The Palm-Greasing Story Behind Generic Drug Shortages

We’ve written about drug shortages and how the problem doesn’t seem to be getting better. An op-ed last week in the New York Times by three medical professionals reconfirms the dire situation, offers insight about why it persists and suggests how to fix it.

Margaret Clapp, former chief pharmacy officer at Massachusetts General Hospital, Michael A. Rie, professor of anesthesiology at the University of Kentucky, and Phillip L. Zweig, executive director of American Society of Health-System Pharmacists (ASHSP) relied on the database of the ASHSP to identify 302 drugs that were in short supply as of July 31. That’s an increase of nearly 100 drugs from a year earlier.

Last year, the Food and Drug Administration Safety and Innovation Act (FDASIA) was signed into law. One of its goals was to end chronic shortages of lifesaving drugs, but, clearly, it’s not working, at least not yet. As the writers observe, the critical shortage of generic drugs remains “a preventable crisis that is inflicting suffering on patients and, in some cases, causing needless deaths.”

Among the new law’s provisions is a requirement that manufacturers report anticipated shortages, but it’s ineffective, the writers contend, because it addresses symptoms, not the underlying economic cause of the problem. They point to the giant purchasing organizations that control the procurement of as much as $300 billion in drugs, devices and supplies annually for about 5,000 health-care facilities. They’re cartels, essentially, that have corrupted the laws of supply and demand.

Most of the drugs in short supply are sterile injectables. They are established, inexpensive meds typically administered in hospitals and outpatient clinics and sold through hospital purchasing organization contracts. You don’t get them at a retail pharmacy, and pharmacy benefit managers can’t negotiate for their purchase.

Among the scarce or unavailable drugs are:

  • anesthetics
  • chemotherapeutic agents
  • antibiotics
  • nutrients for malnourished infants
  • painkillers
  • intravenous solutions.

Their shortage, the writers say, forces doctors to choose alternative treatments that aren’t as desirable, can be more expensive and are sometimes dangerous. The writers refer to a study from last year that showed that children with Hodgkin’s disease were at greater risk of relapse because the most effective generic medicine, mechlorethamine, wasn’t available.

Propofol, the surgical anesthetic made famous by Michael Jackson’s abuse of it, is scarce because there’s only one U.S. supplier of the generic in the United States in full production. One scary outcome of surgeons having to work around that is patients who wake up during operations – or not at all. A study from last year by the American Society of Anesthesiologists, the writers note, attributed six deaths, and other adverse outcomes, to shortages of drugs.

Shortages of a certain steroid painkiller prompted last year’s deadly outbreak of fungal meningitis spread by contaminated drugs the now-closed New England Compounding Center provided because practitioners couldn’t get the standard, preferred drug. As we wrote, compounding pharmacies are not held to the same high standards as other drug manufacturers.

The New England pharmacy’s sister company, Ameridose, which also has been closed, the writers report, “had supply contracts with five of the largest American hospital purchasing organizations: MedAssets, Novation, Premier, HealthTrust and Amerinet. This tragedy had killed 63 and sickened 749, according to the Centers for Disease Control and Prevention.”

The Government Accountability Office is investigating the role of the group purchasing organizations in the shortages and the meningitis disaster, but the report won’t be finished until next year.

To ease shortages, the FDASIA allows temporary imports, but that just means the problem of shortages moves to another country; there’s finite global manufacturing capacity, the writers emphasize, and you can’t boost production quickly. So providers ration drugs and pharmacists go crazy trying to locate acceptable suppliers.

The commentators conclude that the only way to change this unacceptable ad-hoc scenario is to address its economic root cause: the purchasing organizations that “have squeezed manufacturers’ operating margins to razor-thin levels. By awarding select suppliers exclusive contracts in return for exorbitant (and undisclosed) ‘administrative,’ marketing and other fees, they have reduced the number of suppliers to just one or two for many generics. Further, they’ve crimped investment in maintenance and quality control, resulting in adverse FDA inspections and plant closings.”

They blame legislation from 1987, the Medicare anti-kickback “safe harbor” measure. It excused purchasing organizations from criminal prosecution if they accepted vendor kickbacks. Then, in 2002, after a New York Times investigation into anticompetitive purchasing group practices, Congress contemplated more federal regulation.

“Antitrust lawsuits and more government investigations and exposés followed,” the writers say. “A study in fall 2011 issue of the Journal of Contemporary Health Law and Policy found that group purchasing organization kickbacks inflated supply costs by at least $30 billion annually. But little has changed because of the enormous political clout of the industry’s lobby, which includes the Healthcare Supply Chain Association and the American Hospital Association.”

Hmmm … political pressure driving health-care policy with dire consequences for patient safety. Sound familiar? We agree with The Times commentators-it’s time to repeal the anti-kickback safe harbor and restore free-market competition to the hospital purchasing industry. Peoples’ lives depend on it.

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