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December 19, 2012

Prescription Drug Shortages: Crisis Abating - Still Need for Pricing Reform

Drug Shortagesw
Some progress on drug shortages has been made over the last few months, due in part to manufacturing improvements.  For example, Genzyme said that a new plant was now producing all of the supply needed for its thyroid cancer treatment, Thyrogen.  Supply had been spotty for about three years, but now biotech unit of Sanofi says it is producing enough of the drug to meet the needs of all patients.  “We are grateful to the thyroid cancer treatment community for its ongoing patience and partnership,” Alicia Secor, Genzyme’s vice president and general manager of endocrinology, said in a statement. 

A Genzyme spokeswoman explained in an email that the drug went onto shortage lists as Genzyme worked through manufacturing problems after a virus was found at the Boston-area plant where the drug was filled and finished.  A couple of other drugs, including Fabrazyme, Genzyme’s treatment for the rare Fabry disease, were also interrupted.  Genzyme began manufacturing Thyrogen at its new Framingham, MA, plant when the FDA signed off on it earlier this year. Fill/finish is being handled by Hospira, she said. 

Hospira, which has been at the heart of a number of drug shortages as it works through improvements to its manufacturing plants, also said it expects to soon have sufficient supplies to re-enter the market with propofol. The anesthetic is one of the drugs hospitals had turned to the large-sale compounder, Ameridose, for because it was hard to come by. Now Ameridose has closed because of FDA issues, a move that may lead to a number of shortages. 

In another case, FDA allowed the manufacturer American Regent to sell a drug used during chemotherapy that was found to contain glass particles.  Doctors and nurses were instructed to filter the drug, sodium thiosulfate, before administering it to patients.  “If there wasn’t a shortage, we would never allow a company to continue marketing” in such cases, Dr. Sandra Kweder, deputy director of the FDA’s office of new drugs, said. But “patients need it.” 

FDA is also working with the Drug Enforcement Administration (DEA) to make exceptions with drug quotas so capable manufacturers can make extra supplies since many anesthesiology drugs in short supply are controlled substances.   

'Repackaging' doses in the operating room has been shown to increase the risk of infection in the past, but some clinicians may feel pressured to split up the larger vials of anesthesia drugs in times of shortage to maximize the number of patients who have access to care, Joel Zivot, MD, medical director of the cardiothoracic intensive care unit at Emory University in Atlanta, told MedPage Today.  Many anesthesiologists have called for smaller packaging, though that's been a challenge given it increases production costs on generic agents that are less profitable to begin with. 

Food and Drug Administration (FDA) Commissioner Margaret Hamburg recently told The New York Times that while far from resolved, “we’re in the midst of a period of really, very significant change that offers great promise for the future.”  NYT reported that only about 100 drugs have been added to the shortage list so far this year, compared with 221 when it peaked last year.  The FDA says that it has prevented the shortage of about 150 drugs this year by working with the industry to find supplies to avert a potential dearth of a particular med. 

Nevertheless, “there are still dozens of drugs in short supply, forcing some patients to go without essential meds and forcing healthcare providers to make some tough choices.”  Much of the national shortage problem can be traced to production disruptions when drugmakers initiate improvements after the FDA has sent them warning letters.  A House subcommittee report earlier this year criticized the FDA for being too aggressive in that regard.  

“From rural ambulance squads to prestigious hospitals, health care workers are struggling to keep vital medicines in stock because of a drug shortage crisis that is proving to be stubbornly difficult to fix.  Rationing is just one example of the extraordinary lengths being taken to address the shortage, which health care workers say has ceased to be a temporary emergency and is now a fact of life.  In desperation, they are resorting to treating patients with less effective alternative medicines and using expired drugs.  The Cleveland Clinic has hired a pharmacist whose only job is to track down hard-to-find drugs.” 

