DRUG SHORTAGES

Public Health Threat 

Continues, Despite 

Efforts to Help Ensure 

Product Availability

Report to Congressional Addressees

February 2014

GAO-14-194

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-194, a report to 

congressional addressees

February 2014

DRUG SHORTAGES

Public Health Threat Continues, Despite Efforts to 

Help Ensure Product Availability

Why GAO Did This Study

From prolonged duration of a disease, 

to permanent injury, to death, drug 

shortages have led to harmful patient 

outcomes. FDA—an agency within the 

Department of Health and Human 

Services (HHS)—is responsible for 

protecting public health and works to 

prevent, alleviate, and resolve 

shortages. In 2011, GAO 

recommended that FDA should 

enhance its ability to respond to 

shortages. In 2012, FDASIA gave FDA 

new authorities to improve its 

responsiveness and mandated GAO to 

study drug shortages. 

In this report, GAO (1) reviews the 

trends in recent drug shortages and 

describes what is known about their 

effect on patients and providers; 

(2) examines the causes of drug 

shortages; and (3) evaluates the 

progress FDA has made in addressing 

drug shortages. GAO analyzed data 

from FDA and the University of Utah 

Drug Information Service, which is 

generally regarded as the most 

comprehensive source of drug 

shortage information for the time period 

we reviewed. GAO interviewed officials 

from FDA and other federal agencies, 

organizations representing patients and 

providers, and drug manufacturers. 

GAO also reviewed the literature, 

relevant statutes, regulations, and 

documents.

What GAO Recommends

FDA should strengthen its internal 

controls over its drug shortage data 

and conduct periodic analyses to 

routinely and systematically assess 

drug shortage information, using this 

information to proactively identify drug 

shortage risk factors. HHS agreed with 

GAO’s recommendations.

What GAO Found

The number of drug shortages remains high. Although reports of new drug 

shortages declined in 2012, the total number of shortages active during a given 

year—including both new shortages reported and ongoing shortages that began 

in a prior year—has increased since 2007. Many shortages are of generic sterile 

injectable drugs. Provider association representatives reported that drug 

shortages may force providers to ration care or rely on less effective drugs.

Number of Active Drug Shortages from January 2007 through June 2013

The immediate cause of drug shortages can generally be traced to a 

manufacturer halting or slowing production to address quality problems, 

triggering a supply disruption. Other manufacturers have a limited ability to 

respond to supply disruptions due to constrained manufacturing capacity. GAO’s 

analysis of data from the Food and Drug Administration (FDA) also showed that 

quality problems were a frequent cause. GAO also identified potential underlying 

causes specific to the economics of the generic sterile injectable drug market, 

such as that low profit margins have limited infrastructure investments or led 

some manufacturers to exit the market. 

While shortages have persisted, FDA has prevented more potential shortages in 

the last 2 years by improving its responsiveness. Among other things, FDA 

implemented Food and Drug Administration Safety and Innovation Act (FDASIA) 

requirements and recommendations GAO made in 2011. FDA has also initiated 

other steps to improve its response to shortages, such as developing procedures 

to enhance coordination between headquarters and field staff. However, there 

are shortcomings in its management of drug shortage data that are inconsistent 

with internal control standards. For example, FDA has not created policies or 

procedures governing the management of the data and does not perform routine 

quality checks on its data. Such shortcomings could ultimately hinder FDA’s 

efforts to understand the causes of specific shortages as well as undermine its 

efforts to prevent them from occurring. In addition, FDA has not conducted 

routine analyses of the data to proactively identify and evaluate the risks of drug 

shortages.

View GAO-14-194. For more information, 

contact Marcia Crosse at (202) 512-7114 or 

crossem@gao.gov.
Page i GAO-14-194 Drug Shortages

Letter 1 

Background 5

The Number of Drug Shortages Remains High, Complicating 

Providers’ Ability to Care for Patients 11

Quality Problems Coupled with Constrained Manufacturing 

Capacity Are Often the Immediate Causes of Drug Shortages, 

but There Are Potential Underlying Causes 21

FDA Is Improving Its Response to Drug Shortages, but 

Challenges Remain 39

Conclusions 51

Recommendations 53

Agency and Third-Party Comments and Our Evaluation 53

Appendix I Scope and Methodology - Trends in and Causes of Drug Shortages 57

Appendix II List of Organizations Interviewed 64

Appendix III Steps Federal Agencies Have Taken to Respond to Gray Market 

Activities 66

Appendix IV Summary of Recently Proposed Incentives to Alleviate or Prevent 

Drug Shortages 74

Appendix V Comments from the Department of Health and Human Services 85

Appendix VI GAO Contact and Staff Acknowledgments 87

Related GAO Products 88

Contents
Page ii GAO-14-194 Drug Shortages

Tables

Table 1: FDA Related Drug Shortage Provisions Enacted under 

Title X of the Food and Drug Administration Safety and 

Innovation Act (FDASIA), Public Law 112-144 10

Table 2: Summary of Critical Drug Shortages Reported from June 

2011 through June 2013, by Therapeutic Class 17

Figures

Figure 1: Key Drug Supply Chain Participants Affected by Drug 

Shortages 5

Figure 2: Drug Shortages Reported from January 2007 through 

June 2013 12

Figure 3: Distribution of the Duration of Reported Drug Shortages 

from January 2007 through June 2013 13

Figure 4: Number of Active Drug Shortages from January 2007 

through June 2013 14

Figure 5: Distribution of Critical Drug Shortages Reported from 

June 2011 through June 2013, by Route of 

Administration and Product Type 15

Figure 6: Reported Causes of Drug Shortages from January 2011 

through June 2013 27

Figure 7: Key Immediate and Potential Underlying Causes of Drug 

Shortages Discussed in Literature 39
Page iii GAO-14-194 Drug Shortages

Abbreviations

ANDA abbreviated new drug application

API active pharmaceutical ingredient

CDER Center for Drug Evaluation and Research

CGMP Current Good Manufacturing Practice

DEA Drug Enforcement Administration

DOJ Department of Justice

DSS Drug Shortage Staff

FDA Food and Drug Administration

FDASIA Food and Drug Administration Safety and Innovation Act

FDCA Federal Food, Drug, and Cosmetic Act

FTC Federal Trade Commission

GPO group purchasing organization

HCPCS Healthcare Common Procedure Coding System

HHS Department of Health and Human Services

NDA new drug application

NDC national drug code

UUDIS University of Utah Drug Information Service

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Page 1 GAO-14-194 Drug Shortages

441 G St. N.W.

Washington, DC 20548

February 10, 2014

Congressional Addressees

From prolonged duration of a disease, to permanent injury, to death, drug 

shortages have led to harmful outcomes for patients of all ages. Over the 

last decade, an increasing number of prescription drugs—including lifesaving and life-sustaining drugs—have been in short supply, preventing 

health care providers and patients from accessing medications that are 

essential for treatment. During shortages, providers—including hospitals, 

physicians, and pharmacists—may have to use medications that could be 

less effective for treating conditions or carry unwanted side-effects, if 

alternatives are available at all.

The Food and Drug Administration (FDA)—an agency within the 

Department of Health and Human Services (HHS)—is responsible for 

overseeing the safety and effectiveness of drugs marketed in the United 

States, including addressing drug shortages. A unit within FDA, referred 

to as the Drug Shortage Staff (DSS), coordinates the agency’s activities 

to prevent, alleviate, and resolve shortages. FDA defines a drug shortage 

as a situation in which the total supply of all clinically interchangeable 

versions of an FDA-regulated drug is inadequate to meet the current or 

projected demand. In November 2011, we reported on the growing 

number of drug shortages and their causes and found that the agency 

lacked sufficient authority to respond to shortages. We recommended that 

FDA strengthen its response and suggested that Congress consider 

establishing a requirement for manufacturers to report potential or actual 

supply disruptions to FDA.1

The Food and Drug Administration Safety and Innovation Act (FDASIA), 

enacted in July 2012, provided FDA new authorities to address drug 

shortages.2

 

1

GAO, Drug Shortages: FDA’s Ability to Respond Should be Strengthened, 

It also assigned the agency new responsibilities. Further, 

FDASIA mandated us to examine several different aspects of shortages 

including their characteristics and causes, the effect on providers, and 

GAO-12-116

(Washington, D.C.: Nov. 21, 2011).

2

Pub. L. No. 112-144, 126 Stat. 993 (2012).
 

Page 2 GAO-14-194 Drug Shortages

FDA’s role in resolving them, among other things.3

To review the trends in recent drug shortages, we analyzed data from the 

University of Utah Drug Information Service (UUDIS) on drugs that were 

in short supply from January 1, 2007, through June 30, 2013, which were 

the most recent data available at the time we did our work.

This report (1) reviews 

the trends in recent drug shortages and describes what is known about 

their effect on patients and providers, (2) examines the causes of drug 

shortages, and (3) evaluates the progress FDA has made in addressing 

drug shortages.

4 These data 

are generally regarded as the most comprehensive and reliable source of 

drug shortage information for the time period we reviewed and are what 

we used in preparing our 2011 report.5

 

3

In addition to the FDASIA mandate that we report on drug shortages, members of the 

Senate Judiciary Committee have requested that we conduct an examination specifically 

related to the shortages of controlled substances. As a result, issues unique to controlled 

substances are not specifically discussed in this report.

We also examined the 

characteristics of 219 of these drugs that were reported to be in shortage 

at some point between June 1, 2011, and June 30, 2013, and that UUDIS 

4

Our analysis focuses on shortages of prescription drugs, so we excluded shortages of 

over-the-counter drugs, biologics (including vaccines), medical devices, and orallyadministered vitamins from our analysis even though UUDIS also tracks and includes 

these shortages in its data. UUDIS broadly defines a shortage as a supply issue that 

affects how pharmacies prepare and dispense a product or that influences patient care 

when prescribers must choose an alternative therapy because of supply issues. Once 

UUDIS identifies a shortage, it generally does not consider a shortage to be resolved until 

the drug is available again in all strengths and package sizes from all manufacturers that 

currently produce the drug. For example, UUDIS could be notified of a shortage involving 

three manufacturers: Manufacturer A has no product available; Manufacturers B and C 

still do, but have limited supply of certain package sizes. According to a UUDIS official, 

UUDIS would consider the shortage to be resolved (1) when Manufacturers A, B, and C all 

have all strengths and package sizes back in stock; (2) if Manufacturer A decides to 

discontinue its product, when Manufacturers B and Manufacturer C both have all strengths 

and package sizes back in stock; or (3) when UUDIS obtains other information indicating 

that a shortage has been resolved, such as FDA telling UUDIS that Manufacturers B and 

C have increased supply and all market need has been met.

5

GAO-12-116, 2. At the time of our previous report, FDA did not have a database 

containing information on drug shortages for the time period we reviewed. Since the 

publication of that report, FDA has developed a database that it uses to track shortages. 

For the purposes of this report, we used the drug shortage data maintained by UUDIS 

because the time period we reviewed included data from years that predate FDA’s 

development of its database and to provide comparable information on the trends and 

characteristics of drug shortages to that which we presented in our 2011 report. In that 

report, we analyzed UUDIS data on the number of drug shortages reported between 

January 1, 2001, and June 20, 2011.
 

Page 3 GAO-14-194 Drug Shortages

identified as critical because alternative medications were unavailable, 

the shortages affected multiple manufacturers, or it received multiple 

reports from different institutions.6 These 219 critical shortages were a 

subset of the total number of shortages reported during this time.7 For this 

subset of shortages, we identified their product types, routes of 

administration, and therapeutic classes. We reviewed all UUDIS data 

used for reasonableness, outliers, and consistency, and based on our 

review, determined that the data were sufficiently reliable for our 

purposes. To describe the effect of drug shortages on patients and 

providers, we interviewed representatives from 10 national associations 

representing health care providers including physicians, hospitals, and 

pharmacists.8 We asked these stakeholders a series of open-ended 

questions and did not independently validate their responses. We also 

reviewed relevant documents from the various organizations, including 

surveys, congressional testimony, and comments submitted to FDA 

related to drug shortages.9

To examine the causes of recent drug shortages we performed a search 

of research databases to identify any literature published from January 1, 

2003, through June 30, 2013, that reported on the causes of drug 

shortages. We identified and reviewed 20 studies, which included journal 

articles, working papers, and government publications that either 

presented original research on the causes of drug shortages or included 

an in-depth discussion of the causes of drug shortages. We also 

interviewed drug manufacturers to obtain their views about the causes of 

drug shortages. Finally, we analyzed FDA data on the reported causes of 

shortages that occurred from January 1, 2011, through June 30, 2013.10

 

6

In our 2011 report, we examined the characteristics of critical drug shortages identified 

between January 1, 2009, and June 20, 2011. GAO-12-116, 2.

7

These 219 shortages represented 57 percent of the 382 shortages reported from June 

2011 through June 2013.

8

We also interviewed officials from five federal agencies that are major purchasers of 

prescription drugs—the Department of Defense, the Department of Veterans Affairs, the 

U.S. Coast Guard, the National Institutes of Health, and the Indian Health Service—to 

obtain information on how shortages may affect federal spending.

9

In February 2013, FDA published a Notice in the Federal Register with a request for 

comment about its drug shortages task force and strategic plan. 78 Fed. Reg. 9928 

(Feb. 12, 2013).

10FDA did not have data readily available on the reported causes of shortages that began 

prior to January 1, 2011.
 

Page 4 GAO-14-194 Drug Shortages

We reviewed all FDA data used for reasonableness, outliers, and 

consistency, and based on our review, determined that the data were 

sufficiently reliable for our purposes.

To evaluate the progress FDA has made in responding to drug shortages, 

we reviewed documentation and interviewed FDA officials regarding the 

agency’s current approach to managing drug shortages and implementing 

FDASIA requirements. This included reviewing FDA data related to drug 

shortages, including information contained in its recently created drug 

shortages database and information about shortages published on its 

website. We also analyzed FDA information on potential drug shortages 

the agency prevented from January 2011 through June 2013. To 

determine the number of shortages prevented, we grouped together 

shortages that involved multiple versions of a drug that had the same 

route of administration. We compared FDA’s drug shortage management 

activities to the relevant standards described in the Standards for Internal 

Control in the Federal Government and to the agency’s requirements 

under FDASIA.11

Appendix I contains additional information on the methodology we used to 

describe the trends in and causes of drug shortages and the steps we 

took to determine the reliability of the data we used. Appendix II contains 

a complete list of the federal agencies and other stakeholders we 

interviewed for this report.

We also interviewed relevant market participants, such 

as manufacturers and provider groups, to obtain their perspective on the 

recent steps that FDA has taken to address shortages and the 

effectiveness of FDA’s efforts to prevent, mitigate, and resolve drug 

shortages.

We conducted this performance audit from January 2013 to February 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

 

11See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
 

Page 5 GAO-14-194 Drug Shortages

Many participants along the entire drug supply chain are affected by 

shortages. A typical drug supply chain involves a drug manufacturer 

selling a drug to a wholesale distributor, which then sells the drug to a 

hospital or pharmacy. (See fig. 1.)

Figure 1: Key Drug Supply Chain Participants Affected by Drug Shortages

Shortages of drugs can result in a variety of problems that directly affect 

the care patients receive. For example, recent research on the effects of 

drug shortages identified an increase in adverse outcomes among 

pediatric cancer patients treated with an alternative drug.12 Further, in 

some cases, drug shortages can even contribute to additional health 

problems. For example, one stakeholder said that recent shortages of 

drugs that supply an essential nutrient, like calcium, could lead to nutrient 

deficiencies among patients.

 

12Estimated 2-year cancer-free survival for children with Hodgkin’s lymphoma treated by 

members of the Pediatric Hodgkin Lymphoma Consortium fell from 88 to 75 percent after 

the drug cyclophosphamide was substituted for mechlorethamine, when the latter was in 

shortage. The researchers concluded that there was no credible explanation for this 

decline other than the drug substitution. M. L. Metzger, A. Billett, and M. P. Link, “The 

Impact of Drug Shortages on Children with Cancer—The Example of Mechlorethamine,” 

New England Journal of Medicine, vol. 367, no. 26 (2012).

Background

Drug Shortages
 

Page 6 GAO-14-194 Drug Shortages

FDA is responsible for overseeing the safety and effectiveness of drugs 

marketed in the United States. Within FDA, the Center for Drug 

Evaluation and Research (CDER) manages these responsibilities. FDA’s 

approval is required before new drugs and generic drugs can be 

marketed for sale.13 To obtain FDA’s approval for a new drug, sponsors 

must submit a new drug application (NDA) containing data on the safety 

and effectiveness of the drug as determined through clinical trials and 

other research for review by CDER’s Office of New Drugs. Sponsors of 

generic drugs may obtain FDA approval by submitting an abbreviated 

new drug application (ANDA) to the agency for review by CDER’s Office 

of Generic Drugs. The ANDA must contain data showing, among other 

things, that the generic drug is bioequivalent to, or performs in the same 

manner as, a drug approved through the NDA process.14 After obtaining

FDA’s approval, drug companies that want to change any part of their 

original application—such as changes to product manufacturing location 

or process, type or source of active ingredients, or the product’s 

labeling—must generally submit an application supplement to notify FDA 

of the change and, if the change has a substantial potential to have an 

adverse effect on the product, obtain FDA’s approval.15

After approving new and generic drugs for marketing, FDA’s 

responsibilities continue as it is charged with monitoring the safety, 

effectiveness, quality, and promotion of approved drugs, and the agency 

may take enforcement actions in response to violations of law and 

regulations. For example, as part of its efforts to ensure the safety of 

approved drugs, FDA periodically inspects drug manufacturing 

establishments to assess their ongoing compliance with Current Good 

Manufacturing Practice (CGMP) regulations.16

 

1321 U.S.C. § 355.

If FDA identifies a violation 

of law or regulations, it may issue a warning letter or take an enforcement 

1421 U.S.C. § 355(j). The application for generic drugs is abbreviated because FDA does 

not require sponsors to conduct, or provide evidence from, clinical trials that are required 

of sponsors of new drugs.

1521 C.F.R. §§ 314.70, 314.97 (2013). Specifically, any change that has a substantial 

potential to adversely affect factors such as the identity, strength, quality, purity, or 

potency of a drug product requires FDA review and approval of a “prior approval” 

supplement before a drug manufactured using this change can be distributed.

16CGMP regulations provide a framework for a manufacturer to follow to produce safe, 

pure, and high-quality drugs. See 21 C.F.R. pts. 210-211.

FDA Oversight of Drugs
 

Page 7 GAO-14-194 Drug Shortages

action. In some cases, FDA may exercise its regulatory discretion and 

assess whether the risks of either taking a certain enforcement or other 

action or refraining from taking action will outweigh the benefits, such as 

when an action may cause or exacerbate a drug shortage.

17 For example, 

if a manufacturing deficiency is identified, such as overfilled vials or the 

presence of contaminants, the manufacturer should take appropriate 

corrective and preventive actions, or FDA may issue a warning letter or

take an enforcement action to require the manufacturer to do so. 

Similarly, FDA may request manufacturers of drugs whose labeling is not 

consistent with the labeling approved by FDA to correct such labeling, or 

it may take an regulatory action to require the manufacturers to do so.

In 1999, FDA established the CDER Drug Shortage Program—now 

known as DSS—to coordinate issues related to drug shortages.18

 

17In determining how to respond to a shortage, FDA takes steps to determine whether a 

drug is medically necessary, defined as any drug that is used to treat or prevent a serious 

disease or medical condition for which there is no other adequately available drug that is 

judged by medical staff to be an appropriate substitute. Officials previously told us that 

they do not typically consider exercising regulatory discretion to respond to shortages of 

non-medically necessary drugs because these drugs are, by definition, not used to treat 

serious diseases or medical conditions, or other clinically interchangeable versions of the 

drug are available.

Once 

DSS determines that a shortage is in effect or a potential shortage is 

pending, it contacts manufacturers of the drug to collect up to date 

information on inventory of the drug, demand for the drug, and 

manufacturing schedules. DSS may also coordinate its response with 

several offices including the Office of Generic Drugs, Office of New Drug 

Quality Assessment, and CDER’s Office of Compliance—the office 

responsible for minimizing consumer exposure to unsafe, ineffective, and 

poor quality drugs. DSS may also work with FDA’s Office of Regulatory 

Affairs—the office within FDA that oversees imports, inspections, and 

enforcement policy—and the manufacturer to help resolve any underlying 

problem a manufacturer is facing. If the shortage is of a controlled 

18The Drug Shortage Program became known as DSS when CDER elevated it from the 

Office of New Drugs to the Immediate Office of the Center Director within CDER.

FDA Role in Resolving 

Drug Shortages
 

Page 8 GAO-14-194 Drug Shortages

substance, FDA may work with the Drug Enforcement Administration 

(DEA) on any issues related to quotas for the production of the drug.19

When FDA is informed of a potential shortage in advance, it may take 

steps to prevent the shortage, such as providing assistance to address 

manufacturing problems.20

FDA may also apply its regulatory discretion to enhance the availability of 

drugs. For example, FDA may refrain from taking regulatory or 

enforcement action to stop the distribution of a drug that is in shortage if 

the manufacturer makes the decision to continue marketing the drug 

despite a labeling or quality issue, effectively allowing the manufacturer to 

continue marketing the drug.

For example, it may offer feedback on a 

manufacturer’s proposed approach to responding to quality concerns. In 

addition, FDA can expedite inspections of manufacturing establishments 

to facilitate the marketing of an alternative to a drug in shortage or can 

expedite inspections once remediation to address quality problems has 

been completed.

21 In doing so, FDA balances the drug’s risk 

to a patient with the risks of the drug not being available. In the event that 

a shortage cannot be averted, FDA may take other actions to enhance 

product availability. For example, in certain circumstances, FDA may not 

object to the temporary importation of drugs not approved by FDA for 

marketing in the United States, subject to appropriate controls effectively 

allowing the drugs to be temporarily marketed in the United States.

