The Report was updated on 2/21/20 to include revised 

economic analysis about production increases and supply 

restoration after a shortage. See the FDA Archive for the 

original Report.
Drug Shortages:

Root Causes and Potential Solutions

A Report by the Drug Shortages Task Force

2019
1

Acknowledgments

This report is based on work of a Federal task force chaired by the U.S. Food and Drug 

Administration (FDA). FDA is grateful for the valuable contributions of all participating and 

consulting agencies and for their assistance in developing this report. 

FDA thanks the following agencies for their participation in the Drug Shortages Task Force:

• Centers for Medicare and Medicaid Services, Department of Health and Human Services

• Department of Defense

• Department of Veterans Affairs

• Federal Trade Commission

• Office of the Assistant Secretary for Preparedness and Response, Department of Health 

and Human Services

FDA thanks the following agencies for consultations in preparing this report:

• Defense Advanced Research Projects Agency

• U.S. Department of the Treasury

• Drug Enforcement Administration, U.S. Department of Justice

The following FDA centers and offices were instrumental in developing and producing this 

report:

• Office of the Commissioner

• Center for Drug Evaluation and Research

o Office of the Center Director

o Office of Compliance

o Office of Executive Programs

o Office of Generic Drugs

o Office of Pharmaceutical Quality

o Office of Regulatory Policy

o Office of Strategic Programs 

• Center for Biologics Evaluation and Research

• Center for Devices and Radiological Health

• Center for Veterinary Medicine

• Office of Regulatory Affairs
2

Contents

Acknowledgments........................................................................................................................... 1

Executive Summary........................................................................................................................ 4

Economic Forces Are the Root Causes of Drug Shortages ........................................................ 5

Recommendations for Enduring Solutions................................................................................. 7

Recommendation 1: Create a Shared Understanding of the Impact of Drug Shortages and 

the Contracting Practices That May Contribute to Them....................................................... 7

Recommendation 2: Create a Rating System to Incentivize Drug Manufacturers to Invest in 

Achieving Quality Management System Maturity ................................................................. 8

Recommendation 3: Promote Sustainable Private Sector Contracts ...................................... 8

FDA Initiatives to Prevent and Mitigate Drug Shortages........................................................... 9

Conclusion ................................................................................................................................ 10

Drug Shortages: Root Causes and Potential Solutions................................................................. 11

Introduction............................................................................................................................... 11

Impact on Patients and Health Care Providers ......................................................................... 14

Effects on health care delivery systems................................................................................ 18

Financial burdens.................................................................................................................. 20

Root Causes of Drug Shortages................................................................................................ 21

Evidence for Root Causes......................................................................................................... 32

Recommendations for Enduring Solutions............................................................................... 46

FDA Initiatives to Prevent and Mitigate Drug Shortages......................................................... 51

Conclusion ................................................................................................................................ 53
3

Appendix A: Bibliography............................................................................................................ 54

Appendix B: Quality Management Maturity ................................................................................ 65

Appendix C: U.S. Food and Drug Administration ....................................................................... 72

Proposed Legislation and Planned and Current FDA Initiatives.............................................. 72

Stakeholder Proposals to FDA.................................................................................................. 76

Appendix D: Agencies and Offices Participating in the Drug Shortages Task Force .................. 83

Centers for Medicare and Medicaid Services........................................................................... 84

Defense Advanced Research Projects Agency and HHS Office of the Assistant Secretary for 

Preparedness and Response ...................................................................................................... 89

Department of Defense ............................................................................................................. 91

Department of Veterans Affairs................................................................................................ 93

Drug Enforcement Administration ........................................................................................... 95

Federal Trade Commission....................................................................................................... 97

HHS Office of the Assistant Secretary for Preparedness and Response ................................ 101

U.S. Department of the Treasury ............................................................................................ 103

Appendix E: A Framework for Enduring Solutions to Drug Shortages..................................... 105

Appendix F: Technical Summary of FDA’s Analysis................................................................ 106

Background............................................................................................................................. 106

Dataset Development.............................................................................................................. 108

Key Findings........................................................................................................................... 109
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 4

Drug Shortages: Root Causes and Potential Solutions

Executive Summary

In June 2018, a bipartisan group of 31 U.S. Senators and 104 members of the House of 

Representatives wrote to Scott Gottlieb, MD, then Commissioner of Food and Drugs, to ask for

assistance in addressing the Nation’s drug shortage crisis. Their letters urged the Food and Drug 

Administration (FDA or “the Agency”) to convene a task force to study the problem, prepare a 

report on the root causes of drug shortages, and make recommendations for enduring solutions. 

In response to this request from Congress, the FDA convened an inter-agency Drug Shortages 

Task Force (“Task Force”) of senior officials drawn from its own ranks and several partner 

Federal agencies.1 The Agency invited public participation through a public meeting on 

November 27, 2018 with a docket to receive comments, and invited stakeholders to a series of 

listening sessions. The Task Force commissioned a team of FDA economists and other scientists

to analyze drugs that went into shortage between calendar years 2013-2017 with a view to 

understanding the underlying forces that were driving them. The analysts relied on the statutory 

definition of drug shortage, as a period of time when the demand or projected demand for the 

drug within the U.S. exceeds the supply.2 The Agency is now issuing this report containing the 

Task Force’s analysis of root causes and recommendations for addressing them. Although the 

focus of the report is on human drugs,3 many of the same concerns apply to veterinary medicines 

used to treat service, companion, and food-producing animals.4

 1 The Drug Shortages Task Force brings together officials not only from the U.S. Food and Drug Administration, but 

also from several partner agencies including the Centers for Medicare and Medicaid Services, the Department of 

Defense, the Department of Veterans Affairs, the Federal Trade Commission, and the Office of the Assistant 

Secretary for Preparedness and Response within the Department of Health and Human Services (HHS). In addition, 

the Task Force consulted with officials from the Defense Advanced Research Projects Agency, the U.S. Department 

of the Treasury, and the Drug Enforcement Administration within the U.S. Department of Justice. This Task Force is 

not to be confused with a previously established drug shortage task force, which was formed in 2012 to implement 

some provisions of the Food and Drug Administration Safety and Innovation Act (FDASIA) and has focused its 

activities on preventing and mitigating actual drug shortages.

2 The Federal Food, Drug, and Cosmetic Act (FD&C Act) defines a “drug shortage” as “a period of time when the 

demand or projected demand for the drug within the United States exceeds the supply of the drug.” FD&C Act 

506C(h)(2) (21 U.S.C. 356c(h)(2)). The statutory definition of “drug shortage” is not limited to medically necessary 

drugs. 

3 Section 201(g)(1) of the FD&C Act (21 U.S.C. 321(g)(1)) provides that the term "drug" means:

“(A) articles recognized in the official United States Pharmacopoeia, official Homoeopathic Pharmacopoeia of the 

United States, or official National Formulary, or any supplement to any of them; and (B) articles intended for use in 

the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and (C) articles (other 

than food) intended to affect the structure or any function of the body of man or other animals; and (D) articles 

intended for use as a component of any articles specified in clause (A), (B), or (C).” 

4 Under certain conditions, the Animal Medicinal Drug Use Clarification Act of 1994 allows for the use of approved 

human drugs in animals. Because veterinarians, especially those in the companion animal field, often use human 

drugs in their patients, shortages of human drugs can affect veterinary medicine. 
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 5

As the Congressional letters noted, drug shortages, including those that arise during emergencies,

have been a persistent problem despite public and private sector efforts to prevent and mitigate 

them. Analysis presented by FDA at the November 2018 public meeting showed that the number 

of ongoing drug shortages has recently been increasing after declining from a peak in 2011, and 

drug shortages have been lasting longer, in some cases more than 8 years. FDA analyzed 163 

drugs5 that went into shortage in the 5-year period between 2013 and 2017. Of the 163 drugs in 

the sample, 63 percent (103) were drugs administered by injection (“sterile injectables”) and 67 

percent (109) were drugs that have a generic version on the market.6 They were also older drugs, 

with a median time since first approval of almost 35 years. After many years off patent, the 

injectables typically were sold at relatively low prices. In the year prior to going into shortage, 

the median per unit price was $8.73 for all the shortage drugs, $11.05 for injectables, and $2.27 

for orally administered drugs.7,8

Information from health care providers, patients, and research studies suggests that the clinical 

and financial effects of shortages are substantial. However, comprehensive data about these 

effects are lacking and FDA believes that some recent attempts to quantify the impacts have 

underestimated them. Purchasers need more information on the clinical and financial impacts of 

shortages on patients and health care delivery to make informed buying decisions, which could

play a role in preventing and mitigating drug shortages. Having high-quality quantitative data 

would help determine which strategies, or combinations thereof, would prove most useful in 

addressing the problem.