While shortages have been averted, when drugs become hard to get, they tend to remain hard to get, says Erin Fox, who tracks drug shortages at the University of Utah. Her group is keeping an eye on the supplies of 282 difficult-to-come-by drugs, she tells the newspaper. "The shortages we have aren't going away--they're not resolving," she said. "But the good news is we're not piling more shortages on top.” 

Compounding and Drug Shortages 

In addition to these concerns, the deadly meningitis outbreak caused by contamination at a large drug producer could worsen the situation.  FDA said that shortages of six drugs — medicines used during surgery and to treat conditions like congestive heart failure — could get worse after a big compounding pharmacy closed over concerns about drug safety.  The pharmacy, Ameridose, shares some management with the New England Compounding Center (NECC), which is at the center of a meningitis outbreak that has claimed 33 lives and sickened 461 more. 

Methylprednisolone, the drug that has caused the meningitis outbreak, was not technically in short supply.  A brand-name form made by Pfizer is on the market. The cheaper generic kind ran out, however, because the two companies that make it, Teva Pharmaceuticals Industries and Sandoz, have all shipments on back order with vague information as to when they’ll be available again. Some hospitals and clinics may have turned to compounding pharmacies for the drug to keep their costs down. 

“Compounding pharmacies have fit a niche in terms of getting medications to patients,” John Dombrowski, MD, chair of communications for ASA and director of the Washington Pain Clinic, told MedPage Today.  Steven Gayer, MD, professor of anesthesiology at the University of Miami, agreed that in times of shortage, “the correct answer is to find a compounding pharmacy.” 

Although compounders are focused on providing tailored drugs for specific patient needs, David Ball, a spokesperson for the International Academy of Compounding Pharmacists, confirmed that these pharmacies have been picking up some of the slack during shortages. 

“Compounders have regularly been called on to make those medications that are commercially unavailable,” Ball said.  They have access to raw materials, and with orders from patients -- or from hospitals for specific patients -- they can help disseminate drugs when they're needed most. 

Some of these pharmacies have even adopted a direct-to-consumer approach. The Professional Compounding Centers of America, which supplies compounders with raw materials, has a section on its website that instructs patients how to find their local compounders if their medications are out of stock. 

Consequently, FDA Commissioner Hamburg noted in a recent post on FDA’s blog that the agency is taking a number of actions to help address any shortages that may result from the supply of drugs affected by the Ameridose recall. 

GPO’s and Drug Shortages 

Despite this recent success, six members from the U.S. House of Representatives recently sent a letter to the Government Accountability Office (GAO) asking the agency to investigate “whether contracting practices by Hospital Group Purchasing Organizations (GPOs) are a driving cause of drug shortages that force hospitals and other providers to rely on compounding pharmacies.”  The letter was written by Representatives Edward J. Markey (D-Mass.), Henry A. Waxman (D-Calif.), John Dingell (D-Mich.), Frank Pallone (D-N.J.), Diana DeGette (D-Colo.), Anna G. Eshoo (D-Calif.). 

Markey said the investigation “will shed light on any possible linkages between drug shortages and reliance on compounding pharmacies and help address gaps in our oversight of this industry.”  “We look forward to GAO helping us understand the role General Purchasing Organizations play in avoiding, ameliorating, or contributing to the occurrence of drug shortages, and the role drug shortages play in hospital use of compounded drugs,” said Rep. Waxman.  

GPOs are designed to leverage the purchasing power of their client hospitals to obtain the lowest prices for drugs and devices.  Virtually every hospital in the US is a member of at least on GPO and more than 70% of all hospital purchases are made through GPO contracts. 

However, a number of experts say that anticompetitive, exclusionary contracting by GPOs have “rigged the market” in favor of a few manufacturers and distributors.  Current law allows GPOs to charge the drug manufacturer a fee that is based on a percentage of the total value of the purchase.  

Some experts consider this a “kickback” that creates a perverse incentive structure, whereby the more the hospital pays for the products, the higher the kickback and profit for the GPO.  Shut out of the lucrative GPO contract and unable to make a profit, other manufacturers cease production and leave the supply chain more limited, fragile, and vulnerable to shortage.  Such fees also drive down generic drugmakers' profits on selling their drugs, diminishing incentives to continue production and potentially opening the door to shortages, according to the letter. 