22

 

19Controlled substances have the potential for abuse and are regulated by the DEA in 

accordance with the Controlled Substances Act. They include narcotics, stimulants, 

depressants, sedatives, and anabolic steroids. DEA limits the availability of these 

substances by establishing quotas for the substance that can be produced or procured 

each year.

Also, FDA can expedite the review of ANDAs, in order to provide 

20FDA officials said that they take steps to address shortages of both medically necessary 

drugs and non-medically necessary drugs, though they give priority to shortages of 

medically necessary drugs.

21FDA officials explained that the agency’s exercise of regulatory discretion does not 

mean that these products meet regulatory standards for approval, or that a manufacturer 

has a legal right to distribute them. Rather, FDA may decide not to object to the 

distribution of the drug for a limited time for public health reasons.

22FDA officials said they may also identify other alternative sources of drugs, some of 

which may not require importation. For example, a U.S. manufacturer of a drug which is 

approved for distribution in Canada may be allowed to temporarily market the drug in the 

United States, in response to a drug shortage.
 

Page 9 GAO-14-194 Drug Shortages

additional sources of a drug in shortage, or supplements to ANDAs or 

NDAs, to provide additional capacity for production of an already 

approved drug. While there are a number of steps FDA can take to 

address a shortage, FDA cannot require manufacturers to start producing 

or continue to produce a drug. It also cannot require manufacturers to 

maintain or introduce manufacturing redundancies in their establishments 

to provide them with increased flexibility to respond to shortages.

On October 31, 2011, the President issued an Executive Order that 

directed FDA to use its authority to encourage manufacturers to report 

drug supply disruptions earlier, to expedite regulatory review, when 

possible, to prevent or mitigate drug shortages, and to communicate to 

the Department of Justice any findings by FDA that shortages have led 

market participants to stockpile shortage drugs or sell them at exorbitant 

prices.23

In November 2011, we found that weaknesses in FDA’s ability to respond 

resulted in a predominately reactive approach to addressing shortages, 

although this was partially due to the fact that, at the time our report was 

issued, FDA did not have the authority to require manufacturers to notify 

the agency of most impending shortages.24 Our previous report contained 

several recommendations for FDA, including assessing the resources that 

FDA allocates to its DSS; developing an information system to manage 

data on shortages; ensuring that FDA’s strategic plan articulates goals 

and priorities for maintaining the availability of drugs; and developing 

results-oriented performance metrics related to FDA’s response to drug 

shortages.25

Subsequently, the enactment of FDASIA in July 2012 resulted in several 

new requirements for FDA and manufacturers intended to address drug 

shortages. (See table 1 for a summary of these provisions.)

FDA outlined actions it planned to take which were 

consistent with these recommendations.

 

23Exec. Order No. 13,588 reprinted at 3 C.F.R. 281 (2012).

24GAO-12-116, 35. At the time, FDA’s sole authority over manufacturers’ reporting of drug 

shortages pertained to the discontinuation of approved drugs that were life-supporting, 

life-sustaining, or for use in the prevention of a debilitating disease or condition, when 

such drugs were produced by only one manufacturer.

25GAO-12-116, 43-44.
 

Page 10 GAO-14-194 Drug Shortages

Table 1: FDA Related Drug Shortage Provisions Enacted under Title X of the Food and Drug Administration Safety and 

Innovation Act (FDASIA), Public Law 112-144

Provision Description

Task Force and Strategic Plan FDA must establish a task force to develop and implement a strategic plan for enhancing 

FDA’s response to preventing and mitigating drug shortages. The law directed the task 

force to publish and submit the strategic plan to Congress by July 9, 2013.

Manufacturer Notice Manufacturers must notify FDA at least 6 months prior to the date of a discontinuance or 

interruption (or as soon as possible if 6 months notice is not feasible) in the manufacture 

of a drug that is life supporting, life sustaining, or used to treat debilitating health issues. 

Failure to do so will result in a letter from FDA to which the company must reply within 

30 days. If compliance does not occur within 45 days of FDA’s letter, the agency is 

required to post its letter and any response from the manufacturer on the FDA website. 

FDASIA required FDA to adopt regulations implementing these requirements by 

January 9, 2014.

Coordination and Communication FDA is to identify whether a given enforcement action or warning letter could cause or 

exacerbate a drug shortage prior to taking the enforcement action or sending the warning 

letter [a warning letter notifies any responsible individual or firm that the agency considers 

one or more products, practices, processes, or other activities to be in violation of the 

Federal Food, Drug, and Cosmetic Act (FDCA), related regulations, or other federal 

statutes]. If so, FDA is to evaluate the risks of the drug shortage and the risks associated 

with the violation before taking the action or issuing the letter, unless there is an imminent 

risk of serious adverse health consequences or death from not taking the action or issuing 

the letter.

Expediting FDA Actions In response to a pending or active shortage, FDA may expedite the review of an 

abbreviated new drug application (ANDA), or a supplement to either an ANDA or a new 

drug application that could prevent or mitigate a shortage. FDA may also expedite 

inspection or reinspection of an establishment to prevent or mitigate a shortage.

Controlled Substances To address a pending or active shortage of a controlled substance, FDA may, if 

necessary, notify the Drug Enforcement Administration (DEA) of the shortage and request 

that the DEA increase the aggregate and individual production quotas for the substance 

to a level FDA deems necessary to address the shortage.a If DEA disagrees, it must 

provide FDA a written response to be made public on the FDA website explaining the 

decision.

Annual Report FDA is required to provide Congress with an annual report that contains a variety of 

information related to drug shortages, including the number of shortages that occurred 

that calendar year, manufacturer notifications of potential shortages, FDA actions to 

prevent or mitigate shortages (including identifying instances where FDA exercised 

regulatory discretion), communication within FDA, FDA coordination with DEA, and a list 

of manufacturers that were issued noncompliance letters related to the notification 

requirement. The first annual report was due by the end of calendar year 2013. FDASIA 

authorized FDA to retain a third party to conduct a study on drug shortages (specifically 

the causes, trends, or solutions), in conjunction with the preparation of the annual report.

Shortage Information FDA must distribute information, to the maximum extent practicable, on the 

discontinuance or interruption in the manufacture of a drug that is life supporting, life 

sustaining, or used to treat debilitating health issues to appropriate groups, including 

physician and patient groups.

Third Party Notification FDA is required to identify or establish a mechanism for health care providers or other 

third-party organizations to report evidence of drug shortages to FDA.
 

Page 11 GAO-14-194 Drug Shortages

Provision Description

Shortage List FDA must maintain an up-to-date list of drugs in shortage, which, subject to public health, 

trade secret, and confidentiality concerns, must be publicly available. For each drug on 

the list, FDA must identify the reason for shortage using a standard list of reasons for 

shortages that were included in FDASIA.

Source: GAO analysis of FDASIA.

Note:

a

Controlled substances have the potential for abuse and are regulated by the DEA in accordance with 

the Controlled Substances Act. DEA limits the availability of these substances by establishing quotas 

for the amount of the substance that can be produced or procured each year.

The number of drug shortages remains high, with almost half of critical 

shortages involving generic sterile injectable drugs. Provider association 

representatives identified challenges in responding to drug shortages 

without adversely affecting patient care.

The number of drug shortages reported each year remains high, although 

there was a decrease in 2012 relative to the record number of new 

shortages reported in 2011.26 We found that from 2007 through 2011, the 

number of drug shortages reported increased each year, with a record 

255 shortages reported in 2011.27

 

26A shortage is only counted in the total for “reported” shortages in the year that UUDIS is 

first notified of the shortage. For example, a shortage reported in July 2010 and resolved 

in March 2012 would only be counted as a reported shortage in 2010. It would not be 

counted as a reported shortage in either 2011 or 2012, although it would be counted in the

total number of active shortages in each of those years.

However, in 2012, for the first time 

since 2006, there was a decrease in the number of drug shortages 

reported. Specifically, in 2012, 195 shortages were reported, which was a 

24 percent decrease from 2011. As of June 30, 2013, 73 shortages had 

been reported in 2013. (See fig. 2.)

27From January 1, 2001, through December 31, 2006, a total of 443 shortages were 

reported to UUDIS. In 2001, 102 shortages were reported, but there were fewer than 100 

shortages reported in each year from 2002 through 2006.

The Number of Drug 

Shortages Remains 

High, Complicating 

Providers’ Ability to 

Care for Patients

The Number of Drug 

Shortages Remains High 

and Nearly Half Involve 

Generic Sterile Injectables
 

Page 12 GAO-14-194 Drug Shortages

Figure 2: Drug Shortages Reported from January 2007 through June 2013

Note: A shortage is counted as “reported’ in the year that the University of Utah Drug Information 

Service is first notified of the shortage. The totals reported for 2007 through 2011 may differ slightly 

from what we reported in our 2011 report, due to minor modifications by the University of Utah Drug 

Information Service to its data since that report. See GAO-12-116, 16.

Over half (55 percent, or 622) of the 1,132 shortages reported since 

January 1, 2007, were for drugs that were in shortage more than once. 

Specifically, 240 drugs were in shortage on multiple occasions between 

January 1, 2007, and June 30, 2013, representing 622 individual 

shortages.

For shortages reported since January 1, 2007, the duration of the 

shortages varied, ranging from 1 day to over 5 years. The majority of 

shortages—68 percent—lasted 1 year or less.28

 

28We excluded 75 shortages from this analysis because UUDIS listed these shortages as 

lasting zero days. The majority of these represented manufacturers’ decisions to 

discontinue their production of a drug.

The average duration of 

the drug shortages over this period was 340 days—slightly less than a 

year. (See fig. 3.)
 

Page 13 GAO-14-194 Drug Shortages

Figure 3: Distribution of the Duration of Reported Drug Shortages from January 

2007 through June 2013

Note: Our analysis of the duration of shortages includes 1,057 of the 1,132 total shortages reported 

as new shortages from January 1, 2007, through June 30, 2013; we excluded 75 shortages from this 

analysis because the University of Utah Drug Information Service listed these shortages as lasting 

zero days. The majority of these represented manufacturers’ decisions to discontinue their production 

of a drug.

Though the number of shortages reported has recently declined, the 

number of active shortages remains high. The total number of active 

shortages each year has increased steadily since 2007.29

 

29The active shortage total for each year includes both (1) new shortages reported that 

year and (2) shortages that started in a prior year that were still ongoing. For example, a 

shortage reported in July 2010 and resolved in March 2012 would be counted as an active 

shortage in three different years (2010, 2011, and 2012). 

Specifically, the 

number of active shortages each year almost tripled between 2007 and 

2012 from 154 in 2007 to 456 in 2012. In 2012, the 456 active shortages 

were comprised of 195 new shortages and 261 shortages that began 

before 2012 but remained ongoing for some period of time in 2012. As of 

June 30, 2013, there had been 361 shortages active in 2013, including 

288 ongoing shortages that had started in prior years. (See fig. 4.)
 

Page 14 GAO-14-194 Drug Shortages

Figure 4: Number of Active Drug Shortages from January 2007 through June 2013

Note: The active shortage total for each year includes (1) new shortages reported that year and 

(2) shortages that started in a prior year that were still ongoing.

Based on our review of the characteristics of a subset of drug shortages 

reported between June 1, 2011, and June 30, 2013, that UUDIS identified 

as critical, we found that 44 percent of the 219 critical shortages involved 

generic sterile injectable drugs.30

 

30UUDIS identified 219 of the 382 shortages reported from June 1, 2011, through 

June 30, 2013 as critical shortages. We reviewed the characteristics of those 219 critical 

shortages, which represented 57 percent of all shortages reported during this time.

These shortages were identified by 

UUDIS as critical because alternative medicines were not available, the 

shortages affected multiple manufacturers, or it received multiple reports 

from different institutions. Of the 96 shortages that constitute the 

44 percent of critical shortages that involved sterile injectables in generic 

form, 63 shortages were of drugs available only in generic form, while 

33 shortages were of drugs that were available in both generic and brandname form. An additional 17 percent of critical shortages involved sterile 
 

Page 15 GAO-14-194 Drug Shortages

injectables that were available only in brand-name form. The remaining 

percentage of critical shortages—about 39 percent—involved either 

generic or brand-name drugs administered either orally or through other 

routes.31

Figure 5: Distribution of Critical Drug Shortages Reported from June 2011 through 

June 2013, by Route of Administration and Product Type

(See fig. 5.)

Notes: This figure reflects 219 of the 382 shortages (57 percent) reported during this time period. Our 

analysis was limited to the shortages the University of Utah Drug Information Service identified as 

critical. Red Book is a compendium published by Truven Health Analytics that includes information 

about the characteristics of drug products.

a

Other drugs includes those that had other routes of administration such as, nasal, inhalation, topical, 

ophthalmic, and transdermal methods. In total, there were 18 drugs available through other routes, 

with 4 available in generic form and the remaining 14 only available in brand-name form. The Other 

drugs category also includes 9 additional shortages that had multiple routes of administration or for 

which either the route of administration or the product type was unavailable from Red Book.

 

31In our November 2011 report, we found that for critical shortages reported between 

January 1, 2009, and June 20, 2011, 53 percent of the shortages were generic sterile 

injectable drugs and 15 percent were brand-name sterile injectable drugs. The remaining 

shortages (32 percent) were shortages of generic and brand-name drugs available 

through other routes, such as drugs that were orally-administered. See GAO-12-116, 19.
 

Page 16 GAO-14-194 Drug Shortages

Certain therapeutic classes were more likely to have shortages reported 

than others. Specifically, four therapeutic classes—anti-infective, 

anesthetic and central nervous system, cardiovascular, and nutritive—

comprised 53 percent of critical drug shortages.32 Anesthetic and central 

nervous system drugs and anti-infective drugs were the most represented 

therapeutic classes, with 17 and 16 percent of shortages reported 

respectively.33 (See table 2.)

 

32Examples of shortages in these therapeutic classes during this time period included, 

acyclovir and doxycycline (anti-infective); propofol and diazepam (anesthesia and central 

nervous system); nitroglycerin and verapamil (cardiovascular); and potassium chloride 

and sodium phosphate (nutritive).

33We previously found that anesthetic and central nervous system drugs and anti-infective 

drugs were among the therapeutic classes with the most shortages reported between 

January 1, 2009, and June 20, 2011. Previously, 23 percent of shortages were anesthetic 

and central nervous system drugs and 14 percent of shortages were anti-infective drugs. 

See GAO-12-116, 21.
 

Page 17 GAO-14-194 Drug Shortages

Table 2: Summary of Critical Drug Shortages Reported from June 2011 through 

June 2013, by Therapeutic Class

Therapeutic Class

Number of Critical 

Shortages

Percent of Critical 

Shortages

Anesthetic and central nervous system drugs 37 17

Anti-infective drugs 34 16

Cardiovascular drugs 27 12

Nutritive drugs 18 8 

Endocrine metabolic drugs 16 7 

Gastrointestinal drugs 10 5 

Oncology drugs 10 5 

Diagnostic drugs 9 4 

Blood modifier drugs 7 3 

Musculoskeletal drugs 7 3 

Ophthalmologic drugs 6 3 

Respiratory drugs 6 3 

Toxicology antidote drugs 6 3 

Other 18 a 8 

Multiple therapeutic classes 8 4 

Total 219 101

Source: GAO analysis of data from University of Utah Drug Information Service and Truven Health Analytics (Red Book).

b

Notes: This figure reflects 219 of the 382 shortages (57 percent) reported during this time period. Our 

analysis was limited to the shortages the University of Utah Drug Information Service identified as 

critical. Red Book is a compendium published by Truven Health Analytics that includes information 

about the characteristics of drug products.

a

Includes other therapeutic classes, such as dermatological drugs and immunological drugs, as well 

as 4 drugs whose therapeutic classes were unavailable from Red Book.

b

Total does not sum to 100 due to rounding.
 

Page 18 GAO-14-194 Drug Shortages

Provider association representatives told us that a number of the 

challenges that we reported in 2011 were still relevant for their members, 

including delays in or rationing of care, difficulties finding alternative 

drugs, risk associated with medication errors, higher costs, reduced time 

for patient care, and hoarding or stockpiling of drugs in shortage. During a 

shortage, providers may have to cancel or delay procedures, which can 

have detrimental health effects on patients.34

In addition, representatives from the provider associations noted that 

identifying effective, alternative drugs for those in shortage can be 

difficult. In some cases, it may not be possible to find a suitable 

alternative. For example, representatives from one of the associations we 

spoke to said that emergency service providers have reported significant 

difficulties finding alternative medications for stopping seizures and are 

concerned with the viability of alternative therapies in certain emergency 

situations. A representative from another association said that when 

effective alternatives are identified and located, medication errors may 

increase because the dosage of the alternative drug may differ from what 

providers are accustomed to using.

Providers may also have to 

ration care by prioritizing the patients who have a greater need for the 

drug. For example, provider association representatives said that if a drug 

is used in patients across age groups, but is essential for the care of 

newborns, a hospital may institute a policy that the drug can only be 

administered to newborns and will no longer be administered to adults.

Drug shortages may result in higher drug costs as well as greater risks to 

patients. To obtain drugs in short supply, providers may turn to suppliers 

they do not typically use, including authorized alternative suppliers, 

compounding pharmacies, or gray market suppliers—those not 

authorized by the manufacturer to sell the drug—who typically obtain 

small quantities of a drug that is in short supply and offer it for purchase 

at an inflated price.35

 

34According to a 2011 American Hospital Association survey, over 80 percent of the 820 

responding hospitals reported that patient treatment had been delayed as a result of drug 

shortages. See American Hospital Association, AHA Survey on Drug Shortages

(Washington, D.C.: July 12, 2011).

Drugs from alternative suppliers can cost 

35Drug compounding is the process by which a pharmacist or doctor combines, mixes, or 

alters ingredients to create a drug tailored to the medical needs of an individual patient. 

Compounding is typically used to prepare drugs that are not commercially available. See 

GAO, Drug Compounding: Clear Authority and More Reliable Data Needed to Strengthen 

FDA Oversight, GAO-13-702 (Washington, D.C.: July 31, 2013).

Providers Struggle to 

Respond to Drug 

Shortages without 

Adversely Affecting Patient 

Care
 

Page 19 GAO-14-194 Drug Shortages

significantly more, and, in the case of compounding pharmacies, and gray 

market suppliers, may pose risks to patients.36 An outbreak of fungal 

meningitis in 2012 linked to contaminated compounded drugs—resulting 

in over 60 deaths and hundreds of people becoming ill—has led to 

questions about the safety and quality of compounded drugs.37 Because 

the origin of a gray market drug may be unknown, there is no assurance 

that it was stored and transported appropriately. As a result, patients who 

receive treatment with such drugs may experience adverse events or 

receive inadequate or inappropriate treatment.38

Managing drug shortages also can detract from patient care. Providers 

may develop and institute polices for distributing drugs in short supply to 

patients, which some provider association representatives said may take 

time away from caring for patients. They may also need to become 

familiar with new products and different dosages, which may increase the 

risk for medication errors and take time away from patient care. 

Representatives from one provider association said that hospital 

(See app. III for a 

description of steps federal agencies have taken to respond to gray 

market activities.)

 

36Higher costs resulting from drug shortages may also have implications for federal 

spending on drugs. Officials from federal agencies that are major purchasers of 

prescription drugs—including the Department of Defense, the Department of Veterans 

Affairs, the U.S. Coast Guard, the National Institutes of Health, and the Indian Health 

Service—generally told us that, as a result of drug shortages, there have been 

circumstances in which they paid more for drugs that were in short supply from suppliers 

from which they did not typically purchase. Though the alternative suppliers varied by 

agency, such purchases at a higher cost included those made directly from 

manufacturers, from authorized secondary wholesale distributors, and from other sources. 

(Officials from three of these agencies noted that purchases made directly from 

manufacturers and authorized secondary wholesale distributors were only slightly higher 

than the prices the agencies typically paid.) For the most part, officials from these 

agencies told us that they were not aware of any purchases from gray market suppliers 

and that the majority of their drug purchases are made through their typical, authorized 

purchasing channels. However, Indian Health Service officials told us that, on occasion, 

the agency has resorted to purchasing drugs from gray market suppliers to ensure 

patients and providers have access to needed drugs.

37GAO-13-702, 1.

38The Institute for Safe Medication Practices reported in Gray Market, Black Heart:

Pharmaceutical Gray Market Finds a Disturbing Niche During the Drug Shortage Crisis

that over 10 percent of the 549 hospitals that participated in its July/August 2011 survey 

were aware of product authenticity issues, medication errors, or adverse drug reactions 

that were associated with the use of products purchased from the gray market. (Horsham, 

PA: Aug. 25, 2011).
 

Page 20 GAO-14-194 Drug Shortages

pharmacists might need to devote more time than usual to work with the 

physician prescribing a drug that is in shortage to determine an 

appropriate therapeutic alternative.39

Finally, the mere threat of a potential shortage can cause problems for 

patients and providers. While some provider association representatives 

reported that the lack of advance notice of a shortage hinders their ability 

to respond, most of the provider organizations we spoke with expressed 

concern that reports of an impending shortage can lead to the hoarding or 

stockpiling of drugs making it more difficult to access the drugs.

In some instances, providers have 

hired full-time staff whose positions are entirely devoted to managing drug 

shortages. One provider association representative said a well-known 

hospital system has eight full-time employees who only work on

addressing drug shortages. However, a few representatives noted that 

smaller providers may not have the resources to hire full-time employees 

and existing staff may have to take on additional responsibilities in order 

to respond to shortages.

40

 

39We previously reported that alternative drugs may be less effective, have a higher 

likelihood of adverse events, and may lead to medication errors, as health care providers 

may have to treat patients with drugs that are unfamiliar to them. See GAO-12-116, 9.

