Life Science Compliance Update

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May 01, 2017

Drug Shortages, Pricing, and Regulatory Activity

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In a paper titled Drug Shortages, Pricing, and Regulatory Activity, Christopher Stromberg of Bates White Economic Consulting examined “the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States.” The paper explores factors such as regulatory oversight, possible market failures in pricing/reimbursement, and competition. Interestingly, a regression model run using FDA data on inspections and citations indicates a statistically significant relationship between these activities and drug shortage rates.

Drug Shortages, Pricing, and Regulatory Activity

Stromberg notes there is a distinctive and similar pattern “in the average length of ongoing drug shortages over time for both injectable and non-injectable drugs.” He also notes, “Theories that rely on Medicare reimbursement policies — such as ASP-based Medicare Part-B reimbursement — may serve to explain level differences in shortage rates, but simply don’t apply to noninjectable drugs and aren’t likely to explain the consistent pattern of change over time. Similarly, theories that rely on the specifics of generic injectable production don’t apply to non-injectables.”

Stromberg’s study looks at other explanations that have an influence on both markets. Section 3 of his article explores whether changes in quality monitoring by the FDA can be connected with shortages. He notes this “has not been given rigorous empirical treatment in the past.” But does note that there’s unlikely to be one singular cause of drug shortages, even though they mainly impact generic medications.

Effects of FDA Inspections

Later in the article, Stromberg investigates the link between FDA inspection and detection rates on shortage rates. In his previous section, Stromberg outlines changes in regulatory activity as one of the elements that is expected to have an impact on shortage rages. This is especially true in the short run because manufacturers are expected to adjust to “a new equilibrium.” Stromberg concludes that the models “presented in this section suggest a connection between FDA inspection and citation rates and drug shortages that cuts across both parenteral and non-parenteral drugs.”

FDA inspection and citation data comes from publicly-available databases on the FDA website. Specifically for this study, the database of inspections includes information on 102,160 FDA inspections. The Center for Drug Evaluation and Research (CDER) accounts for 11,410 inspections. 55%, a majority of the inspections, involves the food safety center of the FDA (CFSAN). The majority of CDER’s inspections (8,348, 73% of the 11,410 total) are listed in the “Drug Quality Assurance” (DQA) project area. The next most prevalent project area is “Bioresearch Monitoring”, which accounts for about 21% of CDER’s inspections.

“Within CDER’s DQA inspections it is worth noting that over 50% result in some kind of regulatory action. Although only 4.8% (401) of these inspections result in an ‘Official Action Indicated’ outcome, another 48% (4,011) result in ‘Voluntary Action Indicated’ — suggesting some kind of corrective action is needed, according to the FDA,” notes Stromberg.

Data was then combined with parenteral and non-parenteral shortage data, then pooled into a dataset with 300 total observations. Ultimately, the model suggests a potential effect for the relationship between FDA activity and drug shortages. Stromberg explains the “models are designed to be predictive in nature, and are used to determine if current and past FDA activity has an effect on new drug shortage reports.”

Conclusion

Stromberg offers three possibilities are offered as potentially cross-cutting explanations for shortages: market structure, regulatory activity, and pricing. One of these, regulatory activity, is explored empirically. The regression models presented in this paper identified a consistent and statistically significant predictive relationship between FDA regulatory activity in the drug market (i.e. drug quality inspections and citations) and the incidence of new drug shortages. The models tested indicate that the pattern of this relationship is generally shared across both parenteral and non-parenteral drugs. This result suggests that changes in regulatory activity may be one of the cross-cutting factors contributing to the ongoing wave of drug shortages.

Stromberg does caution against over-interpreting the results. For example, some of the models show only modest correlations. It suggests that the models may be predictive, but there is a fair amount of variation in new shortage starts which remains unexplainable by one single factor. Also, because other factors that may be important are not accounted for in these models, caution is advisable when interpreting the results presented. It is also important to recognize the economic and regulatory context of this result. Changes in FDA oversight activity may signal attempts to reestablish quality thresholds that may have eroded or that have been applied unevenly as the industry has evolved.

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