Economic Forces Are the Root Causes of Drug Shortages 

Drug shortages persist because they do not appear to resolve according to the “textbook” pattern 

of market response. In this more typical pattern, prices rise after a supply disruption and provide 

an incentive for existing and new suppliers to increase production until there is enough supply of 

a product to meet demand. In this respect, the market for prescription drugs and especially 

generic drugs differs from other markets. A prime question that the Task Force sought to answer 

is, why does the drug market differ?

 5 For purposes of this analysis, FDA defined a drug as a unique combination of active ingredient(s), route of 

administration, and dosage form – potentially grouping together multiple strengths, types of packaging, and 

manufacturers. This means that a shortage can consist of more than one drug. For example, a shortage might 

comprise both the tablet and capsule versions. As a result, these 163 drugs corresponded to 130 shortages as defined 

by FDA.

6 About half (47 percent) of the 163 drugs studied that went into shortage between 2013 and 2017 were both 

generics and sterile injectables. 

7 FDA analysis of IQVIA data. The prices are the average 12-month price prior to the shortage start date with a 3 

month leave out period. The prices are inflation adjusted to August 2018 based on the Producer Price Index for 

Pharmaceuticals. Per unit means per injection for injectables, and per pill or capsule for orally administered drugs. 

IQVIA, formerly Quintiles and IMS Health, Inc., is an American multinational company serving the combined 

industries of health information technology and clinical research. 

8 These percentiles were calculated by comparing the earlier prices of shortage drugs to the prices of all other drugs 

with the same dosage form sold during that period. The aggregate numbers are then the mean of these percentiles 

within each group (injectables, orally administered, all drugs).
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 6

After reviewing the FDA analysis, published research studies, and stakeholder input, the Task 

Force identified three major root causes:

• Root Cause 1: Lack of Incentives to Produce Less Profitable Drugs. When market 

conditions limit manufacturers’ profitability, they reduce a firm’s motivation to maintain 

a presence in, or enter the market for older prescription drugs, and to invest in 

manufacturing quality and redundant capacity. Manufacturers of older generic drugs, in 

particular, face intense price competition, uncertain revenue streams, and high investment 

requirements, all of which limit potential returns. Current contracting practices contribute 

to a “race to the bottom” in pricing. 

• Root Cause 2: Market Does Not Recognize and Reward Manufacturers for Mature 

Quality Management Systems. All manufacturers must meet regulatory requirements 

for adherence to Current Good Manufacturing Practices (CGMPs), which set a minimum 

threshold that companies must achieve in order to be allowed to supply the U.S. 

marketplace. Mature quality management, however, starts with a foundational quality 

management system that conforms to CGMPs and builds in a performance and patient 

focus that utilizes technology, statistical process control, and planning activities to ensure 

a reliable supply of the drugs manufactured at the facility.

Currently, purchasers have only limited information that can be used to assess the state of 

quality management of any specific facility and have little information linking the drug 

products they buy with the facilities where they were manufactured. The lack of 

information does not enable the market to reward drug manufacturers with price 

premiums for mature quality management, back-up manufacturing capabilities, or riskmanagement plans, nor does it penalize manufacturers that fail to invest in modernization 

of manufacturing equipment and facilities to ensure a reliable supply. Thus, 

manufacturers are more likely to keep costs down by minimizing investments in 

manufacturing quality, which eventually leads to quality problems, triggering supply 

disruptions and shortages. 

• Root Cause 3: Logistical and Regulatory Challenges Make It Difficult for the 

Market to Recover After a Disruption. Over the past two decades, the drug supply 

chain has become longer, more complex and fragmented as companies have located more 

production overseas (U.S. Department of Commerce 2011 and Van Den Bos 2009) and

increased the use of contract manufacturers (Kuehn 2018). Although typical markets 

would respond to a shortage by increasing production, logistical and regulatory 

challenges, especially the complexity of the supply chain, can limit the ability of drug 

manufacturers to increase production. When companies wish to increase production, 

either by modifying an existing facility or building a new one, they may have to obtain 

approvals from many different national regulatory bodies, and/or find a new source of 

active pharmaceutical ingredients (APIs). If a new manufacturer wants to enter the U.S. 

market and start selling a drug that addresses a shortage, the manufacturer must first

develop and file an application with FDA and await its approval.
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 7

Recommendations for Enduring Solutions 

Although a complex array of factors contributes to the occurrence and prolongation of drug 

shortages, the root causes themselves are foundational. They reflect market behavior driven by a 

search for cost savings in the face of a seemingly inexorable rise in health care spending.

Quantifying the extent and effects of drug shortages and addressing the problem over the long 

term will require the active participation of private sector players – purchasers, intermediaries, 

and manufacturers – as well as the public sector. To address the root causes of shortages, the 

Task Force offers three recommendations:

Recommendation 1: Create a Shared Understanding of the Impact of Drug Shortages 

and the Contracting Practices That May Contribute to Them

Despite providers’ widespread recognition that drug shortages profoundly affect health care 

delivery in the United States, there has been little private or public sector effort to collect and 

analyze comprehensive information to characterize shortages, quantify their effects, or closely 

observe the contracting practices that may be driving them. Some of the areas most needing 

attention are the following:

• Quantification of the harms of drug shortages, particularly those that lead to 

worsened health outcomes for patients and increased costs for health care providers

Previous efforts to assess the costs of drug shortages have generally been limited in scope 

and depth, but nevertheless suggest that the total national impact of shortages may be 

very large (“Identifying the Root Causes of Drug Shortages” 2018, slide 40). Given that 

FDA has recognized and posted on its website more than one hundred shortages at a

single point in time,9 it will require additional research to assess the full impact of 

shortages on patient outcomes and, more generally, on health care delivery and health 

care system costs. Previous estimates, at hundreds of millions of dollars annually (Kacik 

2019; Kaakeh et al. 2011; “Drug Shortages Cost U.S. Care Providers” 2011), may have 

drastically underestimated the harms of drug shortages.

• Better characterization of shortages 

Currently, neither private nor public sector stakeholders quantitatively characterize 

shortages in terms of their frequency, persistence, or intensity; nor do they quantify the 

impact of shortages on available treatments in specific therapeutic categories.10 Having 

this information available to the public would help improve the understanding across all 

stakeholders of the impact shortages have on the Nation’s health care, and support public 

and private strategies to prevent and mitigate shortages. 

 9 CDER’s drug shortage list is accessible at https://www.accessdata.fda.gov/scripts/drugshortages/default.cfm; 

CBER’s drug shortage list is accessible at https://www.fda.gov/vaccines-blood-biologics/safety-availabilitybiologics/cber-regulated-products-current-shortages 10 FDA publishes data on current shortages on its website and makes annual reports to Congress on the number of 

new shortages and the number of continued shortages by year, however. See 

https://www.fda.gov/media/130561/download. 
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 8

• Greater transparency in private sector contracting practices

Generic drug manufacturers have cited contracting practices as a source of business 

uncertainty and “race to the bottom” pricing dynamics. FDA heard from stakeholders that 

some contracts currently include “low-price clauses” that allow group purchasing 

organizations (GPOs) to unilaterally walk away from a contract if a competing 

manufacturer is willing to supply the same product or bundle of products for a lower 

price. FDA also reviewed evidence that “failure-to-supply clauses” in contracts are 

sometimes relatively weak (Haninger et al. 2011). More systematic study of current 

contracting practices is needed and could support development of model contracts

designed to promote reliable access to safe, effective, and affordable drugs.

Recommendation 2: Create a Rating System to Incentivize Drug Manufacturers to 

Invest in Achieving Quality Management System Maturity

The second root cause of drug shortages, as discussed above, is that the market does not 

recognize and reward mature quality management systems. This recommendation aims to rectify 

this failure by suggesting the development of a system to measure and rate the quality 

management maturity of individual manufacturing facilities based on specific objective 

indicators. The rating would evaluate the robustness of a manufacturing facility’s quality system 

and reward facilities that achieve a high degree of quality management system maturity. 

Historically, many pharmaceutical manufacturing firms have focused their efforts on compliance 

with CGMPs, which include standards for material systems, equipment and facilities, production, 

laboratory, packaging and labeling, and a quality system. These standards, however, are 

foundational and set a minimum threshold that companies must achieve in order to be allowed to 

supply the U.S. marketplace. They do not include more advanced levels of quality management, 

which aim to robustly detect vulnerabilities and address them in order to prevent the occurrence 

of problems, nor do they establish a culture that rewards process and system improvements. As 

companies move from a focus on compliance with CGMPs to institutionalizing continual process 

and system improvement efforts, they begin to advance in quality management maturity.