40To prevent potential hoarding and stockpiling during a shortage—as well as deter gray 

market operations—wholesale distributors may institute an allocation system, which 

provides any remaining inventory and any future shipments of the drug, by considering the 

customers’ purchase history. For example, a wholesale distributor representative said that 

if a manufacturer is shipping only 50 percent of their prior volume of a given drug, a 

wholesale distributor’s allocation system will only allow customers to purchase 50 percent 

of their historical purchase amount.
 

Page 21 GAO-14-194 Drug Shortages

Quality problems resulting in supply disruptions coupled with constrained 

manufacturing capacity were frequently cited as the immediate causes of 

recent drug shortages. However, we also identified multiple potential 

underlying causes of shortages, all of which were related to the 

economics of the generic sterile injectable drug market.41

The most frequently cited immediate cause for a drug shortage was that a 

manufacturer halted or slowed production after a quality problem was 

identified, resulting in a supply disruption. These supply disruptions were 

linked to, among other things, such problems as bacterial contamination 

or the presence of glass or metal particles in drug vials. Representatives 

from all eight manufacturers that we interviewed said that quality 

problems have contributed to recent shortages.42 Our analysis of FDA 

data shows that 40 percent of the shortages reported between January 1, 

2011, and June 30, 2013, resulted from quality concerns, such as 

particulate matter or plant maintenance issues.43

 

41In subsequent work, we intend to further explore the causes of drug shortages.

In addition, most of the 

42For the purposes of reporting, responses from “manufacturer representatives” include 

the responses from the five individual manufacturers and the three national manufacturer 

associations we interviewed.

43The FDA data reflects information reported by manufacturers to FDA that is 

subsequently analyzed and categorized by the agency.

Quality Problems 

Coupled with 

Constrained 

Manufacturing 

Capacity Are Often 

the Immediate

Causes of Drug 

Shortages, but There 

Are Potential 

Underlying Causes

Supply Disruptions 

Stemming from Quality 

Problems Frequently 

Identified as Triggering 

Recent Shortages

Quality Problems Leading to 

Shortages
 

Page 22 GAO-14-194 Drug Shortages

studies we reviewed (16 of 20) reported that concerns about product 

quality that led to supply disruptions have been the immediate cause of 

most shortages.44 For example, one analysis found that quality problems 

were the cause linked to the majority of shortages of sterile injectable 

drugs.45 Another study found that the immediate cause of 46 percent of all 

drug shortages in 2011 was a quality problem.46

According to another study, some of the largest manufacturers of sterile 

injectable drugs have had quality problems that they chose to address by 

temporarily closing or renovating their establishments, thereby reducing 

or temporarily ceasing manufacturing of multiple drugs and leading to 

supply disruptions.

According to this study, 

the specific issues contributing to recent shortages have ranged from an 

inability to ensure the sterility of products to the identification of particulate 

matter in products.

47 Some of the temporary plant closures were 

proactively undertaken by the manufacturers themselves, while others 

were undertaken as part of their response to a warning letter from FDA.48

Such plant closures to address quality problems with certain drugs or 

production lines can result in shortages of other drugs manufactured at 

these establishments, including those not associated with quality 

problems.49

 

44For the purposes of reporting on our literature review—which included peer-reviewed 

articles, as well as government publications, and other journal articles that were not peerreviewed—we identified and summarized the causes frequently discussed in the literature 

and did not list all topics mentioned in each article we reviewed. For example, we did not 

include causes that were mentioned only sparingly in the literature. Further, as shortages 

have been concentrated in the generic sterile injectable market in recent years, the 

literature on the subject of shortages and comments from manufacturer representatives 

largely focused on the causes of shortages specific to that market. As a result, our 

discussion about the causes of shortages may not be applicable to all shortages.

One study noted that many shortages that are classified as 

45Department of Health and Human Services, Office of the Assistant Secretary for 

Planning and Evaluation, Economic Analysis of the Causes of Drug Shortages

(Washington, D.C.: October 2011), 13.

46S.L. Kweder and S. Dill, “Drug Shortages: The Cycle of Quantity and Quality,” Clinical 

Pharmacology & Therapeutics, vol. 93, no. 3 (2013), 247.

47Department of Health and Human Services, Economic Analysis, 13.

48Reporting in March 2013, Kweder and Dill said that in the past 3 years, 4 of the top 10 

manufacturers of sterile injectable drugs received warning letters from the FDA that they 

chose to address by closing establishments or slowing production. See Kweder and Dill, 

“Drug Shortages,” 248.

49Kweder and Dill, “Drug Shortages,” 247.
 

Page 23 GAO-14-194 Drug Shortages

being caused by delays and capacity issues are technically caused by 

supply disruptions related to quality.50 Our analysis of FDA data indicates 

that manufacturing delays or capacity issues accounted for 30 percent of 

the shortages reported between January 1, 2011, and June 30, 2013. 

FDA officials told us that delays or capacity issues that triggered 

shortages typically involved temporary shutdowns or slowdowns 

undertaken to perform maintenance or, in many recent cases, for 

remediation efforts, which then caused supply disruptions.51

Although quality problems were a frequently cited issue, there was not 

complete agreement as to whether quality problems were truly the trigger 

for the supply disruptions that cause shortages. Specifically, one study 

concluded that FDA has applied CGMPs more rigorously in its 

inspections of manufacturing establishments, resulting in a greater 

number of quality problems being identified and thus leading to 

manufacturing supply disruptions that then triggered shortages.52

 

50J. Woodcock and M. Wosinska, “Economic and Technological Drivers of Generic Sterile 

Injectable Drug Shortages,” Clinical Pharmacology & Therapeutics, vol. 93, no.2 (2013), 

171.

Another 

study suggested that an increase in FDA inspections of injectable drug 

manufacturing establishments without evidence of an increase in quality 

problems has contributed to shortages of generic sterile injectable 

51In this way, quality problems can ultimately trigger supply disruptions for drugs for which 

a quality problem has not been identified. For example, if a specific product or production 

line in a manufacturing establishment is found to have a quality problem, a manufacturer 

may shut down the entire establishment or change its manufacturing schedule at that 

establishment while trying to correct the quality problem. This shutdown or change may 

affect the manufacturing of other drugs produced at the establishment and lead to 

shortages of those drugs, even if no quality problems have been identified with those 

other drugs. FDA would classify the cause of the shortage of the original drug as a quality 

problem, but it would classify the cause of any shortages of the other affected drugs as a 

manufacturing delay and capacity issue.

52U.S. House of Representatives, Committee on Oversight and Government Reform, Staff 

Report, “FDA’s Contribution to the Drug Shortage Crisis,” (Washington, D.C.: June 2012), 

16-18. As evidence of increased rigor in FDA inspections, this study cites, in part, an 

overall increase in the number of warning letters issued. FDA officials told us that the 

increase in the number of warning letters issued by the agency between 2010 and 2011 

that was cited in the study was primarily due to the activities of the agency’s Center for 

Tobacco Products. FDA officials also stated that during this time the level of warning 

letters issued to firms for manufacturing quality deficiencies decreased.
 

Page 24 GAO-14-194 Drug Shortages

drugs.53 In addition, one manufacturer representative noted that FDA 

investigators throughout the country may differ in their interpretations of 

CGMPs, which the representative said creates uncertainty about whether 

a manufacturer’s current processes will be found to be in compliance 

during an FDA inspection. Therefore, from this manufacturer’s 

perspective, FDA’s compliance actions have been the primary cause of 

shortages with quality problems being a secondary cause. A second 

manufacturer representative said that though quality problems have 

contributed to recent shortages, from the manufacturer’s perspective, 

quality standards have also been raised. However, one study countered 

the claim that FDA’s enforcement has changed by stating that 

manufacturers often identify quality problems and it is their discoveries 

that trigger FDA inspections in the first place, rather than an increase in 

agency scrutiny. This study also noted that CGMPs, which provide a 

framework for a manufacturer to produce safe, pure, and high-quality 

drugs, have not changed in recent years.54 One manufacturer 

representative concurred that the CGMPs themselves had not changed. 

However, this representative noted that as manufacturing technology 

advances, the expectations of FDA investigators as to what represents 

quality manufacturing may advance as well. For example, as new 

manufacturing equipment becomes available, FDA investigators may 

expect manufacturers to install the new equipment, even if using older 

equipment will result in drugs of the same quality.55

Although not as prominently cited in the literature or the FDA data as 

quality problems, we identified a number of additional factors that can 

cause supply disruptions and ultimately result in shortages.

 

53John R. Graham, The Shortage of Generic Sterile Injectable Drug: Diagnosis and 

Solutions (Midland, Mich.: Mackinac Center for Public Policy, June 2012), 5. FDA officials 

told us that inspections of sterile injectable manufacturing establishments have long been 

a high priority and such sites receive regular inspections.

54Kweder and Dill, “Drug Shortages,” 248.

55According to FDA officials, the agency does not require manufacturers to adopt state of 

the art technology or use the most modern manufacturing equipment in drug production or 

testing to meet its standards of quality. FDA officials also said requirements and 

inspections do not, as a rule, specify or limit the type of equipment or technology used in 

drug manufacturing, although FDA encourages the voluntary adoption of new technology 

that leads to improved drug quality.

Other Immediate Causes of 

Shortages
 

Page 25 GAO-14-194 Drug Shortages

Permanent product discontinuations: Permanent product 

discontinuations were another immediate cause of shortages. Our 

analysis of FDA data shows that 12 percent of the shortages reported 

between January 1, 2011, and June 30, 2013, resulted from product 

discontinuations. According to several studies, the generic drug market is 

extremely concentrated, with few manufacturers producing each drug. For 

example, one study found that most generic sterile injectable drugs are 

made by three or fewer manufacturers.56 As a result, the discontinuation 

of a drug by a single manufacturer can have a significant impact on drug 

availability. Two studies noted that older generic drugs may be 

discontinued in favor of producing newer drugs that are more profitable or 

that have more demand.57

Unavailability of raw materials or components: The unavailability of 

raw materials, such as an active pharmaceutical ingredient (API), and 

non-API components, such as vials, also contributes to shortages.

Three manufacturer representatives said that 

they take a number of factors into account when determining whether to 

discontinue manufacturing a drug. The first manufacturer representative 

said that in addition to price, they will also account for factors such as the 

medical necessity and importance of the drug when making decisions 

about what drugs to manufacture. The second manufacturer 

representative said that they do not discontinue products if they know that 

doing so would cause a shortage or exacerbate an existing one, although 

the same representative also said that products with low sales or 

profitability may be de-emphasized in favor of producing drugs with 

greater demand. The third manufacturer representative also noted that it 

is likely that a lower-margin product would be discontinued rather than a 

higher-margin product. Two manufacturer representatives said that if a 

drug is already in shortage, they will try to continue to manufacture it, 

even at low or negative profit margins, to ensure that the drug remains in 

the market.

58

 

56Department of Health and Human Services, Economic Analysis, 6.

The 

57V. Jensen, R. Kimzey, and J. Saliba, “An Overview of the FDA’s Drug Shortage 

Program,” Pharmacy and Therapeutics, vol. 30, no. 3 (2005); and V. Jensen and B. A. 

Rappaport, “The Reality of Drug Shortages—The Case of the Injectable Agent Propofol,” 

The New England Journal of Medicine, vol. 363, no. 9 (2010).

58An API is any element that is intended to provide pharmacological activity or other direct 

effect in the diagnosis, cure, mitigation, treatment, or prevention of disease. Non-API 

components include inactive ingredients, such as dyes or water for injection, and items 

such as vials and stoppers. See 21 C.F.R. § 210.3(b)(3), (7) (2013). 
 

Page 26 GAO-14-194 Drug Shortages

majority of the studies we reviewed cited the unavailability of raw 

materials or non-API components as a cause of shortages and two 

reported that there is often only one API source for a given drug.59 This 

dependency on a sole API source can lead to shortages if availability 

becomes a problem, regardless of the number of manufacturers of a 

particular product.60

Loss of a manufacturing site or site change: Our analysis of FDA data 

shows that 3 percent of the shortages reported between January 1, 2011, 

and June 30, 2013, were due to either the loss of a manufacturing site or 

site change. One manufacturer representative said that while 

manufacturers have experienced disruptions due to natural disasters, this 

has been rare. In the literature, half of the studies (10 of 20) mentioned 

natural disasters, such as floods or hurricanes, as a cause of shortages. 

Loss of, or damage to, a manufacturing site was typically given as an 

example of the supply disruption resulting from the disaster. 

Most of the manufacturers’ representatives agreed 

that the unavailability of API has caused some shortages, although some 

representatives said that it was a relatively small percentage of them. For 

example, a representative from one manufacturer said that the 2011 

tsunami in Japan disrupted the API supply for one of its products and led 

to a shortage. Although the manufacturer ultimately identified another 

source for the needed material, FDA had to approve the manufacturer’s 

new source, which was time-consuming. In addition, two manufacturer 

representatives mentioned that issues with non-API components had 

contributed to shortages. Our analysis of FDA data shows that 9 percent 

of the shortages reported between January 1, 2011, and June 30, 2013, 

resulted from the unavailability of APIs or non-API components.

Increased demand: In addition to events that result in changes in supply, 

we found that shortages can also be triggered by changes in demand. 

Our analysis of FDA data shows that 6 percent of the shortages reported 

between January 1, 2011, and June 30, 2013, were due to increased 

demand. An increase in demand, which may occur for a variety of 

reasons, such as the approval of an already marketed drug for a new 

indication or new therapeutic guidelines, can trigger a shortage. A 

 

59B.K. Gehrett, “A Prescription for Drug Shortages,” JAMA: The Journal of the American 

Medical Association, vol. 307, no. 2 (2012); and Jensen, Kimzey, and Saliba, “An 

Overview,” 175.

60Jensen, Kimzey, and Saliba, “An Overview,” 175.
 

Page 27 GAO-14-194 Drug Shortages

shortage results because manufacturers cannot keep up with the 

increase in demand that exceeds their expectations or planned 

production. Increased demand was cited as a cause of shortages in 9 of 

the 20 studies we reviewed.

Figure 6 summarizes information reported by manufacturers to FDA 

about the causes of drug shortages that the agency then analyzes and 

categorizes.

Figure 6: Reported Causes of Drug Shortages from January 2011 through June 

2013

Notes: This figure summarizes our analysis of information reported by manufacturers to FDA about 

the causes of drug shortages that the agency then analyzes and categorizes.

a

FDA defines increased demand as an increase in the request for a product relative to its traditional 

usage. For example, if FDA approves the drug for a new indication, demand may increase.

b

An API is any element that is intended to provide pharmacological activity or other direct effect in the 

diagnosis, cure, mitigation, treatment, or prevention of disease. Non-API components include inactive 

ingredients such as dyes or water for injection, and items such as vials and stoppers. See 21 C.F.R. 

§ 210.3(b)(3), (7) (2013).

c

Manufacturing delays and capacity issues normally involve shutdowns or slowdowns of facilities or 

production lines in order to perform maintenance or for remediation efforts. For example, a shutdown 

of a production line to address a quality problem with one drug may delay manufacturing of all other 

drugs on that line, even if no quality problems have been identified with those other drugs.

d

“Quality problems” includes the identification of such issues as bacterial contamination or particulate 

matter (i.e., metal or glass particles in vials).
 

Page 28 GAO-14-194 Drug Shortages

The inability of other manufacturers to make up for supply disruptions 

experienced by their competitors due to constrained manufacturing 

capacity was another immediate cause of shortages. Several of the 

studies we reviewed generally concluded that the heavy concentration of 

the generic drug industry leaves few manufacturers available to respond 

to supply disruptions, leading to market-wide shortages.61 One study 

found that seven manufacturers dominate the generic sterile injectable 

market overall and also found that this market is even further 

concentrated for specific therapeutic classes.62 Specifically, this analysis 

indicated that in 2008, three manufacturers produced 71 percent of all 

generic sterile injectable oncology drugs and that three manufacturers 

held 91 percent of the market share of generic sterile injectable nutrients 

and supplements. Illustrating the interplay between supply disruptions 

and constrained manufacturing capacity, one 2010 study reported that a 

shortage of the generic sterile injectable anesthesia drug propofol 

resulted after one of the three manufacturers of the drug permanently 

discontinued its manufacturing and another experienced quality problems 

leading to a temporary halt in production, leaving the remaining 

manufacturer unable to meet the demand of the entire market.63

In addition to consisting of few manufacturers overall, we also found that 

the manufacturing capacity of the generic drug industry has been further 

challenged in recent years as the industry has expanded the number of 

generic products it manufactures. This expansion has resulted as a large 

number of brand-name drugs have lost patent protection, clearing the 

way for generic manufacturers to produce generic equivalents of these 

drugs. Two of the studies we examined cited the decisions of 

manufacturers to begin producing the generic equivalents of brand-name 

drugs as contributing to shortages by stretching already limited capacity. 

For example, one study found that the generic sterile injectable market 

had expanded by 52 percent between 2006 and 2010 without a 

commensurate increase in manufacturing capacity, leading to high 

 

61We also reported on this challenge in 2011, as both officials from FDA and 

manufacturers told us that when only a few manufacturers make a drug and one 

manufacturer’s drug is in short supply, it can be difficult for the others to substantially 

increase production of a drug to ensure that demand for a drug is met. See GAO-12-116, 

26.

62Woodcock and Wosinska, “Economic and Technological Drivers,”174.

63Jensen and Rappaport, “Reality of Drug Shortages,” 806.

Constrained 

Manufacturing Capacity 

Often Viewed as Limiting 

Manufacturers’ Ability to 

Respond to Supply 

Disruptions
 

Page 29 GAO-14-194 Drug Shortages

utilization of available manufacturing capacity.64

In addition to the challenge presented by having few manufacturers and 

the increase in the number of generic drugs, pressures to produce this 

large number of drugs on only a few manufacturing lines leaves the 

manufacturers that do participate in the generic sterile injectable market 

with little flexibility.

Representatives from two 

manufacturers said that faced with limited capacity, when new generics 

are available for production a manufacturer may make the decision to 

stop producing some drugs to make room for the new products. As a 

result, such discontinuations could lead to shortages, but representatives 

from both manufacturers characterized this as a small factor in causing 

shortages.

65 Since multiple drugs are often manufactured on the 

same line, increasing production of one drug reduces the supply of other 

drugs and can lead to shortages.66 For example, one manufacturer 

representative said that there are usually anywhere from 30 to 50 

different drugs manufactured on a given line. Further, according to one 

study, manufacturers of generic sterile injectable drugs do not typically 

have redundant manufacturing facilities.67

A related constraint cited in the literature is that some generic sterile 

injectable drugs need to be manufactured on lines or in facilities

dedicated solely to those drugs. One study noted that certain sterile 

injectable products, such as anti-infective and oncology drugs, require 

lines, and sometimes whole facilities, which are limited to the production 

Specifically, in a review of 

almost 900 generic sterile injectable applications that were submitted to 

the FDA and approved between 2000 and 2011, the authors found that 

only 11 applications (about 1 percent) referenced a backup facility. This 

becomes problematic when production in a given facility must stop for any 

reason as manufacturers cannot immediately move production of a drug 

to another facility. To do so, they must first obtain approval from FDA, 

which can further delay production. 

 

64Department of Health and Human Services, Economic Analysis, 9.

65Department of Health and Human Services, Economic Analysis, 6; and Jensen and 

Rappaport, “Reality of Drug Shortages,” 806.

66C. L.Ventola, “The Drug Shortage Crisis in the United States: Causes, Impact, and 

Management Strategies,” Pharmacy and Therapeutics, vol. 36, no.11 (2011).

67Woodcock and Wosinska, “Economic and Technological Drivers,”174.
 

Page 30 GAO-14-194 Drug Shortages

of such drugs.

68 For example, some anti-infective drugs, such as 

penicillin, are highly sensitizing and can trigger serious allergic reactions 

at very low levels and as a result, may be limited to specific 

manufacturing lines. Further, another study noted that a supply disruption 

on a dedicated line can result in shortages of multiple products of a 

similar type, such as oncology drugs, because other manufacturers are 

not able to step in due to limited capacity on their own lines.69

A final capacity-related constraint cited in the literature (9 of 20 studies), 

was how the widespread use of “just-in-time” inventory practices can 

increase the vulnerability of the supply chain to shortages.

For 

example, shortages of oncology drugs in 2011 were linked to just three 

dedicated oncology lines that were operated by two manufacturers.

70 One of these 

studies said that most manufacturers only produce enough of a drug to 

satisfy current demand, so there is little, if any excess inventory, while 

another study asserts that when a manufacturer has to stop production, a 

supply disruption can result because of “just-in-time” inventory.71

The majority of manufacturer representatives we interviewed generally 

concurred with our finding from the literature that a supply disruption, for 

whatever reason, affecting one manufacturer can quickly lead to marketwide shortages because other manufacturers often cannot increase 

production enough to meet demand. For example, one manufacturer 

representative said that it had recently encountered capacity constraints 

One 

manufacturer representative said that any manufacturer typically has only 

a limited amount of inventory available. This representative said that 

manufacturers typically have about 2 to 3 months of inventory on hand, 

wholesale distributors usually have about 1 month, and providers only 

have a few weeks of inventory. Consequently, if an issue arises, a 

shortage can quickly result.

 

68Woodcock and Wosinska, “Economic and Technological Drivers,” 174.

69Department of Health and Human Services, Food and Drug Administration, A Review of 

FDA’s Approach to Medical Product Shortages. (Silver Spring, Md: October 2011).

70For example, see American Society of Health-System Pharmacists, “ASHP Guidelines 

on Managing Drug Product Shortages in Hospitals and Health Systems,” American 

Journal of Health-System Pharmacy, vol. 66, no.15 (2009); and Ventola, “Drug Shortage 

Crisis in the United States,” 749.

71Jensen and Rappaport, “Reality of Drug Shortages,” 806, and Gehrett, “Prescription for 

Drug Shortages,” 154.
 

