Wednesday, May 18, 2011

Supply or Demand?

(This is part 2 of a series on pharmaceutical drug shortages, which began with Not what the doctor ordered. A brief recap: over the past decade we've experienced more numerous and more severe shortages of prescription drugs. Currently over 240 drugs are unavailable, and another 400+ are back-ordered. Roughly half of the unavailable drugs are "sterile injectibles" used for chemotherapy and sedation. Consequences to patients and practitioners abound.)

The web sites of the FDA and the ASHP (American Society of Health-System Pharmacists) list drugs that are in short supply and the reasons for their scarcity. The three general reasons are: “manufacturing difficulties,” “increased demand,” and “no explanation given.” I assume the last arises when a company decides to stop making a low-profit-margin drug but doesn’t want to take the public relations hit that would come from stating the case so baldly.

ow shortages develop: the perspective of managed care organizations

The Premier Healthcare Alliance (PHA) report I mentioned in the
 first post
of this series offers the following reasons for the shortages (the categorization is my own, for the sake of clarity):
Interruptions in supply: “lack of active pharmaceutical ingredients”
Quality control: “Roughly half of the shortages of injectable drugs in 2010 were due to product quality situations such as presence of particulates, microbial contamination, newly identified impurities, and stability changes.”
Consolidation of drug manufacturers (i.e., takeovers and mergers): "Where we used to have two and three [companies] providing drugs in some cases, we now have one.” 
Financial motives, i.e., companies make less profit from generics so they stop making them: "Manufacturers are delaying or discontinuing investments, thereby impacting product availability."
Fear-based financial motives: “Pressures are mounting to offset profit reductions resulting from patent expirations, healthcare reform, and investments related to FDA regulatory compliance for older products." 
The FDA: “The agency requires manufacturers to abide by what are known as good manufacturing processes (GMPs) or else face regulatory action.”
Hm. These last two reasons bear closer examination. It is true that several hugely profitable patents are set to expire in rapid succession, and without new blockbusters in the pipeline the companies are justifiably nervous. But the situation feels dire only because the industry has enjoyed such fat profit margins (at least several times that of the oil industry) for so many decades; the guy with a billion dollars in the bank blanches at the thought of losing a hundred million, but it won't actually make him poor. We should bear this in mind.

Moreover, healthcare reform was actually a boon to the pharmaceutical industry, since it ensured an increase in the number of insured and thus an increase in drug consumption—long-term stability they gladly traded for short-term discounts to insurance—and, astonishingly, guaranteed twelve years of exclusivity rights to branded biologics, far longer than the usual five years given to small molecule drugs. The industry thus maintains its "islands of monopoly" (see discussion in part 4: Old treatments, new patents, big money).

Finally, let's consider the complaint about FDA insisting on Good Manufacturing Practices. How, exactly, are quality controls supposed to contribute to the shortages? Recall that half of the shortages were caused by contamination of one sort or another. I suppose the industry would have preferred to be able to sell the contaminated drugs—at a discount, of course. After all, one aspect of Premier Healthcare Alliance’s mission is to “operate at costs in the lowest quarter of the healthcare system while providing quality in the highest quarter.” Given the subsidized monopolies that healthcare and drug companies enjoy, I assume that ‘quality’ refers to return on investor shares and ‘highest quarter’ means the penthouse suite.

The PHA report elsewhere concedes that safety is a good thing, but then they hedge:

"While the FDA's vigilance of [GMPs] and actions against unapproved drugs help keep medications safe and effective for the public, new regulations may have a downstream impact on the entire marketplace," the report authors said.
I’d say that if the regulations requiring manufacturers to adhere to quality standards didn’t have a “downstream impact on the entire marketplace” there would be no use for them. But you have to give the PHA credit for their subliminal messaging about "new" regulations that "may...impact"; there are no new regulations affecting production that I could unearth, but the phrase conjures an ominous sense of Government Interference looming just around the corner. 

The pharmaceutical industry’s response

Here is the statement issued by the Pharmaceutical Research and Manufacturers of America (PhRMA) in response to PHA’s survey:
"According to the Food and Drug Administration (FDA) and other experts, drug shortages can occur for any number of reasons, including natural disasters; shifts in clinical practices; wholesaler and pharmacy inventory practices; raw material shortages; changes in hospital and pharmacy contractual relationships with suppliers and wholesalers that can cause fluctuations in the availability of certain products; adherence to FDA-mandated distribution protocols, which can impact patients' timely access to medicines; individual company decisions to discontinue specific medicines; and manufacturing challenges," said PhRMA Senior Assistant General Counsel Maya J. Bermingham.
PhRMA has not taken a position on Klobuchar's drug shortage legislation.
The tone of this statement is instructional, as if PhRMA is patiently teaching a class on drug shortages. "Experts say that there are eight reasons for..." It's also slick: you’ve got to admire the way PhRMA doffs its hat to the FDA at the beginning to set up a more convincing accusation later. Unsurprisingly, Big Pharma wants to spread the blame around. First there are the “acts of God”: natural disasters and raw material shortages. Then there are faults with healthcare providers themselves: “shifts in clinical practice,” “inventory practices,” “changes in hospital and pharmacy contractual relationships with suppliers” (a.k.a. drug companies; anyone see any circularity here?). Then, of course, there is the the FDA, which wields the stick of “mandated distribution protocols” (so that hospitals get, say, flu vaccines before retail pharmacies).

To their credit, PhRMA does not complain about having to adhere to the FDA's Good Manufacturing Processes. But notice that they assiduously avoid mentioning their own significant contribution to the problem, industry consolidation. They also fail to cite manufacturing difficulties, which I find curious.

What's missing

The one explanation that is missing from both the PHA report and the PhRMA response is increased demand. It's the elephant in the room no one wants to acknowledge, because it calls into question everything we've been taught to believe about health, technology, the "free market," and progress. I'll take up these implications one by one in the next few posts.

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