A rating system could be used to inform purchasers, GPOs, and even consumers about the state 

of, and commitment to, the quality management system maturity of the facility making the drugs 

they are buying. Pharmaceutical companies could, at their discretion, disclose the rating of the 

facilities where their drugs are manufactured. GPOs and purchasers could require disclosure of 

the rating in their contracts with manufacturers. This effort would introduce transparency into the 

market, and provide firms committed to quality management maturity with a competitive 

advantage, potentially enabling them to obtain sustainable prices as well as grow market share. 

Recommendation 3: Promote Sustainable Private Sector Contracts 

The combination of more complete information about contracting practices and greater 

transparency of the quality management maturity of specific manufacturing sites would enable 

payers, purchasers, and GPOs to consider new contracting approaches aimed at ensuring a 

reliable supply of medically important drugs. The objectives of these contracts should address 

the first two root causes discussed above by:
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 9

• Providing financial incentives

Contracts should ensure that manufacturers earn sustainable risk-adjusted returns on their 

investment in launching or continuing to market prescription drugs, especially older 

generic drugs that remain important elements of the medical armamentarium. 

• Rewarding manufacturers for mature quality management

Similarly, contracts should recognize and reward manufacturing quality maturity. This 

could be done through several different mechanisms, such as paying higher prices for 

drugs manufactured at top-rated facilities, requiring a certain quality maturity rating as a 

condition of contracting, or guaranteeing purchase of a set volume of products from sites 

achieving a certain quality maturity rating. 

FDA Initiatives to Prevent and Mitigate Drug Shortages

In addition to the recommendations above, there are several legislative proposals and planned 

FDA initiatives that focus primarily on enabling the Agency to help prevent supply disruptions 

from leading to shortages and mitigating shortages when they occur. 

• Improved data sharing

A legislative proposal in the President’s FY 2020 budget would expand the information 

required to be provided to the FDA about interruptions in manufacturing under section 

506C(a) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) and would authorize

FDA to impose penalties for failing to provide timely and adequate notification. 

• Improved data sharing guidance

By the end of calendar 2019, FDA plans to publish a new draft guidance for industry that 

will further discuss the requirement in section 506C(a) of the FD&C Act for 

manufacturers to notify FDA of a permanent discontinuance in the manufacture of certain 

products or an interruption in the manufacture of certain products that is likely to lead to 

a meaningful disruption in supply of that product in the U.S. The guidance will also 

request that manufacturers provide additional details about the situation to ensure FDA 

has the specific information it needs to help prevent or mitigate shortages. 

• Risk management plan requirement

A legislative proposal in the President’s FY 2020 budget would authorize the Agency to 

require application holders of certain drugs to conduct periodic risk assessments to 

identify vulnerabilities in their manufacturing supply chain and develop plans to mitigate 

the risks of the identified vulnerabilities. 

• Risk management plan guidance

By the end of calendar 2019, FDA plans to publish a new draft guidance for industry, 

“Risk Management Plans to Mitigate Potential for Drug Shortages.” This guidance would 

outline a new recommendation for pharmaceutical stakeholders to develop, implement, 

and maintain a risk management plan for the purpose of preventing and mitigating drug 

shortages.
Drug Shortages: Root Causes and Potential Solutions, Executive Summary 10

• Lengthened expiration dates

A legislative proposal in the President’s FY 2020 budget would authorize FDA to 

require, when likely to prevent or mitigate a shortage, that an applicant evaluate, submit 

studies to FDA, and label a product with the longest possible expiration date (shelf life)

that FDA agrees is scientifically justified. Shortages can be exacerbated if drugs must be 

discarded because they exceed a labeled shelf life based on unnecessarily short expiration 

dates.

• ICH Guideline Q12: Technical and Regulatory Considerations for Pharmaceutical 

Product Lifecycle Management

This internationally harmonized guideline is currently being finalized. This guideline 

outlines ways to enhance understanding of product and process development and 

establish an effective pharmaceutical quality system. Incentives for adopting these 

guidelines include opportunities for less stringent regulatory oversight of certain postapproval manufacturing changes. Global implementation of this guideline, once finalized, 

could facilitate the efforts of manufacturers who wish to modernize processes and 

equipment, but have found the regulatory landscape to pose a financial burden.

Conclusion 

The Task Force believes that there is no simple solution for remedying drug shortages. The root 

causes of shortages involve economic factors that are driven by both private and public sector 

decision making. The types of enduring solutions proposed here will require multi-stakeholder 

efforts and rethinking of business practices throughout the health care system. A fuller 

characterization of the true costs of shortages and more comprehensive and reliable information 

about their effects on patients and the health care system would be an important component, as 

they would better enable purchasers to factor the costs of shortages into their buying decisions. 

Recognizing and rewarding quality manufacturing would provide companies an incentive to 

achieve greater reliability in production, thus reducing the risk of supply disruptions and 

shortages. Finally, changes in how drugs are paid for, including potential changes in contracting, 

could enable generic manufacturers to charge sustainable prices for their products. Given the 

potential scale of impacts from drug shortages, and the fact that these impacts have continually 

been underestimated, it is likely that drug shortages will continue to persist absent major changes 

to this marketplace.
Drug Shortages: Root Causes and Potential Solutions 11

Drug Shortages: Root Causes and Potential Solutions

Introduction

This report responds to a written request from Congress. In June 2018, a bipartisan group of 31 

U.S. Senators and 104 members of the House of Representatives wrote to Scott Gottlieb, MD, 

then Commissioner of Food and Drugs, to ask for assistance in addressing the Nation’s drug 

shortage crisis. Their letters urged the Food and Drug Administration (FDA or “the Agency”) to 

convene a task force to study the problem, prepare a report on the root causes of drug shortages, 

and make recommendations for enduring solutions. 

In response to the Congressional request, the FDA convened an interagency Drug Shortages 

Task Force (“Task Force”) of senior officials drawn from its own ranks and several partner 

Federal agencies.1,2 The Agency invited public participation through a public meeting on 

November 27, 2018 with a docket to receive comments, and invited stakeholders to a series of

listening sessions. The Task Force commissioned a team of FDA economists and other scientists 

to analyze drugs that went into shortage between calendar years 2013 – 2017 with a view to 

understanding the underlying forces that were driving them. The analysts relied on the statutory 

definition of drug shortage, as a period of time when the demand or projected demand for the 

drug within the U.S. exceeds its supply.3 The Agency is now issuing this report containing the 

Task Force’s analysis of root causes and recommendations for addressing them. Although the 

 1 The Drug Shortages Task Force brought together officials not only from the U.S. Food and Drug Administration, 

but also from several partner agencies including the Centers for Medicare and Medicaid Services, the Department of 

Defense, the Department of Veterans Affairs, the Federal Trade Commission, and the Office of the Assistant 

Secretary for Preparedness and Response within the Department of Health and Human Services (HHS). In addition, 

the Task Force consulted with officials from the Defense Advanced Research Projects Agency, the U.S. Department 

of the Treasury, and the Drug Enforcement Administration within the U.S. Department of Justice.

2 The Commissioner’s task force is not to be confused with a previously established drug shortage task force, which 

was formed in 2012 to implement some provisions of the Food and Drug Administration Safety and Innovation Act 

(FDASIA) and has focused its activities on preventing and mitigating actual drug shortages. 3 The Federal Food, Drug, and Cosmetic Act (FD&C Act) defines a “drug shortage” as “a period of time when the 

demand or projected demand for the drug within the United States exceeds the supply of the drug.” FD&C Act 

506C(h)(2) (21 U.S.C. 356c(h)(2)). The statutory definition of “drug shortage” is not limited to medically necessary 

drugs. 
Drug Shortages: Root Causes and Potential Solutions 12

focus of the report is on human drugs4, many of the same concerns apply to veterinary medicines 

used to treat service, companion, and food-producing animals.5

As the Congressional letters noted, drug shortages have been a persistent problem, despite public 

and private sector efforts to prevent and mitigate them. Analysis presented by the FDA at the 

November 2018 public meeting showed that the number of ongoing drug shortages has recently 

been increasing, after declining from a peak in 2011, and drug shortages have been lasting 

longer, in some cases more than eight years (“Identifying the Root Causes of Drug Shortages”

2018, slides 32-37). FDA analyzed 163 CDER-regulated drugs6 that went into shortage in the 5-

year period between 2013 and 2017. Of the 163 drugs in the sample, 63 percent (103) were drugs 

administered by injection (“sterile injectables”) and 67 percent (109) were drugs that have a 

generic version on the market.7 They were also older drugs, with a median time since first 

approval of almost 35 years. After many years off patent, the injectables typically were sold at 

relatively low prices. In the year prior to going into shortage, the median per unit price was $8.73 

for all the shortage drugs, $11.05 for injectables, and $2.27 for orally administered drugs.