Page 31 GAO-14-194 Drug Shortages

when two other manufacturers experienced supply disruptions and one 

manufacturer exited the market. The representative from the 

manufacturer that remained said that the company did not have the 

capacity to ramp up production to meet the demand for all of the drugs at 

risk of shortage and thus had to prioritize which drugs to produce, based 

on market need and the severity of the shortages. Further complicating a 

situation like this, representatives of two manufacturers said that even if 

the remaining companies are able to increase their production of a drug 

whose supply has been disrupted, it can take time—as much as 

3 months—to increase production, particularly for sterile injectables due 

to the complexity of manufacturing these products.

We identified multiple potential underlying causes of drug shortages in the 

literature. Half of the studies (10 of 20) we reviewed suggested that the 

immediate causes of drug shortages, such as quality problems, are driven 

by an underlying cause that stems from the economics of the generic 

sterile injectable drug market. The studies that cited underlying causes 

did not all focus on the same underlying cause and manufacturer 

representatives had mixed views on the potential underlying causes we 

identified in the literature.72

One underlying factor we identified in the literature is that when choosing 

between different manufacturers of the same drug, purchasers may focus 

primarily on price. Six of the 20 studies mentioned either low prices or low 

profit margins as features of the generic drug market that may make it 

vulnerable to shortages. Two of the studies suggested that low profit 

margins in the generic market may affect manufacturers’ decisions to 

invest in their facilities.73

 

72Most manufacturer representatives (5 of 8) did not provide comments on all underlying 

causes discussed, but all provided comments on at least one.

Another of the six studies said that purchasers 

expect all generic drugs to be of equivalent quality and may be unable to 

73Gehrett, “Prescription for Drug Shortages,” 154; and S. O. Schweitzer, “How the U.S. 

Food and Drug Administration Can Solve the Prescription Drug Shortage Problem,” 

American Journal of Public Health, vol. 103, no. 5 (2013): e10-e14. 

Drug Shortages May Stem 

From Underlying Causes

Competition Focused Primarily

on Price
 

Page 32 GAO-14-194 Drug Shortages

discern differences in the quality of drugs, particularly sterile injectables.74

As a consequence, purchasers of sterile injectables focus on price when 

choosing among seemingly identical generic manufacturers at the 

expense of any potential differences in quality and the ability to reliably 

meet customer demand. According to this study, a manufacturer that 

strives to exceed minimum manufacturing standards is not rewarded with 

a willingness among buyers to pay more for the manufacturer’s products. 

Therefore, using economic theory as a rationale, the authors suggested 

that this reduces the incentive for the manufacturer to sufficiently invest in 

maintenance or quality improvements at its manufacturing 

establishments. The study suggests that the lack of reward for quality is 

an underlying cause that may have led to manufacturers’ minimizing

investment in establishments, which has ultimately resulted in many of 

the recent quality problems at generic sterile injectable manufacturing 

establishments.75

Five of the six drug manufacturer representatives that responded to this 

claim reported that manufacturers continue to invest in upgrading existing 

establishments and building new ones.76 One manufacturer 

representative stated that some generic products in manufacturers’ 

portfolios are highly profitable and prompt investments in manufacturing 

facilities. Another manufacturer representative said that they continue to 

invest in making improvements to their sterile injectable facilities. For 

example, they said that they have invested in spare capacity on some of 

their lines, and as a result, are now better equipped to ramp up 

production in response to a shortage.

 

74Woodcock and Wosinska, “Economic and Technological Drivers,” 170. The authors 

point out that purchasers may be unable to discern differences in the quality of sterile 

injectables because the patients that receive them often have compromised immune 

systems and other health complications. Consequently, any adverse health outcomes, 

such as infection following the treatment, are likely attributed to patients’ health status 

rather than possible quality problems associated with the drugs.

75According to this study, the quality of brand-name products may be equally difficult to 

observe. However, the authors argue, brand-name manufacturers’ incentive to minimize 

investments in quality is counteracted by the incentive to avoid losing revenue on highmargin products due to an interruption in production. See Woodcock and Wosinska, 

“Economic and Technological Drivers,” 175.

76Not all of the manufacturer representatives we interviewed provided comments on this 

claim. Specifically, two of the eight manufacturers did not provide comments.
 

Page 33 GAO-14-194 Drug Shortages

Group purchasing organizations (GPO), which negotiate purchasing 

contracts with drug manufacturers on behalf of hospitals and other health 

care providers, have been cited in the literature as potentially having an 

underlying role in causing drug shortages.77 Four of the 20 studies 

suggested that the operating structure of GPOs results in fewer 

manufacturers producing generic drugs and this, in turn, contributes to a 

more fragile supply chain for these drugs.78 For example, one of the four 

studies asserted that GPOs reduce profits in the generic drug market, 

where margins are already low.79 This study states that because of these 

low manufacturer profit margins, when production problems arise, 

manufacturers may stop producing certain products in lieu of making 

investments in improvements at their establishments.80 Another of the 

four studies theorized that when generic drug manufacturers fail to win 

GPO contracts, manufacturers will either exit or decide not to enter the 

market for those drugs, contributing to the immediate cause of 

constrained manufacturing capacity.81

All of the representatives of the three GPOs that we contacted disagreed 

with the claim that GPOs are a cause of shortages. They emphasized that 

they have an incentive to avoid drug shortages and ensure that the drug 

manufacturers with which GPOs contact can meet GPOs’ members’ 

needs. Further, they said that while price is an important consideration in 

 

77Through GPO-negotiated contracts, hospitals and other health care providers can 

purchase a variety of medical products, including drugs. According to a GPO association, 

pooling the purchasing power of multiple providers allows GPOs to negotiate lower prices 

on products from vendors. Sterile injectable drugs—where shortages have recently been 

concentrated—are primarily purchased by hospitals and physicians’ offices rather than 

directly by consumers. In addition, most of these drugs are purchased through GPOnegotiated contracts. See Department of Health and Human Services, Economic Analysis, 

5.

78See Kweder and Dill, “Drug Shortages,” 249; Schweitzer, “How the U.S. Food and Drug 

Administration,” American Journal of Public Health, e11; Department of Health and 

Human Services, Food and Drug Administration, “Review of FDA’s Approach,” 26,30; and 

U.S. House of Representatives, “FDA’s Contribution,” 9-10.

79Kweder and Dill, “Drug Shortages,” 249.

80In addition to the four articles in our literature review that cited a role for GPOs in 

causing shortages by contributing to low manufacturer profit margins through downward 

price pressure, other commentators have suggested that administrative and other fees 

that manufacturers typically pay GPOs have contributed to shortages by further reducing 

the profit margins associated with these drugs.

81U.S. House of Representatives, “FDA’s Contribution,” 10, 20.

Role of Group Purchasing 

Organizations
 

Page 34 GAO-14-194 Drug Shortages

determining the manufacturers with whom they contract, the ability of 

manufacturers to ensure an adequate supply of products is critical. 

According to one GPO representative, generic drug manufacturers are 

generally profitable, which the GPO representative said demonstrates 

that manufacturers are not being driven out of the market. All of the GPO 

representatives also noted that in recent years GPOs have instituted 

strategies to avoid shortages. For example, one GPO representative told 

us that it typically tries to contract with two or more manufacturers for 

drugs that have a recent history of being in shortage.

Of the five manufacturer representatives who commented on the claim, 

three stated that GPOs may contribute to shortages by exerting 

downward price pressure.82

A change in Medicare Part B drug reimbursement policy was also cited in 

the literature (5 of 20 studies) as an underlying cause of drug shortages. 

In 2005, a change was implemented in how providers are reimbursed for 

However, one manufacturer representative 

disagreed that GPOs were a cause and a second manufacturer 

representative said that GPOs had no more of a role in causing shortages

than any other supply chain participant. While the second representative 

said that GPOs contribute to the pressure to lower prices, the 

representative also noted that every participant in the supply chain 

contributes to the price competition. A third manufacturer representative 

noted that, because manufacturers have already made investments in 

production that they are unwilling to abandon, failing to obtain a GPO 

contract does not cause them to exit the market for a given drug. Further, 

representatives from the second and third manufacturers also told us that, 

in the event that a major manufacturer does not obtain a GPO contract, 

the manufacturer may send its sales force to hospitals directly and offer a 

price that is lower than the GPO contract price. Hospitals may either 

accept this lower priced offer or seek additional price concessions from 

the contracted manufacturer through the GPO.

 

82Not all of the manufacturer representatives we interviewed provided comments on this 

claim. Specifically, three of the eight manufacturers did not provide comments about 

GPOs and drug shortages.

Change in Medicare Part B 

Reimbursement Policy
 

Page 35 GAO-14-194 Drug Shortages

most Medicare Part B drugs administered in an outpatient setting.83 Three 

studies we reviewed suggested that this change resulted in a sharp 

decrease in reimbursement to providers.84

 

83Medicare Part B covers a limited number of prescription drugs, generally covering drugs 

and biologicals administered under a physician’s direct supervision, including many 

injectable drugs administered in physician offices and in hospital outpatient departments. 

Part B also covers certain drugs administered through durable medical equipment, certain 

vaccines, osteoporosis drugs, erythropoiesis-stimulating agents, certain oral anti-cancer 

drugs, and immunosuppressive drugs for transplant patients. The Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 modified the reimbursement 

methodology for Part B drugs. Pub. L. No. 108-173, § 303(c), 117 Stat. 2066, 2239 

(2003). Beginning January 1, 2005, the Medicare reimbursement methodology for most 

Part B drugs that are not administered on a cost or prospective basis was changed to 

106 percent of the drug’s volume-weighted average sales price. Average sales price is the 

weighted average of all non-federal U.S. sales by manufacturers net of chargebacks, 

discounts, rebates, and other price concessions made by the manufacturer and tied to the 

purchase of the drug product, whether it is paid to the wholesale distributor or the entity 

that purchases the drug. Prior to the change, Medicare reimbursed for 95 percent of the 

average wholesale price, which studies indicate for many drugs was significantly higher 

than the prices actually paid by physicians and suppliers who purchase the drugs. Certain 

Part B drugs continue to be paid at 95 percent of the average wholesale price. These 

include blood products, and certain vaccines. Infusion drugs used in conjunction with 

durable medical equipment are also paid at 95 percent of the average wholesale price in 

effect on October 1, 2003.

One of the studies, which 

focused on oncology drugs, suggested that this decrease in 

reimbursement caused providers to switch to higher-cost drugs for which 

they would receive increased reimbursement, reducing demand for 

84A. Yurukoglu, “Medicare Reimbursements and Shortages of Sterile Injectable 

Pharmaceuticals,” National Bureau of Economic Research Working Paper No.17987 

(2012); M. L. Gatesman and T.J. Smith, “The Shortage of Essential Chemotherapy Drugs

in the United States,” The New England Journal of Medicine, vol. 365, no. 18 (2011); and 

U.S. House of Representatives, “FDA’s Contribution,” 4.
 

Page 36 GAO-14-194 Drug Shortages

generics.85 The other two studies suggested that this decrease in 

reimbursement to providers also resulted in lower prices for 

manufacturers.86 Two of the three studies suggested that manufacturers 

responded by exiting the market for these products entirely, while the 

third suggested that manufacturers reduced their investments in 

manufacturing facilities, both of which left the generic sterile injectable 

market vulnerable to shortages.87

Four of the five manufacturer representatives who responded to this claim 

did not view the change in Part B reimbursement policy as a main cause 

of shortages, though they said it could have complicated the generic 

 

85Because Part B drug reimbursement equals the average sales price plus a fixed 

percentage (6 percent for most drugs), some suggest that providers have an incentive to 

prescribe relatively higher-cost drugs, when they are available, as higher-cost drugs 

provide a larger markup. For example, if the average sales price for a given drug is $150, 

the Part B reimbursement would provide an additional $9 on top of the $150. If an 

alternative drug is available with the average sales price of $3,000, the Part B 

reimbursement would provide an additional $180 on top of the $3000. (A given provider’s 

actual purchase price may be more or less than the average sales price on which the 

Centers for Medicare & Medicaid Services bases the reimbursement.) While not a study 

about drug shortages, another study found that as a result of the Medicare Part B 

reimbursement change, physicians who were providing chemotherapy treatment to 

Medicare beneficiaries newly diagnosed with lung cancer switched to higher cost drugs 

and away from drugs that experienced large drops in payment rates after the 

reimbursement change. See M. Jacobsen, C.C. Earle, M. Price, and J.P. Newhouse, 

“How Medicare’s Payment Cuts For Cancer Chemotherapy Drugs Changed Patterns of 

Treatment,” Health Affairs, vol. 29, no. 7 (2010).

86Another study we reviewed analyzed prices and volume in the sterile injectable oncology 

market from 2006 through 2011. This study found that, on average, drugs that 

subsequently experienced a shortage were those in which the volume of sales and prices 

were both declining in the period prior to the recent increase in shortages. However, this 

study did not directly attribute the declines in sales volume and prices to the 

reimbursement change. See Department of Health and Human Services, Economic 

Analysis, 7-8.

87Another analysis reported that the trend in shortages has been similar both for drugs 

affected by the reimbursement change and for drugs that should not have been affected. 

See M. Jacobsen, A. Alpert, and F. Duarte, “Prescription Drug Shortages: Reconsidering 

the Role of Medicare Payment Policies,” in Health Affairs Blog, (May 29, 2012), accessed 

November 26, 2013, http://healthaffairs.org/blog/2012/05/29/prescription-drug-shortagesreconsidering-the-role-of-medicare-payment-policies/.
 

Page 37 GAO-14-194 Drug Shortages

market.88 For example, one manufacturer representative contended that it 

had a negligible impact at most as the reimbursement is paid to 

physicians, not manufacturers. The payments that manufacturers collect 

are several steps removed from the physician’s reimbursement. In 

addition, the representative stated that even if some providers switch to 

more expensive alternative drugs in response to the reimbursement 

change, the impact would be minimal as the vast majority of generic 

sterile injectables are administered in hospital inpatient departments, 

which means that they are not reimbursed through Medicare Part B.89

 

88Representatives of one of the five manufacturers that responded agreed with the claim 

that the Part B reimbursement change was a cause of shortages. However, they did not 

provide any additional rationale to explain their statement. In total, we asked eight 

manufacturer representatives about this claim. However, three of them did not offer their 

view as to whether or not the change in Part B reimbursement was a cause of shortages.

Finally, though drugs in at least one of the therapeutic classes that have 

most frequently been in shortage in recent years may be reimbursed 

through Part B based on the Average Sales Price methodology, the 

89This point was also noted in one of the studies that cited the reimbursement change as 

a cause, stating that although the reimbursement change increased concentration in the 

generic injectable market and reduced manufacturer incentives to invest in their facilities, 

most injectables that have been in shortage are typically administered in hospitals, and 

thus, would not be impacted a great deal by the change in Part B reimbursement. See 

U.S. House of Representatives, “FDA’s Contribution,” 14.
 

Page 38 GAO-14-194 Drug Shortages

extent to which all of the therapeutic classes driving recent shortages are 

reimbursed in this manner is unclear.90

Figure 7 summarizes the key immediate and potential underlying causes 

of drug shortages that we found in our review of the literature.

 

90In order to set the reimbursement rate for Medicare Part B drugs, the Centers for 

Medicare & Medicaid Services collects average sales price data from manufacturers. 

Manufacturers submit sales data at the national drug code (NDC) level, which uniquely 

identifies a specific drug product for a given manufacturer. (One drug can have multiple 

NDCs associated with it. For example, a drug made by one manufacturer, in one strength, 

but in three package sizes, would have a different NDC for each of the three package 

sizes.) CMS sets reimbursement rates at the Healthcare Common Procedure Coding 

System (HCPCS) level, with multiple NDCs associated with a given HCPCS code. In 

reporting Medicare Part B reimbursement rates, the Centers for Medicare & Medicaid 

Services provides an NDC/HCPCS crosswalk. We reviewed whether NDCs for 12 drugs in 

the therapeutic classes of oncology, nutritive, and anesthesia and central nervous system, 

all of which were among the classes most frequently in shortage in recent years, were 

contained in the most recent NDC/HCPCS crosswalk, which at the time of our analysis 

was the October 2013 crosswalk. Specifically, we asked representatives of relevant health 

care professional associations for suggestions of the most significant recent shortages in 

each of these therapeutic classes and randomly selected four drugs in each therapeutic 

class from these suggestions. We then compared the NDCs associated with these 

shortages to the most recent NDC/HCPCS crosswalk posted on the Centers for Medicare 

& Medicaid Services’ website. We found that the NDC/HCPCS crosswalk included: all 

NDCs for three of four oncology drugs (cytarabine, doxorubicin, and methotrexate) and 

nearly all NDCs for the fourth (paclitaxel); all NDCs for one of four nutritive drugs (calcium 

gluconate); and half of the NDCs for one of four anesthesia and central nervous system 

drugs (epinephrine). (For the oncology drug that had nearly all NDCs in the crosswalk, 3 

of 22 NDCs were not found in the crosswalk. All of the missing NDCs were associated 

with the same manufacturer. For the anesthesia and central nervous system drug that had 

some NDCs in the crosswalk, 6 of 12 NDCs were not in the crosswalk.) However, the 

crosswalk did not include these data for three of the four nutritive drugs (calcium chloride, 

intravenous fat emulsion, and sodium phosphate) or three of the four anesthesia and 

central nervous system drugs (neostigmine, propofol, and succinylcholine). This suggests 

that nutritive drugs and anesthesia and central nervous system drugs may not all be 

reimbursed using the average sales price plus 6 percent methodology.
 

Page 39 GAO-14-194 Drug Shortages

Figure 7: Key Immediate and Potential Underlying Causes of Drug Shortages Discussed in Literature

Through a variety of efforts, FDA has prevented more potential shortages 

and improved its ability to respond to shortages since we issued our 

report in 2011. Among other things, FDA is working to improve its 

response to drug shortages by implementing FDASIA’s requirements and 

the recommendations we made in 2011. However, FDA lacks policies and 

procedures for managing and using information from its drug shortage 

database.

FDA Is Improving Its 

Response to Drug 

Shortages, but 

Challenges Remain
 

Page 40 GAO-14-194 Drug Shortages

FDA has taken steps that have prevented more potential shortages and 

improved its ability to resolve existing drug shortages since 2011, 

including expediting review of ANDAs and supplements, working with 

manufacturers to increase production, and using its regulatory discretion 

to allow certain products to remain on the market or bring new products to 

market.91 Based on our analysis of FDA data from January 2011 through 

June 2013, FDA was able to prevent 89 potential shortages in 2011, 154 

potential shortages in 2012, and 50 potential shortages through June 

2013.92 This is more than the 35 potential shortages we found that FDA 

prevented in 2010 and the 50 prevented through June 2011. FDA officials 

told us that although they relied on many of the same steps to prevent 

and resolve shortages prior to the enactment of FDASIA, FDASIA’s 

requirement that manufacturers notify FDA in advance of a potential 

shortage allowed FDA to employ those steps sooner.93

 

91For information on incentives that have been proposed to prevent shortages, see 

app. IV.

FDA officials said 

the notification requirement has helped the agency become more 

92As we did in analyzing data for our 2011 report, we grouped together shortages of 

multiple versions of the same drug to identify the total number of potential shortages 

prevented. While FDA had reported preventing 195 potential shortages in 2011, 282 

potential shortages in 2012, and 80 potential shortages through June 2013, we found that 

these data represented the number of individual drug products for which a shortage had 

been averted. FDA officials said they count different package sizes and concentrations of 

a given drug as separate prevented potential shortages because additional effort may be 

required by FDA to prevent the potential shortage of individual versions of the drug. For 

example, FDA would count the prevention of a potential shortage of a 250 ml package 

size and the 500 ml package size of the same drug as two potential shortages prevented. 

FDA officials said they count a potential shortage as prevented if they are made aware of 

a pending shortage and take one or more actions that prevent the potential shortage from 

occurring at that time. Officials noted that while a pending shortage may be prevented at 

one time, the drug could still go into shortage later. Thus, in a given year, a drug could be 

counted both as a potential shortage prevented and as an actual shortage. FDA officials 

also said there could be a second pending shortage of a drug in a given year. If FDA takes 

another action that prevented the shortage, it would count as two potential shortages 

prevented of the same drug for the year. For our analysis, this would count as one 

potential shortage prevented.

93Consistent with the matter for Congressional consideration contained in our 2011 report, 

FDASIA required manufacturers to notify FDA at least 6 months prior to the date of a 

discontinuance or interruption (or as soon as possible if 6 months notice is not feasible) in 

the manufacture of a drug that is life supporting, life sustaining, or used to treat debilitating 

health issues. FDASIA required FDA to issue a final rule implementing this requirement by 

January 9, 2014. § 1001(a), 126 Stat. at 1099 (to be codified at 21 U.S.C. § 356c). FDA 

issued a proposed rule on November 4, 2013, with a 60-day comment period. 78 Fed. 

Reg. 65904 (Nov. 4, 2013) (to be codified at 21 C.F.R. pts. 20, 310, 314, and 600).

FDA Has Prevented More 

Potential Shortages and 

Has Improved Its Ability to 

Respond to Shortages 

That Do Occur
 

Page 41 GAO-14-194 Drug Shortages

proactive and successful in its efforts. FDA officials noted there has been 

a sizeable increase in notifications with a six-fold increase after issuance 

of the drug shortages Executive Order in October 2011, a subsequent 

doubling of that rate after the enactment of FDASIA in July 2012, and a 

return to the Post-Executive Order notification rate in 2013.

FDA has expedited a number of agency actions to prevent or resolve 

shortages, in accordance with relevant FDASIA provisions. For example, 

FDA may expedite the review of ANDAs, or supplements to NDAs and 

ANDAs, to help bring an alternative drug to market or authorize an 

additional API supplier or manufacturing site.94

In addition, FDA routinely contacts manufacturers regarding their ability to 

increase production in response to a potential or actual drug shortage. 

