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DRUG SHORTAGE CRISIS: LIVES ARE IN THE

BALANCE

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

NOVEMBER 30, 2011

Serial No. 112–102

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF COLUMBIA, CENSUS AND THE

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman

PAUL A. GOSAR, Arizona, Vice Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

PATRICK T. MCHENRY, North Carolina

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

DANNY K. DAVIS, Illinois, Ranking Minority

Member

ELEANOR HOLMES NORTON, District of

Columbia

WM. LACY CLAY, Missouri

CHRISTOPHER S. MURPHY, Connecticut
(III)

C O N T E N T S

Page

Hearing held on November 30, 2011 ...................................................................... 1

Statement of:

Hudspeth, Michelle, M.D., division director of pediatric hematology/oncology, Medical University of South Carolina; Walter Kalmans, vice president of New Ventures, Whiteglove Health; Ted Okon, executive director, Community Oncology Alliance; Scott Gottlieb, M.D., resident fellow,

American Enterprise Institute; and Kasey K. Thompson, Pharm.D.,

vice president, Office of Policy, Planning and Communications, American Society of Health-System Pharmacists ............................................... 11

Gottlieb, Scott, M.D. .................................................................................. 25

Hudspeth, Michelle, M.D. ......................................................................... 11

Kalmans, Walter ....................................................................................... 17

Thompson, Kasey K., Pharm.D. ............................................................... 35

Okon, Ted ................................................................................................... 21

Letters, statements, etc., submitted for the record by:

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 9

Gosar, Hon. Paul A., a Representative in Congress from the State of

Arizona, prepared statement of ................................................................... 53

Gottlieb, Scott, M.D., resident fellow, American Enterprise Institute, prepared statement of ........................................................................................ 27

Gowdy, Hon. Trey, a Representative in Congress from the State of South

Carolina, prepared statement of .................................................................. 4

Hudspeth, Michelle, M.D., division director of pediatric hematology/oncology, Medical University of South Carolina, prepared statement of .......... 14

Kalmans, Walter, vice president of New Ventures, Whiteglove Health,

prepared statement of ................................................................................... 19

Okon, Ted, executive director, Community Oncology Alliance, prepared

statement of ................................................................................................... 23

Thompson, Kasey K., Pharm.D., vice president, Office of Policy, Planning

and Communications, American Society of Health-System Pharmacists,

prepared statement of ................................................................................... 37

(1)

DRUG SHORTAGE CRISIS: LIVES ARE IN THE

BALANCE

WEDNESDAY, NOVEMBER 30, 2011

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10:01 a.m., in room

2247, Rayburn House Office Building, Hon. Trey Gowdy (chairman

of the subcommittee) presiding.

Present: Representatives Gowdy, Gosar, McHenry, Davis, Murphy, and Cummings.

Staff present: Brian Blase, professional staff member; Will L.

Boyington and Noelle Turbitt, staff assistants; Molly Boyl, parliamentarian; Christopher Hixon, deputy chief counsel; Christine

Martin, counsel; Jaron Bourke, minority director of administration;

Yvette Cravins, minority counsel; Devon Hill, minority staff assistant; Jennifer Hoffman, minority press secretary; Chris Knauer, minority senior investigator; Leah Perry, minority chief oversight

counsel; and Pam Dooley, minority GAO detailee.

Mr. GOWDY. I want to welcome everyone to our hearing, Drug

Shortage Crisis: Lives Are In the Balance.

Mr. Davis will be with us shortly and I will recognize him for his

opening statement at that time. I will now recognize myself for an

opening statement and then the ranking member of the full committee, the gentleman from Maryland, Mr. Cummings.

The drug shortage crisis in America has all the makings of a national crisis. Doctors are frustrated; patients and loved ones are

worried. Lives are truly in the balance. Drugs are being rationed.

Doctors are forced to sometimes look for less efficacious drugs.

Clinical trials are being disrupted and, perhaps unbelievably, doctors are sometimes asked to pick between patients as to who will

receive a drug.

For all those reasons and more, it is vital Congress conduct oversight of the drug shortage to understand why the problem exists

and what can be done to remedy it. In order to find solutions, we

must have a clear understanding as to why the drug shortages

exist in the first instance.

Over the last decade, there were around 70 new drug shortages

identified each year between 2003 and 2006. And then the number

of drugs in shortage began to dramatically increase. In both 2010

and 2011, there have been over 200 new drug shortages identified.

Typically, these drugs are used to treat cancer, heart disease, and
2

complicated infections. Dr. Michelle Hudspeth, testifying before us

today, will discuss how these shortages affect the care plan she establishes for pediatric patients.

The shortage shortages will also affect clinical trials and whether

or not the trials will actually go forward with participating patients. If there is a drug shortage that prevents participation, there

will still be a cost associated with the trial. Considering the importance of drug trials for research, this is another reason identifying

the cause or causes of the drug shortages is so very vital. If the

money has been approved for trials, it is important to ensure the

needed drugs are available.

Let me say nearly at the outset if there is anything for which

there is no shortage of in this town, it is politics, and I suppose

every issue can theoretically be turned into a political football if

the notion strikes. One reason I enjoy this committee and the

Members on it is that we are, from time to time, able to set aside

politics and look for the root causes of an issue and have a good

faith conversation about the remedy. And when it comes to sick patients, when it comes to children, and when it comes to research

for the diseases that are or will impact very nearly every family

here, my hope is that politics will go away, and we can earnestly

and honestly identify the issues and suggest the remedies.

Several explanations for this crisis have been offered, but a recent report issued by the Department of Health and Human Services highlights pricing problems that limit the supply of these

drugs. Part of this problem could be changes made to the Medicare

Modernization Act in 2007 regarding the reimbursement of

injectable drugs. One of the provisions of this law sought to increase price transparency and reduce the profit that providers

make from delivering intravenous drugs in their offices.

In The New York Times recently, Dr. Ezekiel Emanuel,

Oncologist and Professor of Health Policy at the University of

Pennsylvania, discussed the issue thusly: ‘‘In the first two or three

years after a cancer drug goes generic, its price can drop by as

much as 90 percent as manufacturers compete for market share.

But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act

effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a

hard choice: lose money producing a life-saving drug or switch limited production capacity to a more lucrative drug.’’

Another potential cause of the increasing number of shortages

could be the expansion of the 340(b) program. The 340(b) rebate

program is a pricing program that requires drug companies to provide rebates to hospitals and clinics serving indigent communities.

Although the 340(b) program is essential for providers of indigent

care, the 340(b) program could be affecting the ability of manufacturers and suppliers to provide required drugs because the rebates

may reduce the price of drugs to well below the cost it takes to

manufacture them.

There have been proposals which would require drug manufactures to alert the FDA of manufacturing problems or the discontinuation of a drug. Although this has superficial appeal, perhaps, simply knowing that a shortage is coming does little to cor-
3

rect the situation. Merely having more time to worry about whether the drug your doctor wants to prescribe for you may or may not

be available provides little comfort. Thus, it is important to dig

deeper into the actual causes of these shortages. Again, quoting Dr.

Emanuel, ‘‘The FDA isn’t able to force manufacturers to produce a

drug. And learning about impending shortages, with little authority to alleviate them is of limited benefit. Indeed, early warning

could exacerbate the problem. The moment oncologists or cancer

centers hear there is going to be a shortage of a critical drug, their

response could well be to start hoarding.’’

In talking with folks like Dr. Hudspeth, and let me say at the

outset she is from South Carolina, but I do not represent the district where she lives or works. Two of my colleagues, Tim Scott and

Jim Clyburn, have been very active in the Medical University at

South Carolina and have done many wonderful things there, but I

had the privilege of visiting the Medical University recently and I

was struck by the passion with which Dr. Hudspeth laid out for me

this crisis.

So I want to make sure that we have a full understanding of

what the challenges are and that we can equip ourselves with the

tools so perhaps we can do as the Good Book teaches and take care

of the sick, the poor, and the children. I am concerned to hear that

drug shortage is affecting the care and ultimately the health of patients, especially pediatric cancer patients.

If there is anything that can get the attention of every member

of this committee, it is to hear stories of children with medical

needs, and I have heard colleagues on both sides of this committee

speak with great eloquence and passion about issues involving children and their health. So I look forward to having a clear understanding of the issues surrounding the drug shortages and what we

can do to remedy it.

With that I would recognize the gentleman from Illinois, the

ranking member of the subcommittee, Mr. Davis.

[The prepared statement of Hon. Trey Gowdy follows:]
4
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6

Mr. DAVIS. Thank you very much, Chairman Gowdy, for holding

this hearing. I want to thank all of the witnesses who have come

to share with us.

The drug shortage is a major concern to me, as it should be to

all who serve in this body. I happen to represent a congressional

district that has 21 hospitals, 4 large medical center complexes, a

number of research institutes, and we are building a brand new

Children’s Hospital now. So there is nothing more important to us

than the provision and delivery of health care.

Our constituents, mothers, fathers, and children, depend on

these drugs to survive and flourish daily. This body has successfully increased access to health care for millions. It would be a

cruel irony for Members to now sit on our hands as lifesaving drugs

are becoming unavailable. We must take the necessary steps and

exhaust all available avenues to alleviate these shortages. This

hearing is a good initial first step.