8,9 (See 

Figure 1) When compared with all marketed drugs with the same dosage form during the same 

period, including both generics and brands, the prices of the shortage drugs were at the 36th

percentile of prices, while the prices of injectables that were in shortage were at the 33rd

percentile and oral products in shortage were at the 46th percentile. (See Figure 2)

 4 Section 201(g)(1) of the FD&C Act (21 U.S.C. 321(g)(1)) provides that the term "drug" means:

“(A) articles recognized in the official United States Pharmacopoeia, official Homoeopathic Pharmacopoeia of the 

United States, or official National Formulary, or any supplement to any of them; and (B) articles intended for use in 

the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and (C) articles (other 

than food) intended to affect the structure or any function of the body of man or other animals; and (D) articles 

intended for use as a component of any articles specified in clause (A), (B), or (C).” 5 Under certain conditions, the Animal Medicinal Drug Use Clarification Act of 1994 allows for the use of approved 

human drugs in animals. Because veterinarians, especially those in the companion animal field, often use human 

drugs in their patients, shortages of human drugs can affect veterinary medicine.

6 For purposes of this analysis, FDA defined a drug as a unique combination of active ingredient(s), route of 

administration, and dosage form – potentially grouping together multiple strengths, types of packaging, and 

manufacturers. These 163 drugs corresponded to 130 shortages as defined by FDA. 7 About half (47 percent) of the 163 drugs studied that went into shortage between 2013 and 2017 were both 

generics and sterile injectables. 

8 FDA analysis of IQVIA data. The prices are the average 12-month price prior to the shortage start date with a 3 

month leave out period. The prices are inflation adjusted to August 2018 based on the Producer Price Index for 

Pharmaceuticals. Per unit means per injection for injectables, and per pill or capsule for orally administered drugs. 

IQVIA, formerly Quintiles and IMS Health, Inc., is an American multinational company serving the combined 

industries of health information technology and clinical research. 

9 These percentiles were calculated by comparing the earlier prices of shortage drugs to the prices of all other drugs 

with the same dosage form sold during that period. The aggregate numbers are then the mean of these percentiles 

within each group (injectables, orally administered, all drugs).
Drug Shortages: Root Causes and Potential Solutions 13

Figure 1. Median price of drugs in shortage from 2013-2017 was less than $9 per 

dose.

Figure 2. When compared with all marketed drugs with the same dosage form

during the same period, including both generics and brands, the prices of the 

shortage drugs were only at the 36th percentile of all drug prices, while the prices of 

injectables that were in shortage were at the 33rd percentile and oral products in 

shortage were at the 46th percentile.
Drug Shortages: Root Causes and Potential Solutions 14

The rest of this report examines some of the impacts of drug shortages on patients and the U.S. 

health care delivery system; identifies the root causes responsible for drug shortages; presents 

evidence based on the FDA economic analysis, published research studies, and stakeholder 

perspectives; and presents solutions that are likely to be most effective against the root causes 

over the long term. 

Impact on Patients and Health Care Providers

Drug shortages can have a devastating effect on patients who may experience treatment delays, 

receive alternative treatments that are not as effective or well-tolerated, or may have to forgo 

treatment (McLaughlin et al. 2013; Pauwels 2014). These outcomes can prolong patient 

suffering, contribute to disease progression, and result in other adverse health outcomes that 

reduce patient well-being and increase morbidity (Ventola 2011). 

Shortages can worsen patients’ health outcomes by causing delays in treatment or changes in 

treatment regimens, such as substituting less effective therapies when a drug of choice is not 

available. Even when alternatives to the preferred drug are available, a patient’s care may be 

compromised. According to a recent report based on a survey of U.S. community hospitals, 56 

percent of hospitals reported they had changed patient care or delayed therapy during FY 2015 –

2017 because of drug shortages; 36.6 percent said they had rescheduled non-urgent or emergent 

procedures (“Recent Trends in Hospital Drug Spending” 2019). 

Empirical evidence highlights the various risks drug shortages pose to patients. In 2017, the 

Institute for Safe Medication Practices (ISMP) (“Drug Shortages Continue to Compromise 

Patient Care” 2018) surveyed nearly 300 pharmacy directors, managers, and purchasing agents. 

ISMP’s survey found that most respondents (71 percent) reported that in the 6 months prior to 

the survey, they were sometimes unable to provide patients with the recommended drug or 

treatment for their condition due to shortages, and nearly half (47 percent) thought that this 

resulted in patients receiving a less effective drug. Three-quarters (75 percent) of respondents 
Drug Shortages: Root Causes and Potential Solutions 15

stated that patient treatments had been delayed because of drug shortages. Some reported other 

types of adverse outcomes related to drug shortages, such as increased pain or discomfort during 

procedures due to the unavailability of appropriate analgesic or sedation drugs.

The survey results also indicated that over half (55 percent) of all respondents reported that more 

than 20 drugs were involved in shortages during the 6 months prior to the survey. Shortages 

affected all treatment categories but were particularly notable in some critical areas. Over twothirds of respondents reported that shortages affected emergency care (87 percent), anesthesia 

care (85 percent), pain management (81 percent), infectious disease treatment (71 percent), and 

cardiovascular care (68 percent). More than half of the respondents experienced shortages that 

affected parenteral nutrition (55 percent), while one third involved obstetrics/gynecology (33 

percent), and hematology/oncology (33 percent) services.
Drug Shortages: Root Causes and Potential Solutions 16
Drug Shortages: Root Causes and Potential Solutions 17
Drug Shortages: Root Causes and Potential Solutions 18

Effects on health care delivery systems 

Increased time spent managing and coping with drug shortages takes resources – such as staff 

time – that could otherwise be used to treat patients. 

• Staffing needs may increase when employees must spend time managing shortages, 

including prioritizing procedures due to limited drug availability and rationing drugs for 

the highest priority cases. 

• Pharmacists may need to conduct costly and time-consuming searches to find the drug in 

question or its alternatives. 

• Emergency response teams must reconfigure procedures and retrain responders when 

drugs that are routinely used in emergencies are not available and substitutions are 

required.

• Hospitals, clinics, and other care settings may need to modify IT systems to 

accommodate changes in available drugs and ensure that dosing and dispensing of the 

substitutions are accurate. They may also need to find other suppliers, renegotiate 

contracts, delay infrastructure investments, and undertake other time-consuming and 

costly processes.

• Despite the scope and scale of these effects, most hospitals and other health systems have 

not comprehensively quantified the costs of managing drug shortages and the total cost to 

the nation’s health care delivery system is not known. 
Drug Shortages: Root Causes and Potential Solutions 19
Drug Shortages: Root Causes and Potential Solutions 20

Financial burdens 

When drugs are in shortage, their prices may increase, placing financial burdens on patients, 

providers, and payers (Dave et al. 2018; Hernandez et al. 2019).

10 Additionally, drugs used as 

substitutes may be more expensive or may not optimize clinical therapy when compared to the 

original drug of choice. Shortages of critical medications and subsequent rising drug prices are 

affecting patient care and straining hospital budgets and operations, according to a 2019 report 

released by the American Hospital Association, the Federation of American Hospitals, and the 

American Society of Health-System Pharmacists. According to this report, almost 80 percent of 

hospitals said drug shortages resulted in increased spending on drugs to a moderate or large 

extent (“Recent Trends in Hospital Drug Spending” 2019).

Studies have estimated that responding to drug shortages costs hospitals $359 million each year 

in labor costs (Kacik 2019) and another $200 million each year to substitute drugs in shortage 

with alternatives (“Drug Shortages Cost U.S. Care Providers” 2011). However, these reports 

likely understate the total impact of drug shortages as they were unable to quantify the amount 

 10 FDA analysis found sustained price increases for only 18% of drugs that went into shortage in 2013- 2017, as will 

be explained below. 
Drug Shortages: Root Causes and Potential Solutions 21

hospitals spent on additional staffing, overtime wages, other staff benefits and overhead, 

updating technology, and the loss of revenue caused by postponing medical procedures. 

Ultimately, neither estimate captures the potential patient harm and significant public health 

impacts that can accompany these financial burdens (Metzger et al. 2012; McBride et al. 2013; 

Vail et al. 2017).

