Kristina Jenei: This thread on drug shortages is better than most papers I’ve read about the subject.

Quoting Kristina Jenei, Public Health Researcher at the University of British Columbia, on X/Twitter:

“This thread on drug shortages is better than most papers I’ve read about the subject. Hugely complicated issue but some solid steps forward.”

Quoting Melissa Barber’s post on X/Twitter:

“On Thursday I testified at House Committee on Energy and Commerce on ‘Legislative Proposals to Prevent and Respond to Generic Drug Shortages’. A thread on drug shortages, proposed legislation, and why this is a critical time in health and industrial policy.

tldr on the legislation, dear readers with things to do:

The good: Bipartisan agreement we need to increase transparency and public involvement/investment in markets.

The bad: Backdoor attack on the Individual Retirement Accounts that does little to address shortages and bringing trade tensions into health.

CONTEXT: In the wake of a tornado destroying a major Pfizer manufacturing site in North Carolina, I wrote a long thread on gaps in the shortages data and the U.S. Senate Committee on Health, Education, Labor, and Pensions’s Pandemic and All Hazards Preparedness Act (PAHPA) bill, which had extremely sensible provisions to understand and mitigate shortages.

PAHPA is stuck and is unlikely to be reauthorized before it expires September 30. Frank Pallone provided legislative/political history on how provisions in the House shortages draft relate to PAHPA and the looming threat of a failure to reauthorize.

Here’s the Republican discussion draft and the 4 proposed bills. Nerds: I wrote a detailed analysis as part of my written testimony. I had just 4 days to prepare this so not comprehensive but hopefully comprehensive enough.

[Sidebar: I took the train coincidentally with a lobbyist whose job was prepping an industry representative for the hearing. Their client had known about the hearing for weeks. I had days. Always uneven ground between industry and non-industry, but I thought we’d at least have the same notice.]

DRUG SHORTAGES: The written testimony goes into detail about some of the questions at stake in the legislation.

• What causes shortages?
• Will raising the prices of drugs in shortage stop shortages?
• Why is it a problem that we have no idea what’s going on upstream?
• What data does the Food and Drug Administration (FDA) have and where are gaps in oversight?
• Is it a good deal to pay drug companies $21 million for studies that cost $350k?
• What can the public sector do to stop shortages?
• How do we address shortages caused by natural disasters vs manufacturer negligence?

Interesting academic questions. There is bipartisan support that the state should reset failing drug market terms, including with subsidies. That’s new and big. The fight is who gets money and how.

At the core of this legislation is an understanding that health policy is industrial policy, and industrial policy is health policy. The US is no stranger to targeting subsidies as part of industrial policy, especially where industries are seen as vital to security or the economy.

The CHIPS Act provided $39 billion in incentives to advance domestic research and manufacturing of semiconductors. Federal programs like the Commodity Credit Corporation were established for ‘stabilizing, supporting, and protecting farm income and prices’.

Why have medicines not also been seen as a strategic focus of health and industrial policy? Unlike other industries policymakers have deemed too important to fail, the prevailing wisdom guiding generics policy has been we should trust markets to sort themselves out. It’s not working.

SHORTAGES: DEFINING THE PROBLEM: Here’s Health Chair Brett Guthrie kicking off the hearing: “The fundamental economics of the generic drug market must be reformed.” He’s right, though the literature doesn’t support that the problem is Medicaid/Medicare.

Anna Eshoo asked what my research shows about the relationship between prices and shortages. The FDA has better data than me. They found for drugs in shortage, even when price increases, supply shocks are not less likely.

Annie Kuster explained why the 340 billion program is important and not causing drug shortages. “Instead of blaming patients for accessing the drugs they need, we should address manufacturing problems, supply chain bottlenecks, and supply/demand mismatch”.

SOLUTIONS: Perhaps the biggest issue in the hearing was inflation rebate exemptions. Briefly, the draft proposed various exemptions from the IRA’s required rebates when drug prices increase faster than inflation. These measures won’t work and will create perverse incentives.

