that
could limit profitability. In that same report, FDA analyzed 163 drugs
regulated by the Center for Drug Evaluation and Research (CDER) that
went into shortage between 2013 and 2017, and found that ``[w]hen
compared with all marketed drugs with the same dosage form during the
same period, including both generics and brands, the prices of the
shortage drugs were at the 36th percentile of prices, while the prices
of injectables that were in shortage were at the 33rd percentile and
oral products in shortage were at the 46th percentile.''\3\ Lower price
and margin drug products offer limited incentives for manufacturers to
stay in or enter the market. The fact that lower-priced drugs have more
availability issues should be evaluated within the context of quality
and supply chain vulnerability.
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\3\ FDA. 2019. Drug Shortages: Root Causes and Potential Solutions.
Available at: https://www.fda.gov/media/131130/download.
For instance, USP Medicine Supply Map analysis shows low price is a
significant risk factor for antimicrobial shortages, the impacts of
which we recently experienced. During the winter of 2022-2023, with
multiple respiratory viruses circulating, drug shortages were
experienced among certain antimicrobial drug products. Previously, in
the summer of 2022, USP's Medicine Supply Map found that antibacterial
drug products were 42 percent more likely to be in shortage than the
average drug product. Out of the 128 antibacterial drug products
approved in the United States, 20 were in shortage (15.6 percent
compared to 10.9 percent for all drug products).\4\
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\4\ Supply chain vulnerabilities exist for antimicrobial medicines:
USP Medicine Supply Map analysis | Quality Matters | U.S. Pharmacopeia
Blog.
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Manufacturing complexity
There are numerous ways to assess the complexity of pharmaceutical
manufacturing, including the type and variation of dosage forms, the
number of underlying ingredients and key starting materials, the
expertise needed to synthesize the molecule, storage requirements, and
the size and molecular structure of the active pharmaceutical
ingredient. A USP Medicine Supply Map analysis shows that the
injectable dosage form and certain specifics of the manufacturing and
API synthesis processes are predictive of drug shortages. Injectables
are particularly vulnerable to supply chain disruptions when compared
to solid oral dose medications. Injectable medicines often undergo a
manufacturing process called lyophilization, which is expensive and
complex, and therefore medicines made with this process have lower
supply chain resilience. The complexity of the chemical synthesis of
the API was also found to be correlated to drug shortages.
As an example, while not currently in shortage, vincristine sulfate
injection, which is used for the treatment of cancer, has been in
shortage in previous years and remains highly vulnerable to shortage.
This drug requires plant-based starting materials that can be difficult
and expensive to obtain. Moreover, its cytotoxic active ingredient is
hazardous, expensive to manufacture, and requires dedicated
facilities?. Manufacturers of vincristine sulfate injection also cannot
take advantage of economies of scale due to the low dose/strength of
the drug and the low total API needed.
Geographic concentration
USP's Medicine Supply Map data show that geographic concentration
anywhere--including within the United States--increases the risk of
drug shortage. While the globalization of the supply chain has
generally facilitated access to medicines at a lower cost, it poses the
risk of unreliable supply following sudden or unexpected shocks in
specific locations, followed by a lack of understanding of what might
be impacted because the mapping of where products are made is complex
and incomplete. Geographic concentration of the medicines supply chain
is generally an outcome of specialization and pricing pressure and can
result in drug shortages when a variety of issues occur, including
natural disasters (e.g., earthquakes, hurricanes), trade wars, domestic
or geopolitical strife, or pandemics such as COVID-19.
In March 2021, nearly three-quarters of FDA-registered API
manufacturing facilities and approximately half of all FDA-registered
finished dosage form (FDF) manufacturing facilities were located
outside of the United States. Within the generic drug market, 87
percent of FDA-registered API facilities and 63 percent of FDA-
registered FDF facilities were located outside of the United States.
While instructive, these figures do not account for the volume produced
within these facilities.\5\
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\5\ The White House. Building Resilient Supply Chains, Revitalizing
American Manufacturing, and Fostering Broad-Based Growth: 100-Day
Reviews under Executive Order 14017 2021 [cited 2021 August 20].
Available from: https://www.whitehouse.gov/wp-content/uploads/2021/06/
100-day-supply-chain-review-report.pdf.
USP used the Medicine Supply Map to assess U.S. dependence on foreign
API. USP leveraged machine learning techniques, including Natural
Language Processing, on data from FDA, information from non-U.S.
regulatory agencies and its own proprietary insights to map
manufacturing locations associated with approximately 90 percent of
active API Drug Master Files (DMFs) around the world. DMFs are
submitted to FDA by companies when they intend to supply drug
ingredients to another company without disclosing proprietary
information. FDA publishes the names of companies filing the DMFs.
While DMFs are commonly utilized in the generics industry, some
manufacturers may choose to make their own API or not use a DMF.
