Guest Column | December 27, 2019

An Analysis Of The FDA's Drug Shortages Root Cause Report

By Madeleine Giaquinto and Cynthia Schnedar, Greenleaf Health

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Drug shortages are known to have a significant impact on the nation’s most vulnerable patients. When drug shortages occur, hospitals may have to change or delay treatment, resulting in worsening health outcomes in critical areas of healthcare like childhood cancer, septic shock, palliative care, and anesthesia and sedation. Moreover, drug shortages lead to inefficiencies in the healthcare delivery system, diminishing the quality of medical treatment and increasing costs for patients.

In the market for prescription and generic drugs, economic patterns of supply and demand do not interact in the same manner as other markets, i.e., interruptions in supply do not drive price and consumer demand according to traditional market responses. This is what led to the formation of the Drug Shortage Task Force, which sought to understand the unique economic forces at play in the drug manufacturing marketplace directly and indirectly causing drug shortages across the healthcare system. The task force completed its initial undertaking in October 2019 by publishing the Drug Shortages: Root Causes and Potential Solutions report, which identified root causes of drug shortages and made recommendations for effectively resolving these underlying issues.1 This article summarizes the findings and recommendations made in the task force report, in addition to discussing potential next steps the FDA may take in addressing drug shortages in the U.S.

Task Force Establishment

In June 2018, a group of 135 bipartisan members of Congress wrote a letter to then FDA Commissioner Scott Gottlieb, M.D., requesting that the drug shortage crisis be urgently addressed. In response, the FDA established a cross-agency task force that included members of partner agencies, including the Centers for Medicare and Medicaid Services, the Department of Defense, the Department of Veterans Affairs, the Federal Trade Commission, and other senior officials from the Department of Health and Human Services. 

Once assembled, the task force formed a team of economists and scientists to analyze drug shortage patterns of 163 drugs between 2013 and 2017. This analysis uncovered economic forces as the root cause of drug shortages and found there to be an increase in both the number of ongoing shortages, as well as their duration. At the conclusion of its review, the task force published its report identifying three root causes and contemplating three possible solutions to prevent and mitigate drug shortages.

Report Root Causes

The task force first found that a lack of incentives to produce less profitable drugs exists in the drug manufacturing marketplace. This includes unfavorable pricing dynamics, such as various sectors of healthcare merging together in order to increase negotiating power with buyers and suppliers. Additional factors that contribute to unfavorable contracting practices include price sensitivity among healthcare providers, a lack of communication between high-volume drug buyers with regard to the value of reliable drug supplies, a heightened need for capital investment in generic drug manufacturing, and business uncertainty due to the extremely competitive prescription drug market. Current contracting practices have, thus, created a disincentivized environment for manufacturing less profitable drugs, which diminishes motivation for investing in a healthy supply chain capacity.

Second, the task force found that mature quality management systems lack a quantifiable value in drug manufacturing. Although drug manufacturers are required to maintain compliance with current good manufacturing practices (cGMPs) in order to distribute drugs in the U.S. market, such standards are only the floor of quality management requirements and do not reward holistic quality culture or mature quality management systems. Several factors contribute to the market’s inability to reward quality management systems, including existing challenges in assessing quality, a lack of transparency across the supply chain to allow consumers to link drug products back to manufacturers, and a lack of information about the effectiveness of quality (i.e., an inability to quantify potential cost reduction created by quality management systems). Because the market does not reward manufacturers for developing advanced levels of quality management, beyond threshold requirements of cGMPs, manufacturers have no incentive to update technologies and processes designed to detect and prevent the quality problems that culminate in drug shortages. 

Third, the task force found a lack of regulatory harmonization across global industry or, rather, the existence of logistical and regulatory challenges in recovering from foreign supply chain disruptions. An increased use of contract manufacturers and overseas production has created disjointed supply chains involving multiple regulating agencies. This often means manufacturers experience financial, technological, and sourcing hurdles when expanding production capacities or changing API sources. Although approved API manufacturing facilities are listed in the FDA’s Inspections Classification Database, complete information about API suppliers remains unavailable, making it expensive and time consuming for manufacturers to respond to disruptions in supply chains. The complexities of changes in API sourcing are made even more burdensome by the fact that a significant 88 percent of API manufacturing sites are located in foreign countries, making quality management of drug products more uncertain and, consequentially, making the supply chain more vulnerable to drug shortages.

Report Recommendations

In response to the identified root causes, the task force first recommended creating a shared understanding of the impact of drug shortages and the contracting practices that contribute to them. The lack of information about the impact of shortages, across public and private sectors, restricts development of any degree of measurability (e.g., their duration, frequency, or scope).  Industry’s lack of understanding also inhibits motivation to invest in developing more reliable supply chains, especially for generic drugs. Areas most in need of data collecting include the quantification of harms of drug shortages to patients and more precise classification of shortages (i.e., characterizing shortages in terms of frequency, persistence, intensity, and impact). Greater granular understanding around the effects of shortages may help address the first root cause.