Root Causes of Drug Shortages

Basic economic theory holds that in instances where demand exceeds supply, prices typically 

rise, thereby providing an incentive for existing and new suppliers to increase production until 

there is a sufficient supply of a product to meet demand. Drug shortages, however, persist after 

supply disruptions despite some price increases. In this respect, the market for prescription drugs 

and especially generic drugs, which account for most drug shortages, appears quite unusual. The 

Task Force sought to determine why the drug market is so different from many other markets. 

To understand this difference and identify the underlying drivers of drug shortages, the Task 

Force relied on findings from a team of FDA economists and other scientists who analyzed a 

sample of drugs that went into shortage during calendar years 2013-2017.11 The Task Force also 

looked at other published research studies and considered stakeholder comments made at a 

public meeting and submitted to FDA in a related docket. Finally, the Task Force considered 

information provided to FDA in individual listening sessions with stakeholders and in meetings 

with organizations representing stakeholders throughout the supply chain.

Evidence from FDA’s analysis, supported by the published literature and stakeholders’ 

testimony, points to economic factors as the major drivers of drug shortages. Drug manufacturers 

make business decisions across the life cycle of a drug: e.g., whether to launch a new product; to 

maintain an existing product; or to invest in improvements in manufacturing facilities or 

remediating a facility where problems have occurred. If a manufacturer anticipates that a drug 

will be unprofitable or have uncertain profitability, its management may decide not to launch the 

drug, even when holding an approved biologics license application (BLA), new drug application 

(NDA), or abbreviated new drug application (ANDA). If the firm is already marketing the drug 

and its profitability erodes, management may discontinue production or make minimal 

investments in manufacturing, leading to supply disruptions. These disruptions may result in 

shortages. Without sustained profitability, the cycle of minimal investment in manufacturing, 

disruption, and shortage will continue. 

After reviewing the FDA analysis, research studies, and stakeholder input, the Task Force 

identified three major root causes:

• Root Cause 1: Lack of Incentives to Produce Less Profitable Drugs. When market 

conditions limit manufacturers’ profitability, they reduce a firm’s motivation to maintain 

 11 The FD&C Act defines a “drug shortage” as “a period of time when the demand or projected demand for the drug 

within the United States exceeds the supply of the drug.” FD&C Act 506C(h)(2) (21 U.S.C. 356c(h)(2)). The 

statutory definition of “drug shortage” is not limited to medically necessary drugs.
Drug Shortages: Root Causes and Potential Solutions 22

a presence in, or enter the market for older prescription drugs, and to invest in 

manufacturing quality and redundant capacity. Manufacturers of older generic drugs, in 

particular, face intense price competition, uncertain revenue streams, and high investment 

requirements, all of which limit potential returns. Current contracting practices contribute 

to a “race to the bottom” in pricing. 

 Unfavorable pricing dynamics. Over the past few decades, sectors of the health 

care system – including hospital systems, group purchasing organizations 

(GPOs),12 wholesalers, and the pharmaceutical industry – have consolidated to 

achieve efficiencies and increase negotiating power with suppliers and customers. 

For example, GPOs have consolidated their market power, so that by 2018 the 

four largest GPOs accounted for about 90 percent of the market for medical 

supplies in the United States (Bruhn et al. 2018). As a result, GPOs have been 

able to negotiate low prices, especially for multi-source generics. 

Furthermore, prevalent contracting practices often constrain the ability of 

manufacturers to raise their prices, while leaving them open to price challenges 

from competitors who may try to undercut them to gain market share. When a

manufacturer is confronted with a price challenge, the management usually has a 

choice of either meeting the challenge by lowering its price, even to an 

unsustainable level, or losing market share. As a result, prescription drug

manufacturers may face “a race to the bottom” and in some cases end by selling 

the drug at or below its cost to manufacture. 

 Price sensitivity among health care providers. Consistent with standard 

business practices, purchasers look for the lowest possible price, especially when 

unable to measure reliability or effective quality management of product

manufacturing. Additionally, reimbursements under bundled payments and 

managed care contracts may increase price sensitivity. Thus, providers are 

motivated to reduce their costs wherever it is feasible to do so. 

 Disconnect regarding the impact of purchasing decisions on shortages. Highvolume drug buyers, including group purchasing organizations and large hospital 

or pharmacy chains, may not have adequate incentives to purchase drug products 

from potentially more reliable (and possibly costlier) suppliers. A drug buyer 

typically bears only a small portion of the costs of a shortage while other parties 

(health care providers, third party payers, and patients) bear larger portions. As 

described above, these costs extend to many aspects of health care.

 12 A Group Purchasing Organization is an entity that enables health care providers – including hospitals, nursing 

homes, surgery centers and clinics, and home health agencies – to realize savings by aggregating their purchasing 

volume and using that as leverage to negotiate discounts with manufacturers, distributors, and other vendors. 
Drug Shortages: Root Causes and Potential Solutions 23

Information from stakeholders suggests that such drug buyers may select the 

supplier of a low-priced drug, even if a competing and otherwise identical drug 

product is available from a more reliable supplier for only a modest premium. 

Stakeholders suggest that these decisions may result from high-volume buyers 

lacking information about the impact of shortages. In addition, parties bearing 

most of the costs of shortages may not have contractual or other relationships 

with high-volume buyers that could allow them to communicate the importance 

and value of reliable supplies of drugs of requisite quality. This disconnect 

between high-volume buyers and those most affected by shortages may 

contribute to the lack of incentives for manufacturers of drug products to invest 

in systems that would improve reliability and manufacturing quality. 

 High investment requirements. Manufacturers must often make expensive 

capital investments in manufacturing facilities and processes to enter or remain in 

the market. For example, expanding or modernizing a manufacturing facility

capable of producing multiple products can take one or more years and can cost 

more than $100 million (Ferierra et al. 2016). Manufacturers of sterile injectable 

products must also invest in highly specialized equipment to produce their 

products, adding additional costs.13 They typically evaluate the risk-adjusted 

return on this investment in making business decisions. 

 Business uncertainty. Because of the intensely competitive nature of the 

prescription drug market, especially for generics, manufacturers may find it 

difficult to forecast a product’s revenues, volumes, and profit margins. In 

addition, they may face uncertainty in managing an increasingly global supply 

chain. With many manufacturing sites located overseas, changes in exchange 

rates, labor costs, or regulatory requirements in other countries could suddenly 

increase costs and reduce the profitability of a firm’s product portfolio. 

 Manufacturing capacity constraints. Most generic manufacturers cannot afford 

to support redundant capacity and must make decisions about how to make the 

best use of their available capacity. Management may have little incentive to 

continue marketing a less profitable drug, particularly if the firm has opportunities 

to market more profitable drugs that can be manufactured on the same 

equipment.14

 13 https://www.particlesciences.com/blog/aseptic-manfacturing-and-sterile-fill-finish-for-complex-drug-products/ 14 In FDA’s conversations with stakeholders, some manufacturers stated that they would continue to produce an 

unprofitable prescription drug if it is in shortage or at risk of going into shortage, or if it fills a needed space in a 

broader portfolio of products. Hence, the profitability of the individual drug is not the only criterion that the 

pharmaceutical industry uses in making business decisions to continue production.
Drug Shortages: Root Causes and Potential Solutions 24

• Root Cause 2: Market Does Not Recognize and Reward Manufacturers for Mature 

Quality Management Systems. The prescription drug market, especially for generic drugs 

but also for brand drugs, often does not provide incentives for manufacturers to invest in 

current manufacturing technologies and improvements in quality management. As noted 

above, drugs in shortage are typically older drugs, with a median time since first approval 

of almost 35 years. Following first approval, continual technical improvement and updating 

is needed because facilities age, routine operations require updates to maintain a state of 

control, technology evolves, suppliers change, and scientific expectations may also change. 

A failure to implement such updates and improvements can lead to quality problems that 

result in drug shortages. 

Historically, many pharmaceutical manufacturing firms have focused their efforts on 

compliance with Current Good Manufacturing Practices (CGMPs), which include 

standards for material systems, equipment and facilities, production, laboratory, packaging 

and labeling, and a quality system. These standards, however, are foundational and set a 

minimum threshold that companies must achieve in order to be allowed to supply the U.S.

marketplace. They do not include more advanced levels of quality management, which aim

to robustly detect vulnerabilities and address them to prevent the occurrence of problems, 

as well as establishing a culture that rewards process and system improvements. As 

companies move from focusing on compliance with CGMPs to institutionalizing continual 

process and system improvement efforts, they begin to advance in quality management 

maturity. 

• Several factors contribute to the market’s failure to recognize and reward quality 

management maturity. 