Angie Boliver, director of communications for Novation -- one of the largest GPOs in the U.S. -- told MedPage Today the drug shortage is complex and that the "notion that GPOs are responsible for drug shortages simply because they have negotiated prices too low is without logic or justification.”  “The reality is that hospitals will, and do, pay whatever amounts they have to pay in order to get life-saving drugs,” Boliver said in a statement. “It is important to note that GPOs are negotiating against some of the largest and most powerful companies in the world. These companies are sophisticated businesses that are perfectly capable of negotiating contracts that will provide a reasonable profit margin.” 

Healthcare Supply Chain Association president Curtis Rooney said GPOs “do not have the ability – nor would it be in our interest – to force manufacturers into contracts that undermine their ability to deliver product.”  “Drug companies regularly and quickly adjust pricing of GPO contracts when they experience shocks to production, and GPOs manage thousands of price changes annually, both increases and decreases,” Rooney said, adding that "all hospitals can purchase off-contract. 

The lawmakers are asking GAO to investigate questions that include: 

  • What market factors contribute to the reliance of hospitals and other healthcare providers on compounding pharmacies?
  • What impact have contracting practices by market participants such as manufacturers, distributors, group purchasing organizations, and providers had on competition and innovation in medical devices and drugs, access to medical devices and drugs, including an impact on drug shortages, and pricing of medical devices and drugs?
  • Do drug shortages drive hospitals and other health care providers to rely more heavily on purchases of drugs, including sterile injectable medications, from compounding pharmacies?
  • Do the incentives in the current GPO model lead to inflated prices for drugs and devices?  Put another way, what is known about the competitive and budgetary impacts on both hospitals and the Medicare program that could result from eliminating the GPO safe harbor exemption from the Medicare anti-kickback statute?
  • What is known about the impact that GPO administrative fees have had on generic drug makers’ financial condition, their ability to maintain and upgrade plant equipment, and their ability to conduct quality control? 

“This initiative is a courageous step forward in addressing the foundational reasons behind both the tragedies caused by drug compounding and the broader issue of preventable drug shortages,” said Peter J. Pitts, President, Center for Medicine in the Public Interest and a former FDA Associate Commissioner. “The anticompetitive manipulation of American healthcare by GPOs is an urgent topic for congressional action.” 

“Through exclusive contracting, which has given GPOs effective monopolistic control of this industry, they have contributed to product shortages and disincentives for legitimate producers to manufacture and stock essential drugs,” said S. Prakash Sethi, Ph.D., University distinguished professor, Baruch College, The City University of New York.  “At the same time, they have given rise to unscrupulous manufacturers to produce and market substandard drugs and thereby expose the patient population to serious health risks.”

Causes of Drug Shortages 

Federal drug officials trace much of the drug shortage crisis to delays at plants that make sterile injectable drugs, which account for about 80 percent of the scarce medicines.  Nearly a third of the industry’s manufacturing capacity is not running because of plant closings or shutdowns to fix serious quality issues.  Other shortages have been caused by supply disruptions of the raw ingredients used to make the drugs, or by manufacturers exiting the market. 

For example, a New York Times article discussed how six of the major manufacturers of sterile injectable drugs have been warned by FDA about serious violations of manufacturing rules, and four of them have closed factories or significantly slowed production to fix the problems. 

While some industry observers and former plant employees point to plants reluctant to fix manufacturing problems, manufacturers reject descriptions of their factories as deteriorating and say they are investing hundreds of millions of dollars to make improvements.  

The “Gray Market” is also exacerbating the drug shortage problem, where smaller distributors are marking up the prices on drugs in short supply.  Capt. Valerie Jensen, RPh, associate director of the Drug Shortage Program at the FDA’s Center for Drug Evaluation and Research, said during a panel at the ASA meeting that it’s “not clear what, if any, laws are being broken” in that process, and added that FDA is sending all gray-market reports to the Department of Justice.  FDA has 11 employees dedicated solely to drug shortages. 