The task force also recommended creating a rating system to incentivize drug manufacturers to invest in mature quality management systems. With quality problems accounting for 62 percent of drug shortages between 2013 and 2017, this recommendation is aimed at incentivizing the development of robust mature quality management systems to ensure a stable drug supply chain. A rating would be given to a manufacturing facility based on an evaluation of its quality management systems. A pharmaceutical company could then voluntarily disclose this rating to the public in order to gain a competitive advantage in the marketplace. The rating could also be leveraged by GPOs and purchasers when entering into contracts with manufacturers, injecting greater transparency into the marketplace. Although no such rating system currently exists for drug manufacturing facilities, the report mentions essential elements of an ideal mature quality system, including upgrading facilities and equipment, training manufacturing workers, providing education about products and manufacturing processes, and using statistical-based tracking of manufacturing processes. Factors that could be integrated into the proposed rating system have been studied and considered by several organizations.2 3 Manufacturers must be willing to champion the rating system and disclose facility ratings. Doing so will further allow market transparency and create opportunities to reward mature quality management systems.

The task force lastly recommended promoting sustainable private sector contracts by encouraging thorough information sharing about unfavorable contracting practices. This possible solution is one that requires engagement of both private and public sectors because it involves the need to shift financial risk away from manufacturers, especially manufacturers of less profitable generic drugs. 

Looking Ahead: An Emphasis On Quality

In tandem with the task force report, several legislative proposals and other FDA initiatives are currently aimed at preventing and mitigating drug shortages. The FDA recommended, in a legislative proposal in the president’s FY2020 budget, possible heightened requirements around data sharing of manufacturing interruptions and expanded FDA authority to impose penalties for subsequent inadequate notice. The FDA also recommended a legislative proposal to expand its authority and require certain application holders to conduct risk assessment and risk management exercises for vulnerabilities in the manufacturing supply chain. The FDA announced plans to publish new draft guidances by the end of 2019 on improving data sharing and risk management plans. Finally, the FDA recommended a legislative proposal to lengthen expiration dates of certain drug products, with the goal of reducing the need to discard recently expired drugs unnecessarily, to prevent exacerbating drug shortages. 

In addition, the finalization of ICH Guideline Q12 in December 2019 created an enhanced set of tools to incentivize the modernization of prescription drug manufacturing processes and equipment.4 Previously, manufacturers faced stringent regulatory oversight and financial burdens to make post-approval manufacturing changes, which inhibit responsiveness to supply chain disruptions. These initiatives complement efforts of the task force, doubling down on its strategy to prevent and mitigate drug shortages at their root cause. 

It is evident the FDA places a high priority on addressing drug shortages. Although economic drivers of shortages are complex, requiring engagement of all stakeholders throughout the healthcare system, FDA leadership is seemingly focused on redefining quality culture norms in its regime against drug shortages. In her October 2019 FDA perspective article, Janet Woodcock, M.D., Director of the Center for Drug Evaluation and Research, characterized mature quality manufacturing systems as key, stating, “several features of the modern market focus purchasers solely on price…[b]ut if purchasers also had the option to pay for reliable production, they might be willing to pay more for a medicine from a manufacturer with a proven track record of prompt and regular delivery of product, in order to avoid shortages.”5 Even more recently, in December 2019, Woodcock testified before the House Energy and Commerce Committee on oversight of the U.S. drug supply chain, where she emphasized the FDA’s position that encouraging industry investment in mature quality management systems could better equip manufacturers in preventing quality problems that create supply chain disruptions.6

Regardless of the FDA’s approach, it is clear drug shortages continue to harm patients, both in worsening health outcomes and raising costs of medicine and treatment. The task force report highlighted possible solutions to root causes of drug shortages; however, how these solutions are ultimately implemented into the healthcare system will be something to watch for in the coming years. 

References:

  1. FDA, “Drug Shortages: Root Causes and Potential Solutions” (October 2019).
  2. St. Gallen, “FDA Quality Metrics Research Final Reports,” (2017 and 2018).
  3. ISPE, “Quality Metrics Pilot Program” (2015).
  4. ICH Guideline Q12: Technical and Regulatory Considerations for Pharmaceutical Product Lifecycle Management.
  5. FDA Voices, Perspectives of FDA Leadership, “To Help Reduce Drug Shortages, We Need Manufacturers to Sell Quality – Not Just Medicine” (October 2019).
  6. Testimony of Janet Woodcock, M.D., Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, U.S. House of Representatives, “Securing the U.S. Drug Supply Chain: Oversight of FDA’s Foreign Inspection Program” (December 2019).

About The Authors:

Madeleine Giaquinto is manager of regulatory affairs at Greenleaf Health, Inc. She specializes in analyzing FDA quality and compliance issues and in advising clients on strategic communications. Previously, Giaquinto worked at 340B Health, a trade association of 1,300 member hospitals and health systems, where she worked on regulatory, legislative, and legal issues related to the federal 340B drug pricing program. She earned a B.S. in biology from Georgetown University and a J.D. from George Mason University School of Law. You can connect with her on LinkedIn.

Cynthia Schnedar is executive VP of regulatory compliance at Greenleaf Health. She was formerly director of the Office of Compliance for the FDA’s CDER. During her time at the FDA, she spearheaded efforts to protect the American public from unsafe and ineffective drug products by ensuring companies comply with federal standards for quality and safety. Among her many duties, Schnedar advised the FDA commissioner, the CDER director, and other senior FDA officials on significant enforcement issues. Schnedar spent more than two decades at the Department of Justice, where she specialized in compliance and enforcement issues and served as acting inspector general. She earned a B.A. from the University of New Mexico and a J.D. from the University of Texas School of Law. You can connect with her on LinkedIn.