Although a number of manufacturer representatives said that ramping up 

production takes time and may not always be possible, given production 

capacity constraints, FDA has reported some successes. For example, 

when FDA determined that an impending product discontinuation might 

result in a shortage of a drug that treats shingles and chickenpox, it 

encouraged another manufacturer to increase production, thus avoiding a 

shortage. Similarly, when quality problems were identified in a drug used 

to treat eye infections in patients with acquired immune deficiency 

syndrome, FDA reached out to another manufacturer that was able to 

FDA officials said the 

agency has also expedited inspections to facilitate improvements at 

manufacturing establishments. Expediting inspections that are required 

before an ANDA or supplement is approved also facilitates the availability 

of a needed drug. Manufacturer representatives we spoke with noted that 

in some cases expedited reviews or inspections have happened quickly 

and have helped prevent shortages. However, others told us that some 

application reviews or inspections have taken a long time, limiting the 

manufacturers’ ability to help prevent or resolve a shortage. For example, 

one manufacturer representative said waiting for FDA’s approval of ANDA 

supplements related to new raw material suppliers has been a key 

hindrance to the manufacturer’s ability to respond to drug shortages.

 

94According to FDA, between January 1, 2011, and June 30, 2013, the agency expedited 

161 ANDAs, 97 ANDA supplements, and 38 NDA supplements in response to drug 

shortages; the number of expedited reviews may exceed the number of shortages 

reported because multiple applications or supplements may be expedited to alleviate a 

shortage. FDA reported to us that expedited review helped to prevent 211 potential 

shortages and helped to resolve 27 shortages.
 

Page 42 GAO-14-194 Drug Shortages

increase production to avert a potential shortage. Manufacturer 

representatives said manufacturers will generally increase production, if 

possible, when FDA advises them of a shortage. FDA reported to us that, 

from January 1, 2011, to June 30, 2013, its encouragement to 

manufacturers to increase production helped prevent or resolve 41 

shortages.

FDA officials said that in appropriate cases, the agency may attempt to 

use its regulatory discretion to keep products from going into short supply 

or from making an active shortage worse. FDA may use its discretion in 

deciding whether to take a certain action. FDASIA requires FDA to 

consider whether an enforcement action or issuance of a warning letter 

could reasonably cause or exacerbate a shortage of a life-saving drug.

95

 

95FDASIA defines a life-saving drug as one that is life-supporting, life-sustaining, or 

intended for use in the prevention or treatment of a debilitating disease or condition. 

§ 1001(a), 126 Stat. at 1099 (to be codified at 21 U.S.C. § 356c(a)).

If FDA reaches such a determination, the agency must evaluate the risks 

associated with the impact of such a shortage upon patients and the risks 

associated with the violation before taking action, unless there is an 

imminent risk of serious health consequences or death. FDA officials said 

that they had used their regulatory discretion prior to the enactment of 

FDASIA and were continuing to do so, through communication across 

various FDA offices and with manufacturers. Officials noted that they try 

to balance the risk to patients when making their decisions. That is, they 

consider the risk of allowing the continued distribution of the product—

despite the problems related to the possible enforcement action or 

warning letter—against the public health risks of the product not being 

available. FDA officials said they also continue to use their regulatory 

discretion to temporarily allow the importation of “unapproved drugs” into 

the United States to help prevent or resolve shortages of FDA-approved 

drugs that are critical to patients, in rare cases where the shortages 

cannot be resolved by manufacturers willing and able to supply the FDA-
 

Page 43 GAO-14-194 Drug Shortages

approved drugs in the immediate future.

96 We previously reported that 

FDA had allowed for the importation of seven unapproved drugs from 

January 2011 through September 2011. FDA officials told us that, through 

June 30, 2013, they have subsequently allowed for the importation of nine 

additional unapproved drugs.97 For example, when the manufacturer of a 

drug used to treat patients who require total parenteral nutrition lost the 

use of a manufacturing site, FDA allowed importation of a comparable 

version of the drug not approved by FDA to prevent a potential shortage 

from occurring.98

Several stakeholders commented that FDA’s efforts to allow the 

importation of unapproved drugs to address a shortage have improved, 

which has helped to resolve some critical shortages. However, some 

stakeholders noted that certain shortages could not be resolved quickly 

because it took a long time for FDA to respond to providers’ requests to 

allow importation. For example, some stakeholders noted that delays in 

the importation of total parenteral nutrition products created significant 

challenges for treating patients who depend upon them. To help speed up 

the process of temporary importation, FDA officials said that since 

January 2012 they have proactively identified foreign manufacturers that 

have expressed a willingness to import their drugs to help with a 

 

96Federal law directs FDA to review samples of drugs being imported into the United 

States from facilities that are not registered with the agency, and, if it identifies any such 

drugs as unapproved, to refuse entry of the drug into the country. 21 U.S.C. § 381(a). By 

not objecting to the entry of certain unapproved drugs to address a shortage, FDA 

effectively allows the importation and distribution of such drugs, but only under specified, 

controlled circumstances, and only after review of the manufacturer. FDA officials told us it 

is evaluating the potential impact of a recent decision issued by the U.S. Court of Appeals 

for the District of Columbia enjoining FDA from effectively allowing importation of an 

unapproved drug used by some states to administer a lethal injection on its management 

of drug shortages. In deference to law enforcement agencies, FDA had not objected to the 

drug being imported for use in lethal injections. See Cook v. FDA, 733 F.3d 1 (D.C. Cir. 

2013).

97According to FDA, the agency attempted to use this strategy in seven other instances, 

but could not do so. In four instances, FDA could not find a manufacturer willing and able 

to import the product into the United States to address the shortage. In the other three 

instances, FDA identified a manufacturer, but the shortage was already being resolved 

and importation was no longer necessary.

98Total parenteral nutrition products—including protein, minerals, and vitamins—are 

administered intravenously to patients who cannot eat or absorb nutrients through other 

methods.
 

Page 44 GAO-14-194 Drug Shortages

shortage. Officials said this has allowed them to reach out to companies 

more quickly and has already helped the agency address one shortage.

FDA has also reported using its regulatory discretion in other ways. For 

example, the manufacturer of a drug that may slow the progress of the 

human immunodeficiency virus and acquired immune deficiency 

syndrome lost its component supplier and was forced to find a new one. 

However, this new supplier was experiencing a quality problem. FDA 

used its regulatory discretion to allow the manufacturer to use the new 

component supplier while quality problems were being addressed after it 

determined those issues posed no significant risks to public health. In 

another instance, FDA used its regulatory discretion to allow the 

continued marketing of a drug, despite a manufacturing deviation, after 

determining the benefits of having the drug available outweighed the risk 

associated with the manufacturing error.

FDA is taking steps to further enhance its ability to respond to shortages. 

Some of the agency’s actions are required by FDASIA, some are in 

response to recommendations we made in 2011, and others were 

initiated by the agency. For example, FDA has established the Drug 

Shortages Task Force as required by FDASIA.99

Consistent with other FDASIA requirements, FDA is continuing to make 

shortage information available to appropriate stakeholders, including 

physicians, patient groups, and DEA; is maintaining an up-to-date list of 

drugs in shortage; and has identified a mechanism through which health 

care providers and other groups report shortage-related information to 

FDA.

FDA officials said the 

Drug Shortages Task Force has helped FDA revise internal policies and 

procedures, track the development of the proposed regulations for 

implementing the manufacturer notification requirements, and generally 

coordinate across the agency on issues related to drug shortages.

100

 

99The Drug Shortages Task Force includes staff from the Office of Regulatory Affairs, the 

Center for Biologics Evaluation and Research, and a number of CDER offices, including 

the Office of the Center Director, the Office of Compliance, DSS, and the Office of Generic 

Drugs.

FDA officials told us the agency has been posting shortage 

information on its website since 1999 and includes information that 

100As required by FDASIA, FDA officials also noted that they have continued to work with 

DEA on shortages related to controlled substances.

FDA Is Working to Further 

Improve Its Response to 

Drug Shortages
 

Page 45 GAO-14-194 Drug Shortages

describes how providers and others can report a potential drug shortage. 

The e-mail address and toll-free number listed on the website are the 

main mechanisms through which FDA receives drug shortage-related 

reports from health care providers or other third-party groups.

FDASIA requires FDA to maintain an up-to-date list of drugs that it 

determines to be in shortage and—subject to public health, trade secret, 

and confidentiality concerns—make the list publicly available. FDA 

officials told us that, upon receiving notification of a potential drug 

shortage, the agency works to verify whether a shortage exists through 

contacting the drug’s manufacturer to determine supply levels and 

comparing that to industry sales data on historical demand for the 

product. Once FDA determines that the amount of the drug—or 

pharmaceutical equivalents—appears to be insufficient to meet demand, 

the agency posts information about the shortage on its drug shortages 

website. Though FDA takes steps to respond to all shortages about which 

the agency is informed, officials said the agency places the highest 

priority on responding to shortages of drugs that it considers medically 

necessary.101 Nevertheless, officials said that FDA’s website includes all 

verified shortages, regardless of whether the drug is determined to be 

medically necessary.102

 

101FDA defines a medically necessary drug as any drug that is used to treat or prevent a 

serious disease or medical condition for which there is no other adequately available drug 

that is judged by medical staff to be an appropriate substitute. For more on this 

determination, see 

 However, FDA officials noted that the agency 

may not be notified of all potential shortages, because FDASIA only 

requires manufacturers to report disruptions in the production of drugs 

that are life supporting, life sustaining, or used to treat debilitating health 

issues. Though health care professionals can also notify FDA about 

potential shortages, FDA officials told us that the agency is less likely to 

be notified about shortages of drugs for which there are easy substitutes 

or little patient impact.

GAO-12-116; 27 and 47.

102We previously found that FDA posted all shortages of medically necessary drugs, but 

only posted some shortages of non-medically necessary drugs, generally those for which 

FDA received multiple requests for information. FDA officials told us that they recently 

changed their approach when they began receiving more notifications about drug 

shortages as a result of the Executive Order and, later, FDASIA. Officials said that for the 

past 2 years, FDA has posted all shortages that the agency verifies, regardless of whether 

the drug is medically necessary.
 

Page 46 GAO-14-194 Drug Shortages

In July 2012, as required by FDASIA, FDA began classifying the reasons 

for shortages using standardized terminology specified in the law and 

posting this information on its website along with information on estimated 

shortage duration.103

Although FDA continues to refine the information on its website, it is 

nonetheless dependent on what manufacturers report to the agency: the 

reported reasons for a shortage and the estimated length of the shortage. 

The information FDA receives from manufacturers and other sources may 

be incomplete and may change over time. As a result, the information on 

the website may not always be current and accurate. Stakeholders noted 

that the reasons given for the shortages are often categorized as “other” 

which can make it difficult to understand why a drug is in shortage. FDA 

officials said they use the category “other” when none of the classifying 

terminology required by FDASIA directly applies, although FDA officials 

said they try to include available details to help explain the cause of the 

shortage. In addition, FDA may not be able to publicly post all of the 

information the agency receives from manufacturers because some of the 

information provided to FDA is proprietary. Although some stakeholders 

reported that information on the duration of a shortage is one of the most 

useful pieces of information that can be provided, others noted that the 

Also, though not required by FDASIA, in July 2013 

FDA added information on the therapeutic categories of drugs in shortage 

to its drug shortages website. This change allows users, for example, to 

view all oncology shortages in one place, rather than having to review the 

entire list of drugs in shortage and identify individual drugs used in 

oncology themselves. FDA plans to improve the functionality of the 

website further by allowing users to sort shortages by other types of 

information as well. A number of stakeholders noted that the 

improvements to FDA’s drug shortage website help them keep informed 

about drug shortages. However, some expressed disappointment with the 

passive nature of the website as stakeholders must proactively visit the 

website as opposed to receiving automated alerts. A number of 

stakeholders noted that notifications of shortages by therapeutic class 

would be particularly helpful for communicating the potential for a 

shortage to targeted groups earlier. FDA officials said that they plan to 

add active alerts by therapeutic category to the website.

 

103The reasons included in FDASIA are: requirements related to complying with good 

manufacturing practices, regulatory delay, shortage of an active ingredient, shortage of an 

inactive ingredient component, discontinuation of the manufacture of the drug, delay in 

shipping, and increased demand.
 

Page 47 GAO-14-194 Drug Shortages

estimated shortage resolution dates on FDA’s website are not always 

reliable. Two stakeholders said that the estimated duration for a shortage 

is often listed as “unavailable” or “to be determined,” which is not 

particularly helpful. Stakeholders noted that such inaccuracies may limit 

their ability to plan ahead. For example, a representative of one provider 

group noted that in order to plan for the multiple rounds of a patient’s 

chemotherapy regimen, the provider would need to be sure that there will 

be a sufficient supply of the drug for the second round of chemotherapy 

before starting the first. Manufacturer representatives said the complexity 

of a manufacturing disruption often makes it difficult to provide FDA 

accurate estimates of the time it will take to resolve the disruption.

FDA has also taken steps to respond to the recommendations we made 

in our 2011 report. In response to our recommendation that FDA develop 

an information system that would allow drug shortage data to be tracked 

in a systematic manner—to be consistent with the internal control 

standards for the federal government—the agency developed a drug 

shortage database that is used on a daily basis to track shortages, 

document the actions FDA takes to prevent and resolve shortages, and 

monitor the workload of DSS personnel.104 All FDA offices can access the 

database; however, the officials we spoke with said they request 

information from DSS instead of accessing the database directly.105

 

104

In 

September 2013, FDA informed us that it is now planning to transition 

from its existing database to an information system with additional 

capabilities and functionality. For example, FDA officials said they are 

planning to automate some of the data fields by extracting information 

from other sources that provide NDCs, market share, and other relevant 

product information. This may reduce the likelihood of manual entry errors 

and speed up the entry of some shortage information. The officials said 

the establishment of an information system could also help facilitate 

analysis related to drug shortages. However, they were unable to provide 

us with a description of the types of analyses they would conduct.

GAO-12-116, 44. See GAO/AIMD-00-21.3.1, 19.

105FDA officials said the database will also be used to prepare the annual drug shortages 

report to Congress, as required by FDASIA. The first annual report was due by the end of 

calendar year 2013.
 

Page 48 GAO-14-194 Drug Shortages

FDA has also taken steps to respond to our recommendation related to 

the resources allocated to the drug shortage program.106

FDA also improved the staffing resources available for responding to drug 

shortages by assigning drug shortage coordinators in each of its 20 

district offices. In addition, it developed written procedures to enhance 

coordination between headquarters staff in DSS, the CDER Office of 

Compliance, and staff in the district offices on issues related to drug 

shortages.

FDA has since 

increased the number of DSS personnel from 4 in 2011 to 11 in 2013 and 

officials said this has improved FDA’s ability to respond to drug shortages 

in a number of ways. First, it allowed FDA to assign each manufacturer 

experiencing a shortage a specific contact person, which FDA officials 

said has allowed the agency and the manufacturers to develop better 

working relationships and has improved information sharing. 

Representatives from one manufacturer we spoke with agreed that this 

effort has improved their relationship with FDA. In addition, a number of 

stakeholders, including other manufacturers’ representatives, noted it is 

now easier to contact DSS officials and that discussions have become 

more regular. Second, FDA officials said having additional staff has 

allowed them to respond more quickly to manufacturer notifications and to 

identify possible approaches to preventing or resolving a shortage. Some 

stakeholders also noted that FDA reached out to them for additional 

information on specific drug shortages or the availability of certain drugs. 

Third, officials said it has allowed DSS to play a bigger role in revising 

drug shortage policies and procedures.

107

 

106In 2009, we found that FDA faced challenges fulfilling and managing its growing 

medical product oversight responsibilities, which agency officials said was due to resource 

constraints, and we recommended that FDA conduct a comprehensive assessment of the 

agency’s staffing resources. See GAO, Food and Drug Administration: FDA Faces 

Challenges Meeting Its Growing Medical Product Responsibilities and Should Develop 

Complete Estimates of Its Resource Needs, 

FDA officials told us that the drug shortage coordinators 

have helped bring drug shortage-related concerns to light earlier, such as 

violative inspections at establishments that manufacture a large volume of 

drugs. Officials said this has improved FDA’s ability to work with such 

GAO-09-581 (Washington, D.C.: June 19, 

2009). Consistent with the 2009 recommendation, in 2011 we recommended that FDA 

assess the resources allocated to the Drug Shortage Staff to determine whether 

reallocation is needed to improve the agency’s response to drug shortages. See 

GAO-12-116, 43.

107Food and Drug Administration, Product Shortage Communication, Field Management 

Directive No. 15, (July 31, 2012).
 

Page 49 GAO-14-194 Drug Shortages

manufacturers early in order to prevent drug shortages. FDA held a 

retreat in July 2012 to educate the drug shortage coordinators and other 

staff on FDA’s processes for responding to drug shortages. The retreat 

included a number of FDA offices, including CDER Office of Compliance, 

DSS, Office of Generic Drugs, Office of New Drug Quality Assessment, 

and Office of Regulatory Affairs, and officials said the retreat helped 

attendees understand drug shortage responsibilities of the various FDA 

offices.108

As required by FDASIA, FDA’s Drug Shortages Task Force developed a 

strategic plan that identifies its goals and priorities for mitigating and 

resolving ongoing shortages and for preventing future shortages. This is 

also in line with our 2011 recommendation that FDA ensure that the 

agency’s strategic plan articulates goals and priorities for maintaining the 

availability of all medically necessary drugs. Though FDA officials said the 

agency has not made this change in the agency-wide strategic plan, 

FDA’s drug shortages strategic plan includes two goals related to 

maintaining drug availability, each with a number of tasks for achieving 

the goal. The first goal—to improve and streamline FDA’s current 

mitigation activities once the agency is notified of a supply disruption or 

shortage—includes four tasks: streamline internal FDA processes; 

improve data and response tracking; clarify roles and responsibilities of 

manufacturers; and enhance public communication about drug shortages. 

The second goal—to develop prevention strategies to address the 

underlying causes of production disruptions to prevent drug shortages—

contains three tasks: develop methods to incentivize and prioritize 

manufacturing quality; use regulatory science to identify early warning 

signals of shortages; and increase knowledge to develop new strategies 

to address shortages. As part of this second goal, the strategic plan 

describes efforts FDA is considering to help address manufacturing and 

quality issues, including broader use of manufacturing metrics to assist in 

the evaluation of manufacturing quality and developing incentives for 

high-quality manufacturing.

 

108Currently FDA documents the responsibilities and procedures of the various offices in 

relation to drug shortages in its Manual on Policies and Procedures, section 6003.1. FDA 

officials told us that they are currently working on updating these policies and procedures 

(last revised in February 2012) but do not have an estimated timeframe for the completion 

of the revisions.
 

Page 50 GAO-14-194 Drug Shortages

Finally, FDA officials said that their annual report on drug shortages, 

which was due December 31, 2013, will contain information on 

performance measures to assess and quantify the implementation of the 

agency’s goals and response to drug shortages, as we recommended in 

2011. As of January 31, 2014, the annual report has not been released.

While FDA is planning on establishing a new information system to track 

drug shortage data, it lacks policies, procedures, and specific training 

materials related to management and use of its existing drug shortage 

database. While FDA did create a database glossary, which briefly 

defines a number of the data fields, an official told us that no other 

documents or training materials have been created because staff use the 

existing database every day and are therefore familiar with its operation. 

Further, while FDA officials said they plan to create policies for entering 

data in the planned new drug shortage information system and create a 

tutorial for users, they have not yet done so. This lack of documentation 

may limit the agency’s ability to communicate proper use of the existing 

and new databases to staff and could also ultimately lead to 

inconsistencies in the use of the database. The lack of policies and 

procedures is also inconsistent with internal control standards for the 

federal government, which state that agencies should have controls over 

information processes, including procedures and standards to ensure the 

completeness and accuracy of processed data.109 For example, internal 

controls require the appropriate documentation of system controls and 

that such documents be readily available for review. Such documentation 

may include management directives, administrative policies, and 

operating manuals; none of which have been prepared for the existing 

database.110

Related to FDA’s lack of policy and procedures for its existing drug 

shortage database, we also found that FDA lacks sufficient controls to 

ensure the quality of the data in the existing database. For example, FDA 

officials said there are no automated data checks to ensure the accuracy 

of the data in the database. Instead, officials review the data for accuracy 

at the end of each year by relying on their memories of events, emails, 

and meeting notes. The first such data check was completed in 2012. 

 

109GAO/AIMD-00-21.3.1.

110GAO/AIMD-00-21.3.1.

FDA Lacks Policies and 

Procedures for Its Use and 

Management of Drug 

Shortage Data
 

Page 51 GAO-14-194 Drug Shortages

Officials said they plan to perform another such review at the end of 2013, 

in preparation for the annual report to Congress. This practice is 

inconsistent with the internal control standards for the federal 

government, which require agencies to design controls, which may 

include data checks that help ensure completeness, accuracy, and 

validity of database entries. Without such data checks, FDA’s existing 

database may be more likely to have errors, incomplete data, and 

inconsistent data. We asked officials to provide us with any 

documentation of their 2012 review of the existing database for accuracy 

and they were unable to do so. FDA officials said they plan to incorporate 

automated data checks in their new information system, which may 

eliminate the need for subsequent manual quality checking. FDA officials 

told us that, as of January 2014, any new drug shortages will be entered 

into their new information system.

In addition, FDA has not conducted routine analyses of its existing drug 

shortage database to identify, evaluate, and respond to the risks of drug 

shortages proactively. Again, according to the internal control standards 

for the federal government, agencies should comprehensively identify risk 

through qualitative and quantitative methods, including data collected in 

the course of their work.111 FDA’s drug shortages strategic plan states 

that the agency will explore using risk-based approaches to identify early 

warning signs of problems that could lead to production disruptions. 

