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FDA Issues Drug Shortage Report Identifying Root Causes and Potential Solutions

Despite congressional attention, Food and Drug Administration (FDA) action, public and private sector efforts, and ongoing media coverage, drug shortages remain a significant public health crisis in the United States.  In response to that crisis (and at Congress’s urging), the FDA formed the interagency Drug Shortages Task Force (Task Force) to study the issue.  FDA has now released the report resulting from the Task Force’s activities: “Drug Shortages: Root Causes and Potential Solutions.” The report, issued on October 29, 2019, concludes that drug shortages are primarily the consequence of economic factors driven by private and public sector business practices.  Those practices, according to the report, disrupt the supply chain availability of marketed pharmaceuticals. The report offers recommendations to provide a framework for stakeholders to address the underlying economic factors leading to drug shortages.

The Problem

Convened in 2018, the FDA-led Task Force was charged with studying the drug shortage problem, identifying its root causes, and recommending potential solutions, in an effort to prevent and mitigate future shortages. The Task Force discovered that the number of ongoing drug shortages is on the rise. It assessed 163 drugs that were in shortage from 2013 to 2017 and compared those products to similar drugs that did not experience a shortage. This analysis led the Task Force to identify three overall root causes for drug shortages:

  1. Lack of incentives for manufacturers to produce less profitable drugs;
  2. Market failure to recognize and reward manufacturers for “mature quality systems” that focus on continuous improvement and early detection of supply chain issues; and
  3. Logistical and regulatory challenges that make market recovery from a disruption difficult.

The report reveals that most shortages involve relatively low-priced, financially unattractive drugs. The Task Force found that many manufacturers discontinued products for commercial reasons, such as loss of profitability, prior to a shortage occurring. Other factors contributing to shortages included, among other reasons, outdated manufacturing equipment, unexpected problems with a product’s composition, occurrence of natural disasters, unavailability of raw materials, and unforeseen increases in clinical demand. When products were in shortage, the prices for those products defied basic economic theory by failing to increase sufficiently to restore the product supply to pre-shortage levels. In other words, the economics of the drug market do not function like most other markets.

Notably, as the report points out, industry contracting practices appear to contribute to setting the conditions for drug shortages.  For example, many manufacturer contracts with drug purchasers do not require minimum purchase volumes, and some agreements contain provisions that allow the purchaser to walk away from the arrangement at any time without penalty if another manufacturer offers the same product for a lower price.  Without adequate contractual incentives, manufacturers may be reluctant to continue supplying product and may instead choose to walk away from an unprofitable product.

Recommendations

The Task Force offers three recommendations in its report to address the root causes of drug shortages. First, it recommends increasing stakeholder understanding about the impacts of drug shortages and the role that contracting practices play in contributing to shortages. The report encourages the private and public sectors to collect and analyze comprehensive information necessary to characterize shortages, quantify their effects, and observe the contracting practices that drive shortages.  This information would help to create a shared understanding of drug shortages’ impacts and relevant contracting practices.

Second, the Task Force supports the development of a rating system aimed at incentivizing drug manufacturers to invest in quality management maturity. Currently, most manufacturers focus on compliance with Current Good Manufacturing Practices (CGMPs), which essentially set minimum standards an entity must meet in order to supply a drug product in the U.S. The proposed rating system, however, would create a mechanism to inform purchasers and consumers about the state of a drug manufacturing facility’s quality management maturity and would provide increased transparency into the market. This solution could also have the added benefit of creating a competitive advantage for well-rated facilities, potentially enabling those entities to obtain sustainable prices and grow market share.

Third, the Task Force recommends considering new, more sustainable contracting approaches to ensure a reliable drug supply. Payers and purchasers may be willing to consider new contracting approaches aimed at maintaining a reliable supply of drugs, if they have the benefit of greater transparency in drug manufacturers’ quality management maturity, along with better information about industry contracting practices. According to FDA leadership (in a statement released by Dr. Norman Sharpless and Dr. Janet Woodcock), this recommendation can be accomplished by “paying higher prices for drugs manufactured at top-rated facilities, requiring a certain quality maturing rating as a condition of contracting, or guaranteeing purchase of a set volume of products from sites achieving a certain quality maturity rating.”

In addition to these recommendations, the report also describes various FDA initiatives focused on enabling the agency to help prevent future shortages. These initiatives include: (i) a legislative proposal in the President’s FY 2020 budget to expand FDA’s access to manufacturing information; (ii) new data sharing and risk management plan guidance for manufacturers; (iii) a legislative proposal to allow FDA to require that certain drug application holders develop risk mitigation plans; (iv) lengthening expiration dates for drugs; and (v) finalizing the internationally harmonized guidelines for an effective pharmaceutical quality system.

Drug shortages are an issue that affects the entire pharmaceutical supply chain. While there is no simple fix to address such shortages, the Task Force’s report provides a solid foundation for moving forward to implement possible solutions. Absent major changes within this marketplace, drug shortages will continue to pose a serious threat to patients and health care providers across the country.

 

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Authors

Michelle L. Caton is a Mintz attorney who focuses her practice on life sciences and health care transactions as well as a variety of health care regulatory and compliance matters.
Elizabeth Conti is a Mintz attorney who focuses her practice on regulatory compliance and enforcement defense matters for health care, life sciences, and consumer product companies.