It is important to hear from physicians about the barriers they

face in providing care and treatment. These doctors can certainly

testify and illustrate the impact drug shortages are having on their

patients. Their stories and, in particular, the work-arounds in providing alternative medicines when shortages occur illustrate not

only the difficulty this problem poses to patients, but also the cost

involved to our health care industry. Their stories are similar to

those that have been expressed by a host of health care providers

interviewed in the course of a lengthy investigation Mr. Cummings

launched into the issue of drug shortages and the impact they are

having, and illuminating those who seek to profit from these shortages. Our ranking member had the foresight to open that investigation several months ago.

Given our expertise, Mr. Chairman, I hope that this hearing and

subsequent ones are an opportunity for us to work together to solve

this problem, and I believe that we can. As I prepared for the hearing today, I must say that I was disappointed and puzzled by the

absence of the Food and Drug Administration. They are a critical

piece of the puzzle. Their knowledge and insight would have been

invaluable today. Further, if we truly seeking to delve into this

issue, we must have all the relevant players at the table. The drug

manufacturers, the distributors, and health care economists should

all be here before us under oath.

Mr. Chairman, again, I thank you for this hearing, but this is a

very complicated and complex issue and requires a broader panel

of witnesses than what we have here today. Therefore, I am requesting that a followup hearing with the manufacturers of these

drugs, and I think we should strike while the iron is hot, and I

hope that we could schedule that hearing for maybe 2 weeks from

now. I have alist of several drug manufactures that should be requested to testify about the drug shortages and, with your indulgence, I would like to share this list with you and your staff. And

I would say let’s get these manufacturers here so we can understand the nature of this problem and move toward solutions to it,

and I hope that you could accommodate this request. And I would

like to give you this list of manufacturers and ask that we seriously

look at asking them to come before us.
7

So with that, Mr. Chairman, and I will say who they are. They

are Bedford Laboratories, APP Pharmaceuticals, Hospira, Teva

Pharmaceuticals, Sandoz, the Generic Pharmaceuticals Division of

Novartis, Abbot, Takeda, Baxter Oncology, and Johnson & Johnson. And with that, Mr. Chairman, I thank you and yield back the

balance of my time.

Mr. GOWDY. I thank the gentleman from Illinois and would let

the gentleman from Illinois know what he may already know. If he

doesn’t, the Energy and Commerce Committee had a hearing in

September on drug shortages with the FDA and drug manufacturers present. And the gentleman from Illinois’ point is well taken

with respect to single committee hearings and then letting issues

drop, and I will commit to him that that will not be the case with

this.

I would recognize the distinguished gentleman from Maryland,

the ranking member of the full committee, Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Chairman Gowdy and

Ranking Member Davis. I want to thank you for holding today’s

hearing. Given the impact that the ongoing drug shortage is having

on patients and health care providers, this is exactly the type of

issue this committee should be examining.

In 2010, the FDA reported 178 drug shortages, and that number

has increased in 2011. In October, President Obama issued an Executive order urging manufacturers to notify FDA of potential drug

shortages so they could work with health care providers and patients to prevent or mitigate shortages before they become a crisis.

It is unclear exactly what is causing the drug shortages. Experts

believe there may be a number of causes, ranging from inadequate

financial incentives for manufacturers, problems with production

lines, and challenges in obtaining needed supplies. I look forward

to hearing the perspective of today’s witnesses on these very significant issues.

Although today’s hearing is a step in the right direction, unfortunately, we do not have the benefit of hearing testimony from any

of the drug manufacturers, and I echo what Mr. Davis said: these

folks are the ones that produce these critical drugs that are now

in short supply. If we had them here, we could have asked what

they believe are the causes of the crisis and we could have asked

their opinion about specific factors that contribute to the insufficient supply of these drugs.

Mr. Chairman, I was very pleased to hear what you just said

with regard to looking forward to future hearings where perhaps

we could call some of those folks so we might do what you said

even earlier, and that was that we would lay our political hats

down at the door and attack this crisis with everything that we

have, and on a bipartisan basis.

Finally, let me note that I began my own investigation this summer into a related issue, which is the sale of gray market drugs.

When hospitals and other providers cannot obtain drugs on the

shortage list from their authorized distributors, they sometimes

turn to so-called gray market distributors. These companies mysteriously always seem to have the product available, but at wildly

exorbitant prices. We are still in the initial stages of this investigation, so I will withhold comment for now, but I think we can all
8

agree that nobody should be allowed to profiteer at the expense of

cancer victims or other patients who are in dire need of these lifesaving medications.

So, Mr. Chairman, I hope that we will be able to address some

of these issues at a later hearing as well. With that, I thank you

for your indulgence and I yield back.

[The prepared statement of Hon. Elijah E. Cummings follows:]
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Mr. GOWDY. I thank the gentleman from Maryland.

We are pleased and delighted to have such a wonderful panel of

experts.

There are other Members who may wish to submit their opening

statements or other extraneous material for the record.

It is my pleasure now to introduce our panel. I will introduce you

from my left to right. I will introduce you en banc and then you

will individually give your opening statements. The lights in front

of you, I hope they are visible, mean what they traditionally mean

in society: green is go; yellow means speed up, try to get under the

light as quick as you can; and red mean start putting on the

brakes.

Dr. Michelle Hudspeth is the division director of pediatric hematology/oncology at the Medical University of South Carolina. And,

as a point of personal privilege, the first person to bring the issue

to my attention on a recent tour of MUSC. Dr. Walter Kalmans is

vice president of New Ventures at White Glove Health; Mr. Ted

Okon is executive director of the Community Oncology Alliance; Dr.

Scott Gottlieb is resident fellow at American Enterprise Institute;

Dr. Kasey Thompson is vice president of policy, planning and communications for the American Society of Health System Pharmacists.

Pursuant to committee rules, all witnesses will be sworn in before they testify, so I would respectfully ask you to stand and raise

your right hands.

[Witnesses sworn.]

Mr. GOWDY. May the record reflect all witnesses answered in the

affirmative.

You may be seated.

With that, I would recognize Dr. Hudspeth.

STATEMENTS OF MICHELLE HUDSPETH, M.D., DIVISION DIRECTOR OF PEDIATRIC HEMATOLOGY/ONCOLOGY, MEDICAL

UNIVERSITY OF SOUTH CAROLINA; WALTER KALMANS, VICE

PRESIDENT OF NEW VENTURES, WHITEGLOVE HEALTH; TED

OKON, EXECUTIVE DIRECTOR, COMMUNITY ONCOLOGY ALLIANCE; SCOTT GOTTLIEB, M.D., RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE; AND KASEY K. THOMPSON,

PHARM.D., VICE PRESIDENT, OFFICE OF POLICY, PLANNING

AND COMMUNICATIONS, AMERICAN SOCIETY OF HEALTHSYSTEM PHARMACISTS

STATEMENT OF MICHELLE HUDSPETH, M.D.

Dr. HUDSPETH. Chairman and members of the subcommittee,

thank you for inviting me to testify today. I am the Chief of the

division of pediatric hematology/oncology and the director of pediatric blood and marrow transplantation at the Medical University

of South Carolina in Charleston, South Carolina. I care for close to

75 newly diagnosed cancer patients each year who are children, as

well as 30 patients who undergo bone marrow transplant for the

best chance of survival from childhood cancer.

The National Cancer Act in 1971 officially declared the war on

cancer. Since that time, the overall survival rate of childhood cancer has dramatically improved from 10 percent to almost 80 per-
12

cent. However, the incidence of childhood cancer has continued to

increase over the past 20 years, and cancer remains the leading

cause of death from disease in children. In 23 days, we will mark

the 40th anniversary of the National Cancer Act being signed into

law. Today, unfortunately, we mark the largest number of chemotherapy drugs ever in shortage. The war on cancer has been reduced to a mere skirmish with no weapons and no clear battle

plan.

Just a few days ago, I was with a family in crisis in our pediatric

emergency room. I had to tell the parents of a 2-year-old little boy

that he has high risk acute lymphoblastic leukemia. This type of

leukemia is the most common childhood cancer. For his first month

of treatment, he needs four drugs plus another two chemotherapy

drugs injected into his spinal fluid. Five of these six drugs are in

shortage. Each of these drugs in shortage is a generic drug. Mercifully, we have the drugs right now. I held his mother’s hand and

told her that we will do everything humanly possible to cure her

son. He needs 31⁄2 years of chemotherapy treatments. Will I be able

to tell her the same thing next month, in 6 months, or even in a

year?

The scope of the problem continues to intensify. Between 2005

and 2010, the number of prescription drug shortages nearly tripled

in the United States. Currently, 21 chemotherapy drugs are in

shortage, as well as 2 essential chemoprotectant drugs. The vast

majority of drugs in shortage are generic and are used to treat curable childhood cancers. Clearly, the most critical problem is a child

being denied curative cancer treatment because of a drug shortage.

Furthermore, the additional downstream effects of chemotherapy

shortages have significant ramifications as well. Research cures

cancer. The major advancements in pediatric cancer have occurred

through the Clinical Trials Cooperative Group funded by the NCI.

The majority of clinical trials incorporate elements of standard

treatments into one or more treatment groups in the trial. Clinical

trial enrollment is not currently allowed if you do not have access

to the standard treatment.

As a result, clinical trial enrollment is declining. Not only does

this undermine the advancement of cancer treatment, but it comes

with a significant financial cost as well. Cooperative group clinical

trials have regulatory costs that add up. Consequently, up to $1.2

million could be spent in 1 year alone for pediatric cancer clinical

trials that are not able to enroll a single patient.

