Nationally, the number of drug shortages has tripled since 2005. Our county’s hospice agency has experienced shortages of liquid morphine, scopolamine patches, and medications to relieve nausea. Other generic drug shortages in our clinic have included paclitaxel, leucovorin, and doxorubicin. We have had limited ability to order fluorouracil (5-FU) and mitomycin.
A few weeks ago, we received an urgent message from Sheila, our practice’s nurse manager: “We have three patients on the upcoming schedule who need cisplatin. I just tried to order this from the distributor and none is available.” Once again an already busy clinic was faced with the recurring issue of “drug triage.” How much do we have on the shelf? Can anyone’s treatment safely be delayed? Can we send anyone to the hospital for treatment if they have some in stock? In the end, one patient was treated from existing inventory at a marginally reduced dose, one patient was sent to the hospital, and one patient had his initial treatment delayed one week.
David Eagle, MD
Stories such as these abound in the media. Some patients with curable diseases are not receiving life-saving chemotherapy drugs, and equivalent substitutes are often unavailable. Treatment delays that potentially threaten patient outcomes are common. Clinical trials that add investigational agents to known effective generics have been suspended, and patient enrollment has been discontinued.
Nationally, the number of drug shortages has tripled since 2005. Our county’s hospice agency has experienced shortages of liquid morphine, scopolamine patches, and medications to relieve nausea. Other generic drug shortages in our clinic have included paclitaxel, leucovorin, and doxorubicin. We have had limited ability to order fluorouracil (5-FU) and mitomycin. Depending on the dosage, the drug cost for a single treatment of cisplatin is about $25 to $40. For a country that spends an enormous 17% of its gross domestic product on health care, how can something this economical and valuable to patients be in short supply? What will be required to fix this? These are the questions that physicians, policy makers, and others are currently focused on.
Ten to twenty years ago, oncologists maintained drug inventories in their offices. As drug prices rose and margins shrank, just-in-time delivery began to flourish. Oncology offices became dependent on being able to obtain drugs quickly from distributors. Now, availability is no longer reliable and offices are caught off-guard; they may discover that a patient scheduled for treatment in two days will not get his or her drug. Why?
A plethora of contributing causes have been postulated: raw material shortages, quality recalls, production problems, new FDA standards that force plant upgrades, consolidation among manufacturers, and insufficient or negative profit margins on generic drugs, among others. Are we suffering from a strange confluence of adverse events that have caused the generic drug shortage, or is one cause determinative? Answering this question correctly is critical since we risk wasting valuable time and resources if we attempt to solve the wrong problems. More importantly, patients will continue to suffer. And consider: we are not seeing any production issues with branded products produced by single-source suppliers. Is price the determinative factor?
It is easy to conclude that the primary cause of the shortage is economic. In a functional market place, a shortage results in rising prices. Manufacturers are then enticed into the market place to produce the product. The shortage disappears when product demand, product availability, and price find a new equilibrium. Why is this not happening here?
In 2003, the Medicare Modernization Act was signed into law. This changed both the formula for drug reimbursement and the ability of prices to fluctuate. Drugs are now reimbursed at average sales price (ASP) plus 6%. The ASP is updated quarterly, but government regulation requires a 6-month delay before the reimbursement rate can be changed. If manufacturers need to raise the price, they can only do so by 6% every 6 months. If they exceed a 6% increase, purchasers are reimbursed at less than acquisition cost. The result is an asymmetric pricing mechanism in which it is much easier for prices to fall than to rise. If the cost of production increases for any reason, such as an expensive FDA mandate regarding the production process, then a manufacturer’s cost of production may exceed its anticipated revenues from sales. Rational business entities may therefore choose to drop out of the market.
In a recent publication, Gatesman and Smith assert that the contributing cause of the shortage is that oncologists have less incentive to use generics instead of brand-name drugs. This is profoundly incorrect. Falling demand does not create shortages. Is it plausible to think that oncologists treating acute leukemia do not want to use cytarabine because it is generic? Furthermore, unit sales for generics increased 30% between 2006 and 2010. Again, if we get the causes of the shortage wrong, we delay the solutions that our patients need us to find.
In reality, the imbalanced pricing dynamics described above form a price control mechanism. The primary referee of the health policy, the federal government, is also an active participant in the health care arena-primarily in the role of payer. No surprise, then, that the pricing mechanism favors lower prices. But is it ever that easy?
Price controls have been around for centuries, have been intensively studied by economists, and often persist because the public does not recognize the connection between price controls and the problems that they create. Potential consequences include waiting lines (as in the 1970s gasoline crisis), quality deterioration, black markets, and rationing (as with joint replacement surgery in Canada). We can find examples of almost all of these consequences in the generic drug shortage. “Gray markets” have emerged. Our patients have been placed in waiting lines through treatment delays. Rationing has occurred by forcing allocation decisions for available generics based on who needs the drug “the most.” FDA regulation may have mitigated quality deterioration, but mandated upgrades to production facilities may be encouraging manufacturers to drop out of the low-margin business of generics.
Generic drugs account for less than 2% of spending on oncology pharmaceuticals. These drugs were already inexpensive; we have made them too inexpensive. Manufacturers have to design rational business plans, and the current pricing dynamics do not support the production of enough supply. Also, it is at least possible that the ASP system may inadvertently increase the price of oncology drugs overall. Currently, there is no price control mechanism for the initial price of a drug. Faced with limited capacity to raise prices in the future, the current ASP system may encourage higher pricing of branded products when they first come to market. Price controls have also been known to fail.
Just as multiple causes of the generic drug shortage have been postulated, various solutions have been proposed. These solutions have gone as far as government stockpiling or manufacturing of generics. Other proposals include requiring redundancy in production capacity, requiring manufacturers to determine projections for product demand as well as plans to meet this demand, and extending the expiration date of a drug in short supply. While lawmakers on Capitol Hill are seemingly focused on this issue, I suspect that this is because many of them either instinctively or objectively understand that they are part of the problem. President Obama’s recent executive orders (1) instruct the FDA to broaden reporting of potential shortages by manufacturers, (2) accelerate the review process for companies that would like to begin production of generics, and (3) improve reporting of collusion or price gouging to the Justice Department. This has the classic appearance of politicians first trying to look like they are “doing something.” These measures alone will be insufficient and possibly even counterproductive.
If the fundamental problem is asymmetrical pricing mechanisms biased to the downside, then the best solution would be to allow the price of generics to rise more easily. Changing to ASP + 30% for generics or reimbursing according to the price paid by wholesalers on the open market have been proposed. Others who recognize the central role of lack of profitability have suggested measures such as tax breaks to manufacturers or offering market exclusivity. We will all have to find these solutions together. The history of price controls has lessons to teach: starting them can be easy, living with them very difficult, and ending them hardest of all.