Nevertheless, this mapping provided a picture of U.S. reliance on
foreign API sources at the end of 2021. The USP Medicine Supply Map
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analysis counted the number of active API DMFs by location:
India: 48%
Europe: 22%
China: 13%
United States: 10%
Other: 7%
USP Medicine Supply Map insights also show how U.S. reliance on foreign
API sources has changed over time. In 2021, India contributed 62
percent of active API DMFs filed that year, up from 20 percent of
currently active DMFs that were filed in 2000. This increase is
consistent with India's well-publicized national ambition to enhance
API manufacturing capabilities. Meanwhile, Europe's contribution
declined from 49 percent of active API DMFs filed in 2000 to 7 percent
filed in 2021. The United States likewise contributed a lower
percentage in 2021: 4 percent. China contributed 23 percent of new API
DMFs filed in 2021. USP data suggest that China produces a wide variety
of APIs for medicines marketed in the United States.
Understanding these data could give leaders an opportunity to prepare
for a potential disruption caused by a shock event, such as an emerging
public health, political, or trade crisis. Questions remain from the
current analysis, however, when thinking about facets of U.S. reliance
on foreign API manufacturers. For example, USP's analysis does not take
volume into account, and it is not clear if certain DMF holders are
responsible for larger volumes of drugs compared to competitors.
Importantly, we also do not understand U.S. reliance on other countries
for key ingredients that are used in the manufacture of API.
Quality concerns
USP underscores that medicines supply chain resilience and medicines
quality are inextricably linked; issues with medicines quality can
threaten medicines supply chain resilience, and medicines supply chain
failures, vulnerabilities and disruptions can lead to medicines quality
issues, increasing the risk of substandard and falsified medicines. It
is well documented that quality issues remain a primary contributor to
drug and medical product shortages.
USP Medicine Supply Map analysis found that poor FDA inspection
outcomes at a facility and products with a history of recalls were
correlated with a higher likelihood of shortage. This is consistent
with FDA's findings: for example, of the 163 drugs that went into
shortage between 2013 and 2017, the FDA found that 62 percent went into
shortage due to quality issues.\6\ Root Cause 2 outlined in FDA's 2019
drug shortages report suggested that the market does not recognize and
reward manufacturers for mature quality management systems.
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\6\ Ibid.
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USP Policy Recommendations
A fundamental shift in the market for lower-priced drugs is needed to
align supply and demand forces to create a predictable, sustainable,
and quality supply chain that can reliably provide critical drugs to
patients. Policymakers and public and private drug purchasers must
value quality and resilience through sustainable prices of drugs that
demonstrate these characteristics. While the programs and policies to
achieve this are being developed and implemented, it is imperative in
the near term to utilize and expand tools to assess supply chain
vulnerabilities and shortage risks, and to use these insights to
proactively intervene in a coordinated manner. USP urges policymakers,
regulators, and industry to take further action to identify and respond
to risks and vulnerabilities and reduce medicine supply disruptions.
While we recognize that drug shortages span various Congressional
Committees due to both public health and national security concerns, we
urge the Committee to work across committee jurisdictions to ensure
that meaningful reforms are enacted and implemented.
1. Promote sustainable prices for generic medicines by valuing supply
chain resiliency
The leading and root cause of most drug shortages is unsustainably low
prices. Lower margins undermine initiatives to ensure supply chain
resiliency by limiting the ability of manufacturers to reinvest in
manufacturing facility maintenance and manufacturing updates and
quality assurance and management, causing manufacturers to seek lower-
cost geographies for their sourcing and manufacturing. USP understands
the necessity for a fundamental shift in the market for lower-priced
drugs to guarantee more certainty and predictability of both demand and
supply and to increasingly value a drug's supply chain resiliency in
addition to its price. As such, USP:
Supports the development of initiatives to assess manufacturer
supply chain resiliency, sustainability, and reliability. Such
initiatives will provide information that can support purchasing and
contracting decisions that financially recognize and reward
manufacturer supply chain capacity and resiliency efforts.
Encourages policymakers and public and private drug purchasers
to explore:
The establishment and utilization of payment
and purchasing models that value and incentivize supply chain
resilience and reliability.
The authorization and use of longer-term
guaranteed-volume contracts, in which prices are assured for a
defined, guaranteed volume. Such long-term, guaranteed-volume
contracts could include provisions to help ensure supply chain
resiliency and reliability, including requirements for
manufacturing capacity that accounts for potential disruptions
and diversification of suppliers.
2. Advance broader geographic diversification of the manufacturing
base including incentives to advance more U.S.-
based medicine production
USP supports reforms to foster more resilience in the manufacturing
base for U.S. drug products--especially for medicines or ingredients
that are most vulnerable to supply disruptions--and to reduce the risk
to patients of potential disruptions and shortages that result from the
concentration of drug manufacturing in limited geographies. USP
supports:
Economic or other incentive measures that will encourage
multiple suppliers for key drugs, geographic diversification of
manufacturing facilities, and broader component supply.
