Multiple Solutions Needed to Fix Drug Supply Chain Problems, Lawmakers Told

WASHINGTON -- Drug shortages continue to plague the U.S., and a variety of solutions must be employed to solve the problem, witnesses said here Thursday at a hearing held by the House Energy & Commerce Subcommittee on Oversight and Investigations.

"According to the American Society of Health-System Pharmacists, we currently have over 247 active drug shortages. Between 2021 and 2022, drug shortages increased by almost 30%," committee chair Rep. Morgan Griffith (R-Va.) said in his opening statement. "It is unbelievable that in our great country, there's a shortage of drugs to treat childhood cancer. And that's just one example."

Influence of Middlemen

"It's even more galling when you consider that most shortages are in the generic drug space, where there should be competition," he continued. "The median price of a drug in shortage between 2013 and 2017 was less than $9 per treatment dose." One part of the problem, Griffith said, was the influence of intermediaries such as group purchasing organizations (GPOs) and pharmacy benefit management (PBM) firms. "By one count, for every $100 spent on generic prescription drugs, $44 goes not to the manufacturer, not to the producer, but to a middleman."

He noted that the three largest PBMs control around 80% of the commercial drug sales, while the four largest GPOs "control 90% of the medical supply market and have massive market power. They can help end drug shortages by prioritizing generic drugs' availability and quality. Instead, they use their market power to force 'race to the bottom' pricing without consideration for quality or availability."

Children and their providers can be hit particularly hard by drug shortages, said Rep. Kathy Castor (D-Fla.), the committee's ranking member. Children's hospitals "have to devote additional staff time and resources to finding appropriate replacement drugs and determine the appropriate dosage for the replacement drug ... It takes children's hospitals 50% longer to address shortages in other hospitals because of the time needed to compound replacement products into pediatric dosage forms. And it is so costly -- one drug in shortage alone can cost a children's hospital north of $50,000 in labor and substitute products. So we've got to get ahead of these shortages before they happen."

The Value of Predicting Shortages

Better prediction of potential shortages can help to ease supply chain problems, said Laura Bray, founder of Angels for Change, a group aimed at increasing access to lifesaving drugs. Bray, whose own daughter was affected by a shortage of a lifesaving drug for childhood leukemia, explained that her organization selected two drugs -- potassium chloride and sodium chloride -- that were expected to experience shortages, "and we then went to a small onshore manufacturer and said, 'What would it cost you and how much time would it take to ensure this for the American people if it did go short?'"

"They surprised me by saying 'About 60 days and $100,000,'" she continued. "I said, 'Each?' and they said, 'No, for both.' So I wrote a grant and signed an agreement with them and told them, 'Be ready to supply this if [the drugs] go short.'" The predicted shortages did occur, and the company's drug supply was accessed 650,000 times last year. "It didn't stop the disruption -- it was an efficient, flexible gap supply that was incentivized by the marketplace in a public-private partnership. I think this is a model that can be duplicated over and over and over again."

Several committee members were concerned about the high percentage of drugs for the U.S. market that are produced in foreign countries. Rep. Debbie Lesko (R-Ariz.), the committee's vice-chair, noted that a 2022 Government Accountability Office (GAO) report "found that the share of foreign facilities that have not been inspected in over 5 years has increased from 30% in 2020, to nearly 80% in 2022 ... Given that most U.S. drugs and APIs [active pharmaceutical ingredients] are manufactured in foreign facilities, I have serious concerns with FDA's ability to ensure the quality and availability of human medical products manufactured overseas."

Witness Anthony Sardella, chair of the API Innovation Center at Washington University in St. Louis, agreed that foreign inspections "are absolutely essential for us ensuring the quality and safety of the medications U.S. citizens consume, and extremely essential in ensuring the stability of the market." In addition, such inspections tell the FDA "which manufacturers are complying [with our rules], which manufacturers are delivering on quality manufacturing processes. And then the next element there is incentivizing that, rewarding those that don't have any warning letters for decades and decades, as opposed to those who in fact do. The ability to make that distinction on quality is to have a robust inspection and auditing process that allows us to make those distinctions."

The Role of Rebates

Rep. Cathy McMorris Rodgers (R-Wash.), chair of the full Energy & Commerce Committee, asked Alex Oshmyansky, MD, PhD, the CEO/founder at the Mark Cuban Cost Plus Drug Company, to explain how drug rebates worked and what PBMs' role in them was. "I think of PBMs as payment processors similar to Visa or Mastercard," Oshmyansky said. "Many years ago, they realized, 'Hey, we're processing all the payments; we can negotiate for drug prices on behalf of the people we're processing payments for.' And the way they decided to go about it was to negotiate a rebate."

Rather than charging for negotiation, "they [decided to] just take a cut of the rebate back off the list price," he continued. "And it soon became very readily apparent that the biggest way to make this cut of the rebate as big as possible, is to make the rebate as big as possible. So the standard rebate on a generic drug product now is between 80% and 85%. And where else in life do you get an 80% discount? Something's a little off ... That rebate serves to increase the cost of the actual drug by 60% to 100%. But none of that is actually going to the manufacturer."

Rep. Frank Pallone (D-N.J.), ranking member of the full Energy & Commerce Committee, expressed concern that FDA lacks adequate information about how pharmaceutical products are produced. Fernando Muzzio, PhD, professor of chemical and biochemical engineering at Rutgers University in New Jersey, agreed, adding that in recent government reports on the topic, "there is only barely a mention of the chemical building blocks that are needed to make the drug substances ... There is very, very limited knowledge of where those pieces come from, except to say that for many APIs made in India, in many cases the building blocks come from China. So we might have to go here earlier, upstream in the supply chain, to ensure that we are able to actually make things on friendly shores, including our shores."

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