Some people have accused the FDA of causing the shortages, saying overzealous enforcement and poor communication have led plants to close needlessly or to slow production. Others have cited economic factors, like market pressures and reimbursement policies that have set prices so low that some companies have stopped making certain drugs.  

An article from Businessweek explained that in an “ordinary market, when one company’s production lines shut down, competitors step in to meet demand. The generic injectable drug business is different in that it is greatly influenced by the practices of Medicare, the largest U.S. purchaser of health care.”  

As a Bloomberg Government study points out, “Medicare rules from 2005 prevent reimbursement to providers for injectables and other drugs health-care workers administer from rising more than 6% above the average sales price, effectively limiting what drugmakers can charge. The cap has reduced suppliers’ incentive to expand capacity when shortages happen.” 

FDASIA, passed in July 2012, requires drug companies to notify the FDA six months in advance of anticipated problems that might lead them to shut down production of a drug.  However, Ezekiel Emanuel, a former adviser to the Obama administration on health-care policy, recommended a change in the Medicare price controls—to either raise the cap above 6% or, at least do so when a shortage develops. 

Emanuel noted that “Strict adherence to Medicare’s price caps on injectable drugs may be penny-wise and pound-foolish.  And it stands in the way of ensuring Americans’ constant access to safe drugs of every kind.” 

Echoing Emanuel’s position, a recent article written by Bill Cassidy, MD, a Republican Congressman from Louisiana, and Patrick Cobb, a practicing oncologist, also noted that drug shortages are being caused by the Medicare Modernization Act.  While the legislation “has lowered the cost of pharmaceuticals for seniors … it has in an increasing number of cases made them less available.” 

“Before this legislation, providers of these pharmaceuticals received reimbursement proportional to the drugs' average wholesale price. Among other changes, the new law also addressed concerns that the average wholesale price was often inflated above real costs and did not reflect actual market prices. Medicare began to reimburse providers at 106% of the average sales price of the drug over the previous two quarters of sales in lieu of the average wholesale price, so that average sales price corresponded to the sales price of a drug. This was intended to end abuse of the system.” 

In response to the change in Medicare's reimbursement system, many private insurance companies have switched to an average-sales-price-based reimbursement system. Manufacturers who previously had an overwhelming financial incentive to produce generic drugs now face minuscule profits or losses, in addition to government requirements to provide discounts and rebates on drugs for high-need populations. With much to lose and little to gain, many manufacturers continue to leave the market for these reasons. 

Almost all drug shortages have come about after their price has plummeted, and the problem is compounded by the fact that many generics have few suppliers.

The Affordable Care Act could make this already bad situation worse. Under this legislation, if Medicare expenditures exceed a predetermined amount, the Independent Payment Advisory Board is mandated to cut expenses. One of the few areas the board can cut is drug costs. This will move the market for pharmaceuticals further away from market forces—and until market forces are acknowledged, drug shortages will persist. 

“Well-intentioned but ill-advised policy changes in the Medicare Modernization Act must be addressed immediately to ensure that lifesaving treatments remain available. This means Congress has to remove artificial price caps.”


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Understanding economic root causation of pricing of generic drugs in shortage and the disappearance of a competitive manufacturing market has necessarily implicated questions of GPO buying monopoly powers granted previously by Congress. Unfortunately denials on their part require transparent economic data of their financial transactions with vendors before the products are acquired on their contracting systems by hospitals.Such date is presently exempt from the Sunshine Act governing all transactions between drug and device manufacturers and physicians. Physicians are now in full attention of these GPOs as a primary root cause of shortages that are externally lowering the legal meaning of patient doctor relationships from industrial economic factors external to those relationships. Prioe suprene court Opinions that our fiduciary relationshipds are protected by the US Constitution.

Michael Rie MD
University of Kentucky college of Medicine

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