Recent data from by the American Society of Health System Pharmacists (ASHP), partnering with the University of Utah Drug Information Service, reveals that drug shortages in the U.S. have reached an all-time high. A total of 323 active shortages were reported during the first quarter of 2024, suggesting that previous strategies had failed to reverse the trend.

A lack of incentives for generics manufacturers to produce products with low margins, coupled with intense competition and declining profits, have resulted in workforce reductions and growing departures from the struggling market. It‘s been estimated that up to 90% of all prescriptions in the U.S. are filled by generics, which represent a mere 20% of annual medication spending in the country.

Group purchasing organizations (GPOs) are engaged in “a race to the bottom,” negotiating for the lowest drug prices without assuring longer-term loyalties. Other factors contributing to the current dilemma include:

• Dependence on outside countries such as China and India, along with select developing countries, which provide raw materials that can’t be produced in the U.S. due to environmental protections;
• An inability to reward manufacturers for addressing specific drug shortages with low revenue potential, and
• Limitations placed on products due to federal regulatory programs, formulary drug management, and other restricted distribution processes.

The HHS Proposal

In May of the current year, the U.S. Department of Health and Human Services (HHS) released a white paper highlighting steps it had taken to address drug shortages, and proposing additional solutions for congressional stakeholders to consider. It introduces two new initiatives: the Manufacturer Resiliency Assessment Program (MRAP), and the Hospital Resilient Supply Program (HRSP).  

MRAP would be a public-private partnership, which would measure the resilience of manufacturers through a series of metrics reflecting the quality, redundancy and sourcing of select components used in drug manufacturing. Key among the program’s functions would be the development of accreditation standards, data collection and analysis, and reporting requirements. Though viewed primarily as a non-governmental program run by the public and manufacturers, MRAP would be accountable to HHS. The white paper provides no details on committee participation and funding.

HRSP would establish demand incentives and penalties to move hospitals away from using “cost” in the selection of purchasing vendors. Scorecards would evaluate practices for promoting supply chain resilience and preventing shortages. The logic is that hospitals that are able to purchase drugs from responsible and resilient manufacturers would be incentivized, while those that don’t would be penalized.

HHS believes such behavior would help curb the “race to the bottom” mentality, allowing producers and purchasers to focus instead on supply chain resilience. The white paper states that both incentives and penalties would need to be large enough to offset the added costs associated with such drug purchases, while also being fiscally responsible. The introduction to the program would likely involve hospitals first providing inpatient service, which could then be expanded to the outpatient setting.

HHS suggests that development of the MRAP would need one to three years to start up, establish standards and requirements, develop metrics, implement initial assessments, and report data. Initially, the program would apply resilience-assessment metrics to a select set of drugs, which could include critically necessary medicines, or perhaps chemotherapeutic agents. The effort could subsequently be expanded to a larger group of drugs.

The 10-year cost of the programs is estimated at between $3.26 billion and $5.11 billion; with $750 million for MRAP, and between $2.51 billion and $4.36 billion for HSRP. 

The Senate Steps In

Not to be outdone by HHS and its white paper, the Senate Finance Committee released an incentive proposal in May, 2024 which rewards participating healthcare players for stimulating purchasing patterns for essential medicines. Included are expectations for providers to obtain monetary incentives resulting in a more resilient supply of “essential” medicines. Following are the model’s key requirements:

• Participants must adopt new standards assuring resilience, reliability and transparency.
• Participants must meet core standards related to drug contracting and purchasing, which includes a minimum of three-year contracts with volume commitments and stable pricing.
• Participants meeting core standards would become eligible for quarterly, lump-sum incentive payments, and those able to achieve advanced standards would receive-add-on payments.

Funding for implementation of the Senate proposal has yet to be addressed.

A Private Model

Turning to a recently launched private purchasing model, Mark Cuban, chief executive officer of Cost Plus Drug Company, said: “We will do whatever it takes to get affordable pharmaceuticals to patients.” He added: “I could make a fortune from this…But I won’t. I’ve got enough money. I’d rather f- up the drug industry in every way possible.”

Launched in 2023, Cost Plus Drugs is a licensed wholesaler providing pharmaceuticals at a 15% markup over the disclosed price. It ships essential medications directly to the patient’s locale, claiming “No Middlemen, No Price Games, Huge Drug Savings.” 

Currently, Cost Plus Drugs provides generic medication for a wide array of diseases. Healthcare providers and patients can access an on-line medication database, to compare available products against prices from competitive vendors or manufacturers. New patients need follow just four easy steps: create an account, request a prescription from your physician, have your physician place the order, and receive your medications in the mail.

A potential downside for the company is the ability to accept a limited number of prescription insurance providers. However, Cost Plus Drugs plans to continue adding companies it moves forward. To date, its website states the availability of 1,000 medications, but the list will continue to grow, which could provide an acceptable option based on drug pricing, while adding much-needed inventory during the ongoing drug-shortage crisis.

If Cost Plus Drug continues its focus on growing the number of available medications in its inventory, while assuring the delivery of high-quality affordable medications to customers, it will have a favorable impact in helping to curb the ongoing drug supply shortage epidemic. Such efforts could also result in the development of other creative models, which could further expand supply chain purchasing opportunities.

No Simple Solution

We believe that the creation of financial incentives, both positive and negative, could provide value in coaxing manufacturers and distributors of medications to minimize marketplace disruptions and departures. However, the added costs for implementation, along with the growing bureaucratic structure, will likely be met with substantial opposition, resulting in potential delays for successful implementation.       

The U.S. drug shortage issue is a complex issue, requiring a multi-faceted approach. 

There’s no magic bullet for correcting drug shortages, and going forward, it will take dedication and collaboration among public, private and governmental leaders to reverse the current trend. 

Acknowledgements:

The author would like to express his appreciation to Ms. Lan Mai Trinh for her support in the preparation of the manuscript.

Alan H. Mutnick is director-pharmacy strategic sourcing with Memorial Healthcare System.