However, FDA currently uses data on an ad hoc basis to respond to 

specific shortages as opposed to using the data to identify trends or 

patterns that may help it predict and possibly prevent shortages. 

According to FDA officials, other than producing the annual report 

required by FDASIA, the agency has not established regular schedules 

for generating reports in the database and is not currently using the 

database to conduct regular trend analyses. By only using the database 

to respond to individual shortages as they occur, FDA is missing 

opportunities to use the data proactively to enhance the agency’s ability 

to prevent and mitigate drug shortages.

FDA has made progress in preventing potential drug shortages and 

responding to actual shortages since we issued our last report in 2011. In

part, this progress can be attributed to the new FDASIA requirement that 

 

111GAO/AIMD-00-21.3.1.

Conclusions
 

Page 52 GAO-14-194 Drug Shortages

manufacturers provide FDA with information about potential or current 

shortages of drugs that are life supporting, life sustaining, or used to treat 

debilitating health issues. This additional information has improved the 

agency’s ability to act more quickly when it learns of a potential shortage. 

Yet, the number of shortages remains high, despite the fact that FDA has 

taken steps to prevent and mitigate shortages, such as expediting 

application reviews and inspections, exercising enforcement discretion in 

appropriate cases, and helping manufacturers respond to quality 

problems. Many shortages are prolonged, with some spanning multiple 

years. As a result, patients and providers continue to struggle as essential 

and life-saving medications—such as anti-infective, nutritive, and 

cardiovascular drugs—remain in short supply. These shortages 

complicate patient care and may lead to adverse outcomes with serious 

consequences.

Although there are potential underlying causes of drug shortages, FDA 

has made important strides in responding to some immediate causes. 

However, some of the causes identified in our literature review and 

conversations with manufacturers are beyond the agency’s authority, as it 

does not have control over private companies’ business decisions. For 

example, FDA is unable to require manufacturers to start producing or 

continue producing drugs, or to build redundant manufacturing capacity, 

regardless of the severity of a shortage. Nonetheless, FDA can take steps 

to maximize the agency’s ability to use the information at its disposal to 

address drug shortages. We continue to believe in the importance of our 

prior recommendation that FDA should develop an information system 

that would facilitate the agency’s response to shortages. FDA took the 

first step in implementing this recommendation by creating a database on 

drug shortages. However, a key component of any system is assuring the 

reliability of the data. Our current work shows that the agency lacks 

adequate policies and procedures governing the use of its database, as 

well as sufficient checks to ensure the data’s reliability—in both cases, 

the failure to do so is inconsistent with internal controls for the federal 

government. These shortcomings could hinder FDA’s efforts to 

understand the causes of shortages as well as undermine its efforts to 

prevent them from occurring. Additionally, FDA’s ability to manage riskbased decisions, including when to use regulatory discretion, and 

proactively help prevent and resolve shortages may be hindered by its 

lack of routine analysis of the data it collects. FDA may be missing an 

opportunity to identify causes of shortages, risks for shortages, and 

patterns in events which may be early indicators of shortages for certain 

types of manufacturers, drugs, or therapeutic classes. Though FDA has 

taken important steps to better prevent and address shortages, the large 
 

Page 53 GAO-14-194 Drug Shortages

number of potential shortages itself suggests a market still at risk of 

continuing supply disruptions.

To enhance its oversight of drug shortages, particularly as the agency 

fine-tunes the manner in which it gathers data on shortages and 

transitions from its database to a more robust system, we recommend 

that the Commissioner of FDA take the following two actions:

• develop policies and procedures for the use of the existing drug 

shortages database (and, ultimately, the new drug shortages 

information system) to ensure staff enter information into the database 

in a consistent manner and to ensure the accuracy of the information 

in the database; and

• conduct periodic analyses using the existing drug shortages database 

(and, eventually, the new drug shortages information system) to 

routinely and systematically assess drug shortage information, and 

use this information proactively to identify risk factors for potential 

drug shortages early, thereby potentially helping FDA to recognize 

trends, clarify causes, and resolve problems before drugs go into 

short supply.

We provided a draft of this report for comment to HHS, the Department of 

Justice, and the Federal Trade Commission. We also provided excerpts 

of this report for comment to the Department of Defense, the Department 

of Homeland Security (for review of the U.S. Coast Guard), the 

Department of Veterans Affairs, and UUDIS. We received written 

comments from HHS, which are reproduced in appendix V. We also 

received technical comments from HHS, the Department of Defense, the 

Federal Trade Commission, and UUDIS, which we incorporated as 

appropriate. The Department of Homeland Security, the Department of 

Justice, and the Department of Veterans Affairs did not have any

comments based on their review. 

In its comments, HHS stated that drug shortages remain a significant 

public health issue and emphasized its commitment to preventing new 

shortages and resolving those that are already ongoing. HHS agreed with 

our recommendations to enhance its oversight by developing policies and 

procedures for its drug shortages database and by conducting periodic 

analyses of these data to identify drug shortage risk factors. Regarding 

our first recommendation, HHS said it agrees that policies and 

procedures for data entry are important to help assure the timely, 

Recommendations

Agency and ThirdParty Comments and 

Our Evaluation
 

Page 54 GAO-14-194 Drug Shortages

accurate, and consistent inputting of data into its drug shortage database. 

Regarding our second recommendation, HHS agreed that it could make 

better use of its drug shortage data to identify trends, clarify causes of 

shortages, and resolve problems before drugs go into short supply. 

However, HHS noted that there are many factors that can trigger or 

exacerbate a shortage and that it lacks some relevant data, such as 

detailed information on manufacturing capability, to create a 

comprehensive forecasting system for drug shortages. We acknowledge 

that the agency’s access to certain information is limited, but believe that 

routine analysis of available data could nonetheless reveal some early 

indicators of shortages.

Although HHS agreed with our recommendations, it took issue with our 

use of UUDIS data concerning the persistence of recent shortages. HHS 

said that these data may overstate the number of shortages that persist 

because UUDIS considers a shortage to be ongoing unless all NDCs for 

a given product are available, even if some manufacturers that currently 

produce the drug have increased production enough to meet all demand.

We recognize that there are differences in the way UUDIS and FDA 

define, and therefore count, shortages. Our report notes that FDA 

considers a shortage to be resolved when the total supply of the drug and 

any pharmaceutical equivalents is sufficient to meet demand in the 

market overall. UUDIS defines shortages more broadly, focusing on 

supply issues that affect how pharmacies prepare and dispense a product 

or that influence patient care when prescribers must choose an 

alternative therapy because of supply issues. According to a UUDIS 

official, tracking all NDCs for all manufacturers is important for providers 

because using substituting one package size for another may create a 

safety issue. To enhance clarity, we have provided additional detail in our 

report to describe UUDIS’s methods for defining and tracking shortages.

Moreover, it is important to note that we used UUDIS data because FDA 

was unable to provide data on shortages that would allow for an analysis 

of trends. As we have previously reported, until FDA established a 

database containing shortage information in 2011, the agency did not 

systematically maintain data on shortages.

112

 

112See 

In the absence of FDA data, 

the data from UUDIS was the only data that we could identify that would 

allow for a meaningful analysis of drug shortages over time.

GAO-12-116. 
 

Page 55 GAO-14-194 Drug Shortages

We are sending copies of this report to the Secretary of the Department 

of Health and Human Services, the Attorney General, the Chairman of the 

Federal Trade Commission, appropriate congressional committees, as 

well as other interested parties. In addition, the report is available at no 

charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-7114 or crossem@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who make key contributions to this 

report are listed in appendix VI. 

Marcia Crosse

Director, Health Care
Page 56 GAO-14-194 Drug Shortages

List of Addressees

The Honorable Tom Harkin

Chairman

The Honorable Lamar Alexander

Ranking Member

Committee on Health, Education, Labor, and Pensions

United States Senate

The Honorable Fred Upton

Chairman

The Honorable Henry A. Waxman

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Anna G. Eshoo

Ranking Member

Subcommittee on Communications and Technology

Committee on Energy and Commerce

House of Representatives

The Honorable Frank Pallone, Jr.

Ranking Member

Subcommittee on Health

Committee on Energy and Commerce

House of Representatives

The Honorable Diana DeGette

Ranking Member

Subcommittee on Oversight and Investigations

Committee on Energy and Commerce

House of Representatives

The Honorable John D. Dingell

House of Representatives

The Honorable Edward J. Markey

United States Senate
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 57 GAO-14-194 Drug Shortages

As part of our report objectives, we reviewed the trends in recent drug 

shortages and examined the causes of drug shortages. This appendix 

provides further detail on our methods.

To review the trends in recent drug shortages, we identified the number of 

drugs that were in short supply from January 1, 2007, through June 30, 

2013, and examined the characteristics of drugs that were reported to be 

in shortage from June 1, 2011, through June 30, 2013. Specifically, to 

review trends in recent drug shortages that occurred from January 1, 

2007, through June 30, 2013, we analyzed data from the University of 

Utah Drug Information Service (UUDIS), which were the most recent data 

available at the time we did our work.1 These data are generally regarded 

as the most comprehensive and reliable source of drug shortage 

information for the time period we reviewed and are what we used in 

preparing our 2011 report.2 We focused our analysis on shortages of 

prescription drugs.3

 

1

UUDIS broadly defines a shortage as a supply issue that affects how pharmacies 

prepare and dispense a product or that influences patient care when prescribers must 

choose an alternative therapy because of supply issues. Once UUDIS identifies a 

shortage, it generally does not consider a shortage to be resolved until the drug is 

available again in all strengths and package sizes from all manufacturers that currently 

produce the drug. For example, UUDIS could be notified of a shortage involving three 

manufacturers: Manufacturer A has no product available; Manufacturers B and C still do, 

but have limited supply of certain package sizes. According to a UUDIS official, UUDIS 

would consider the shortage to be resolved: 1) when Manufacturers A, B, and C all have 

all strengths and package sizes back in stock; 2) if Manufacturer A decides to discontinue 

its product, when Manufacturers B and Manufacturer C both have all strengths and 

package sizes back in stock; or 3) when UUDIS obtains other information indicating that a 

shortage has been resolved, such as the Food and Drug Administration (FDA) telling 

UUDIS that Manufacturers B and C have increased supply and all market need has been 

met.

We reviewed UUDIS’ drug shortage data to identify 

(1) the total number of new shortages reported each year and (2) the total 

2

GAO, Drug Shortages: FDA’s Ability to Respond Should be Strengthened, GAO-12-116

(Washington, D.C.: Nov. 21, 2011), 2. At the time of our previous report, FDA did not have 

a database containing information on drug shortages for the time period we reviewed. 

Since the publication of that report, FDA has developed a database that it uses to track 

shortages. For the purposes of this report, we used the drug shortage data maintained by 

UUDIS because the time period reviewed included data from years that predate FDA’s 

development of its database and to provide comparable information on the trends and 

characteristics of drug shortages to that which we presented in our 2011 report. In that 

report, we analyzed UUDIS data from January 2001 through June 2011.

3

Shortages of over-the-counter drugs, biologics (including vaccines), medical devices, and 

orally-administered vitamins, which UUDIS also tracks, were excluded from our analysis.

Appendix I: Scope and Methodology -

Trends in and Causes of Drug Shortages

Trends
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 58 GAO-14-194 Drug Shortages

number of active shortages each year. To calculate the total number of 

new shortages reported each year, we counted shortages only for the 

year in which UUDIS was first notified and not in any subsequent years 

during which the shortage may have been active.4 To calculate the 

number of active shortages in each year, we included both shortages 

reported that year and any shortages that had started in a prior year, but 

were still ongoing during the year.5

To analyze the characteristics of shortages, we reviewed 219 drug 

shortages that were newly reported between June 1, 2011, and June 30, 

2013, and that UUDIS identified as critical.

We also identified the duration of any 

shortages reported from January 1, 2007, through June 30, 2013, and the 

number of drugs that had been in short supply on more than one 

occasion. To identify drugs that had been in short supply more than once, 

we grouped together shortages of clinically interchangeable versions of a 

drug that were administered through the same route, such as injection. 

We confirmed our grouping of these shortages with a knowledgeable 

pharmacist from UUDIS.

6 These critical shortages were 

a subset of the total number of shortages reported during this time. 

Specifically, these 219 shortages represented 57 percent of the 382 

shortages reported between June 1, 2011, and June 30, 2013. UUDIS 

identified these shortages as critical because alternative medications 

were unavailable, the shortages affected multiple manufacturers, or it 

received multiple reports from different institutions. For these critical 

shortages, we obtained drug shortage bulletins created by UUDIS, which 

contain the national drug codes (NDC) associated with each shortage.7

 

4

For example, a shortage reported in July 2010 and resolved in March 2012 would have 

been counted in the total for reported shortages in 2010, but not in either 2011 or 2012.

5

For example, a shortage reported in July 2010 and resolved in March 2012 would have 

been counted in the active shortage total in three different years, 2010—the year in which 

it was reported—and 2011 and 2012—years in which it was still ongoing.

6

In our previous report, we examined the characteristics of 269 critical drug shortages that 

were reported from January, 1, 2009, through June 20, 2011. See GAO-12-116, 2.

7

UUDIS creates a drug shortage bulletin for all shortages that it identifies as critical. Each 

bulletin is publically posted on the American Society of Health-System Pharmacists’ 

website and describes the reason for the shortage; any estimated resupply dates; any 

related shortages; and the NDCs associated with the shortage. A NDC is a unique 

identifier, though one drug can have multiple NDCs associated with it. For example, a 

drug made by one manufacturer, in one strength, but in three package sizes would have a 

different NDC for each of the three package sizes. UUDIS does not consistently track the 

NDCs associated with shortages that it has determined are not critical.
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 59 GAO-14-194 Drug Shortages

Using these NDCs, we analyzed Red Book data to determine the product 

types, routes of administration, and therapeutic classes of the critical 

shortages.8 We reviewed all UUDIS data for reasonableness, outliers, 

and consistency, and determined that the data were sufficiently reliable 

for our purposes.

To examine the causes of recent drug shortages, we conducted a 

structured search of research databases using various combinations of 

relevant search terms including, “drug”, “shortage”, “supply”, “medication”, 

and “generic” to identify any literature published from January 1, 2003, 

through June 30, 2013, that reported on the causes of drug shortages.9

We then reviewed the abstracts for 714 articles and the full-text of 176 of 

those articles to determine whether they addressed the causes of drug 

shortages and met our inclusion criteria. Our inclusion criteria included 

journal articles and government publications, as well as policy briefs or 

papers, in which the causes of drug shortages were examined through 

the presentation of original research. Because there is not a large volume 

of peer-reviewed literature that incorporates original research, we also 

included articles that provided an in-depth discussion of the causes of 

drug shortages. However, we excluded editorials and news wire articles 

from our review. Finally, we included directly relevant studies to which we 

were referred by stakeholders, but which did not appear in our initial 

search. Based on these steps, we identified 20 articles that were 

published between March 1, 2005, and March 31, 2013, and then 

summarized the causes of shortages on which these articles reported.10

 

8

Red Book is a compendium published by Truven Health Analytics that includes 

information about the characteristics of drug products.

While our search criteria were for shortages of all drug types, the majority 

of the articles we identified were focused on generic sterile injectables, 

which have frequently been in shortage in recent years. For the purposes 

of reporting on our literature review, we identified and summarized the 

causes frequently discussed in the literature and did not list all topics 

9

We searched multiple bibliographic databases, including ProQuest, MEDLINE, Embase 

and SciSearch among others.

10For the purposes of this report, we did not independently validate the findings regarding 

the causes of drug shortages reported in literature included in our review.

Causes

Literature Review
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 60 GAO-14-194 Drug Shortages

mentioned in each article we reviewed. Some causes that were 

mentioned only sparingly in the literature were not included in our review.

American Society of Health-System Pharmacists. “ASHP Guidelines on 

Managing Drug Product Shortages in Hospitals and Health Systems.” 

American Journal of Health-System Pharmacy, vol. 66, no.15 (2009): 

1399-1406.

Balkhi, B., L. Araujo-Lama, E. Seoane-Vazquez, R. Rodriguez-Monguio, 

S. L. Szeinbach, and E. R. Fox. “Shortages of Systemic Antibiotics in the 

U.S.A.: How Long Can We Wait?” Journal of Pharmaceutical Health 

Services Research, vol. 4, no. 1 (2013): 13-17.

Born, K. “Time and Money: An Analysis of the Legislative Efforts to 

Address the Prescription Drug Shortage Crisis in America.” The Journal 

of Legal Medicine, vol. 33, no. 2 (2012): 235-251.

Department of Health and Human Services. Office of the Assistant 

Secretary for Planning and Evaluation, Economic Analysis of the Causes 

of Drug Shortages. Washington, D.C.: October 2011.

Department of Health and Human Services. Food and Drug 

Administration. A Review of FDA’s Approach to Medical Product 

Shortages. Silver Spring, Md: October 2011.

Dorsey, E. R., J. P. Thompson, E. J. Dayoub, B. George, L. A. 

Saubermann, and R. G. Holloway. “Selegiline Shortage: Causes and 

Costs of a Generic Drug Shortage.” Neurology, vol. 73, no. 3 (2009): 213-

217.

Gatesman, M. L., and T.J. Smith. “The Shortage of Essential 

Chemotherapy Drugs in the United States.” The New England Journal of 

Medicine, vol. 365, no. 18 (2011): 1653-1655.

Gehrett, B. K. “A Prescription for Drug Shortages.” JAMA: The Journal of 

the American Medical Association, vol. 307, no. 2 (2012): 153-154.

Graham, John. R. The Shortage of Generic Sterile Injectable Drugs: 

Diagnosis and Solutions. Midland, Mich.: Mackinac Center for Public 

Policy, June 2012.

Articles Included in 

Literature Review
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 61 GAO-14-194 Drug Shortages

Griffith, M. M., A. E. Gross; S.H. Sutton, M.K. Bolon. J. S. Esterly, J. A. 

Patel, M. J. Postelnick, T. R. Zembower, and M. H. Scheetz. “The Impact 

of Anti-infective Drug Shortages on Hospitals in the United States: Trends 

and Causes.” Clinical Infectious Diseases, vol. 54, no. 5 (2012): 684-691.

Hoffman, S. “The Drugs Stop Here: A Public Framework to Address the 

Drug Shortage Crisis.” Food and Drug Law Journal, vol. 67, no. 1 (2012): 

1-22.

Jensen, V., R. Kimzey, and J. Saliba. “An Overview of the FDA’s Drug 

Shortage Program.” Pharmacy and Therapeutics, vol. 30, no. 3 (2005): 

174-175 & 177.

Jensen, V., and B. A. Rappaport. “The Reality of Drug Shortages—The 

Case of the Injectable Agent Propofol.” The New England Journal of 

Medicine, vol. 363, no. 9 (2010): 806-807.

Johnson, P. J. “The Ongoing Drug Shortage Problem Affecting the NICU.” 

Neonatal Network, vol. 31, no. 5 (2012): 323-327.

Kweder, S.L., and S. Dill. “Drug Shortages: The Cycle of Quantity and 

Quality.” Clinical Pharmacology & Therapeutics, vol. 93, no. 3 (2013): 

245-251.

Schweitzer, S. O. “How the U.S. Food and Drug Administration Can Solve 

the Prescription Drug Shortage Problem.” American Journal of Public 

Health, vol. 103, no. 5 (2013): e10-e14.

U.S. House of Representatives. Committee on Oversight and 

Government Reform. Staff Report. “FDA’s Contribution to the Drug 

Shortage Crisis.” (Washington, D.C.: June 2012).

Ventola, C. L. “The Drug Shortage Crisis in the United States: Causes, 

Impact, and Management Strategies.” Pharmacy and Therapeutics, vol. 

36, no.11 (2011): 740-742 & 749-757.

Woodcock, J., and M. Wosinska. “Economic and Technological Drivers of 

Generic Sterile Injectable Drug Shortages.” Clinical Pharmacology & 

Therapeutics, vol. 93, no. 2 (2013): 170-176.

Yurukoglu, A. “Medicare Reimbursements and Shortages of Sterile 

Injectable Pharmaceuticals.” National Bureau of Economic Research 

Working Paper No.17987 (2012).
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 62 GAO-14-194 Drug Shortages

We also interviewed, and in some cases, obtained written responses 

from, manufacturers and group purchasing organizations (GPO) 

regarding the causes of drug shortages identified through our literature 

review because the reported causes we identified were related to the role 

that these stakeholders have in the drug supply chain.11 We interviewed 

three leading national associations representing drug manufacturers, both 

brand-name and generic, and five generic sterile injectable 

manufacturers. Specifically, we selected the top three manufacturers of 

generic sterile injectables between 2010 and 2012. We also selected two 

additional manufacturers, which were among the manufacturers 

associated with the highest number of shortages, according to a 2011 

report by the IMS Institute for Healthcare Informatics.12 We provided 

manufacturers and manufacturer associations with a list of potential 

causes based on our review of the literature and asked them to comment 

on each cause either through interviews or in writing. Finally, we selected 

the three largest GPOs based on their self-reported purchasing volume in 

fiscal year 2011 and asked each to comment on causes in writing.13

We also analyzed FDA data on the reported causes of shortages for all 

shortages that it was notified about from January 1, 2011, through 

June 30, 2013. All data came from the database that FDA has developed 

to track shortages and reflects information reported by manufacturers to 

FDA that is subsequently analyzed and categorized by the agency. FDA 

defines a shortage as when the total supply of a drug and any 

pharmaceutical equivalents is inadequate to meet demand.

14

 

11GPOs negotiate purchasing contracts with drug manufacturers and distributors, among 

other suppliers, on behalf of hospitals and other health care providers.

FDA’s 

definition of a shortage differs from UUDIS’ and UUDIS also tracks 

shortages that do not meet FDA’s definition of a shortage. For example, 

according to FDA officials, UUDIS will track shortages that only affect one 

12IMS Institute for Healthcare Informatics, Drug Shortages: A Closer Look at Products, 

Suppliers, and Volume Volatility. (Parsippany, NJ.: November 2011).

