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October 31, 2019

The 3 root causes of America's drug shortages, according to FDA

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    U.S. drug shortages are increasing and causing hospitals to ration lifesaving treatments, according to an FDA report released Tuesday, and the agency has three main recommendations to address the issue.

    From drug shortages to drug spending trends—what executive's need to know about pharmacy

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    FDA in 2018 launched a new task force to examine U.S. drug shortages, determine the root causes of the shortages, and recommend long-term solutions to address the problem. The Drug Shortages Task Force is led by FDA and includes officials from the Department of Defense, CMS, the Federal Trade Commission, HHS, Veteran Affairs, and the Office of the Assistant Secretary for Preparedness and Response.

    For the report, which FDA presented to Congress, the task force commissioned a team of FDA economists and scientists to analyze data on 163 drugs that experienced shortages between 2013 and 2017. The researchers analyzed the data to determine what caused the shortages and to develop recommendations on how to prevent future shortages. The researchers based their report on information from their economic analysis of market conditions, input from stakeholders, and other published research.


    The researchers found that the drugs most likely to experience shortages had lower prices and were financially unattractive for manufacturers. Among the drugs that experienced shortages between 2013 and 2017, many were older, with a median of almost 35 years since they were first approved. In addition, the researchers found that:

    • 67%, or 109 of the drugs, had generic competitors;
    • 63%, or 103 of the drugs, were sterile injectables;

    Further, the researchers found that, in the year before drugs experienced shortages, the median per unit price of:

    • All of the 163 drugs reviewed for the analysis was $8.73;
    • Injectable drugs reviewed for the analysis was $11.05; and
    • Pills reviewed for the analysis was $2.27.

    The researchers noted that the drugs' prices rarely increased when shortages started, and that the prices and revenue for the drugs that experienced shortages had declined more quickly than a comparative group of treatments that did not experience shortages.

    The researchers also found that manufacturers typically did not increase production of the drugs during shortages to meet product demand.

    In addition, the researchers noted that the shortages have affected patient care. For example, a survey of nearly 300 pharmacy directors, managers, and purchasers showed that:

    • 75% of respondents reported delaying a patient's treatment because of a drug shortage;
    • 71% reported they were unable to provide patients with a recommended drug or treatment because of a shortage; and
    • 47% said they feel drug shortages resulted in patients receiving less effective treatments.

    Reasons for the shortages

    The researchers found that, among the 163 drugs they analyzed:

    • 63% of the drugs' shortages stemmed from supply disruptions tied to product quality or manufacturing issues;
    • 18% stemmed from unknown reasons;
    • 12% stemmed from an unanticipated increases in demand;
    • 5% occurred after natural disasters; and
    • 3% stemmed from product discontinuations.

    Based on their overall findings, the researchers determined there are three root causes of increasing drug shortages in the United States:

    • A lack of incentives for drug manufacturers to produce less profitable treatments;
    • Logistical and regulatory challenges that hinder the market's recovery from production disruption; and
    • The market's failure to reward drug manufacturers for "mature quality systems," which prioritize continuous improvements and early detection of supply chain issues.

    Acting FDA Commissioner Ned Sharpless and Janet Woodcock, director of FDA's Center for Drug Evaluation and Research, in a statement said the findings "suggest a broken marketplace, where scarcity of drugs in shortage or at risk for shortage does not result in the price increases predicted by basic economic principles."

    Separately, Woodcock added, "There's a market failure here," in that the market "doesn't follow the textbook model of supply and demand. Prices often don't rise substantially during a shortage, so there's little incentive for manufacturers to increase production or stay in production. It's a very big root cause."

    The researchers in the report wrote, "[M]anufacturers of older generic drugs, in particular, face intense price competition, uncertain revenue streams, and high investment requirements, all of which limit potential returns. And current contracting practices contribute to a 'race to the bottom' in pricing."


    To prevent future drug shortages, the researchers recommended the industry:

    • Create a shared understanding of how contracting practices might contribute to drug shortages and how drug shortages affect patients;
    • Develop a facility rating system that drugmakers could establish and report on voluntarily or that could be required by purchasing organizations to create an incentive for drug manufacturers to invest in facilities' manufacturing quality; and
    • Promote sustainable private-sector contracts between payers, purchasers, and group purchasing organizations to ensure there is a reliable supply of medically vital drugs.

    For instance, the researchers noted that current contracting practices have allowed a concentration of group purchasing organizations (GPOs) to prevent manufacturers from increasing the prices of low-volume and low-profitability drugs while still maintaining a large market share. The researchers suggested finding ways to "shift some financial risk and uncertainty away from producers of drugs, especially older generics," and back onto purchasing organizations, such as by requiring purchasers to buy a minimum volume of the drugs.

    According to STAT+'s "Pharmalot," two ventures—CivicaRx and ProvideGX—have begun experimenting with providing drugmakers incentives to produce a minimum amount of drugs for purchasing hospitals.

    In addition, FDA suggested that manufacturers might benefit from contract agreements in which they receive a minimum return on investment for having facilities with high quality ratings. FDA said drugmakers could disclose ratings for their facilities in their contracts with GPOs and use the ratings to potentially negotiate more competitive prices.

    Other possible solutions include harmonizing guidelines for pharmaceutical quality systems, lengthening expiration dates for drugs, and improving data sharing and risk management. FDA said it plans to make some of those changes via new guidance the agency will issue by the end of this year, some of the changes were included in President Trump's FY 2020 budget proposal, and some of the changes would have to be implemented via legislation.

    Experts question FDA's ability to address the issues

    Erin Fox, director of the drug-information service at University of Utah Health Care, said, "This report confirms shortages are due to poor quality, but at the end of the day, FDA can do very little to make the drug companies do their job."

    For example, Fox said the proposed quality ratings are an "interesting recommendation that really doesn't help," because they would be voluntary.

    Yoram Unguru, who treats pediatric cancer patients at the Herman and Walter Samuelson Children's Hospital at Sinai in Baltimore, said FDA's recommendations largely do not involve any government action and therefore are not strong enough to product significant change in the market. He said, "The government has previously stepped into the marketplace to assist the ailing automotive industry, Wall Street, and the insurance companies. Why not do the same for our ailing health care system, specifically the manner in which lifesaving medications are manufactured and distributed?"

    Unguru added that lifesaving treatments should be treated as "critical infrastructure, not unlike public utilities such as electricity and water" (Silverman, "Pharmalot," STAT+, 10/29; Gever, MedPage Today, 10/29; Burton, Wall Street Journal, 10/29; Caryn Rabin, New York Times, 10/29; FDA release, 10/29; FDA report, 10/29).

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