 Challenges in assessing quality management maturity. A quality management 

system is a collection of business processes focused on consistently meeting 

expectations, expressed as the organizational goals and aspirations, policies, 

processes, documented information and resources needed to implement and 

maintain quality. Quality management maturity is a measure of the consistency 

and reliability of business processes related to an organization’s goals (see 

Appendix B).

FDA inspects manufacturing facilities and takes regulatory action, if needed, to 

enforce CGMP regulations. The Agency’s investigators look for deficiencies in 

meeting CGMPs, but these assessments of CGMP compliance do not measure 

how far the facility is above the CGMP requirements in its quality management 

systems. Simple adherence to CGMP standards does not indicate that a firm is 

investing in improvements or planning or deploying statistical process control 

techniques that could better enable it to prevent supply disruptions. 
Drug Shortages: Root Causes and Potential Solutions 25

Even when a firm does invest in such improvements, it may be difficult to 

identify measures of quality that could be used to predict operating outcomes, 

such as shutdowns of manufacturing lines resulting in supply disruptions.15 And 

even if these measures were readily available, FDA might not have access to the 

needed data regarding the performance of the manufacturing facility. 

This is why it is critical that industry progress towards quality management 

maturity. Some pharmaceutical firms have been slow to implement robust, mature 

quality systems and the accompanying quantitative measures of quality that have 

been the foundation of success in other industries, such as automotive and 

aerospace (Fuhr et al. 2014). These industries exercise quality oversight by 

vigilantly monitoring ongoing process performance and product quality data, and 

promptly correcting operations when needed. Numerous organizations and quality 

experts have worked to develop conceptual models and standards for advancing 

the maturity of industrial quality management systems, as discussed in Appendix 

B. These models could be used more broadly in the pharmaceutical industry to 

improve supply reliability and shift from doing only what is necessary to meet 

CGMP requirements to proactively focusing on achieving quality management 

maturity.

 Lack of transparency across the supply chain. In general, product-specific 

information regarding supply chains is tightly guarded by firms as trade secret or 

commercial confidential information (Department of Homeland Security 2018). 

Purchasers of drugs, and intermediaries such as GPOs, generally have little or no 

information linking the drug products they buy, or contract for, with the specific 

sites where they were manufactured. In addition, they have only limited 

information that could be used to assess the quality management maturity of 

specific sites. This lack of transparency, coupled with difficulty assessing quality

management maturity, makes it challenging for health care providers and GPOs to 

distinguish manufacturers based on whether they can consistently and reliably 

provide adequate supplies of a drug. Instead, they tend to differentiate between 

competing drug products, particularly generics, based solely on price. Similar 

transparency issues apply to active pharmaceutical ingredient (API)

manufacturers, leading drug manufacturers to prioritize API procurement based 

on price, rather than quality.

 15 Despite these challenges, FDA supports the development and use of quality metrics. FDA has recently published 

two Federal Register Notices to collect information from industry stakeholders on quality management programs 

now in use by industry. For more information, see Appendix C. In November 2016 FDA published a draft guidance 

for industry entitled "Submission of Quality Metrics Data," proposing to initiate a voluntary industry reporting 

program of selected quality metrics. Data from the quality metrics reporting program would be used to focus FDA’s 

resources on the areas of highest risk to public health: e.g., by identifying establishments and products that may pose 

significant risks to consumers, or that have the potential for supply disruptions. 
Drug Shortages: Root Causes and Potential Solutions 26

 Lack of market reinforcement of effective quality management maturity. 

Because of the limited information available about the effectiveness of a drug 

firm’s quality management maturity and health care providers’ drive to cost 

reduction, the market does not compensate drug manufacturers with price 

premiums for mature quality management, which could include proactive steps 

such as establishing risk management plans and identifying back-up 

manufacturing capabilities. Conversely, the market does not penalize 

manufacturers that fail to invest in modernization of manufacturing equipment 

and facilities to assure a reliable supply. Although manufacturers’ contracts with 

GPOs may include “failure to supply” clauses intended to create an incentive to 

provide a reliable supply, these are generally weak (Haninger et al. 2011). Thus, 

manufacturers who invest minimally in facilities or risk management and 

experience supply disruptions may face little more than transient loss of some 

revenue and reputation. 

• Root Cause 3: Logistical and Regulatory Challenges Make It Difficult for the 

Market to Recover After a Disruption. Logistical and regulatory challenges can limit 

the ability of drug manufacturers to increase production after a supply disruption has 

occurred. Over the past two decades the drug supply chain has become longer, more 

complex and fragmented as companies have located more production overseas (U.S. 

Department of Commerce 2011) and increased the use of contract manufacturers (Kuehn 

2018). When companies wish to increase production, either by modifying an existing 

facility or building a new one, they may have to obtain approvals from many different 

national regulatory bodies, and/or find a new source of APIs. Supply recovery is 

particularly a problem for drugs that already have few suppliers. For example, generic 

drug markets tend to have very few application holders actively supplying the market

(Berndt et al. 2017; Conti and Berndt 2019),

16 so when one firm ceases production, e.g., 

to remediate a manufacturing problem, its competitors would need to increase output 

substantially to meet demand. 

This root cause is closely connected with unfavorable price dynamics mentioned above, 

because the financial investment, time, and management attention required to build new 

or increase established production capacity may reduce the incentive for manufacturers to 

launch or increase production of a shortage product. 

 Logistical challenges. Firms face capital, technological and sourcing challenges 

that make it difficult to expand production capacity. As mentioned above, 

expanding or modernizing a plant can take one or more years and cost more than 

$100 million (Ferierra et al. 2016). Sterile injectables also require additional 

 16 Conti and Berndt 2019 found that forty percent of generic drug markets were supplied by only one manufacturer, 

and the median number of manufacturers per drug market was two.
Drug Shortages: Root Causes and Potential Solutions 27

specialized equipment to produce and may be even more expensive.

17 Since drug 

manufacturing facilities typically operate above 80 percent capacity (U.S. Census, 

2019), pharmaceutical firms often cannot increase production substantially 

without incurring additional costs associated with purchasing new equipment or 

new property and a critical mass of qualified personnel. In turn, this makes it very 

difficult for firms to increase production when a shortage occurs. 

Manufacturers also face difficulties in changing their API source; e.g., when they 

need to increase production or respond to a disruption from their API supplier. 

One major challenge is identifying an API source that is of high quality and 

complies with global regulatory requirements.18 Although FDA lists approved 

API suppliers and recently inspected API manufacturing facilities, there is no 

complete, centralized source of information on API suppliers, so firms often incur 

time and expense seeking such suppliers. In addition, changing API suppliers 

generally requires additional FDA approvals (Mallu et al. 2015).

According to FDA data on regulated manufacturing facilities for approved 

application products, in 2018, 88 percent of the manufacturing sites making APIs 

and 63 percent of sites making finished dosage forms (FDFs) were located 

overseas (FDA Internal Memorandum 2019; Van Den Bos 2009).

19 (See Figure 3

and Table 1) Although these moves may have resulted in cost savings, they have 

also made it more difficult for firms to coordinate across the entire supply chain 

and enforce quality management in manufacturing sites. 

 17 https://www.particlesciences.com/blog/aseptic-manfacturing-and-sterile-fill-finish-for-complex-drug-products/ 18 API facilities are included in the FDA Inspections Classification Database, which includes final classifications for 

surveillance inspections of all API facilities in the human pharmaceutical program. This database includes results of 

FDA inspections and where FDA has made use of an inspection conducted by a capable inspectorate under the 

Mutual Recognition Agreement (MRA). API facilities not currently supplying the U.S. market would not be 

included in this database. Furthermore, the Database does not list the products being made at the facilities. 

19 These numbers apply to manufacturers named in approved applications. Medical gas, compounding, pending 

application and non-application (OTC) facilities are excluded.
Drug Shortages: Root Causes and Potential Solutions 28

Figure 3. In 2018, the majority of manufacturing sites making active pharmaceutical 

ingredients and finished dosage forms for the U.S. market were located abroad.

20

 20 These numbers apply to manufacturers named in approved applications. Medical gas, compounding, pending 

application and non-application (OTC) facilities are excluded.
Drug Shortages: Root Causes and Potential Solutions 29

Table 1. For finished dosage forms (FDFs), the predominant overseas 

contributors were located in EU countries and India. For active pharmaceutical 

ingredients (APIs), the predominant overseas manufacturers were located in 

European Union countries, India, and China.21 (Percentages in table have been 

rounded.)