A recent study published in the American Journal of Health-System Pharmacy reported the overall personnel costs associated with

managing these drug shortages costs an estimate of $216 million

each year. Regrettably, most institutions have had to institute a review board, often with an ethics committee, to develop harrowing

plans of how to ration chemotherapy drugs, most of which are generic drugs that have been available for 30 years or more. How do

you decide who should be given a chance to live?

In an effort to maintain some semblance of adequate chemotherapy treatment, drug substitutions are being made with less familiar products. Additionally, pharmacies are stocking multiple

concentrations of the same drug. This can easily lead to dosing errors, either underdosing or overdosing, when one concentration of
13

the drug is mixed as if it is the other concentration. Chemotherapy

agents are high-alert drugs. They have a very narrow therapeutic

index, meaning there is a very small difference in the amount that

gives benefit and the amount that causes death. Over a year ago,

a national survey by the Institute for Safe Medication Practices

noted that 35 percent of respondents reported a near miss error

due to drug shortages. Twenty-five percent reported actual errors

that reached the patient. One-third of physicians reported an adverse patient outcome due to drug shortages.

As with any issue, there are multiple reasons for the current

drug shortage. However, the timing is notable. In 2003, the Medicare Modernization Act was put into place. In 2004, the FDA reported 58 drug shortages; in 2011, the number skyrocketed to over

200. The intent of the MMA was to create more transparency in

pricing. However, generic prices are driven down by market competition and the current model under the MMA makes it difficult

for companies to raise prices more than 6 percent per year. Product

margins have fallen significantly for many generic drugs, leaving

companies with no incentive to continue manufacturing the drug or

to increase production.

The current situation is nothing short of a massive national

emergency. The burden is on us to resolve the crisis to protect our

children. None of my patients’ families ever thought they would be

faced with a diagnosis of childhood cancer. Today alone, in the

United States, the parents of 36 children will be told your child has

cancer. Let’s act to ensure these parents can also be told we have

drugs available to cure your child.

Thank you.

[The prepared statement of Dr. Hudspeth follows:]
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Mr. GOWDY. Thank you, Dr. Hudspeth.

Mr. Kalmans.

STATEMENT OF WALTER KALMANS

Mr. KALMANS. Chairman and members of the subcommittee,

good morning. My name is Walter Kalmans, and I am currently

employed as vice president of New Ventures at WhiteGlove Health,

a venture-backed company in Austin, TX. This testimony is not related in any way to my current employer. Rather, it is based on

work independently developed as a result of 20 years of experience

working as a consultant and commercial operations executive in

the pharmaceutical industry.

Of particular relevance to this hearing is experience gained while

serving as vice president of business development for Oncology

Therapeutics Network [OTN], from 2003 to 2008. OTN was the 2nd

largest specialty drug distributor in the United States until its acquisition by McKesson Corp. in 2007. The popular press, as well as

recently publications by ASPE, FDA, and IMS Health, do a good

job characterizing the generic drug shortage and tend to cite manufacturing and supply chain issues as chief culprits. As citizens, we

are led to believe that over time, industry will fix the problem by

investing in additional capacity, improving quality control, and

identifying more high-quality suppliers of raw materials.

However, there is much more to this issue. Why, all of a sudden,

would the pharmaceutical industry, one of the most sophisticated

industries on earth, be experiencing an unprecedented growth of

shortages, and why, in particular, shortages of generic injectable

drugs? Manufacturing and supply chain issues certainly play a

role, but it is my opinion that the Medicare Modernization Act of

2003, MMA, is the core culprit as to why generic injectable drugs

are in growing shortage.

To most Americans, MMA is known as the act that expanded the

prescription drug coverage for Medicare patients; however, another

part of this legislation drastically altered how Medicare reimburses

community-based oncologists who administer drugs in their offices,

under Medicare Part B, B as in boy. Oncologists are one of the few

specialists who make a margin on buying a drug for price X and

receive Medicare reimbursement of price X plus Y.

Prior to MMA, Medicare reimbursed community-based

oncologists based on a price called AWP, average wholesale price.

MMA introduced a new price called ASP, average selling price. Calculating ASP required significant pricing transparency from pharmaceutical manufacturers and resulted in lower Medicare reimbursement payments to community oncologists and, notably, a

more rapid price decline for many generic injectable drugs.

In addition, because the legislation set Medicare reimbursement

for Part B drugs at ASP plus 6 percent, it established thinly veiled

price controls, making it unpalatable for a pharmaceutical manufacturer to raise price more than 6 percent a year. For example, if

a manufacturer were to raise the price on a $100 drug by more

than 6 percent during a year, an oncologist would likely be faced

with the scenario of buying the drug for $106 and receiving Medicare reimbursement of $104.
18

Now fast-forward to today. If you were a generic injectable manufacturer with finite capacity, would you focus your capacity on

manufacturing generics for products that have just lost patent protection, reaping high profits for the next few quarters, or would you

manufacture lower priced generics, drugs whose patents expired

long ago? Under normal economic circumstances, if there are shortages, prices adjust upward to reach a new equilibrium until additional product comes online, basic supply and demand economics.

However, because MMA limits price increases to 6 percent annually, prices do not reach an equilibrium; even worse, because the

profit potential of these drugs is so low, new entrants decide to

stand on the sidelines or focus on more profitable products.

In conclusion, it is my opinion that we will experience generic

drug shortages until legislation is passed to change the way generic

injectable drugs are reimbursed by Medicare. Like any piece of legislation, MMA provided many citizens with benefits, but also like

any piece of legislation, it had flaws. Unfortunately, these flaws

took several years to become exposed and, for a variety of reasons,

it may take quite some time to fix them.

Thank you.

[The prepared statement of Mr. Kalmans follows:]
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Mr. GOWDY. Thank you, Mr. Kalmans.

Mr. Okon.

STATEMENT OF TED OKON

Mr. OKON. Chairman Gowdy, Ranking Member Davis, and members of the committee, I thank you for the opportunity to share my

views on the drug shortages crisis relating to cancer care.

I am not a medical oncologist but serve as executive director of

the Community Oncology Alliance, a non-profit organization dedicated to community cancer care. In my position, I hear from cancer

patients and their providers how treatment has to be delayed,

changed, and in cases stopped because low-cost, but potentially lifesaving, generic infusible drugs are not available. Unfortunately, escaping the crisis is next to impossible for me as my wife is an oncology nurse who voices the frustrations of all cancer care providers

when she asks, how can this be happening in the United States?

The drug shortage situation is very complicated; however, the

root cause is not. The problem is grounded in economics and goes

back to the way that Medicare reimbursement for cancer care was

changed in the Medicare Modernization Act of 2003. The reason for

the change was well intended: better balance Medicare payment for

drugs and services to market rates. However, the policy change, exacerbated by poor implementation, has had unintended consequences. The first consequence has been a consolidation of oncology providers, including clinic closings and mergers into large hospital systems. The second is a severe reduction in the number of

manufacturers supplying low-cost, generic cancer drugs.

Let me briefly explain the evolution of drug shortages.

The MMA changed Medicare Part B drug reimbursement from

average wholesale price set by the manufacturer to average sales

price, a market-based price. Oncology clinics administering chemotherapy are reimbursed by Medicare at ASP plus 6, which is intended to cover drug cost, overhead, staff, and materials. In actuality, reimbursement is lower than ASP plus 6 due to manufacturer-to-distributor prompt pay discounts included in the ASP calculation. It is also important to understand there is a perpetual lag

of 6 months in updating ASPs each quarter, which results in providers subsidizing Medicare for drug price increases.

There are two key points to note about ASP reimbursement.

First, the system substantially reduced Medicare provider payments for cancer drugs. However, CMS never balanced this shortfall by increasing payment for non-reimbursed, essential services

such as treatment planning. Instead, CMS put into place two demonstration projects in 2005 and 2006 to provide stopgap funding for

the shortfall in services payments. A study by Avalere Health

found that by 2008 Medicare covered only 57 percent of the cost of

just the services associated with chemotherapy infusion. The overall shortfall in Medicare reimbursement has forced community cancer clinics to close, 199 over a 31⁄2 year period, and an increase in

mergers of clinics into hospitals, 315 over the same time period.

Second, the AWP reimbursement system allowed generic manufacturers to compete on the margins they established by setting a

drug’s AWP and then selling the drug at a discounted price. The

ASP system changed the generic manufacturers’ means of com-
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peting to solely on actual sales price. That and the 6-month lag in

updating Medicare reimbursement has resulted in a system that is

effectively price capped.

There has been a steady downward pricing pressure on most

generics since 2005, the year ASP was first implemented. For some

of the top cancer drugs in short supply the ASPs have dropped approximately 50 percent since 2005. You should also understand

that ASP masks the true decline in prices for manufacturers because they do not reflect discounts and rebates exempt from the

calculation of ASP.

Generic manufacturers have felt additional pricing pressure from

an increasing volume of 340(b) discounts, which they are required

to extend to 340(b)-eligible hospitals and other institutions treating

a disproportionate share of low-income and uninsured patients. As

more oncology practices under reimbursement pressures have been

acquired by hospitals eligible for 340(b) pricing, the volume of these

discounts have increased. Furthermore, Medicaid rebates exert further downward pricing pressure on manufacturers.

