Does the Drug Shortage White Paper Fall Short?

April 9, 2024By Kalie E. Richardson

The U.S. Department of Health and Human Services (HHS) recently published a White Paper on Policy Considerations to Prevent Drug Shortages and Mitigate Supply Chain Vulnerabilities in the United States—with input from several HHS stakeholders, including FDA, CMS, and the Administration for Strategic Preparedness and Response.  With the COVID-19 pandemic in the not-so-distant past, we trust that a recitation of the importance of a resilient supply chain is not needed here.  As noted in the White Paper and discussed in greater detail in the Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad Based Growth: 100-Day Reviews under Executive Order 14017, 52% of all FDA-registered finished dosage form manufacturing facilities and 73% of all FDA-registered API-manufacturing facilities were located outside the United States as of March 2021. For generic drug manufacturing facilities specifically, the numbers are 63% and 87%.

To address the underlying causes of shortages, the White Paper suggests that the creation (by Congress) of two programs that link inpatient hospital purchasing and payment decisions to supply chain resilience practices would better incentivize investments in mature manufacturing practices.  The proposed Manufacturing Resiliency Assessment Program (MRAP) would be managed as a public-private partnership and would assign resilience scores to manufacturers of generic drugs, “based on an assessment of manufacturer practices and past performance.”  MRAP would provide oversight of an accreditation body which would conduct assessments—paid for by the manufacturer—based on criteria developed by the MRAP.  HHS would then use MRAP scores in the proposed Hospital Resilient Supply Program (HRSP).  As described in the White Paper, HRSP “could establish demand incentives and/or penalties, facilitating hospital purchasing that prioritizes supply chain resilience, rather than the current structure which generally prioritizes cost alone.”  Specifically, HRSP could link Medicare payments and/or penalties to hospitals based on a scorecard which captures the hospitals progress in “adopting practices that promote supply chain resilience or prevent shortages,” such as inventory management and the inclusion of effective failure-to-supply clauses.

Putting aside the question of whether the implementation of any program that requires Congressional action is feasible in the current political climate, we think the underlying premise of the White Paper falls short in both scope and in its description of factors that contribute to drug shortages.

I.  Scope

Based on the title of the White Paper, one might reasonably assume that the policy considerations proposed apply to all potential drug shortages.  However, only in the “Key Highlights” section is it mentioned that the paper “focuses of generic sterile injectable medicines used in inpatient settings, given their importance to acute inpatient care, and their relative risk of supply disruptions.”  That sterile injectables may be more vulnerable to supply change disruptions is not a novel concept.  FDA previously analyzed 163 drugs that went into shortage in the 5-year period between 2013 and 2017; 63% (103) were sterile injectables and 67% (109) were drugs that have a generic version on the market.  In its report, Drug Shortages: Root Causes and Potential Solutions, FDA explains that the equipment needed to produce sterile injectables is highly specialized and expensive, meaning that in a shortage situation, production capacity cannot be substantially increased without taking the time and expense of procuring and qualifying new equipment.  The White Paper notes that of the 123 drugs in shortage in January 2024,  a quarter were first reported in shortage prior to 2020, with the oldest dating back to 2012, and shortages were experienced across therapeutic areas; analgesics/anesthetics (17%), anti-infective (12%), and cardiovascular (13%) products comprised 42% of shortages.  Unfortunately, the White Paper does not provide further analysis on the generic sterile injectables and instead refers back to FDA’s analysis from 2013-2017.  However, a cursory review of the current FDA Drug Shortages list shows that of the 115 drugs “currently in shortage,” 76 are injections.

In the White Paper, HHS recognizes that “these challenges affect other products, and therefore, the solutions described here may be applicable in other markets.” However, HHS does not explain how it has made that determination and seems to gloss over entirely the complexities specific to sterile injectable manufacturing.  In Section I.A, the focus of the paper turns back to “drug shortages” generally, but HHS acknowledges that “shortages of medical devices have also been an issue for many decades.”  HHS suggests that its proposed HRSP “could be expanded to the outpatient setting or to include medical devices.”  Similarly, the MRAP could assess the feasibility of metrics for “other medical products, including, medical devices.”  Again, there’s no discussion of why HHS thinks these initiatives could be applicable to medical devices generally given the significant supply chain differences between drugs and medical devices, and even within the larger category of medical devices.  For example, how would HRSP incentives/penalties apply to low-cost, high-volume medical devices (e.g., surgical masks, gloves) versus medical devices that represent large capital expenditures (e.g., surgical robots, MRIs)?

II.  What about government factors that cause drug shortages?

Section I.C of the White Paper states, accurately, that “factors that cause drug shortages are multi-faceted and involve many market participants.”  The White Paper briefly discusses both the manufacturing supply chain as well as the roles various intermediaries (e.g., pharmacy benefit managers (PBMs), group purchasing organizations (GPOs), wholesale distributors) play before a finished product ever makes it to a patient.  As described in the White Paper, the factors that cause drug shortages are all caused, in one way or another, by the various market participants themselves.  For example, over-reliance on a few suppliers or manufacturers leave the supply chain vulnerable to disruption, and market concentration among GPOs and PBMs may undermine price competition and limit access.

What the White Paper does not adequately address is whether there are any government-controlled factors that also cause drug shortages.  Two such factors come to mind: FDA inspections and DEA quotas.  The White Paper states that “FDA has resumed normal inspection operations and continues to prioritize inspections that were delayed due to COVID-19” but does acknowledge that inspections are still an area of significant challenge for FDA.  In 2022, the Government Accountability Office (GAO) reported that FDA needed to improve its foreign inspection program and that report prompted a hearing on Capitol Hill in February of this year where HPM Counsel John Claud offered testimony.  We recently summarized another GAO report which described challenges FDA continues to face with clinical research inspections.

The White Paper acknowledges that “there is little to no flexible manufacturing capacity” and notes that FDA’s shortage response can include “exercising temporary regulatory discretion to increase supply.”  However, the White Paper does not acknowledge the role that DEA plays.  Specifically, DEA establishes an aggregate production quota (APQ) for each class of controlled substance listed in schedule I and II, and for the list I chemicals ephedrine, pseudoephedrine, and phenylpropanolamine, which limits the amount of each substance that can be manufactured in a given year.   In addition, DEA apportions individual manufacturing quota to API manufacturers and procurement quotas to dosage form manufacturers, which also limits how much each company can manufacture.  While DEA does have the regulatory authority to adjust quotas, such actions are not immediate.  For example, DEA and FDA jointly acknowledged in an August 1, 2023 letter that there have been ongoing shortages of various stimulant medications (e.g., methylphenidate, dextroamphetamine).  On August 10, FDA requested that DEA increase the APQ and individual manufacturing quotas to address the shortage.  A month later, on September 14, a manufacturer requested that DEA increase their methylphenidate manufacturing quota.  Finally, on October 3, 2023, DEA published an increase to the methylphenidate APQ.  DEA later acknowledged in a November 1 letter that it is “actively making changes” to the quota allocation process in order to address these shortages.  As of April 2024, both methylphenidate hydrochloride and various amphetamine products are still on the FDA drug shortage list.  Moreover, DEA announced that for 2024 it would be assigning procurement quotas by quarter rather than for the calendar year.  We are aware that several manufacturers have been delayed in receiving their second quarter quota.