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New Program Combats Drug Shortages by Strengthening Generics

By Andrew Rouff and MMIT

According to the American Society of Health-System Pharmacists (ASHP), U.S. drug shortages are the highest they’ve been in more than two decades. As of the end of 2024’s first quarter, 323 drugs were in short supply, including many chemotherapy, ADHD, and pain and sedation medications. These drugs run the gamut from basic drugs to life-saving therapies, and are predominantly generics, with 46% of the quarter’s new shortages being injectables.

While drug shortages are a well-documented issue across the globe, pressure has been building in the U.S. to address the problem at a federal level. In May, the Senate Finance Committee introduced a voluntary Medicare Drug Shortage Prevention and Mitigation Program that would incentivize supply chain participants to work together to secure a more sustainable supply of certain medications.

In light of this news, we asked Andrew Rouff, a senior consultant with MMIT’s Advisory Services team, to explain why drugs shortages occur, how payers tend to respond, and the possible impact of the new program. 

Before we get to the policy, why do drug shortages happen in the first place?

These shortages have varying causes, but there are common contributing factors. Some shortages occur with highly specialized medications that have complex manufacturing and storage requirements. If the timing is off for one element of the process, there will inevitably be delays.

The increased prevalence and/or seasonality of certain diseases, like influenza, can also impact shortages, as an unexpectedly strong outbreak can lead to a spike in demand that production cannot meet.

Other shortages occur due to localized bottlenecks in the global supply chain, as a scarcity in one component can cause downstream disruptions. We saw this in the pandemic, which caused new supply chain issues and exacerbated many existing ones, from transportation and clearance concerns to a decrease in the production of active pharmaceutical ingredients. Many of these disruptions are still impacting the supply chain today.

Another issue is the difficult market conditions for generics. Given the relatively low profit margins, highly competitive landscape, and often rigorous manufacturing requirements, many generic manufacturers are prioritizing their resources accordingly. This ultimately leads to fewer generics competing for market share, which in turn can cause drug shortages when disruptions occur or market conditions change.

How would the voluntary Medicare program work to fix drug shortages?

The proposed program, which is currently in preliminary draft form, essentially aims to secure a more sustainable supply of essential medicines. It does so by incentivizing stakeholders to provide more favorable, long-term contracts with generic manufacturers, such as three-year minimum contracts with greater purchase volume commitments for generic drugs at a higher risk of shortage.

Participating hospitals, providers, and GPOs would be eligible for quarterly lump-sum payments if they met program requirements. The proposal also encourages hospitals, providers, and GPOs to diversify their source of generics by specifying requirements for contingency contracts with competing manufacturers.

In a recent survey on this topic by the MMIT Index team, we found that 61% of IDNs were interested in opting into the Medicare Drug Shortage Prevention and Mitigation Program. More than half of respondents indicated that they foresaw some challenges with the program, including the need for up-front financial commitments and the logistics of implementation and enforcement.

What other strategies have been proposed for addressing drug shortages?

Many other potential mitigation strategies have been proposed in the literature that are not included in this policy as drafted.

To start with, a standardized, uniform definition of what actually constitutes a ‘drug shortage’ would help to establish global trigger points for when it’s time to act. Some organizations define a shortage from a supply perspective and some from a demand perspective, while others have criteria for the type of drugs included, or the duration or impact of the shortage, etc. The World Health Organization has identified 56 definitions worldwide. Even in the U.S., the FDA has three different definitions, while the ASHP uses a fourth.

One mitigation strategy that’s often discussed is an improved quality system, which would help prevent the high percentage of shortages caused by voluntary recall of a medicine due to issues like microbial contamination, tablet disintegration and the like.

Another strategy is enabling an expedited drug review process. Expedited review is part of the FDA’s toolkit for reducing drug shortages, and is used on occasion. Some researchers say that developing policies that curb the lengthy approval process, particularly for abbreviated generic applications, will help to restore production and encourage new market entries.

