COVID-19 has focused the nation’s attention on the risks associated with complex, global supply chains, particularly related to healthcare products and prescription drugs. While supply disruptions of personal protective equipment (PPE) captured headlines, the pandemic also compromised the drug supply chain. With much of the United States’ generic drugs manufactured overseas, exportation bans coupled with increased global demand created significant challenges for U.S.-based providers to secure basic, life-sustaining and life-saving therapies.
As an “easy” solution, many are now calling for manufacturers to produce medications domestically. While expanding investment in U.S. drug-making capacity is a vital component of a reliable supply strategy, moving the majority of production onshore is unrealistic.
Creating a dependable drug supply chain is a multi-faceted issue that requires a thoughtful, diversified strategy.
Almost all shortage drugs are older, low-cost generics costing less than $9/dose. Because these products don’t generate blockbuster profits, manufacturers are less willing to invest capital to improve quality, build redundant capacity or source safety stock. Over time, market competition continues to erode price and further compress profits, leading to a war of attrition where competitive players exit the market – leaving behind as few asone or two manufacturers in many important categories.
Relocating production to the United States will not address generic drugs’ inherent profitability problem. Increased regulations, environmental and otherwise, could lead to higher production costs, which begs the question: will healthcare providers trade the potential for higher costs for predictability in supply?
Say the word “shortage” to a healthcare professional and chances are the first thing that will come to mind is drug shortages. With good reason, too – there are more than 100 drugs currently at risk or not readily available for U.S. hospitals, according to the Food and Drug Administration’s (FDA) drug shortage list.
Shortages don’t just apply to drugs, however, and as 2019 has shown, healthcare providers must become more focused on shortages of the medical device variety. The shutdown of multiple medical device sterilization facilities in 2019 is poised to jeopardize the availability of devices that are critical to routine patient care. On Nov. 6, the FDA is hosting a panel to hear from stakeholders, including hospital epidemiologists and healthcare supply chain experts, on the risks associated with facility shutdowns and potential action steps.
The industry as a whole is in need of meaningful solutions. As taxpayers, patients and key stakeholders in healthcare, we must collaborate to eliminate interruptions to our healthcare supply chain. For those invested in improving healthcare from the inside, this means working across competitive boundaries and borrowing best practices from sister industries as we work to identify the root cause of these issues and provide meaningful and preventative solutions.
The 30,000 member American Society of Clinical Oncology is the world’s leading group of cancer physicians. ASCO is dedicated to curing cancer, supporting research, quality care, reducing treatment disparities and a heightened national focus on value. This month they released their annual Report on Progress Against Cancer, which highlights research, drug development and cancer care innovations. This hundred-page document is important reading for anyone who wants to be up-to-date regarding cancer care.
Cancer related deaths in the United States are dropping, but still totaled 577,000 in 2012. While world cancer research funding is rising, in the USA it continues to decrease, with the purchasing power of the largest funding source, the National Cancer Institute, having fallen 20% in the last decade, and a further 8% cut slated for January 1, 2013. Development is dependent on government and private funding, as well as the willingness of more than 25,000 patients a year who volunteer to be involved in cancer trials. All these critical supports are threatened. The Federal Clinical Trials Cooperative of the National Cancer Institute (FCLC, NCI) supports research at 3100 institutions in the USA.
The report discusses the many types of cancer which continue to be naturally resistant to cancer treatment, particularly chemotherapy. In some cases, drugs do not penetrate a part of the body, such as the brain, in other cases even when they reach the tumor, they are not effective. In such cancers the genetic code of the cancer cells has mutated (changed) such that the particular drug does not kill the cancer. In 2012, there was increased interest in attacking each cancer cell at multiple targets either by using a single drug, which attacks in several different ways, or multiple drugs at the same time. This concept improved cancer killing in GIST, colon cancer, certain lymphomas (ALCL) and medullary thyroid cancer. In addition, unique targeted compounds, such as “tyrosine kinase inhibitors,” show increasing benefit in leukemia, sarcoma and breast cancer.
“I should have gotten cancer last month,” she told me.