Although, on the surface, declining prices are a positive for both

payers and patients, the problem is that many generics have

reached severely low prices. Consider if manufacturing a $1 sterile

infusible cancer drug is economically viable in the long run. In a

market that is highly regulated, both in terms of pricing and manufacturing, normal market forces are not in effect.

Faced with the prospect of diminishing returns from low-priced,

discounted, and rebated drugs, the incentive to stay in the market

is reduced. This has led to fewer manufacturers producing these

products. As a result, any manufacturing, regulatory, or quality

problem that shuts down a production line has significant impact

on the supply of product.

In closing, I implore the Congress to work with the cancer community in fixing this crisis. Next month will mark the 40th anniversary of when our Nation declared war on cancer. We have

evolved our cancer care delivery system into the best in the world,

as documented by survival rates. Americans battling cancer today

and for generations to come should have access to quality, accessible, and affordable cancer care. We stand ready to provide you

with supporting data and to work on immediate solutions.

Thank you for listening.

[The prepared statement of Mr. Okon follows:]
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Mr. GOWDY. Thank you, Mr. Okon.

Dr. Gottlieb.

STATEMENT OF SCOTT GOTTLIEB, M.D.

Dr. GOTTLIEB. Mr. Chairman, Mr. Ranking Member, thank you

for the opportunity to testify today before the committee. I am a

practicing hospital-based physician and a resident fellow at the

American Enterprise Institute. Previously, I served as Deputy

Commissioner at the Food and Drug Administration and as a senior official at CMS during implementation of MMA.

The causes for these scarcities can be complex and multifactor.

Each episode typically has unique characteristics that make it distinct from other drug shortages. There are, however, some common

problems that are, to a varying degree, threaded through each of

these episodes. I believe these common factors should be the focus

of our attention.

I group these common factors into three categories. The first are

regulatory challenges that have made the manufacturing of these

products safer and more reliable, but also, in some cases, more

challenging and expensive The second are mechanisms that make

the prices sticky, limiting profitability and precluding new investment in additional supply and better and more efficient manufacturing. And the third and final category is market structures that

prevent firms from branding their products and reflecting by how

they price them legitimate improvements in manufacturing that

allow drugs to be produced more reliably and in scalable facilities.

The first challenge is the way the manufacturers of these drugs

are being regulated. In recent years, the Food and Drug Administration has gotten tough on potentially dangerous snafus that have

long plagued the production of some injectable generic drugs. These

include problems with sterility and particulate matter getting into

the solutions.

The FDA has real concerns, but if we want to maintain high

standards, we need policy measures to accommodate the economic

impacts. This begins with making sure regulations governing drug

manufacturing, FDA’s good manufacturing practices, are as efficient as possible. Manufacturers have long complained that these

policies are outdated and at times inflexible.

Another regulatory issue that plays in these shortages relates to

the backlog that FDA currently has for generic drug manufacturing

supplements. The backlog in reviewing manufacturing supplements

can add as much as a several-year delay to the approval of manufacturing changes. Because of remediation now taking place at

many plants, FDA is about to get hit with a deluge of supplements

related to the manufacture of these shortage drugs.

The increased regulatory scrutiny presents a more immediate

challenge also because of the way these generic parenteral drugs

are being reimbursed by Medicare and private payers. The current

system prevents manufacturers from adjusting prices to reflect the

higher cost of goods as a result of the manufacturing upgrades that

they are required to undertake.

A 2003 law sets the price Medicare will pay for physician-administered drugs to the average sales price that is at least 6 months

old at any given time. This means even if a generic raises its price
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to reflect increased production cost, Medicare won’t pay the new

price for about 6 months later, so purchasers lose money on these

drugs for months at a time.

In order to make long-term capital intensive investments needed

to bring on new manufacturing capacity for these parenteral drugs,

generic firms would need to know that they can take and sustain

price increases over a reasonable period of time.

The bigger issue with the way Medicare reimburses these drugs,

however, is the way it sets a single flat price for each broad category of medicines, rather than paying for these drugs individually.

Medicare assigns a single billing code to each category of medicines.

Since FDA’s enforcement of facilities is often uneven, one firm

might be facing significantly higher manufacturing and regulatory

costs while others are getting by with older and perhaps less safe

facilities. Lumping all the drugs in the same billing code creates a

race to the bottom on the costs of goods, with the price reflecting

the lowest cost producer.

The result is that prices can’t rise to reflect change in demand

or the need for investments in manufacturing. Any capital requirements are hard to recoup given the way Medicare pays for these

drugs. When higher costs of goods erode slim profit margins, more

manufacturers are choosing to exit product lines entirely rather

than invest to meet higher standards.

To fix these problems, we should lift existing price controls when

it comes to critical injectable drugs that are generic.

These drugs should also get a holiday from other price control

schemes that serve to distort market prices and reduce incentives

to invest in new product, such as the 340(b) discount program.

Medicare can also allow these drugs to have individual billing

codes rather than paying for each class of drug according to the

same billing code. This would allow manufacturers to price their

drugs individually, eliminating the race to the bottom on the cost

of goods.

Finally, we should consider policy constructs that would give

manufacturers a financial incentive to develop intellectual property

that improve the manufacturing characteristics of generic medicines, even if these changes didn’t change the clinical properties of

the drug. Recent policies have systematically eroded the ability of

firms to earn returns on these products and make investments. The

only way to mitigate these shortages is to make it profitable for

firms to invest in manufacturing that enables safe, stable, and

more scalable supply.

Thank you.

[The prepared statement of Dr. Gottlieb follows:]
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Mr. GOWDY. Thank you, Dr. Gottlieb.

Dr. Thompson.

STATEMENT OF KASEY K. THOMPSON, PHARM.D.

Dr. THOMPSON. Good morning and thank you, Chairman Gowdy,

Ranking Member Davis, and distinguished members of the subcommittee for holding this hearing. My name is Kasey Thompson

and I am vice president of policy, planning and communications for

the American Society of Health System Pharmacists. I am here

today to talk about the problem of drug shortages and the impact

shortages are having on the ability of health care providers to care

for our patients.

For the last 10 years, ASHP, in collaboration with the University

of Utah Drug Information Program, has been tracking and studying drug shortages and making that information available free to

the public on our Web site. Since that time we have seen the number of shortages increase, almost tripling since 2006. As a result,

hospital pharmacists and other health care providers have had to

go to heroic lengths to find needed medications, spending time

tracking down the product rather than caring for patients. In some

cases we are told why there is a shortage. For example, there may

be a quality issue with the production of the product. In other cases

we simply have no idea.

Our analysis of shortages over the last 10 years has shown that

most drug shortages are the result of quality issues in the manufacturing process. However, we recognize that there is no one cause

to this problem, nor is there one solution. For example, it has been

suggested that Medicare reimbursement policies may be partially

to blame for drug shortages. While we believe this is an area that

should be explored further, we do not currently have the data to

confirm that this is in fact the case. We do know that drug shortages are not confined to oncology medications.

Other significant shortages affect anesthesia, pain management,

nutrition support medications as well. These other drug classes

have experienced increases since 2006, in addition to oncology

drugs. This suggests multiple reasons for drug shortages, both

quality assurance and economic. We are pleased, however, to see

that other facets of drug shortages, including economic factors, are

being considered, but would warn against rushing to any conclusions, given the limited data at this time. It will be important to

learn from other stakeholders in the supply chain, including pharmaceutical manufacturers, in order to fully assess the causes and

solutions to this public health crisis.

Fortunately, the Food and Drug Administration has been able to

take steps to address drug shortages when they had access to certain information from drug manufacturers. For example, in 2010,

FDA was able to prevent 38 shortages when drug manufacturers

notified the agency when a product was discontinued or a manufacturing problem occurred. That number has increased to 101 shortages averted for 2011.

For this reason, ASHP supports bipartisan legislation in both the

House and Senate that would require manufacturers to confidentially notify the agency when they experience production problems

or discontinue a product. We know that confidential notification by
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drug manufacturers to the FDA is not a complete solution, nor does

it prevent drug shortages from occurring, but it is a proven solution

based on FDA’s experience that can be implemented immediately

while we look to examine other potential causes of drug shortages,

including economic factors.

Hospital and health system pharmacists have been collaborating

with other clinicians and members of the supply chain to work with

FDA to address the problem. For example, we believe FDA should

have the necessary resources to speed up the regulatory process to

help resolve drug shortages. Other alternatives include improved

communication between FDA field personnel in the drug shortages

program to assess the risk of public harm when potential enforcement action may worsen a drug shortage; exploring incentives for

manufacturers to continue or reenter the market; a generic user fee

program to speed approvals; and, last, ensuring the agency has the

funding it needs to carry out its mission.

In conclusion, drug shortages continue to be a very serious public

health threat not just for oncology drugs, but also for pain medications, anesthesia drugs, and nutrition products. While some causes

are known, others are not as clear. ASHP supports more examination of these other factors to help identify causes of drug shortages

currently plaguing our health care system.

Again, thank you, Mr. Chairman, Mr. Ranking Member, and all

members of the committee, for this opportunity to provide input on

this urgent public health crisis.

[The prepared statement of Dr. Thompson follows:]
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Mr. GOWDY. Thank you, Dr. Thompson.

I will recognize myself for questioning.

Dr. Hudspeth, what percentage of drugs used to treat childhood

cancer are generic?

