Addressing the Root Causes of Drug Shortages: Next Steps for Congress

Executive Summary

Severe, chronic shortages of critical generic drugs in recent decades are associated with higher mortality rates, medication errors, delays in life-saving treatment, and significant financial costs to the health care system. The American Society of Health-System Pharmacists has listed over 3,000 drug shortages since 2001. These drug shortages have most frequently impacted inexpensive and older generic drugs, particularly generic sterile injectable drugs that are usually administered by health care providers.

The economic drivers of generic drug shortages largely stem from provider payment and reimbursement systems that prioritize price competition and cost controls without adequate consideration for supply chain reliability over time. The U.S. market for many generic drugs consists of manufacturers that can supply drugs at very low prices, but that supply is not sufficiently reliable or consistent to avoid frequent or chronic drug shortages.

We recommend Congress provide funding and authority to Medicare to implement a new payment program to incentivize a shift to a more reliable supply of critical generic drugs.

The Senate Finance Committee (SFC) in May 2024 released a bipartisan discussion draft for a proposed “Drug Shortage Prevention and Mitigation Act” (the SFC Discussion Draft), which proposed a Medicare payment program incentivizing health care providers and generic manufacturers to enter committed contracts that can help to stabilize the generic drug market and increase supply chain reliability. The SFC Discussion Draft is targeted towards the economic root causes of chronic generic drug shortages, but simplifying the program’s proposed structure is needed for effective implementation, minimizing administrative burden, ensuring broad participation, and allowing flexibility for innovation and impact.

In this white paper, we propose three major recommendations to simplify the SFC’s proposed payment program significantly while retaining and improving upon its intent:

1. Reduce the prescriptiveness of the legislation and delegate to the HHS Secretary the authority to set some program definitions and standards with input from the private sector
2. Replace the proposed “Manufacturer Reliability Agreements” with a Drug Supply Chain Reliability (DSCR) assessment approach
3. Remove the “program participant” category from the legislation while clarifying that GPOs, wholesalers, and others play a crucial role in developing and implementing qualifying contracts between providers and manufacturers.

Read more here.