 Regulatory requirements. In general, after a drug has been approved by FDA 

and is on the market, a manufacturer wishing to expand capacity through 

alternative suppliers (e.g., for API) or alternative manufacturing sites (e.g., for the 

finished product) must submit a regulatory filing to have the new supplier or 

manufacturing facility approved by FDA. 22

Many drug manufacturers supplying the U.S. market are in fact global operations 

that also supply other regions. Making post-approval changes to update 

manufacturing operations generally requires that they seek approval not only from 

FDA but the regulators in the other markets. According to industry observers, 

many post-approval changes to regulatory filings require prior approval by the 

 21 These numbers apply to manufacturers named in approved applications. Medical gas, compounding, pending 

application and non-application (OTC) facilities are excluded. 22 See generally 21 CFR 314.70.

Regional Distribution of Facilities Manufacturing Finished Dosage 

Forms and Active Pharmaceutical Ingredients in 2018.

Region FDF MANUFACTURE API MANUFACTURE

Canada 4% 0%

China 8% 14%

EU 18% 31%

India 24% 31%

Latin America 0% 2%

Rest of World 10% 11%

USA 37% 12%

Total 100% 100%
Drug Shortages: Root Causes and Potential Solutions 30

regulatory authority of every country individually, and this can be over 100 

countries for globally marketed products. The global approvals for changes can 

often take years because of varying requirements and timelines across different 

regulatory authorities, and this creates disincentives for timely improvements to 

manufacturing operations that could reduce the risk of drug shortages. 

For example, when the International Society for Pharmaceutical Engineering 

(ISPE) developed a model timeline for upgrading aseptic processing equipment or 

facilities, it found that it would take approximately seven years from the initial 

planning phase to secure approval from all global health authorities (ISPE 2014). 

ISPE noted that because health authority reviews are not performed in parallel, 

manufacturers normally must maintain dual operations until they receive all 

approvals. The risks and technical complexities associated with these dual 

operations, including the increased complexity of material management and 

related supply chain modifications, may increase the chance for a drug shortage 

and help explain why some manufacturers are reluctant to upgrade their aseptic 

equipment and facilities. 

Finally, manufacturers wishing to address a drug shortage by bringing to market 

the drug product in shortage, can find the effort both time-consuming and costly. 

For example, some studies have estimated that, for small-molecule generic drugs, 

it can cost $1 million to $5 million and take between 3 to 5 years to prepare an 

application for FDA approval.

23 If an original ANDA24 could help mitigate or 

resolve a drug shortage and prevent future shortages, FDA may give it priority 

status for review (FDA MAPP 5240.3). The performance goals of the Generic 

Drug User Fee Amendments of 2017 call for 90 percent of priority ANDAs to be 

reviewed and acted on within 8 months or 10 months, depending on their type

(GDUFA II Commitment Letter 2018). 

Based on available data, however, the Task Force believes that the cost and speed 

of gaining an ANDA approval are unlikely to be major factors in causing or 

extending shortages. FDA analysis shows that as of June 2019, for all generic 

drugs with approved applications, 39 percent were observed to be marketed, and 

the remaining 61 percent were approved but not marketed.25 (See Figure 4) The 

 23 https://www.ftc.gov/sites/default/files/documents/reports/emerging-health-care-issues-follow-biologic-drugcompetition-federal-trade-commission-report/p083901biologicsreport.pdf. The Agency notes that the cost and 

timeframe cited in this study may not accurately reflect the cost to develop and file a generic version of an older, 

off-patent injectable drug, which is the primary profile of the majority of drug shortage products in FDA’s analysis. 24 An abbreviated new drug application (ANDA) contains data that are submitted to FDA for the review and 

potential approval of a generic drug product. (Source: FDA) 25 As of June 2019, 1,671 products had an active generic application and at least one approved brand or generic 

application listed in the active section of FDA’s Orange Book: Approved Drug Products with Therapeutic 
Drug Shortages: Root Causes and Potential Solutions 31

gap between total approved applications and those that are marketed is even more 

extreme for the drugs that were in shortage between 2013 and 2017, as will be 

discussed below in the FDA Analysis section. Rather than the speed of ANDA 

approval, pharmaceutical firms’ disinclination to market drugs for which they are 

already holding an approved ANDA may contribute substantially to shortages. 

Figure 4. As of June 2019, for all generic drugs with 

approved applications, 39 percent were observed to be

marketed, and the remaining 61 percent were approved but 

not marketed.

The economic forces driving drug shortages arise primarily from private sector behavior, 

including business decisions made by pharmaceutical firms, GPOs and other intermediaries in 

the supply chain, as well as drug purchasers such as hospitals and other health care providers. 

However, these business decisions may be affected by FDA regulation and by reimbursement 

 Equivalence Evaluations. In this context, FDA defines a product as approved applications with unique combinations 

of active ingredients, dosage form, and route of administration, ignoring strength and package size. For these 

products there were 17,848 total approved applications, or about an average of 10.7 with a median of 7 approved 

applications. These data exclude products for which all applications are listed in the discontinued section of the 

Orange Book, as they have effectively left the market and are no longer available. Marketed applications had (1) an 

active NDC listed in FDA’s NDC Directory for June 2019, and (2) positive sales in the IQVIA National Sales 

Perspective database from June 2018 through June 2019. Based on these criteria, we identified 6,982 applications as 

marketed. Thus, for each product there is an average of 4.2 marketed applications and a median of 3 marketed 

applications.
Drug Shortages: Root Causes and Potential Solutions 32

policies including those established by Federal programs, such as Medicare and Medicaid, and 

by private payers. 

Evidence for Root Causes 

As discussed above, to identify the root causes, the Task Force relied on evidence from FDA’s 

analysis of drug shortages and published research studies. It also considered stakeholder 

contributions made at a public meeting with a related docket, at listening sessions with 

stakeholders, and in FDA meetings with organizations representing stakeholders throughout the 

supply chain.

FDA Analysis 

Drug shortages often follow the lifecycle pattern shown in Figure 5 below. Root causes, which 

may be accompanied by other contributing factors, lead to an event or situation that triggers a

supply disruption: that is, a temporary market imbalance in which the demand for a product 

exceeds its supply. Root causes may exacerbate a supply disruption as well as initiate one: e.g., 

the lack of a financial incentive to market or increase production of a less profitable drug may 

constrain an increase in supply. Not all supply disruptions lead to shortages, since actions can be 

taken in between that prevent the onset of a shortage, but nearly all shortages are preceded by 

supply disruptions. 

If a supply disruption persists, it becomes a drug shortage, an extended period in which existing 

and new suppliers are unable to increase production enough to meet U.S. demand. Eventually, 

suppliers increase production and/or demand for the product falls until the drug is available to 

everyone who wants it and the shortage is resolved.

Figure 5. Root causes lead to a supply disruption. When exacerbated, this disruption becomes 

a shortage that may be resolved when production increases or demand decreases. 

As mentioned earlier, to capture information about market forces that may have been active both 

during the period leading up to a drug shortage and the period after the shortage had occurred, a 

team of FDA economists examined a sample of 163 drugs in the Agency’s database that first 
Drug Shortages: Root Causes and Potential Solutions 33

went into shortage between calendar years 2013 and 2017.

26 They combined this list of drugs 

with sales data from the IQVIA National Sales Perspective (NSP) database (see Appendix F for 

more information about the analysis). They found that of the 163 drugs in shortage, 62 percent 

went into shortage after supply disruptions occurred that were associated with manufacturing or 

product quality problems. Another 18 percent went into shortage for unknown reasons, and much 

smaller percentages were associated with unanticipated increases in demand (12 percent), natural 

disasters (5 percent), or product discontinuations (3 percent). (See Figure 6)

Figure 6. Of 163 drugs that went into shortage between 2013 and 2017, 62 percent went into 

shortage after supply disruptions occurred that were associated with manufacturing or 

product quality problems.

 26 For purposes of this analysis, FDA defined a drug as a unique combination of active ingredient(s), route of 

administration, and dosage form – potentially grouping together multiple strengths, types of packaging, and 

manufacturers. This means that a shortage can consist of more than one drug. For example, a shortage might include 

both oral liquid and solid oral versions. As a result, these 163 drugs in shortage occurred in 130 shortages defined by 

FDA. FDA's Center for Biologics Evaluation and Research also maintains a list of products in shortage. As of the 

end of September 2019, most of those products were vaccines, with the notable exception of a) immune globulin and 

b) an anticoagulant (sodium citrate), and c) several products for use to counter insect stings. 
Drug Shortages: Root Causes and Potential Solutions 34

In this analysis, the economists relied on classifications of the reasons for shortages made by 

Center for Drug Evaluation and Research (CDER) Drug Shortage Staff (DSS). When FDA adds 

a drug to the shortage list that it is required to maintain pursuant to the Food and Drug 

Administration Safety and Innovation Act of 2012 (FDASIA) (Pub. L. 112-144), it identifies one 

of the following reasons for the shortage: 1) Requirements related to complying with good 

manufacturing practices, 2) Regulatory delay, 3) Shortages of an active ingredient, 4) Shortage 

of an inactive ingredient component, 5) Discontinuation of the manufacture of the drug, 6) Delay 

in shipping of the drug, 7) Demand increase for the drug, or 8) Other reason.