Dr. HUDSPETH. Over 90 percent of the drugs that we use to treat

and cure childhood cancer are generics. And I understand we have

to be good stewards, just like you all, of the budget, and I can

imagine your concerns. We are talking about our concern about

prices and increasing costs. But you have to understand if you look

at generic injectable cancer drugs, they represent only 2 percent of

the entire budget spent each year on cancer chemotherapy drugs.

So even by improving this, you are only looking at a very small

overall increase. They make up 0.5 percent of the total cost for cancer care each year.

I have a young man who is an honors college student whose leukemia has relapsed. He needs a drug to start tomorrow. But we

have an adult in our institution who is also due to start a regimen

that needs the same drug. I don’t know who we are going to be able

to treat tomorrow. And that is real. That is me getting off the plane

yesterday calling, emailing back with my home institution. So this

is real.

Mr. GOWDY. Are there particular types of incentives that would

encourage manufacturers to enter the market and stay in the market?

Dr. HUDSPETH. There have to be incentives, I believe, for production capacity. If you notice, the drugs primarily in shortage are

injectable drugs. They are typically more complex to produce than

a pill and typically, in a company, they have to dedicate an entire

production line to, say, that one drug. So there are some real

things about injectables that are different.

So I think there has to, at the end of the day, be some form of

incentive for the companies to be able to run 24/7 production lines.

Have a contingency plan. That is a current problem, they really do

not have contingency plans, and there are some measures in H.R.

2245 that do recommend that the FDA require contingency plans

for single makers of critical drugs.

Mr. GOWDY. Dr. Hudspeth, you were good enough this morning,

and again in response to a question, to mention the untenable

choice that a physician would have to pick among patients. Without

violating the confidences of any of your patients, has the drug

shortage caused you to change the way you practice medicine in

any other regards?

Dr. HUDSPETH. Yes. We have had to start chemotherapy regimens sooner than normal. Typically, we require that a patient recover from their prior chemotherapy regimen to a certain level to

be safe enough to start the next cycle. We start a patient sooner

than normal just out of fear that if we wait another week there

simply won’t be drugs available. And this has come up. Cytarabine

has been a drug that is mentioned a lot in the press. There is absolutely no substitution for Cytarabine. It is in every single regimen

in order to cure AML.

The other issue is medical errors. When the pharmacists—a cardinal rule of pharmacy safety is you stock one concentration of a

drug. That way everybody that makes that drug day in and day
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out, they understand this is what we are working with. Well, now

people are scrambling. We are just happy to have the drug. So you

have five different concentrations. People are unfamiliar. You are

going to absolutely increase the amount of errors.

Mr. GOWDY. If the pricing problems are not remedied, what do

you see the future of drug crises being? Drug shortages. Will they

be exacerbated?

Dr. HUDSPETH. Absolutely. Right now it feels like practicing medicine in a Third World country. I never dreamed of a day where I

would have to spend hours on end that I should be at the bedside

talking to the families or with the kids, but now I am on the phone

with our pharmacists and the other oncologists trying to figure out

alternative treatment plans and who gets what. It is taking up

time that could be used in so many other ways. And at the end of

the day, if it is your family member being treated for cancer, do

you want me worrying about if we have drug or not, or do you want

me thinking about taking care of you?

The other drug shortages that are mentioned are antibiotics,

antivirals, nutrition solutions. Well, my patients all need those too,

right? So one of the consequences of chemotherapy is you can’t eat

and you get a heck of a lot of infections. So we have had significant

issues, too, where we simply haven’t even had the support of care

drugs to treat them, to support them through the therapy when we

do have the therapy.

Mr. GOWDY. I want to ask a question, and I will give the other

four gentlemen a chance to answer with respect to negatively impacting clinical trials. I only have 30 seconds, so if you could give

a quick response if this is an area that you feel comfortable talking

about. Dr. Hudspeth already told us in the actual practice, with respect to research, the drug shortage, how is it impacting clinical

trials?

Mr. OKON. Mr. Chairman, I can just say that, hearing from

oncologists all across the country, it is a real problem because the

problem is the trials in many cases, and I understand in talking

to some of the manufacturers trials have actually had to be stopped

because of the unavailability of a particular drug.

Mr. GOWDY. My time is up. I would now recognize the gentleman

from Illinois, the ranking member of the subcommittee, Mr. Davis.

Mr. DAVIS. Thank you, Mr. Chairman. With your indulgence, I

know that the ranking member of the full committee has another

assignment that he needs to be engaged in. I would like to switch

places with him.

Mr. GOWDY. Of course. The ranking member of the full committee, Mr. Cummings.

Mr. CUMMINGS. Thank you very much. I want to thank the gentleman for yielding.

As most of you know, since this summer I have been looking into

the role of so-called gray market during drug shortages. My investigation has focused on determining where some of the companies

obtain drugs in critically short supply and how much they mark up

the drugs that they sell to hospitals and other health care facilities.

My staff has heard from countless health care providers about

the constant unsolicited offers for drugs on the shortage list, but

at prices that are nothing short of price gouging. For example, one
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company offered to sell a cancer drug for over $990 per vial, more

than 80 times the price a hospital normally pays for it. I recognize

the incredible predicament that this puts our health care providers

in. I do not envy their choices of either delaying or denying treatment until drugs become available from a reputable distributor or

paying huge markups on the drugs.

Dr. Hudspeth, by the way, I really appreciate your passion; I feel

it. When your hospital no longer has a needed drug available, what

steps does your hospital undertake to obtain a needed drug? I am

very familiar with chemotherapy. It is done in cycles. So I guess

you might have enough to start a cycle but not enough to finish a

cycle, so I guess you don’t start it, is that how that works?

Dr. HUDSPETH. That is correct. And basically part of our committee meetings each week is looking at who, throughout the institution, is due for what and how much that will entail and how

much supply is on hand. Our institution does not deal with the

gray market. We have certainly been approached. Our policy is we

do not deal with them. And I am continually indebted to the wonderful pharmacists at our institution that have spent an amazing

amount of time speaking with manufacturers, trying to get drug.

It has really been an all-out effort.

Mr. CUMMINGS. Do you think there are a lot of other health care

facilities in, say, South Carolina that refuse to deal with the gray

market folks?

Dr. HUDSPETH. It is hard to say. I could see how the pressures

could get to you. It is very easy to say, sure, we don’t want to deal

with the gray market, but at the end of day, when you know there

is a patient on the other end, you can see where that temptation

could come along. So I don’t know of any instances for sure, but

I know that the threat is out there.

Mr. CUMMINGS. To all of our witnesses, can you explain to me

how it would be potentially harmful for a patient to be given a

drug that has changed hands many times?

Mr. OKON. I can just say, Mr. Cummings, that the amazing thing

about the distribution system, it is very regulated and you understand the pedigree of the drug, which is very important. So the

problem is when you have some distributor that you don’t know at

all that basically sends a fax, I hear from practices all the time

that they get faxes about drugs, they get emails about drugs, and

you don’t understand the pedigree of that, again, I am not an

oncologist, but I think the problem is administering that drug,

which I don’t think my wife would be in favor of, as an oncology

nurse, administering that drug without a set pedigree is very dangerous because you are talking about extremely, extremely potentially toxic medication.

Mr. CUMMINGS. I was just thinking, going back to you, Dr.

Hudspeth, if you have somebody with cancer and they face life or

death, and the patient knows, people begin to research.

Dr. HUDSPETH. Absolutely.

Mr. CUMMINGS. Have you ever come into a situation where somebody says, wait a minute, doc, we know you don’t have the drug,

but we have done some discovery here and learned that XYZ Gray

Market Co. has it. We don’t care what it costs, we will pay. Do you

run into those kinds of situations?
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Dr. HUDSPETH. It is getting to that point, and 85 percent of the

children I take care of are Medicaid funded. I am a native South

Carolinian, but we are a poor State, and part of my passion is that

these kids have to have treatment no matter what background or

circumstances they come from.

So what I am afraid of is you are going to set a hierarchy of

treatment. If you have the money to obtain some drug, travel to

Canada, you can get treatment, but the folks who don’t have the

finances to do that are left behind. And who is that going to be?

It is going to be the kids.

Mr. CUMMINGS. Dr. Thompson, are your members concerned with

the safety of such drugs that circulate in the gray market?

Dr. THOMPSON. Yes, sir, they are, and this has been a phenomena that they have dealt with for a very long time. The notion

of receiving faxes came up and this does happen. When there is a

shortage, our members get contacted with offers to provide these

drugs at exorbitant prices.

But it is really not the price issue so much. Not that that is not

a factor. It is the safety issue. When everybody knows that there

is a profound shortage of a drug, they are asking the question,

Where did these distributors get the product? Is it safe? How was

it stored? What is the pedigree? So it raises real concerns.

Many pharmacy departments in hospitals will not buy from the

secondary market at all. But, as others have mentioned, sometimes

there is no other option.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Mr. GOWDY. I thank the gentleman from Illinois.

The Chair would now recognize the gentleman from Arizona, the

vice chairman of the subcommittee, Dr. Gosar.

Mr. GOSAR. As a health care professional, I look at symptoms,

and I don’t treat symptoms, I am looking at what the disease process is. So I want to ask you yes or no down the road, is the gray

market a symptom or is it the disease?

Dr. HUDSPETH. It is a symptom.

Mr. KALMANS. It is a symptom.