That was the first thought from my patient after she’d heard the news: her ovarian cancer would remain untreated for weeks, due to a critical shortage of the chemotherapy agent doxorubicin. Like her, several thousand patients have been affected by critical shortages of chemotherapy agents like doxorubicin (Doxil) and methotrexate—common medicines that are essential backbones of cancer chemotherapy. But hundreds of other people have also been affected by critical shortages of pills around the country—limiting the supply of critical ICU medications like intravenous versed, or tuberculosis drugs like isoniazid.
Why are these shortages happening, and what can be done about them?
The state of the problem
Doxil and methotrexate are among 287 drugs in “critical shortage” in the United States, according to the University of Utah’s Drug Information Service, which has been tracking the problem. Shortages have been mounting in recent years, up from about 74 in 2005.
At present, the US Food and Drug Administration and independent researchers have tracked the status of major drug shortages occurring throughout the country. The FDA keeps an online catalog of these shortages. What this catalog reveals is that among 178 drugs that were in shortage during the year 2010, a vast majority (132) were sterile injectable drugs. These are generally cancer drugs, anesthetics used for patients undergoing surgery, as well as drugs needed for emergency medicine, and electrolytes needed for patients on IV feeding.
In general, there are two reasons why shortages might appear in a market. The first is high fixed costs. These include regulatory costs, the costs of converting a manufacturing plant to a new use, or the costs of creating a new factory. Industries with high fixed costs will see temporary shortages after either supply shocks (e.g., a factory goes offline) or demand shocks (e.g., an increase in the population needing a drug). The price mechanism eventually resolves such shortages. The duration of the shortage is related to the size of the fixed costs.
Shortages also appear when something interferes with the price mechanism’s ability to resolve a shortage. The classic example is government price controls (i.e., a binding price ceiling). Such shortages persist as long as the price controls (e.g., rent control) remain in place and binding.
From my study of the current spate of drug shortages, the best accounting for these shortages appears in this publication by the U.S. Department of Health and Human Services: “Economic Analysis of the Causes of Drug Shortages,” Issue Brief, October 2011.
I initially suspected these drug shortages were caused by Medicare’s Part B drug-payment system. Others, including Scott Gottleib and the Wall Street Journal, have made that claim. However, this study and a lengthy discussion with the U.S. Department of Health and Human Services’ assistant secretary for planning and evaluation have persuaded me that not only is Medicare’s Part B drug-payment system not the cause, that system doesn’t even impose binding price controls. Rather, it controls the margins that physicians earn for administering a drug. (If Medicare did impose binding price controls, would we see mark-ups of 650 percent or more for the shortage drugs?)
Rather, the shortages appear to be the result of a number of dynamics in the market for rare drugs:
Hospitals nationwide are experiencing shortages of critical generic intravenous drugs. We believe a fundamental reason for this national shortage is government price controls. With these limits there is little incentive to invest in new facilities and technologies, leading to equipment failures. Manufacturers have little economic incentive to prepare proactively for the quality assurance issues that routinely arise in the manufacturing of a sterile injectable compound. To reincentivize this process, the market needs to be free. spurring more manufacturers to produce these drugs, encourage reinvestment in facilities and the stockpiling of reserves.
The drugs in shortest supply include those used in critical care units such as norepinephrine for shock, antibiotics for infections, and cancer chemotherapy. Almost all are generics and manufactured by a just few companies. Among the oncology drugs in short supply are cytarabine and leukovorin. Cytarabine is the best single drug for acute myeloid leukemia. Leukovorin is used in childhood acute lymphoblastic leukemia.
These are older “off patent” drugs. As generics, they are far less expensive that newer drugs. They have stood the test of time, are still used extensively and are necessary for optimal patient care. Individual patients need exactly the right drugs on precisely the right schedule – no substitutes; now, not later. As pointed out in Congressional testimony and a Wall Street Journal editorial, these shortages are having a major negative impact for ongoing clinical trials designed to improve cancer treatment results. Another critically needed cancer drug is Doxil, a drug used for the treatment of many cancers. It is sold by Johnson and Johnson (J&J) and until recently it had been manufactured on contract for J&J by Ben Venue Laboratories. Unfortunately, Ben Venue is exiting the contract drug business. Thus, Doxil is not currently available. Prior to 2003, Medicare paid for cancer chemotherapy injectables based on the average wholesale price. But with no transparency, some distributors or physicians could reap huge profits. To combat this and with the best of intentions, a new system was developed as part of the Medicare Modernization Act of 2003, based instead on the average selling price updated quarterly.