Can Government Solve the Nation's Drug Supply Shortage?

Experts believe that targeted incentives could alleviate longstanding and chronic supply challenges.

A panel of experts told the U.S. Senate Finance Committee this week that targeted incentives and policy shifts by Medicare and other federal government agencies could play a critical role in reducing the nation's chronic shortages of generic drugs.

Inmaculada Hernandez, PharmD, PhD, professor at Skaggs School of Pharmacy and Pharmaceutical Sciences at UC San Diego, told the committee that "generic manufacturers solely compete to sell their product at the lowest price, generating a 'race to the bottom'".

"That price erosion is aggravated by the consolidation of purchasing entities," Hernandez says.

To alleviate the problem, Hernandez says the federal government has several options, and should start by providing low-interest, performance-based, and potentially forgivable loans to incentivize rebuilding the nation's generic drug infrastructure."

In addition, Hernandez says the government should revise drug pay-for-performance reimbursement models "to incentivize the selection of products manufactured in resilient and mature supply chains."

"Supply chain resilience and maturity are crucial for supply stability and continuity," she says. "Supply stability and continuity are elements of value because, when we initiate a patient on a treatment, we not only value the product available for the initial dose, but also the continuity of supply so that a patient can complete the treatment course."

Marta E. Wosińska, PhD, a senior fellow at The Brookings Institution, concurred with Hernandez and told the committee that "CMS should encourage hospitals to place more weight on reliability of manufacturing supply through a pay-for-performance program under Medicare."

Under such a program, Wosińska says hospitals "would be scored on their behavior on two measures: do they buy from reliable manufacturers and do they buffer their inventory."

"Hospitals would be measured on their performance retroactively, on their behavior before the first signal of each shortage that occurs," she says. "The scorecard would then feed into an end-year sliding-scale payment adjustment based on a hospital's performance relative to its peers. Hospitals should largely expect to cover their participation costs, with top performing hospitals exceeding those cost."

Allan Coukell, BSc (Pharm.), senior vice president for public policy at Civica Rx, also noted that "policy responses should focus on changing the current system that causes shortages because it favors low prices over resiliency of supply."

Along those lines, Coukell told the committee that nonprofit Civica Rx, created five years ago by health systems to address chronic drug shortages, has created a roadmap worth emulating when purchasing generics. That guidance includes measures to ensure: at least a six-month buffer inventory; that generic sterile injectables are priced sustainably; support for domestic manufacturing; and "market demand" from drug makers who are less likely to have quality failures.

"If Congress were to create a targeted program to support domestic manufacturers to develop essential products that are at high risk of shortage … domestic manufacturers would then be ready to manufacture on short notice once a shortage starts," Coukell says. "In this way, Congress could create an insurance policy against future shortages at the cost of a one-time investment of $3 million to $4 million per drug."