Mr. OKON. Symptom.

Dr. GOTTLIEB. It is a consequence, it is a symptom.

Dr. THOMPSON. Symptom.

Mr. GOSAR. Thank you. So what we really need to do is concentrate back on the cure back to the disease process. So it seems

to me like we have something going wrong here and we need to get

back down to it.

There are some clear problems in the way that we are addressing

the drugs themselves. Very quickly, can you give me an idea on

how we can do this? Because it seems like arbitrarily isn’t allowing

bureaucrats to set, it seems anywhere the Federal Government is

involved we have problems, and when we have somebody outside

the business of medicine dictating to medicine, we tend to get bigger problems.

So, real quickly, is there a way that you can see that we can simplify this and let the markets work, but also have some control,

very simple, but also allow the patients to have skin in the game?

Doctor, what do you think?
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Dr. HUDSPETH. I think there is going to have to be an allowance

for the market to work, for the prices to reach market value. There

are clearly still some drugs that would benefit from regulation that

will allow us to treat the greatest number of patients overall. So

it may not be that we abandon some of the tenets of the MMA altogether, but I think it is clear that in the generic injectable industry

it is a very different beast, so probably there need to be allowances

made differently for these types of drugs.

So is it that we grant exclusivity, even though it is a generic

drug, for a certain period of time? Do we offer financial incentives

for the production? So is it maybe focusing on incentives for production and good manufacturing process, which helps everything,

perhaps maybe even over just the price of the drug itself? And that

may be able to be better controlled when focusing on overall incentives to the company.

Mr. KALMANS. There are several different kinds of solutions to

look at. I will give an example of one. We know there is a rapid

price decline when drugs go generic, and right now they are limited

from price increases to a maximum of 6 percent based on the ASP

legislation. One idea might be to look at changing for drugs that

have been generic for a couple of years, changing the ASP to be

ASP plus 20, to allow prices to have greater fluctuation to make

sure that the profits can continue to be earned and generics are

priced at a market price that is palatable.

Mr. GOSAR. I know we are going to put up a slide before Mr.

Okon does, but this actually shows just one drug, Carboplatin, that

you can see how much it has decreased. So this gives you an example of one idea.

Mr. Okon.

Mr. OKON. I think, Dr. Gosar, that what has to happen is I think

on the manufacturing side there has to be some clear incentives,

whether we look at tax credits or something else that basically

incents not only manufacturer coming into the market, a manufacturer staying in the market over a period of time. And I think that

it is very clear on the reimbursement side we need to do something

differently and we need to do something immediately with these

drugs.

You have to realize that some of these drugs are what we talk

about as being even underwater, that their cost is higher than the

reimbursement for Medicare right now. And because Medicare and

cancer care basically accounts for 50 percent of the cost, it has an

inordinate influence on private payers as well, too.

So this is having a consolidation factor. We are seeing consolidation on the provider side; we are seeing consolidation on the manufacturing side. So I think we need to do something. And one of the

things is when a new product comes into market and there is not

an established ASP, it is basically WAC plus 3, wholesale acquisition cost plus 3. Maybe we need to do something like that in terms

of on an immediate basis.

But I have to say this. Whatever we do, we have to put the politics aside right away. We have to get in a room and come up with

some solutions because this is really a crisis.

Mr. GOSAR. Dr. Gottlieb.
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Dr. GOTTLIEB. Yes, I think we need to go to a different pricing

scheme, and I advocate my written testimony, looking at the wholesale acquisition cost, which might allow producers to take and sustain price increases that would allow them investment facilities. I

think the regulation of the facilities needs to be uniform so you

don’t have the cost of goods going up for one manufacturer but not

up for others. I think there are schemes we can think of that would

allow some limited rebranding of these products so that manufacturers could make representations about the manufacturing quality

that might allow them to either sustain higher prices in the market

or get automatic government purchasing for programs like VA or

others.

The other thing that I think this committee might think about

is the fact that there is a significant portion of the manufacturing

capacity that is offline right now, that has been taken offline by the

Food and Drug Administration. If you look at just the first five

companies that the ranking member mentioned, APP, Bedford,

Hospira, Teva, Sandoz, that is probably 80 percent of the parenteral market, and you might have upwards of almost 20 percent of

the manufacturing capacity of those companies offline right now, if

I am just thinking of a couple of those companies. Those manufacturing facilities are going to be coming back online, and as they do

they are going to hit FDA with literally hundreds, if not thousands,

of supplements, and the question is is the regulatory agency prepared to approve those and evaluate them in an efficient fashion.

Dr. THOMPSON. Mr. Davis mentioned involving manufacturers in

this process. My organization has been researching drug shortages

for 10 years now, and one thing we do is we conduct a root cause

analysis and we ask every stakeholder in the supply chain what is

causing this, what would help, what is the issue. Getting insights

from pharmaceutical manufacturers is a challenge in terms of what

are the issues, what would the incentives be, and we would really

like to get some answers to those questions from the manufacturers’ standpoint.

What specific incentives could be provided to you by the Federal

Government to help you stay in this business, get in this business,

ramp up supply. I would strongly encourage this committee and

others to have a discussion with pharmaceutical manufacturers

and see if you can get some better sense from their perspective

what the incentives would be that would help them be in these

businesses that are so critical to our patients.

[The prepared statement of Hon. Paul A. Gosar follows:]
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Mr. GOWDY. I thank the gentleman from Arizona.

The Chair would now recognize the gentleman from Illinois, Mr.

Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman. And again I

want to thank you for your indulgence relative to Mr. Cummings’

need.

As a member that represents over a dozen safety net hospitals

in the 340(b) drug discount program, I am extremely concerned

about the unsubstantiated suggestions linking 340(b) and drug

shortages. It is hard to believe that this small, but critically important program is of the magnitude to affect the drug market in this

way.

Dr. Thompson, can you cite any specific evidence that the drug

shortage is significantly affected by the 340(b) program?

Dr. THOMPSON. Sir, in our research we have seen no evidence to

support that claim and I personally don’t find it to be highly likely.

The 340(b) program is a very small program, it makes up about 2

percent of the national drug market, so it just doesn’t seem that

likely.

Mr. DAVIS. Let me ask if any of the other witnesses have any evidence that you have come into contact with or unearthed that

would suggest any difference.

Dr. GOTTLIEB. Manufacturers feel otherwise. I mean, the 340(b)

program has been significantly expanded and drugs are started to

get diverted into that program and sold at a much lower cost, and

to the extent that the program that you now see arbitraged in the

marketplace, where hospitals are literally buying out community

oncologists and other providers to try to capture the drug revenue

and move it toward the hospital environment, where they could

earn the money on the spread for what they are buying the drugs

for versus what they are billing Medicare for, you are seeing a

growing proportion of the overall drug utilization start to shift to

that program. I think it creates a lot of uncertainty in the marketplace and just more impediments to people making investment decisions.

I sympathize with the idea that we need to subsidize these hospitals. I have worked at some of these hospitals that are beneficiaries of this program. I wish we could find ways from a policy

construct to subsidize them directly, rather than doing it indirectly

by this sort of arbitrage on the drug revenue.

Mr. OKON. I think, Mr. Davis, first of all, the 340(b) program, the

intent of it is a wonderful program. What it is meant to do and taking care of indigent patients and patients who can’t afford care is

absolutely right-minded. I think we just have to keep in mind,

though, that ASP, because 340(b) discounts and Medicaid rebates

as well, too, are not included in the calculation of average sales

price, that when we look at ASPs going down, that is not reflective

of what the manufacturers are actually paying.

So in no way, shape, or form, knocking either, obviously, 340(b)

or Medicaid, but I think we have to be aware that there are other

pressures downwards on the manufacturer to give up-front discounts and rebates that we just have to be aware of are actually

increasing. If you look at the number of DSH hospitals that are

qualified for 340(b), it has expanded from about 519 in 2004 or
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2005 to the estimate is close to 3,700 next year. So we just have

to be aware of the impact that these discount and rebate programs

are also having on ASP. That is my point.

Dr. HUDSPETH. I think it is important to note, though, for children’s hospitals, essentially everyone is going to be part of a DSH

program. Children’s hospitals historically always serve a tremendous portion of patients who are funded by the Government, so it

is important to realize the impact on kids. I agree with the representative from the HSP. As I was reviewing it, I see the rule of

twos, 2 percent. It only concludes 2 percent of all drugs. The other

thing is that if you look over the past 2 years, any of the drugs that

have been on shortage, none of those have been on the so-called

penny pricing list for the 340(b) program.

Mr. DAVIS. Thank you all.

Dr. Hudspeth, let me ask you, you mentioned earlier that your

institution does not deal with gray markets.

Dr. HUDSPETH. That is correct.

Mr. DAVIS. Could you tell us why and what dangers there might

be inherent in that kind of transaction?

Dr. HUDSPETH. Absolutely. It has been well outlined by the other

folks that you simply don’t know what you are getting. You really

have no idea how to really know, has the drug been stored properly, has it expired, does it really contain what you think it contains? And with that type of uncertainty, patients undergoing

chemotherapy treatments are fragile; we push them to the limit.

Then if you then expose them to something that may be a completely different drug altogether, and maybe it is not even drug at

all, there could be real inherent dangers in that. You simply don’t

know what you are getting.

Mr. DAVIS. So the risks simply are not worth the costs.

Dr. HUDSPETH. Absolutely.