13For the purposes of this report, we did not request documentation to independently 

validate the testimonial information regarding the causes of drug shortages that was 

reported by representatives from manufacturers and GPOs. In subsequent work, we 

intend to further explore the causes of drug shortages.

14A pharmaceutical equivalent is a drug product that is identical in dosage form, active 

pharmaceutical ingredient (API), and strength, and delivers an identical amount of API 

over an identical dosing period. See 21 C.F.R. § 320.1(c) (2013).

Stakeholder Views

Analysis of FDA Data
Appendix I: Scope and Methodology - Trends 

in and Causes of Drug Shortages

Page 63 GAO-14-194 Drug Shortages

manufacturer, even if other manufacturers of the same drug have supply 

available. FDA, however, will not consider such a situation to be a 

shortage if the other manufacturers that can supply the drug can meet 

national demand. We interviewed FDA Drug Shortages Staff about the 

data and reviewed it for reasonableness, outliers, and consistency, and 

for our purposes, we determined that the data were sufficiently reliable.
Appendix II: List of Organizations Interviewed

Page 64 GAO-14-194 Drug Shortages

1. Centers for Medicare & Medicaid Services 

2. Department of Defense

3. Department of Justice

4. Department of Veterans Affairs

5. Federal Trade Commission

6. Food and Drug Administration

7. Indian Health Service

8. National Institutes of Health

9. Office of the Assistant Secretary for Planning and Evaluation, 

Department of Health and Human Services

10. U.S. Coast Guard

1. American Academy of Pediatrics

2. American College of Clinical Pharmacy

3. American Hospital Association

4. American Medical Association

5. American Pharmacists Association

6. American Society for Parenteral and Enteral Nutrition

7. American Society of Clinical Oncology

8. American Society of Health-System Pharmacists

9. Children’s Hospital Association

10. National Community Pharmacists Association

1. AmerisourceBergen Corporation

2. Cardinal Health

3. McKesson Corporation

Appendix II: List of Organizations 

Interviewed

Federal Agencies

Provider 

Organizations

Wholesale 

Distributors
Appendix II: List of Organizations Interviewed

Page 65 GAO-14-194 Drug Shortages

1. Biotechnology Industry Organization

2. Generic Pharmaceutical Association

3. Pharmaceutical Research and Manufacturers of America

1. APP, a division of Fresenius Kabi USA, LLC

2. Ben Venue Laboratories, Inc.

3. Hospira, Inc.

4. Teva Pharmaceuticals USA 

5. West-Ward Pharmaceuticals

1. MedAssets

2. Novation, LLC

3. Premier, Inc.

1. Healthcare Supply Chain Association

2. International Association of Fire Chiefs

3. Institute for Safe Medication Practices

4. National Association of Medicaid Directors

5. Oley Foundation

6. Physicians Against Drug Shortages

7. Safety Net Hospitals for Pharmaceutical Access

National 

Manufacturer 

Associations

Manufacturers

Group Purchasing 

Organizations

Other Groups
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 66 GAO-14-194 Drug Shortages

In the event of a drug shortage, providers who are unable to obtain drugs 

from their regular wholesale distributors may resort to purchasing drugs 

through distribution channels that were not authorized by the 

manufacturer, referred to as the gray market.1 Gray market suppliers 

typically obtain small quantities of a drug that is in short supply and offer it 

for purchase at an inflated price.2 Because the origin of gray market drugs 

may be unknown, there is no guarantee of the drug’s pedigree or 

assurance that it was stored and transported appropriately, potentially 

putting patients at risk.3

This appendix describes steps federal agencies have taken in response 

to activities associated with the gray market for shortage drugs. To 

identify steps that federal agencies have taken, we interviewed officials 

from FDA, the Department of Justice (DOJ), and the Federal Trade 

Commission (FTC); reviewed federal laws and regulations, including an 

Executive Order on reducing prescription drug shortages issued on 

October 31, 2011; and examined agency documents.

 

1

Specific wholesale distributors may serve as an “authorized distributor of record” for a 

given manufacturer. Authorized distributor of record agreements may obligate a wholesale 

distributor to only purchase a manufacturer’s products directly from the manufacturer and 

to only sell those products to hospitals and pharmacies.

2

A survey by Premier, Inc., a group purchasing organization, found that prices being 

offered for shortage drugs during a 2-week period at the beginning of 2011 were on 

average 650 percent greater than Premier’s contract price, and ranged up to 

4,533 percent greater than their contract price. See Premier, Inc., Buyer Beware: Drug 

Shortages and the Gray Market (Charlotte, N.C., 2011). This is consistent with the results 

of a Congressional investigation, which found that gray market suppliers often charge 

exorbitant prices to health care providers for drugs facing critical shortages. See “Shining 

Light on the Gray Market: An Examination of Why Hospitals are Forced to Pay Exorbitant 

Prices for Prescription Drugs Facing Critical Shortages,” Staff Report Prepared for 

Senator John D. Rockefeller IV, Chairman, Senate Committee on Commerce, Science 

and Transportation; Senator Tom Harkin, Chairman, Senate Committee on Health, 

Education, Labor, and Pensions; and Representative Elijah E. Cummings, Ranking 

Member, House Committee on Oversight and Government Reform. (Washington, D.C.: 

July 25, 2012).

3

A drug pedigree is a statement of origin that identifies each prior sale, purchase, or trade 

of a drug, including the date of those transactions and the names and addresses of all 

parties to them.

Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 67 GAO-14-194 Drug Shortages

Among other things, the October 31, 2011, drug shortages Executive 

Order directed FDA to communicate to DOJ any findings by FDA that 

shortages have led market participants to stockpile shortage drugs or sell 

them at exorbitant prices.4

Certain activities involved with the sale of shortage drugs on the gray 

market could violate federal law—namely, the Federal Food, Drug, and 

Cosmetic Act (FDCA) and federal antitrust laws. Working together, FDA 

and DOJ are responsible for investigating and prosecuting violations of 

the FDCA, including provisions prohibiting counterfeiting and 

noncompliance with drug pedigree requirements. Under the FDCA, FDA 

is responsible for ensuring the safety, effectiveness, and quality of 

domestic and imported prescription drugs. This includes developing 

standards and identifying and validating effective technologies to secure 

the drug supply chain against counterfeit and diverted drugs.

The Executive Order also directed DOJ to 

determine whether these activities violate federal law, and if so, to take 

appropriate enforcement actions. 

5 Among 

other requirements, the FDCA requires that drugs meet purity and quality 

standards, are authentic, and are stored under proper conditions. In 

addition, the FDCA requires a drug’s path through the supply chain to be 

documented through a drug pedigree.6

 

4

Exec. Order No. 13,588, reprinted at 3 C.F.R. 281 (2012).

FDA may take certain

administrative actions against those that manufacture, market, or sell 

5

21 U.S.C. § 355e. Counterfeit drugs, which are defined in law at 21 U.S.C. § 321(g)(2), 

include, for example, those sold under a product name without proper authorization—

where the drug is mislabeled in a way that suggests that it is the authentic and approved 

product—as well as unauthorized generic versions of FDA-approved drugs that mimic 

trademarked elements of such drugs. Diverted drugs are legitimate drugs that are illegally 

bought, sold, or otherwise circulated outside of the legal distribution system that has been 

established to ensure safety and quality. Diversion can involve such activities as illegal 

sales of prescription drugs by physicians, patients, or pharmacists; prescription forgery; or 

pharmacy theft.

6

21 U.S.C. § 353(e). 

Federal Role in Relation to 

the Gray Market for 

Shortage Drugs
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 68 GAO-14-194 Drug Shortages

drugs that violate FDCA requirements. DOJ, often in consultation with 

FDA, may bring civil and criminal actions for such violations.7

FTC and DOJ’s Antitrust Division are responsible for enforcing federal 

antitrust laws, which are designed to preserve and protect market 

competition.8 The federal antitrust laws include the Sherman Act, the 

Federal Trade Commission Act, and the Clayton Act. The Sherman Act, 

enforced by DOJ, prohibits monopolization and restraints of trade, and 

civil and criminal penalties may be imposed for violations of the act.9 The 

Federal Trade Commission Act, enforced by FTC, bans unfair methods of 

competition and unfair or deceptive acts or practices.10 For example, 

collusion by drug manufacturers to set prices may violate both the 

Sherman Act and the Federal Trade Commission Act. The Clayton Act, 

jointly enforced by DOJ and FTC, regulates mergers and acquisitions and 

prohibits those that may substantially lessen competition or create a 

monopoly and are, therefore, likely to increase prices for consumers.11

Depending on the circumstances, there could be other authorities under 

which federal agencies could investigate and prosecute gray market 

The Federal Trade Commission Act and Clayton Act are civil statutes that 

do not carry criminal penalties.

 

7

Legislation enacted in November 2013 mandates the establishment over the next 

10 years of a national interoperable, electronic system to track certain prescription drugs 

through the supply chain that is intended, among other things, to protect against

counterfeit and diverted drugs. Drug Quality and Security Act, Pub. L. No. 113-54, tit. II, 

127 Stat. 587, 599 (2013). The law also requires manufacturers and repackagers to 

package certain prescription drug products with a product identifier within 4 or 5 years, 

respectively. It also requires wholesale distributors and dispensers to accept and dispense 

only prescription drug products with such product identifiers, within 6 or 7 years, 

respectively. In addition, the law requires manufacturers, wholesale distributors, 

repackagers, and dispensers to implement a system, by January 1, 2015, to help ensure 

products are not counterfeit, diverted, stolen, the subject of a fraudulent transaction, or 

otherwise unfit for distribution, and restricts all such entities from purchasing or selling a 

drug to entities that meet certain federal and state requirements. Violations of these 

provisions may result in criminal penalties or, in some cases, civil remedies, such as 

seizure, under the FDCA.

8

FTC only has the authority to investigate civil antitrust cases. If the case is criminal in 

nature, FTC refers it to DOJ.

9

See 15 U.S.C. §§ 1-7.

10See 15 U.S.C. §§ 41-58.

11See 15 U.S.C. §§ 12-27.
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 69 GAO-14-194 Drug Shortages

activities. This includes, for example, the mail fraud statute, which makes 

it a crime to use the U.S. mail to commit a fraud, such as facilitating the 

sale of a shortage drug with a fake pedigree through the U.S. mail.12

Consistent with the October 31, 2011, Executive Order on drug 

shortages, three federal agencies—FDA, DOJ, and FTC—review 

information concerning possible gray market sales of shortage drugs from 

a number of sources and have taken other steps to respond to relevant 

directives contained in the order.13

FDA has compiled gray market solicitations into quarterly reports that it 

shares with DOJ as part of its response to the Executive Order’s directive 

to communicate findings that shortages have led to the stockpiling or sale 

of shortage drugs at exorbitant prices.

Yet officials from all three federal 

agencies told us that their authorities in relation to the gray market are 

limited. They explained that the selling of shortage drugs by suppliers not 

authorized by the manufacturer alone, even at exorbitant prices, does not 

itself violate federal law. Though gray market sales may violate 

agreements between manufacturers and wholesale distributors, such 

sales may not violate federal law unless they are made outside the legal 

distribution system. As a result, there have been no prosecutions or 

enforcement actions taken by federal agencies solely on the basis of gray 

market activities.

14

 

12See 18 U.S.C. § 1341.

From January 2012—when FDA 

first began providing this information to DOJ—through October 2013, 

FDA shared information on solicitations from 26 different wholesale 

distributors. According to FDA officials, these solicitations typically 

originate as e-mails to providers containing advertisements that list the 

drugs for sale and, in some cases, the prices, which the providers then 

forward to FDA. FDA officials said that some of the gray market 

solicitations were for sterile injectables in shortage, including drugs 

related to cancer treatment, emergency medicine, antibiotics, and 

13Exec. Order No. 13,588, reprinted at 3 C.F.R. 281 (2012). Although FTC was not 

specifically identified in the Executive Order, the agency is responsible for enforcing 

federal antitrust laws and has undertaken activities to respond to the order.

14Although the origin of gray market drugs is unclear, some commentators suggest that 

gray market vendors hoard or stockpile a drug if the vendor suspects an impending 

shortage and later sell the drug at an inflated price.

Federal Agencies Review 

Gray Market Complaints 

for Illegal Activity
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 70 GAO-14-194 Drug Shortages

nutritive products. For example, one solicitation stated that a wholesale 

distributor was offering an intravenous multi-vitamin for $785, when the 

average wholesale price for that same vitamin was $8.61.

FDA officials told us that they review the solicitations to determine 

whether they violate the FDCA, such as a wholesale distributor making 

false claims about a drug or diverting a drug outside the legal distribution 

system. FDA has opened a number of investigations in relation to the 

solicitations to examine whether counterfeiting or diversion had occurred, 

but did not identify any illegal activity.15 For example, when the anesthetic 

propofol was in shortage, FDA did not object to the temporary importation 

of an unapproved version of the drug, but limited distribution to the 

manufacturer of the drug.16 However, in January 2010 FDA initiated two 

investigations related to complaints that the imported drug was being 

distributed by wholesale distributors, rather than the manufacturer. In both 

cases, FDA could not substantiate a criminal violation, so it closed the 

investigations. FDA officials told us that the FDCA does not prohibit 

hoarding or stockpiling of shortage drugs or regulate drug pricing. As a 

result, as of December 2013, FDA had not taken any enforcement action 

related to the gray market solicitations they reviewed, but had provided 

information from the solicitations to DOJ.17

 

15FDA officials told us that the agency does not track gray market investigations in a 

manner that would allow them to identify the total number of investigations with any 

certainty, but in response to our request, identified four such investigations that took place 

between January 2010 and January 2013.

16FDA may apply regulatory discretion to enhance the availability of drugs in shortage. In 

certain circumstances, FDA may not object to the temporary importation of drugs not 

approved by FDA for marketing in the United States, subject to appropriate controls. FDA 

officials explained that the agency’s exercise of regulatory discretion does not mean that 

these products meet regulatory standards for approval, or that a manufacturer has a legal 

right to distribute them. Rather, FDA may decide not to object to the distribution of the 

drug for a limited time for public health reasons.

17In addition, prior to issuance of the Executive Order, FDA contracted for an analysis of 

online sales of shortage drugs. The contractor’s analysis found evidence that, as of 

November 2011, 106 different websites were offering 67 drugs from FDA’s shortage list 

for sale, with evidence of price gouging in 38 cases. FDA shared this analysis with DOJ. 

DOJ officials told us that they reviewed this report and have discussed the online sales of 

drugs by illicit pharmacy websites with FDA. Officials noted that DOJ has prosecuted the 

operators of such websites in recent years, regardless of whether they have sold drugs in 

shortage. For more on prosecutions of operators of rogue Internet pharmacies, see GAO, 

Internet Pharmacies: Federal Agencies and States Face Challenges Combating Rogue 

Sites, Particularly Those Abroad, GAO-13-560 (Washington, D.C.: July 8, 2013).
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 71 GAO-14-194 Drug Shortages

Officials from DOJ told us that, as required by the Executive Order, they 

review FDA’s quarterly reports for information that could indicate the drug 

listed was diverted for illegal purposes. For example, DOJ considers 

whether there is evidence of use of fake pedigrees in violation of the 

FDCA. DOJ officials noted that the solicitations listed in the quarterly 

reports sometimes indicate that a drug is being sold for a higher-thannormal price; however, selling drugs at elevated prices alone is not illegal. 

Such sales may be illegal, for example, if the drugs are bought and sold 

through diversion from the legal distribution system. DOJ officials told us 

that as of November 2013, DOJ had not launched any investigations or 

taken any enforcement actions based on the solicitations listed in the 

quarterly reports, because, according to DOJ officials, the reports have 

not indicated that any solicitation was unlawful.18

FTC staff told us they investigate complaints about the gray market 

received from the public, as well as complaints referred to them by FDA 

and Congress, to determine whether an antitrust investigation is 

warranted. FTC receives complaints from the public through a toll-free 

telephone number, an email address, and through the U.S. mail.

According to DOJ 

officials, based on information obtained separately from the quarterly 

reports, the agency has launched at least one investigation into activity in 

which there are indications of the illegal sales of shortage drugs through 

diversion.

19

 

18In addition to their own review of gray market solicitations from FDA, DOJ officials told 

us that, at the request of FTC, DOJ could review complaints that suggest evidence of two 

or more actors engaged in criminal antitrust activity in violation of the Sherman Act. 

However, as of November 2013 DOJ had received no such referrals from FTC.

FTC 

staff told us that they review these complaints to determine whether there 

is enough information, such as evidence that the company is engaging in 

any coordinated antitrust behavior in violation of the Federal Trade 

Commission Act or the Clayton Act, to warrant an investigation. According 

to FTC staff, as of November 2013 they had not launched any full-phase 

investigations or taken any enforcement actions related to the 

pharmaceutical gray market. Though not a full-phase investigation, FTC 

staff told us that in the fall of 2011 they conducted an initial investigation 

to determine whether wholesale distributors or other parties were 

engaged in any conduct that violated federal antitrust laws, such as 

colluding to hoard drugs in shortage and then selling the drugs at higher 

19Telephone complaints are received through 1-877-FTC-HELP. Email complaints are 

received through antitrust@ftc.gov.
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 72 GAO-14-194 Drug Shortages

prices. However, they were unable to find any evidence that widespread 

hoarding was occurring. Instead, they found cases where a single 

wholesale distributor acting alone would buy a few vials of a shortage 

drug and then sell it at a higher price—a practice that is not illegal.

In addition, in response to the Executive Order, federal agencies have 

worked together in an attempt to respond to gray market activities. In 

2012, FDA, DOJ, FTC, and the National Association of Attorneys General 

convened three meetings to discuss the legal authorities that might apply 

to the gray market and the activities that each was undertaking related to 

this issue. Officials told us that in the future, they will meet on an “as 

needed” basis.

FDA officials told us that the agency is considering whether additional 

legal authorities to help address the pharmaceutical gray market and 

secure the drug supply chain would be beneficial. Such authorities may 

include registration and reporting requirements for wholesale distributors, 

potential prohibitions on wholesale distributors purchasing products from 

pharmacies, and pedigree and track-and-trace options.20

 

20“Track-and-trace” refers to a system that involves electronically tagging each package 

with a unique identifier, noting each transfer of a drug package, and maintaining a 

database of all such transactions. During the course of our work, Congress enacted, and 

the President signed into law, the Drug Quality and Security Act, Pub. L. No. 113-54, 

127 Stat. 587 (2013). Among other things, the law requires wholesale distributors to report 

to FDA the states in which they are licensed and the status of those licenses. While not a 

registration requirement, FDA officials told us that this reporting requirement would 

provide the agency with the ability to identify the wholesale distributors in the marketplace. 

The law also requires manufacturers, wholesalers, and other drug supply chain 

participants to provide certain information and representations about pharmaceutical 

transactions when there is a change of ownership or possession of a drug product and 

requires the establishment of a national interoperable, electronic system to track certain 

prescription drugs through the supply chain.

FDA officials 

also noted that gray markets do not cause shortages, but are a symptom 

of such shortages. To the extent that FDA and other stakeholders 

address drug shortages, opportunities for gray markets to develop will 

become more limited. DOJ officials told us that DOJ does not have the 

authority to address drug pricing and stockpiling of drugs per se, but 

noted that the agency does have the authority to prosecute suppliers 

operating outside of the legal distribution system, regardless of the drug’s 

shortage status or price. Officials did not take a position as to whether 

additional authority over drug stockpiling and exorbitant pricing is 

necessary. FTC staff told us that they do not believe additional FTC 
Appendix III: Steps Federal Agencies Have 

Taken to Respond to Gray Market Activities

Page 73 GAO-14-194 Drug Shortages

authority in relation to the pharmaceutical gray market is necessary. They 

stated that the FTC’s existing enforcement authority would be adequate 

to take action in relation to the inflated pricing of a shortage drug if such 

pricing was a consequence of anticompetitive conduct. If, however, the 

inflated pricing resulted from factors other than anticompetitive conduct, 

assessment of such issues would be outside the scope of the FTC’s 

competition expertise.
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 74 GAO-14-194 Drug Shortages

Some have suggested that incentivizing drug manufacturers to address 

the purported causes of drug shortages could alleviate or prevent such 

shortages. Proposed incentives include those related to regulatory 

activities undertaken by FDA or financial incentives that the federal 

government could provide to manufacturers.1

This appendix provides a synopsis of incentives we identified that were 

(1) proposed by drug manufacturers and associations representing them 

in response to a February 2013 request from FDA for comment

Some incentives target 

immediate causes of drug shortages, such as by rewarding 

manufacturers for a strong quality record, thereby reducing the likelihood 

of quality-related supply disruptions, or by increasing redundancy in drug 

supply chains. Other proposed incentives target underlying causes, such 

as by increasing manufacturer revenue in order to encourage 

manufacturers to remain in the market and continue investments in 

production facilities.

2 or 

(2) included in bills introduced in the 112th Congress and 113th 

Congress, through June 2013.3 We reviewed all manufacturer and 

association responses to FDA’s request for comment and identified 10 

responses that included incentives to alleviate or prevent shortages. We 

identified one bill with provisions intended to create incentives to alleviate 

or prevent drug shortages.4

 

1

While this appendix focuses on incentives that could be offered by federal agencies, in its 

drug shortages strategic plan, FDA notes that the agency’s ability to offer financial or other 

economic incentives is limited. FDA suggests that other stakeholders might explore 

economic, financial, or other means to incentivize innovation and new investments in 

manufacturing quality drugs to reduce the occurrence and severity of shortages.