Economic incentives to encourage increased domestic
manufacturing of APIs and finished drug products in the United States,
prioritizing specific medicines or ingredients that are most vulnerable
to supply disruptions.
Market-based and pricing incentives that encourage utilization
of excess domestic manufacturing capacity: up to 50 percent of
manufacturing capacity in the United States has been identified as
unutilized.
Financial incentives to provide manufacturers with the necessary
support to build facilities supporting advanced manufacturing
technologies (AMTs) on U.S. soil: manufacturers of low-margin drug
products that have a higher likelihood of shortage have insufficient
profitability to invest in AMTs.
The development of tools and standards to help reduce the
technical barriers to wider adoption of AMTs and support medicine
quality.
3. Utilize existing early warning capabilities and invest to fill gaps
in the supply chain map
Both government and non-governmental stakeholders should utilize the
full range of early warning capabilities developed for the U.S. drug
supply chain. In particular, the U.S. Government should further
leverage information platforms that provide actionable data-based
insights into medicines supply chain vulnerabilities, while also
funding additional initiatives to fill information gaps on a broad
range of vulnerabilities including for key starting materials and
critical excipients. These capabilities can be housed in a funded Early
Warning System and Research Coordinating Center and would enable the
U.S. Government and private sector pharmaceutical supply chain
stakeholders to adopt a more proactive and informed approach to
preventing shortages and mitigating the impact of those that do occur.
Early warning capabilities would also help the U.S. Government increase
the return on its investments in strengthening the nation's medicine
supply by targeting investments and resources to the particular
vulnerabilities of specific medicines.
U.S. Government entities and the private sector stakeholders
responsible for getting medical products to patients--including
manufacturers, wholesalers, and hospitals--need actionable insights
that can assist in anticipating and predicting supply chain
vulnerabilities and their causes before they result in a drug shortage.
Moreover, a need exists to integrate already existing data--such as
unit volume, supply chain structure, facility quality management
maturity, company financial health, epidemiology, and other demand
drivers--to prevent drug shortages or mitigate their impact.
In the case of recent shortages in oncology drugs, alerts issued by an
early warning system could have enabled distributors and manufacturers
to act, including by communicating with hospitals and putting
carboplatin and cisplatin on allocation or quota until actions could be
taken to increase supply. In the case of methotrexate, its market has
shown signals of supply vulnerability for more than 4 years, according
to the Medicine Supply Map, since long before the most recent shortage.
The methotrexate market has experienced significant price declines,
market consolidation leading to a concentration of risk, and persistent
shortages. These patterns could have been flagged proactively as a
concern, potentially guiding preventive actions and policy responses.
Identifying, characterizing, and quantifying risks and vulnerabilities
throughout the medicines supply chain--from raw materials and APIs to
distribution and administration of drug products to patients--can yield
meaningful and timely insights, inform impactful decisions and
solutions to avert shortages, and support effective responses to
shortages when they do happen. For example, a comprehensive simulated
model of the medical product supply chain can enable tactical and
training exercises that will help our nation better prepare for the
next public health emergency or geopolitical shock by identifying nodes
of vulnerability, especially overreliance on one foreign country or any
single geographic area. When a shortage does happen, the data and
lessons learned can be used to tailor a response and minimize the
impact based on an understanding of the shortage's potential duration
and magnitude, supported by insights into root cause(s), market share,
and potential alternative suppliers.
4. Utilize a vulnerable medicines list to guide policy interventions
and investments
A vulnerable medicines list that highlights medicines that are
vulnerable to shortage based on a range of indicators would provide
both government and non-government stakeholders with insights to inform
policy and purchasing decisions. Factors that would inform a vulnerable
medicines list could include the number of suppliers, geographic
concentration of manufacturers and API, excipient, and KSM suppliers,
political and geopolitical risks, climate change susceptibilities,
manufacturing complexity, price, and other information.
5. Coordinate supply chain resilience and reliability efforts
USP supports efforts to coordinate medicines supply chain resilience
and reliability activities among federal agencies and non-governmental
stakeholders. We encourage the coordination of multi-disciplinary
efforts, defining measurable outcome metrics for implementation
efforts, and strategic planning activities to maximize the utility of
new programs and increase the impact of existing initiatives.
Additionally, necessary authorities and sufficient funding should be
allocated to lead these cross-functional efforts to improve drug supply
chain resilience and reliability.
Conclusion
USP thanks the Committee for considering USP's recommendations and for
the thoughtful, bipartisan attention to the underlying causes of drug
shortages and to the policy and payment system reforms required to
improve medicine supply chain resilience. We look forward to working
with the Committee and Congress to seek solutions to drug shortages
that will help ensure that patients have access to the quality
medicines they need.
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