Mr. DAVIS. Thank you very much, Mr. Chairman.

Mr. GOWDY. I thank the gentleman from Illinois.

The Chair will now recognize the gentleman from Connecticut,

Mr. Murphy.

Mr. MURPHY. Thank you, Mr. Chair, and thank you very much

for this incredibly important hearing.

According to probably the most comprehensive FDA study that

we have, the leading cause of these drug shortages are quality

problems during manufacturing. I think the study showed that

about 54 percent of the shortages studied were due to manufacturing problems.

I will pose the question to you, Dr. Thompson. You mentioned

that there is a multitude of causes here, but while we spend most

of the time here talking about pricing, the data at least coming out

of the FDA suggests that the biggest problem is manufacturing.

The information that you have collected thus far, does that back up

the idea that the biggest cause here is manufacturing problems?

Dr. THOMPSON. Yes, sir, the 54 percent number is the one that

you know has been backed up by the research we have done over

the years on the issue.

Mr. MURPHY. That study goes on to further say that outside of

that 54 percent that is due to product quality and manufacturing

issues, 21 percent is due to delays in capacity issues, 11 percent
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is due to discontinuations, 5 percent are due to raw material

issues, 4 percent are increased demand because of another shortage, etc.

None of the reasons that the FDA cites are due to pricing issues,

and certainly none of them are related to 340(b), so maybe, Mr.

Okon, I will ask you the question, and I would be glad to hear comments from others. Is this study wrong? And if it is not, how do

you square the focus that we have heard on this panel on pricing

when the FDA suggests that it is much more due to underlying

manufacturing issues?

Mr. OKON. No, I think that is absolutely right. But I think what

you have to understand, Mr. Murphy, is that what we have done

is we have consolidated the manufacturing market. So we have

looked at, and actually I have a couple of charts looking at ANDAs.

That is an abbreviated new drug application that a manufacturer

of a generic has to file. It is an abbreviated process.

If you look at those numbers of new ANDAs, I think we put up

Carboplatin before, I can show you that 17 have been filed for most

form strains. There are only three or four manufacturers in the

market now. So you can look at double digit number of ANDAs

have been filed, but if you look at the number of available manufacturers now for any type of product, it is usually one, two, or

three.

So what happens is that, as a result of that, any manufacturing

glitch, any quality glitch, anything that the FDA said, which is absolutely right, it is happening on a much smaller base. And what

happens, typically, is you take the whole production line, other

products off cycle. So that is our problem. The problem is that it

is economic and it is not using reimbursement as an excuse. It was

driven by that, that is the root cause, but because we have consolidated the manufacturing market down now, any kind of a glitch,

regulatory, quality, supply glitch, is going to be magnified.

Dr. GOTTLIEB. The other issue is, it is true that the agency has

gotten more vigilant in recent years around the manufacturing of

parenteral, the injected products, particularly looking at foreign

sites. After years of criticism that it wasn’t doing enough to look

at the overseas manufacturing facilities, it has gotten more aggressive, so it has stepped it, it has brought regulatory actions against

a lot of the manufacturers in this space, and that has prompted

them to have to take remediation that has increased the manufacturing cost, increased the cost of goods. I think the pricing issue

comes into play when they can’t take price increases to reflect their

higher cost of goods. So rather than continue to market the products at a loss, more manufacturers are choosing to get out of certain lines of business.

Mr. MURPHY. So let’s take the pricing issue, because there has

been an incredible benefit of generic drugs coming onto the market

and the very justifiable incredible decrease in cost that comes along

with it. So if you believe that pricing is the cause here, how do you

adjust upwards for shortage areas without adjusting upwards for

drugs that aren’t shortage drugs? And then, secondarily, how do

you do that in a way that doesn’t create an incentive for shortages?

How do you create an incentive to make the stuff that you really
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need without creating a reason for people to declare a shortage in

order to get a little extra benefit?

Mr. KALMANS. A couple of comments. One is the FDA paper I

think is accurate, but the FDA regulates manufacturing, so the

FDA is commenting on its mandate, not commenting on pricing because it is outside of their mandate. I would like that noted.

Second, if you look at the data, the drugs that are in shortage

tend to be the lower priced generic drugs, not the higher priced generic drugs. They aren’t manufacturing shortages cited for many

high priced generic drugs, just the low priced ones. So I think that

is evidence that points in the direction that pricing is a factor.

Third, I mentioned earlier and I will mention briefly again, I

think that after a drug has gone generic and you have taken a

price decline over a period of time, there needs to be a rebalancing

so that drugs, rather than having the bottom fall out, are able to

move back up. So I think after the drug has been generic for 12

to 24 months, then there needs to be something put in legislatively

to allow that price to float more freely.

Mr. MURPHY. Thank you very much.

Thank you, Mr. Chairman.

Mr. GOWDY. I thank the gentleman.

Given the wonderful resources we have and the five witnesses,

we are going to have a second round of questioning. It will be

quicker, if your schedules can accommodate it. If they cannot, we

understand, but this is a rare opportunity for us to talk to people

who are experts in the field. So, with that, I would recognize the

gentleman from Arizona, Dr. Gosar, if he has any followup questions.

Mr. GOSAR. I do.

Dr. Hudspeth, you really brought this to a tee, that there is this

oncology, these drugs that are a problem right now. But there are

also anesthetics and antibiotics. So this is a multifaceted problem.

And it seems to me that we have a number of problems. It was just

alluded to here that instead of having a wider variety of manufacturers, we are down to several, two or three. So when there is a

glitch we have a problem.

Number two is we have problems with the FDA. And I want to

get back to you, Dr. Gottlieb, in making the FDA being a little bit

more nimble. You know, instead of being antiquated to shut everything down, they are starting to work with industry. But it seems

like it is the rules regulations that have really—and we need them,

don’t get me wrong. We need them, okay? But we need to have a

constant vigilance about applicability and how things fluctuate and

work. Nothing follows an equation all the way across the board,

just like every cancer patient isn’t treated the same way.

So to me it seems like the system itself is all out of whack. And

not just reimbursement rates are not the key here. And I am tired,

I like going for the surgery, okay? Go right to the point. We have

to do something different than what we are doing. It is not working. It is definitely not working and we need to revamp this.

And we need to openly talk about the business of medicine,

frankly. I am great at this because I am a dentist, okay? I am one

of those people who can talk to you. There is nothing wrong about
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making a profit. You have to make a profit in keeping your doors

open. It, frankly, has to come about.

So when I see these, there is another part of this equation that

bothers me. When you are having to huddle around deciding who

gets what, there is a liability issue, is there not, doctor?

Dr. HUDSPETH. Absolutely. We sit around and say, Do we need

to call the hospital risk management? Should we have ethics committee here? How do you begin to make these decisions? Absolutely.

Mr. GOSAR. Dr. Gottlieb, I want to go back to you and your background, particularly with the FDA. I know that when we see a

glitch in manufacturing, the FDA tends to be very recalcitrant in

shutting everything down, instead of being more interactive and

maybe looking at one part of that. How do you see the FDA changing a little bit that could help this scenario? Not just with the cancer drugs, but all the way across the drug shortages.

Dr. GOTTLIEB. Right. Well, I think that the agency has and had

legitimate concerns around a lot of the remediation that its forced

and some of the capacity that is frankly offline right now is a result

of the FDA actions. Contribution from manufacturing process

should never get into the sterile injectable drug, and that was a lot

of the problem with some of the things that they shut down.

Thinking of a couple things that the agency could do, the agency,

right now, prioritizes the supplements for drugs when they approach shortage status or when they are in shortage. I think it

could prioritize all the supplements, the manufacturing supplements, for all the sterile injectable drugs, because what could happen is a supplement can sit in the queue now and 2 years from now

that drug will be in shortage.

But I believe some of the drugs that are currently in shortage

might, one of the contravening factors is because supplements

might not have been reviewed in a timely fashion 1 or 2 years ago;

and to do that the agency is going to need to put more chemist reviewers on these supplements. I think as part of the generic drug

user fee program that is being considered by this Congress, you

could prioritize resources directly for all the sterile injectable

drugs, and not just segregate them once they get into shortage.

I think you can think about changing the regulations to make it

easier to make manufacturing changes and improvements and undergo remedial steps without having to file supplements every

time. It is a very cumbersome process.

And then the other problem here is that the agency, and the

manufacturers, for that matter, don’t understand the root causes of

a lot of these problems, so what happens is entire factories get shut

down, entire product lines get refurbished. And I think there needs

to be more work done to try to understand how some of these problems arise in the first place. There is just not a lot of intelligence

either on the regulatory side or on the manufacturing side, for that

matter.

Mr. GOSAR. Dr. Hudspeth, you know, I am from Arizona, rural

Arizona, and it is a little bit different when it is coming from hospitals in rural America, because we are at another disadvantage,

much more than the metropolitan. Now we are talking about surgeries that are being rescheduled, putting people on a prioritization
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based upon the drugs that we have available for anesthesia. Do you

even see that from the standpoint, from outlying areas as a problem?

Dr. HUDSPETH. Absolutely. We have actually shipped drug to another children’s hospital in our State because they didn’t have any

Cytarabine for a little boy with AML. So we try to band together

and help other folks when we have the capacity to do that. But we

are hearing widespread shortages at many, many other children’s

hospitals.