Anna Eshoo gets it right: “The proposed inflation rebate policy misunderstands market failures that cause drug shortages.” She proposes advanced market commitments for pediatric cancer drugs. Legislation isn’t out, but this worked well in HIV markets.

Thanks Frank Pallone for terrific questions.

Q: What effect would allowing drug companies to raise prices faster than inflation have on shortages?

A: Possible market effects, but poorly targeted measure because not addressing core drivers of shortages.

I also contextualize why we have inflation controls in the first place. The U.S. Government Accountability Office found that “more than 300 of the 1,441 established generic drugs analyzed had at least one extraordinary price increase of 100 percent or more.”

Q: Could you see a scenario where a company has incentive to keep a drug in shortage to raise prices faster than inflation without penalty?

A: I wish I could say I couldn’t imagine this, but it’s already happened so I can.

One challenge in discussing these issues is there are comic book villain receipts (For example, internal emails showing Aspen planned to destroy drugs in a shortage to force higher prices). We don’t always get around to deeper discussions about subtler mechanisms.

If I had more than seconds to respond, I would have unpacked my research on price hikes during COVID-19 supply shocks. Relatedly, Isabella M. Weber does incredible work on how shocks can serve as coordinating mechanisms to raise prices. So too with drugs.

FDA & TRANSPARENCY:

Q: John Sarbanes asks an important question on transparency (and its absence)

A: Industry benefits from incomplete and asymmetric information.

Suerie Moon does fantastic work on transparency.

Q: Frank Pallone – There’s bipartisan agreement that the lack of transparency into Application Programming Interface (API) markets is a problem. Does it make sense to restrict transparency to only some companies?

A: There is no systematic monitoring of API markets. There should be!

A misunderstanding that came up was what FDA knows about API. This shouldn’t be a partisan issue. It was stressful to watch it start to become one. Thanks Robin Kelly for giving me time to set the record straight on why FDA doesn’t have a full picture.

Cathy Mc Morris-Rodgers: “I am concerned FDA may not look domestically for production before turning outside.”

I desperately wish this were the problem. Instead, FDA has neither data nor powers to do much of anything to compel production to stop a shortage.

I was hoping to be asked directly about on-shoring. It’s a complicated issue and I veer into auctioneer pace (I was 40 seconds over): “Promoting quality is a global problem. I urge the Subcommittee to be vigilant in not allowing increasing trade tensions to threaten health. It’s a problem if there’s only 1 factory making a vital antibiotic whether that factory is in the US, China, or India. Economies of scale, especially for drugs with small patient populations, will always rely on globalized supply chains. But we need transparency.”

Thanks Annie Kuster for asking how can we lower the cost for generics and biosimilars. Many paths but I talk briefly about a) transparency around cost of production so we have fair and sustainable margins and b) antitrust enforcement.

Michael C. Burgess with a great question and Michael Ganio with a great answer:

Q: How is the FDA working to ensure that drugs on the market meet quality standards?

A: FDA’s QMM (Quality Management Maturity) program is an example of something we could build on.

Neal Dunn asks about the need for FDA vs ‘cutting red tape’. I disagree that there’s much added admin burden in mandating reporting requirements: companies collect this data routinely as part of business practices. FDA could use it to prevent shortages.

Jay Obernolte asks if we need FDA to assess quality, or if companies can ‘evangelize’ their quality standards as a competitive advantage. Important to note agreement on both sides of the aisle that “greater transparency would solve part of this problem.

Debbie Dingell asks about Section 502, which would give 1 month exclusivity in exchange for shelf life studies. I explain why this is an incredibly bad deal, overpaying the benefit at least 60:1 ($21 million vs $350k). Written testimony with details below.”

Source:  Kristina Jenei/Twitter and Mellisa Barber/Twitter.