Tak­ing aim at short­ages

Or­der strength­ens FDA’S en­force­ment au­thor­ity

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jaimy Lee

Man­u­fac­tur­ers have few in­cen­tives to in­crease pro­duc­tion of scarce generic drugs, de­spite a record-break­ing num­ber of drug short­ages and new mar­ket-led rec­om­men­da­tions from the Obama ad­min­is­tra­tion.

Last week, Pres­i­dent Barack Obama is­sued an ex­ec­u­tive or­der that strength­ens the Food and Drug Ad­min­is­tra­tion’s en­force­ment au­thor­ity and staff re­sources. It also en­cour­ages man­u­fac­tur­ers to vol­un­tar­ily no­tify the agency about po­ten­tial short­ages, a pro­posal that mir­rors bills in both cham­bers of Congress that would re­quire drug com­pa­nies to no­tify the FDA of a short­age or dis­rup­tion at least six months in ad­vance.

In a coin­cid­ing re­port, HHS rec­om­mended that the FDA ex­pe­dite re­views re­lated to man­u­fac­tur­ing ca­pac­ity and pol­i­cy­mak­ers bal­ance their short-term reg­u­la­tory re­sponses with pos­si­ble risks of re­duced com­pe­ti­tion in the fu­ture.

A third rec­om­men­da­tion en­cour­ages group pur­chas­ing or­ga­ni­za­tions and in­sur­ers to strengthen fail­ure-to-sup­ply clauses in con­tracts with man­u­fac­tur­ers. Fail­ure-to-sup­ply clauses al­low hos­pi­tals to re­coup the dif­fer­ence they pay af­ter mak­ing an off-con­tract pur­chase, usu­ally at a higher price. On av­er­age, only 10% of losses are re­couped from fail­ure-to-sup­ply re­quire­ments.

In ex­change for ac­cept­ing the more strin­gent clauses, man­u­fac­tur­ers would raise drug prices and sub­se­quently in­crease pro­duc­tion ca­pa­bil­i­ties.

Cur­tis Rooney, CEO of the Health­care Sup­ply Chain As­so­ci­a­tion, said the trade group sup­ports the ex­ec­u­tive or­der, but the rec­om­men­da­tion raises some con­cern for GPOS. Fewer fail­ure-to­sup­ply clauses have been in­cluded in con­tracts as a re­sult of the short­ages, and man­u­fac­tur­ers will of­ten not agree to cover in­cre­men­tal costs if the GPO has con­tracted with more than two man­u­fac­tur­ers, Rooney said by e-mail. At this point, hos­pi­tals are “just grate­ful for the sup­ply,” he said.

It’s a sen­ti­ment echoed by the Amer­i­can Hos­pi­tal As­so­ci­a­tion. Roslyne Schul­man, the AHA’S di­rec­tor of pol­icy de­vel­op­ment, said hos­pi­tals may be will­ing to ac­cept an in­crease in drug costs, de­pend­ing on drug avail­abil­ity and the dif­fer­ence in price points.

Man­u­fac­tur­ers have said they are work­ing to re­duce the short­ages. “The generic in­dus­try is res­o­lute in its com­mit­ment to work with all com­po­nents of the sup­ply and provider net­work to dra­mat­i­cally de­crease cur­rent short­ages and mit­i­gate fac­tors that could con­trib­ute to fu­ture short­ages,” Ralph Neas, pres­i­dent and CEO of the Generic Phar­ma­ceu­ti­cal As­so­ci­a­tion, said in a state­ment. The as­so­ci­a­tion de­clined to com­ment fur­ther.

In a per­spec­tive piece pub­lished in the Nov. 3 is­sue of the New Eng­land Jour­nal of Medicine, phar­ma­cist Mandy Gates­man and on­col­o­gist Dr. Thomas Smith wrote that with­out national in­ter­ven­tion or fed­eral mar­ket reg­u­la­tion, re­im­burse­ment re­form is nec­es­sary to ad­dress the scarcity of on­col­ogy drugs, which make up nearly 30% of cur­rent short­ages. One fac­tor that makes the on­col­ogy drug mar­ket unique is that on­col­o­gists are re­im­bursed dif­fer­ently by the CMS. Since 2003, the re­im­burse­ment rate for an on­col­ogy drug is the av­er­age sales price plus a 6% markup, which on­col­o­gists pocket to cover prac­tice costs. The au­thors say that more than half of an on­col­ogy of­fice’s rev­enue may come from chemo­ther­apy sales and the pol­icy has re­duced de­mand for generic on­col­ogy drugs.

To com­bat short­ages of on­col­ogy drugs, Gates­man and Smith rec­om­mend set­ting a floor for the av­er­age sales price of a generic drug to en­cour­age on­go­ing pro­duc­tion; pay­ing prac­tices dis­ease-man­age­ment fees rather than rates based on drug sales; or em­ploy­ing salar­ied physi­cians.

“To en­sure a pre­dictable sup­ply of generic can­cer drugs, man­u­fac­tur­ers need rea­son­able mar­kets and prof­its, and on­col­o­gists need in­cen­tives to use gener­ics,” Gates­man and Smith wrote. “The only good news is that the drug short­ages may cat­alyze a shift from a mostly mar­ket-based sys­tem to one that re­wards the pro­vi­sion of high-qual­ity can­cer care at an af­ford­able cost.”


Obama signed an ex­ec­u­tive or­der aimed at en­cour­ag­ing man­u­fac­tur­ers to no­tify the FDA of pend­ing short­ages.

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