Of course, all stakeholders in the drug supply chain would benefit from better education and training, both to help prevent shortages and to address shortages when they occur. There is room for improvement in all areas, from improved quality assurance during production, to better inventory management for pharmacies and hospitals, to better institutional guidance for how providers should handle shortages.

Do manufacturers have to notify the government about a current shortage?  

As of 2012, the FDA does require manufacturers to notify them of any interruption of the production line that is likely to lead to a “meaningful disruption in the supply of the product,” so that they can intervene as appropriate. The FDA might help companies ramp up production, or approve extended expiration dating for existing inventory, or take other actions.

However, many researchers say that more attention should be paid to the impact of how federal agencies like the FDA respond to early warning signals. Which interventions helped, and which had little impact on the shortage?

How do you think the proposed policy will change before it’s implemented?

As it stands now, the proposed Medicare Drug Shortage Prevention and Mitigation Program would be implemented in 2027, which leaves plenty of time for changes and refinements. New drug shortages may motivate lawmakers to further re-enforce this policy with additional strictures, or complementary policies could be introduced.

As is this case with any new policy, there is always the potential for unintended consequences. This program’s emphasis on strengthening the business model for generics may ultimately influence the overall value chain in unforeseen ways. Some potential examples may include a surplus of generics, an increase in generic manufacturers, and/or higher costs for hospitals, among others.

How do payers tend to deal with drug shortages?

As drug shortages are certainly a hot topic for our pharmaceutical clients, we regularly conduct market research studies to see how payers and healthcare professionals (HCPs) are responding to ongoing shortages. Last fall, the MMIT Indices team did a quick turnaround study with payers on the impact of ADHD and chemotherapy drug shortages in particular.

At the time of the research, patients had endured nine months of difficulty filling Adderall prescriptions and were facing new shortages of other ADHD meds, like Ritalin and Concerta. Despite this fact, we found that half of payer respondents were not actively taking steps to address the ADHD drug shortage, expressing lack of concern from their customers as the primary reason. This finding really underscores the need for enhanced communication between stakeholders around shortages, and for incentives to promote action.

Of the payers who did act, some responded by being more lenient in their prior authorization criteria, or by providing coverage for non-formulary drugs. Some patients were transitioned to different drugs, as requested by their provider; some payers even lowered copays to help ease the change.

For the chemotherapy drug shortage, some payers approved out-of-network sites of care that had medications in stock and could administer them. Others loosened their chemotherapy regimen requirements, allowing substitutions in combination therapies. Half of responding payers allowed targeted therapies to be used as an alternative to chemotherapy.

How can manufacturers work to prevent a shortage of one of their products?

All manufacturers must be compliant with the current good manufacturing practices (GMP) put in place by the FDA, but there is a lot more they can do to make sure that their drugs are shortage-proof.

First, they should prioritize comprehensive forecasting to accurately anticipate utilization over the lifetime of the brand. Once the brand has launched, manufacturers can use claims data to test, verify, and update forecasting projections accordingly.

Manufacturers should also invest in their manufacturing capabilities to ensure that they can consistently produce sufficient quantities of drug as required. This requires a sophisticated production management system to uncover any issues that could potentially trigger supply disruptions, from regional bottlenecks to quality concerns. Manufacturers should have a contingency plan in place for what to do if a shortage is threatened, or even if there’s a perception of a shortage. That plan should include full transparency with regulatory agencies and payers.

For help predicting payer uptake, claims approval and sales forecasts for your brand, learn more about our Strategic Launch Report with consensus forecast data from MMIT’s sister company, Evaluate.

© 2024 MMIT
Andrew Rouff

Andrew Rouff

Andrew Rouff is a senior consultant on the Advisory Services team at MMIT. A scientist by training, Andrew uses market research and analytics to help clients understand the unique opportunities and challenges in providing access for their brands. He earned a bachelor’s degree in biochemistry from Union College and a master's in bioengineering from the University of Pennsylvania.


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