Next, we summarized the proposed 

incentives identified in our review and provided the summary list to 

2

In February 2013, FDA published a notice in the Federal Register with a request for 

comment about its drug shortages task force and strategic plan. Two of FDA’s questions 

related to incentives: 1c. Are there incentives that FDA can provide to encourage 

manufacturers to establish and maintain high-quality manufacturing practices, to develop 

redundancy in manufacturing operations, to expand capacity, and/or to create other 

conditions to prevent or mitigate shortages? and 2. In our work to prevent shortages of

drugs and biological products, FDA regularly engages with other U.S. Government 

Agencies. Are there incentives these Agencies can provide, separately or in partnership 

with FDA, to prevent shortages? 78 Fed. Reg. 9928 (Feb. 12, 2013).

3

The 112th Congress was in session from January 2011 to January 2013. The 113th

Congress began in January 2013.

4

The Patient Access to Drugs in Shortage Act of 2012 (H.R. 6611), introduced in the 112th

Congress, was not enacted.

Appendix IV: Summary of Recently 

Proposed Incentives to Alleviate or Prevent 

Drug Shortages
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 75 GAO-14-194 Drug Shortages

manufacturer and association representatives and to FDA for comment. 

We obtained comments from three leading national associations 

representing drug manufacturers, both brand and generic, and five 

generic sterile injectable manufacturers. For one incentive related to 

exempting certain products from Medicaid rebates and 340B discounts, 

we also obtained comments from relevant stakeholder groups whose 

members would be affected by this exemption.5

Expedited and streamlined reviews: Most of the comments submitted 

by manufacturers in response to FDA’s request for comment proposed 

expediting or streamlining FDA review of regulatory submissions. 

Submissions that could be expedited included application supplements 

related to the approval of redundant manufacturing sites or new drug 

applications (NDA) or abbreviated new drug applications (ANDA) from 

manufacturers with a record of quality manufacturing and an adequate 

risk management plan to prevent shortages.6

 

5

Manufacturers who want to have their drugs covered by Medicaid on an outpatient basis 

must provide rebates to state Medicaid programs. These rebates offset the amount of the 

federal government’s contribution to state Medicaid programs for expenditures for such 

outpatient drugs. Such manufacturers must also provide discounts to certain types of 

providers within the safety net through the 340B Drug Pricing Program.

According to FDA, as of 

June 30, 2013, there were more than 900 manufacturing supplements to 

NDAs, more than 5,700 manufacturing and chemistry supplements to 

ANDAs, and more than 2,700 ANDAs pending review. Therefore, 

proponents of expediting FDA review of regulatory submissions—

including applications and supplements—note that increasing the speed 

of such reviews could provide an incentive to manufacturers to establish 

redundant manufacturing capacity to which production could be shifted in 

the event of manufacturing problems at a primary production facility, 

thereby avoiding a shortage. Further, by rewarding manufacturers with a 

history of quality manufacturing, expediting reviews could provide an 

6

To receive approval to market a prescription drug in the United States, a manufacturer 

must submit an application to FDA demonstrating the drug’s safety and effectiveness, 

describing the drug’s manufacture, and providing information on the drug’s labeling. FDA 

officials review such applications—including NDAs and ANDAs—and, where appropriate, 

inspect the establishments where the product will be manufactured. Once an application is 

approved, a manufacturer must notify FDA—through a supplement to said application or 

other regulatory submission—of any changes to that application, some of which require 

FDA’s approval before the drug manufactured using the changed process can be 

distributed.

Regulatory Incentives
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 76 GAO-14-194 Drug Shortages

incentive to ensure quality-related production problems—and ensuing 

shortages—do not occur in the first place.

While representatives of the stakeholders we interviewed were generally 

supportive of this potential incentive, they also identified some limitations. 

One stakeholder cautioned that the resource-intensive nature of building 

in redundancy means it is a long-term solution, the implementation of 

which could hinder efforts to address current shortages. Another 

stakeholder noted that maintaining redundant manufacturing capacity is 

expensive and that expedited review alone may not provide enough of an 

incentive to establish such capacity. FDA officials noted that expediting 

reviews of regulatory submissions is a tool the agency already uses to 

address shortages. However, FDA officials cautioned that expanding the 

pool of submissions eligible for expedited review, without regard to the 

risk of shortage, could slow down review of all submissions and make 

expediting reviews meaningless. Representatives from one stakeholder

echoed this concern, noting that, though faster than standard review 

times, in their experience there is already a backlog for review of 

supplements that have been expedited to address current shortages. 

Representatives from this stakeholder noted that without additional FDA 

resources devoted to the review of applications and supplements, making 

additional regulatory submissions eligible for expedited review would be 

problematic. FDA officials also noted that, although redundancy can help 

prevent a shortage if production stops, many shortages are the result of 

production disruptions driven by failures in manufacturing quality systems. 

Therefore, FDA officials told us that it is more important to prioritize 

incentives to improve manufacturing quality systems over those that 

expand capacity. To that end, as part of its drug shortages strategic plan 

goal to develop long-term prevention strategies in order to prevent 

shortages, FDA states that it will continue to expedite reviews to mitigate 

shortages, including the review of submissions for facility upgrades to 

improve quality.

Flexibility in meeting regulatory requirements: A few manufacturers 

proposed that FDA could allow for flexibility in meeting regulatory 

requirements for manufacturers with a strong history of compliance with 

current good manufacturing practice regulations or robust risk 

management plans to prevent shortages.7

 

7

Current good manufacturing practice regulations provide a framework for a manufacturer 

to follow to produce safe, pure, and high-quality drugs. See 21 C.F.R. pts. 210, 211.

For example, they suggest that 
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 77 GAO-14-194 Drug Shortages

FDA could reduce the level of agency review for such change 

notifications as manufacturing site transfers, if the manufacturer had a 

history of production without quality issues.8

Decreased inspection frequency: Some manufacturers proposed the 

incentive of reduced frequency of FDA inspection for manufacturing 

establishments with a strong history of compliance with good 

manufacturing practices or robust risk management plans to prevent 

shortages.

When proposing such 

incentives, supporters commented that, as it could allow manufacturers to 

implement manufacturing changes more quickly, reducing the level of 

agency review could provide an incentive for quality production. 

Incentivizing quality production could thus reduce the likelihood of a 

quality-related supply disruption and shortage. One stakeholder generally 

supported this approach, as long as all manufacturers were still held to 

the same standards and any change in requirements was accompanied 

by FDA guidance on the new approach. FDA officials told us that the 

agency has issued guidance documents to help identify types of changes 

after an application is approved that represent a lower risk. They added 

that the agency is currently exploring new approaches to the review of 

application products.

9

 

8

FDA guidance outlines reporting categories that govern the type of notification and FDA 

review required for various changes made after an application is approved, based on the 

potential of the change to adversely affect the safety or effectiveness of the drug. A 

change that has a substantial potential to adversely affect factors such as the identity, 

strength, quality, purity, or potency of a drug product require FDA review and approval of a 

“prior approval” supplement before a drug manufactured using this change can be 

distributed. For certain changes that may have a moderate potential to affect such factors, 

FDA may allow distribution of the drug 30 days after receipt of a “changes being effected” 

supplement, regardless of whether FDA has reviewed the changes. In some cases, FDA 

may allow distribution of the drug upon receipt of such supplement.

Proponents of such an approach told us that inspections are 

costly for the inspected establishment in terms of resources required to 

9

To ensure that drugs are produced in conformance with federal statutes and regulations, 

including good manufacturing practice regulations, FDA may inspect the establishments 

where drugs are manufactured. We previously reported that FDA inspected domestic drug 

manufacturing establishments about once every 2.5 years and generally inspected foreign 

manufacturing establishments much less frequently. In part, this difference in frequency of 

inspection was due to the fact that, at the time, FDA was required to inspect every 2 years 

those domestic establishments that manufacture drugs in the United States, but there was 

no comparable requirement for inspecting foreign establishments. GAO, Drug Safety: FDA 

Has Conducted More Foreign Inspections and Begun to Improve Its Information on 

Foreign Establishments, but More Progress is Needed, GAO-10-961 (Washington, D.C.: 

Sept. 30, 2010).
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 78 GAO-14-194 Drug Shortages

respond to issues raised by the FDA investigator conducting the 

inspection and in terms of production disruptions caused by the 

inspection itself. As it could reduce costs and disruptions for the 

manufacturer, if carefully designed so that manufacturers would still be 

inspected with some frequency, increasing the interval between 

inspections may provide an additional incentive for compliance with good 

manufacturing practices, which could reduce the likelihood of 

manufacturing quality issues and resultant shortages. One stakeholder 

commented that decreasing inspection frequency could be an effective 

incentive in the long term, but at present, frequent inspections set a high 

bar for manufacturers in this industry. FDA officials noted that the agency 

already considers compliance history as a major factor when determining 

the frequency of inspection of a manufacturing site. Further, in response 

to new Food and Drug Administration Safety and Innovation Act 

(FDASIA) authority, the agency is in the process of establishing a riskbased inspection schedule for all establishments.10

Transparency regarding compliance status of manufacturing sites: 

In documents submitted in response to FDA’s request for comment, a few 

manufacturers proposed increasing the transparency of manufacturing 

establishment compliance status such as by assigning site scores or an 

FDA stamp of approval, which could help those engaged in drug 

purchasing and drug pricing negotiations—including providers, group 

purchasing organizations, insurers, and consumers—make informed 

purchasing and pricing decisions. Proponents of this approach suggest 

that FDA’s provision of such quality metrics could make additional 

information publicly available for consideration in making purchasing and 

pricing decisions, thereby giving manufacturers an additional incentive for 

the highest quality production and making quality-related supply 

disruptions less likely to occur.

FDA officials told us 

that they are considering incorporating additional factors, such as process 

performance metrics and shortage performance, into their selection 

model.

Representatives from the stakeholders we spoke with were generally 

skeptical of this approach. One noted that providers and group 

 

10FDASIA removed the every-2-year domestic inspection requirement and instead 

requires FDA to determine the frequency of inspection for both domestic and foreign 

establishments on a risk-based schedule. Pub. L. No. 112-144 § 705, 126 Stat. 993, 1066 

(2012).
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 79 GAO-14-194 Drug Shortages

purchasing organizations—which are the primary decision makers for 

sterile injectable purchases, where shortages have recently been 

concentrated—assume that quality is built in to any FDA-approved drug 

and may not be able to readily interpret quality metrics. Representatives 

from one stakeholder told us that FDA has spent extensive time and effort 

educating prescribers and the public that there is one quality standard for 

all FDA-approved drugs and that, from this stakeholder’s perspective, 

further differentiating quality with ratings would diminish confidence in the 

nation’s drug supply and lead to confusion and mistrust. Representatives 

from another stakeholder expressed skepticism that the market would 

respond to such information by allowing for higher prices. Likewise, 

representatives from multiple stakeholders noted that information about 

FDA inspections of manufacturing establishments and warning letters are 

already available online and are presumably already used when making 

purchasing and pricing decisions.

FDA officials confirmed that they currently provide information on the 

compliance status of manufacturing sites on the agency’s website and 

added that they are looking for new ways to provide transparency in this 

area.11 They cautioned that there are significant questions and issues 

regarding how to provide more transparent compliance information to the 

public, such as the fact that FDA cannot disclose either confidential 

commercial information or trade secret information. Nevertheless, as part 

of its drug shortages strategic plan goal to develop long-term strategies in 

order to prevent shortages, FDA states that it is examining the broader 

use of quality metrics to assist in the evaluation of manufacturing quality. 

However, the plan also notes that although FDA can make quality 

information available to the public, including inspection outcomes, recalls, 

and shortages, buyers ultimately decide whether they will use these data 

when making purchasing decisions.

Guaranteed purchase: A few manufacturers proposed that the federal 

government guarantee the purchase of a given volume of certain drugs. 

This would allow manufacturers to ensure capacity for a given production 

volume regardless of whether there is sufficient market demand. 

Representatives from one stakeholder that supported this proposal told 

 

11http://www.fda.gov/iceci/enforcementactions/ucm222557.htm. Accessed December 3, 

2013.

Financial Incentives
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 80 GAO-14-194 Drug Shortages

us that such an incentive might bring more predictability to both the 

volume of product made and product margins. In turn, this guarantee 

could create some predictability in a manufacturer’s ability to invest in 

their facilities, resulting in continued high quality and compliant 

production. One stakeholder noted that such an incentive may be useful 

in terms of ensuring the availability of future capacity, but at present 

would not be an effective tool to address shortages as there is simply no 

excess capacity available even if the government could guarantee 

purchase volume. FDA officials noted that establishing such a program 

would be challenging. For example, identifying a list of drugs eligible for 

guaranteed purchase would be difficult, because it is hard to predict 

which drugs are vulnerable to shortage in advance and the particular

drugs at risk of shortage may change rapidly.

Reduction in fees: Both recently-introduced federal legislation and some 

manufacturers proposed reducing manufacturer fees to help alleviate or 

prevent drug shortages. As introduced in the 112th Congress, H.R. 6611 

proposed exempting certain drugs from the annual branded prescription 

drug fee established by the Patient Protection and Affordable Care Act in 

order to provide an incentive for brand-name drug manufacturers to enter 

the market to produce a drug in short supply.12

A few manufacturers proposed a reduction in or waiver of various user 

fees if the manufacturer demonstrates that they have built redundant 

Proponents of this 

approach state that a reduction in the annual branded prescription drug 

fee could induce brand-name companies to re-enter the market. One 

stakeholder also noted that brand-name manufacturers may have more 

idle capacity than generic manufacturers, so encouraging them to reenter a market could be effective in addressing shortages.

 

12The annual fee is assessed according to each manufacturer’s share of branded 

prescription drug sales to certain government programs, including Medicare and Medicaid. 

Pub. L. No. 111-148, § 9008, 124 Stat. 199, 859 (2010), as amended by Pub. L. No. 111-

152, § 1404, 124 Stat. 1029, 1064 (2010). H.R. 6611—as introduced in the 112th 

Congress, but not enacted—would exclude the sales of any branded prescription drug, if 

in shortage, from the annual branded prescription drug fee.
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 81 GAO-14-194 Drug Shortages

capacity into their manufacturing plan.13

Tax incentives: In order to offset the costs of such investment, some 

manufacturers proposed tax credits targeted to manufacturers that invest 

in redundant manufacturing capacity. Multiple stakeholders noted that, 

given the significant costs associated with new manufacturing 

establishments, such an incentive would only be effective for 

manufacturers that already operated such establishments. 

Representatives from one stakeholder noted that the time, resources, and 

Proponents of user fee 

reductions noted that building redundancy into a manufacturing plan is 

resource intensive and that a fee reduction to help offset these costs 

could incentivize manufacturers to build redundancy which could help 

prevent supply disruptions. At the same time, one stakeholder that 

supported this approach noted that, though user fees add up, reducing 

such fees would not make a large enough economic difference to impact 

a manufacturer’s decision to enter or exit a market. FDA officials first 

noted that any changes to the user fee structure would have to be 

negotiated with industry and then enacted by Congress. They stated that, 

although the agency is open to using user fees as a way to prevent 

shortages and encourage manufacturers to help address a shortage that 

does arise, there are some uncertainties about doing this. For example, 

definitions of redundancy are unclear and mechanisms ensuring 

redundant capacity is not repurposed would need to be developed and

enforced. Finally, FDA officials also cautioned that reducing or waiving 

fees for certain manufacturers could increase fees on other 

manufacturers. This is because the total amount of user fees FDA 

collects is fixed in statute and the annual fees assessed against individual 

manufacturers are determined by dividing the fixed statutory amount by 

the forecasted number of fee-paying entities. As a result, elimination of, or 

a reduction in, fees for some parties would effectively transfer these costs 

to the remaining fee-paying entities.

 

13Federal law requires FDA to collect various fees, known as “user fees,” from brandname human drug and biological product manufacturers to supplement the cost of 

reviewing new drug applications and inspecting establishments. 21 U.S.C. § 379h. One 

manufacturer comment proposed reducing or waiving the establishment fee for 

manufacturers that built in redundant manufacturing capacity. For fiscal year 2013, the 

establishment fee for new drugs was $526,500 per establishment. Federal law also directs 

FDA to collect similar user fees from generic manufacturers. 21 U.S.C. § 379j-42. Two 

manufacturer comments proposed offsetting filing fees for manufacturers that built 

redundancy into their manufacturing plan. For fiscal year 2013, the application fee for a 

generic drug application is $51,520.
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 82 GAO-14-194 Drug Shortages

approvals to create a new manufacturing site are likely to take more than 

3 years with associated costs totaling tens of millions of dollars. 

Therefore, tax credits are a strong incentive for companies to re-invest in 

existing infrastructure, not necessarily to create new infrastructure. FDA 

officials told us that modernizing existing facilities to prevent quality and 

safety issues that lead to shortages can go a long way to prevent 

shortages even in a system with little redundancy. They noted that such 

incentives would need to encourage manufacturers to purchase new 

equipment, renovate facilities, and implement new manufacturing 

processes and technologies.

Changes in drug pricing or reimbursement: As introduced in the 112th 

Congress, H.R. 6611 proposed changing the reimbursement rate or 

pricing system for generic sterile injectable products for which there are 

three or fewer active manufacturers. Such changes are intended to 

prevent shortages by providing an incentive to manufacturers to continue 

production in a concentrated market. Specifically, the bill proposed 

changing the calculation of the Medicare reimbursement rate for generic 

sterile injectable products for which there are three or fewer active 

manufacturers from average sales price plus 6 percent to wholesale 

acquisition cost.14

The premise of the Medicare reimbursement change proposal is that 

basing reimbursement on wholesale acquisition cost will enable 

manufacturers to adjust their prices to meet supply and demand, which 

It would also exempt such products from Medicaid 

rebates and 340B discounts.

 

14Average sales price is the weighted average of all non-federal U.S. sales by 

manufacturers net of chargebacks, discounts, rebates, and other price concessions tied to 

the purchase of the drug product, whether it is paid to the wholesale distributor or the 

entity that purchases the drug. Wholesale acquisition cost is the manufacturer’s list price 

for the drug product to wholesalers or direct purchasers not including any discounts, 

rebates, or reductions in price.
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 83 GAO-14-194 Drug Shortages

some claim the current reimbursement structure prevents.15

The premise of the Medicaid rebate and 340B discount exemptions 

proposal is that such rebates exert additional downward pressure on 

already extremely low prices, thereby limiting manufacturers’ ability to 

sustain production and upgrade facilities. Removing such rebates and 

discounts would provide additional revenue to manufacturers, thereby 

potentially providing them an incentive to remain in the market and 

maintain manufacturing capacity or to re-enter the market. Proponents 

state that this incentive may help influence manufacturer margins, thereby 

providing revenue to invest in production capacity to ensure demand is 

met. However, some stakeholders caution that these exemptions would 

increase costs to patients and the government (including increasing drug 

costs and administrative costs to the government for tracking such an 

exemption). Representatives from one stakeholder group we interviewed 

noted that, according to its inquiries, the majority of generic sterile 

injectable drugs are manufactured by three or fewer manufacturers, in 

which case nearly all such drugs would be subject to this exemption, 

whether the drug had ever been in shortage or not. Further, stakeholders 

By allowing 

manufacturers to more readily adjust their prices and achieve a profit, this 

proposal aims to provide an incentive for manufacturers to remain in the 

market, thereby preventing further erosion of manufacturing capacity, 

which could make the generic sterile injectable market even more 

vulnerable to shortages. Proponents note that this incentive could 

positively affect manufacturer profit and influence a manufacturer’s 

decision about participating in the market for a particular drug. One 

stakeholder cautioned that, in their opinion, using reimbursement as an 

incentive increases the risk of fraud and abuse.

 

15To calculate the average sales price, manufacturers submit sales data to the Centers for 

Medicare & Medicaid Services within 30 days of the end of each quarter. The agency then 

uses that data to set reimbursement rates for the following quarter. For example, 

manufacturers submitted sales data for the quarter covering October to December 2012 to 

the Centers for Medicare & Medicaid Services in January 2013 and the agency used 

those data to set reimbursement rates effective in April 2013. Therefore, some 

commentators have claimed that this two quarter lag limits manufacturers’ ability to adjust 

prices. For example, if a manufacturer changes the price of a drug in October 2012, the 

reimbursement to providers will not change until April 2013 (two quarters later), potentially 

creating a disincentive to purchase these drugs if the reimbursement is less than the 

purchase price for this period. Others note that manufacturers can and do adjust their 

prices and note that under the current reimbursement system, when the price of a drug 

drops, such as when a drug goes off patent, providers are reimbursed for more than the 

purchase price for the period until the reimbursement catches up.
Appendix IV: Summary of Recently Proposed 

Incentives to Alleviate or Prevent Drug 

Shortages

Page 84 GAO-14-194 Drug Shortages

noted that generic sterile injectable drugs are often administered in 

hospital inpatient departments and are therefore not subject to Medicaid 

rebates, which only apply to outpatient drugs. One stakeholder stated that 

for the few drugs in this group that are subject to Medicaid rebates, the 

cost of these drugs is already low, which would result in a minimal 

financial impact of such an exemption. Finally, one stakeholder stated 

that 340B discount exemptions would have a minimal influence on drug 

shortages.
Appendix V: Comments from the Department 

of Health and Human Services

Page 85 GAO-14-194 Drug Shortages

Appendix V: Comments from the Department 

of Health and Human Services
Appendix V: Comments from the Department 

of Health and Human Services

Page 86 GAO-14-194 Drug Shortages
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 87 GAO-14-194 Drug Shortages

Marcia Crosse, (202) 512-7114, crossem@gao.gov

In addition to the contact named above, Geri Redican-Bigott, Assistant 

Director; Katherine L. Amoroso; Zhi Boon; Leia Dickerson; 

Sandra George; Alison Goetsch; Cathleen Hamann; Rebecca 

Hendrickson; Eagan Kemp; Sarah-Lynn McGrath; Yesook Merrill; 

and Leslie Powell made key contributions to this report.

Appendix VI: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
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