Mr. GOSAR. So I guess what my whole point is we are seeing a

symptom again. This may be just a small choreographed part of

drugs, but there is more coming, and that is the biggest problem.

Dr. HUDSPETH. Exactly. There is no reason to think this is going

to get any better any time soon.

Mr. GOSAR. Thank you.

Mr. GOWDY. I thank the gentleman from Arizona.

The Chair will now recognize the gentleman from Illinois, Mr.

Davis.

Mr. DAVIS. Thank you, Mr. Chairman.

Mr. Okon, you assert in your statement that Medicare is the root

cause of the drug shortage which have affected oncology drugs.

However, a recent Health and Human Services study entitled, The

Economic Analysis of the Causes of Drug Shortages, noted that 54

percent of the shortages are caused by production and quality problems. What is the basis of your assertion?

Mr. OKON. Well, I think the FDA study, as I told Mr. Murphy,

is absolutely, positively spot on, Mr. Davis, in terms of it being

right now due to a lot of manufacturing quality and problems, but

again what has happened here is that when we changed reimbursement, and the change was really well intended, part of it was the

fallback of the falling of the execution on CMS’s part, but the nature of ASP and the price regulated nature around that, we just

have to realize what it has done is we shrunk the manufacturing

base.

So when you look, Mr. Davis, at how many manufacturers were

in the product, and remember these products were on the market

well before MMA, so when you shrunk that down, what happen is

you shrink that base. Now, when you have a manufacturing problem you have a regulatory problem, you have a quality problem,

even a supply problem. You have so few manufacturers that you

have a huge problem associated, and that is why I think we are

getting so profound in terms of the number of shortages, because

our manufacturing base has shrunk down. And I applaud you and

I think you should get the manufacturers in on the generic side,

and we all need to come around and talk and put politics aside and

just solve the crisis.

Mr. DAVIS. Are you saying that HHS is a little behind?

Mr. OKON. Well, Mr. Davis, I probably am saying HHS is a little

behind. Actually, if you look at the HHS report, what was kind of

interesting about that is they started talking about the economics

and then they kind of stopped. So I am wondering if somebody edited that portion of the report out. But I think that it is a problem.

Mr. DAVIS. Dr. Thompson, how would you respond to that?
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Dr. THOMPSON. Clearly, the FDA data is accurate and we do

think the economic factors need to be looked at. One thing that we

have learned over a decade of looking at shortages is that there is

no single root cause of these shortages; they are in the tens and

twenties and it runs the gamut of things.

We have been very supportive of the concept of looking at the

range of potential economic factors that have happened, that are

being suggested, and we have tried to sort of get insights from

manufacturers, wholesalers, GTOs and others that really are the

critical part of that supply chain around what some of those may

be to help solve the problem, but I think a more substantial conversation with these various groups needs to happen so we better

understand what the economic drivers are.

Mr. DAVIS. Let me ask if any of you are saying that our regulatory activity really needs to be stepped up and become perhaps

a bit more direct.

Mr. KALMANS. I like the idea of directness. One of the things that

I think is possible here is, when you are citing manufacturing

issues, these issues aren’t apparently related to high-cost generic

drugs. They are having no problem making enough Gemcitabine

and Docetaxel; it is the ones that are low-cost. Same manufacturing plant. So manufacturing issues could just be defined as capacity constraints. So I think it is a question of how you define

things as a regulator.

Mr. OKON. And I just want to add to Dr. Kalmans’ remarks is

you have to understand some of these generics we are literally

talking about a dollar, under a dollar to manufacture a sterile

injectable. So it is not like stamping out a generic tablet; it is a

very intricate process.

Mr. DAVIS. Well, the next time I am talking with any of them,

I am going to suggest that maybe, rather than dancing, that they

need to come out and say here is what we need to do and let’s do

it.

Thank you, gentlemen, very much, and thank you, Dr. Hudspeth.

Mr. GOWDY. I thank the gentleman from Illinois.

If we were looking at this like a trial, I would say you have proven beyond a reasonable doubt that there is a drug shortage. You

have proven beyond a reasonable doubt that it is a crisis. You have

proven by clear and convincing evidence that there are a number

of causes.

So I want to do this. Dr. Hudspeth, I asked you this morning and

I am going to ask you to do it again. I want you to assume that

you made the grades I made in college, and not the ones you made,

and that you weren’t in medical school, but that you found yourself

in a legislative body. What is next? There is no need to continue

to have hearings on whether or not it is an issue. You can beat a

dead horse. It doesn’t hurt the horse, but it doesn’t do any good.

So what is next? Who should we be asking questions of and what

questions would you ask if you were sitting here?

Dr. HUDSPETH. Sure. I think there has to be a strategy group

that looks at pricing and pricing options. And I am not an economist, so that is going to require all those folks to be involved. Looking at pricing strategies and how you deal with that.
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But then the second fold of that, yes, we are going to need to give

incentives; yes, we are going to need to make it profitable to make

generics. But they can’t cry wolf over and over again, okay? So they

cannot have continued manufacturing problems. So there is going

to have to be some sort of three strikes you are out policy. Incentives and those things are only so good as long as you can prove

that you can keep up with GMP.

And then I think the second thing is contingency planning. That

is what we all have to do. In school you have to have a fire escape

plan. And here we have lifesaving drugs with no contingency plan

and a single manufacturer, and I think some solid planning for A

through Z, what you do when you go offline, how do we fill that

in.

Mr. GOWDY. Mr. Kalmans.

Mr. KALMANS. Well, there has been stockpiling of medicines for

defense in the past. It could be an idea to look at providing incentives to stockpile a generic injectable drug stockpile. Just coming

up with ideas, potential solutions. That is one area I would look at.

But this is an issue that is going to stick around. It will grow for

a period of time. I think it may, over time, which we don’t have,

by the way. We don’t have the benefit of time.

But over time there has been an unprecedented number of

branded drugs that have gone off patent. Those actually will, there

are not as many drugs coming off patent in the future in the generic injectable space, so I think the capacity will come back into

line. But, unfortunately, the bottom line is we don’t have the benefit of time, so the sooner we figure out a solution together, the better off we all are.

Mr. GOWDY. Mr. Okon.

Mr. OKON. Mr. Chairman, I think we have to draw a line down

the paper and I think that what we have to do is put in place is

a solution that basically provides the proper incentives on the manufacturing side, realizing that this is a regulated market. It is regulated both in terms of price, it is regulated in terms of manufacturing. We have to accept that. So I think we have to put the incentives on the manufacturing side and I think we basically have

to do something on the reimbursement piece.

The other side of the paper is more immediate, because even

when we do that it is not going to take care of Dr. Hudspeth’s patient that basically she has to find a drug. I think this is a crisis,

it is a national crisis, and we need to come together, put all politics

aside and say, how can we get these drugs safely distributed

through the proper channels? How can we get them immediately

so that we can basically get the drugs in the patients’ hands that

need them?

And I think that with all what we have to do and I think we

should do on the legislation side to put the proper incentives in

place and basically take care of both the manufacturer and the provider side, I think we have to do something more immediate and

I think it has to be drastic.

Mr. GOWDY. Dr. Gottlieb.

Dr. GOTTLIEB. Well, unfortunately, I think it is going to get

worse before it gets better. There are things we can do both immediate and long-term. Immediate, I would urge the committee to
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send a letter to the top five manufacturers and ask them how much

of their manufacturing capacity is currently offline because it is undergoing remediation, and make sure that, as that manufacturing

capacity gets remediated in consultation with the FDA, it is done

in as efficient a fashion as possible with the regulatory authorities.

The reality is we have more manufacturing in this country, but

the industry is consolidated so more of that manufacturing capacity

is sort of consolidated at a handful of very large facilities. So when

you take Teva’s Irvine facility offline or Hospira’s facility offline,

you have just taken out 15 percent of the entire market.

Longer term, I think we need to find ways to allow these prices

to float to justify long-term investments. It could take as long as

7 years to stand up a new manufacturing facility for parenteral

drugs, so the companies need to know that they can take and sustain price increases for some of these drugs if they are going to

make those long-term investments. And that would be sort of a

long-term policy.

Mr. GOWDY. Dr. Thompson.

Dr. THOMPSON. Step one, pass the current legislation that is

pending in Congress, that is S. 296 and H.R. 2245. Reporting, confidential reporting to the FDA isn’t going to solve drug shortages,

but there is evidence to say that in 101 cases the FDA has been

able to prevent a shortage when a manufacturer confidentially reported to them, and that is what this legislation does.

Now, there are 240 shortages on the list now, so you can imagine

that if reporting occurred across the spectrum, that that number

would be higher than 101. So I would say step one, pass that legislation now that requires confidential reporting. And it is confidential reporting to the FDA, it is not public reporting.

And then the second would be to explore all these other factors.

I think that there is a little more time to do those sorts of things.

Not a lot of time, but look at the economic factors. Really have a

deep discussion with the manufacturers and other members of the

supply chain and get a very thorough understanding of really what

these drivers are, and then go to that next step. But I think the

legislation that is pending Congress now needs to move.

Mr. GOWDY. Well, on behalf of all of us, thank you for loaning

us your expertise, your time. Fascinating is not the right word. I

don’t know what the right word is, but I thank you, Dr. Hudspeth,

for bringing it to my attention and for the other witnesses for loaning us your acumen and expertise.

The committee stands adjourned.

[Whereupon, at 11:27 a.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]
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