27

When a shortage occurs, FDA usually requests additional information from the manufacturer(s)

so the Agency can best target its shortage mitigation efforts based on the specific situation. This 

additional information requested from the manufacturer(s) can include the specific causes of the 

shortage including product-specific quality issues (which can include particulates and sterility 

issues), facility quality issues (manufacturing line or plant issues, for example), raw material 

issues (related to quality or delays, for example), increased overall demand, loss of 

manufacturing sites, and permanent discontinuations. FDA conducts periodic analyses of the 

data containing these specific causes and these data have consistently shown that the majority of 

shortages are related to quality problems. These quality problems can be either related to specific 

quality defects in individual drugs or quality problems at the manufacturer such as production 

lines breaking down or experiencing contamination or even entire facilities experiencing quality 

problems such as lack of sterility assurance for intravenous (IV) or ophthalmic drugs, and other 

facility-wide problems.

Events that Happen Prior to Occurrence of a Shortage

FDA found characteristics that were common among drugs that later went into shortage. Some 

of these characteristics were related to the markets for these drugs, and were manifested in trends 

in revenue, price and contribution to the manufacturer’s total revenue. Other characteristics were 

associated with the facilities where these drugs were produced.

FDA’s analysis identified these characteristics by comparing the 163 shortage drugs with a group 

of similar drugs that did not go into shortage during the same period from 2013-2017 (see 

Appendix F for more information about the analysis).

28 FDA found statistically significant 

differences between the shortage drugs and those in the comparison group, leading to the 

conclusion that about half of the shortage drugs (86 drugs or 53 percent) may have had 

inadequate financial incentives to market the product or invest in ensuring manufacturing 

capability and capacity prior to the shortage. From January 2010 to the time they went into 

shortage, these 86 drugs were characterized by declining revenues and prices:

 27 See section 506E(b) of the FD&C Act; 21 CFR 310.306(b); 314.81(c)(3)(iii)(d); see also 600.82(d)(1)(iii). 28 Of these 163 drugs, only 144 drugs had adequate data for this analysis. Please see the technical appendix for more 

information. The comparison drugs were matched with drugs in shortage based on the route of administration, time 

since first approval or marketing, price, and quantity sold.
Drug Shortages: Root Causes and Potential Solutions 35

• Steeply declining revenues

Prior to the shortage, the revenues of the 86 shortage drugs in this group declined at an 

average annual rate of 12.9 percent versus a 3.3 percent decline in the comparison group 

(p<0.001). 

• Declining prices

Prior to the shortage, the prices of these 86 drugs declined an average of 2.5 percent 

annually, compared to a 2.9 percent increase in price among the comparison drugs 

(p<0.01). 

• Very limited contribution to the firm’s total revenues 

Stakeholders indicated that quality issues could also arise among products or in facilities 

where there are inadequate financial incentives to invest in manufacturing quality and 

redundant capacity.

o On average, these 86 drugs accounted for just 0.16 percent of their company’s 

total revenues, compared with 0.34 percent for similar drugs that did not go into 

shortage, in the 4 months just prior to the shortage (p<0.01). 

o In the 4 months prior to the shortage, the facilities that manufactured these drugs 

accounted for just 2.6 percent of their company’s total revenues, compared with 

5.8 percent for similar drugs that did not go into shortage (p<.001).29

The remaining 77 drugs that went into shortage, when compared with similar drugs that did not 

go into shortage, did not exhibit the same patterns of statistically significant declines in revenues 

and prices before the shortage occurred. The analysts found a statistically significant difference 

between these drugs and the comparison group, for the facilities that manufactured these drugs. 

In the four months prior to going into shortage, the facilities that are registered to manufacture 

these drugs accounted for just 3.7 percent of their company’s total revenues, compared with 5.9

percent for similar drugs that did not go into shortage (p<.05). 30 FDA lacks information about 

 29 The facility level analysis is based on a smaller sample of 104 shortage drugs that could be matched to 

manufacturing facilities that were registered with the FDA to produce the drug.

30 FDA’s available data sources did not enable the Agency to observe the quantities and revenues of a drug made at 

each manufacturing facility that is registered to produce it (this applies to approximately 26% of the shortage drugs 

and 33% of the comparator drugs in their respective samples). Therefore, the Agency assumes in this analysis that if 

a drug is registered at multiple manufacturing facilities, production levels are divided evenly among these facilities. 

FDA chose this assumption because it did not appear to clearly favor one set of facilities over another. 

As a robustness check, FDA restricted the analysis to the remaining 74% of shortage drugs and 66% of comparator 

drugs where the available data allowed the Agency to precisely estimate the quantities and revenues of all drug 

products made at their respective facilities. Specifically, these are products where the manufacturer had approval to 

manufacture at a single facility and other products approved for manufacture at that facility were not approved to be 

manufactured at other facilities owned by that company. This alternative analysis indicated that in both groups, the 

facilities that manufactured the shortage drugs still accounted for a smaller amount of their company’s total 
Drug Shortages: Root Causes and Potential Solutions 36

how this difference could have affected business decisions that may have led to supply disruption 

and shortage. It is possible that the firm’s management did not prioritize investment in a 

relatively small facility, leading to quality problems and a supply disruption. Or, management 

may have decided to use the available capacity to manufacture more profitable products. 

Events that Happen After Occurrence of a Shortage

According to the textbook model of how product shortages resolve, after a supply disruption,

prices should increase sharply as product becomes scarce and remain high for an extended 

period. Existing suppliers and/or market entrants should then increase production to fill the gap 

between supply and demand, and supply should eventually be restored to close to the level prior 

to the shortage. However, in the case of the drugs in FDA’s database that went into shortage (See 

Figure 7), these milestones did not occur consistently. Specifically,31

• Only 18 percent had a sustained price increase (i.e., an increase of 50 percent or more 

that began during the shortage and lasted for 6 months).

32

• Only 42 percent had significant production increases (either new suppliers entering

the market or existing suppliers increasing production during the shortage to restore at 

least 50 percent of the unavailable quantity).

 revenues. However, the finding for the drugs in shortage that exhibited increasing revenues and prices was no longer 

statistically significant at the 5 percent level. Sources: IQVIA. National Sales Perspective. January 2010 to August 

2018. Extracted: October 2018; Internal FDA Data

31 For most of the drugs, FDA is able to calculate the measure associated with each milestone. A small number of 

drugs are not included with each milestone due to limitations of the available data. For more information, see the 

Technical Appendix. 

32 These results are qualitatively similar using alternative price increase thresholds ranging between 25 and 50 

percent increases, and an alternative time horizon of 3 months. For example, using a 3-month time horizon still 

yields 18 percent of drugs. Likewise, a 25 percent price increase over 6 months yields 25 percent of drugs. 
Drug Shortages: Root Causes and Potential Solutions 37

• Only 30 percent had the quantity of the drug sold restored to at least33 100 percent 

of its amount prior to the shortage (after 12 months of being in shortage,

34 or at the end 

of the shortage if it had already resolved within 12 months).

35

Taken together, these findings lead to the hypothesis that drugs that go into shortage are products 

that companies may not have a strong financial incentive to market or to produce using mature 

manufacturing quality management. 

Figure 7. Few drugs in shortage experienced market response milestones that could help 

the shortages self-correct. Only 18% experienced a sustained price increase; 42% 

experienced a significant production increase, and 30% had supply restored to at least 

their pre-shortage levels. 

As discussed in the Root Causes section above, drug manufacturers face barriers to market entry, 

including the time and financial investment required to obtain approval from FDA to market 

 33 A drug can have its quantity sold restored to more than 100 percent, corresponding to production increasing 

beyond its pre-shortage amount 34 These results are qualitatively similar using different time horizons. For example, 34% of drugs meet these criteria 

at 6 months, and 29% at 24 months.

35 In February 2020, FDA recalculated both the production increase and supply restoration measures using new 

approaches that the Agency believes better capture whether the drug became more readily available during the 

shortage. See Appendix F for more information about these changes.
Drug Shortages: Root Causes and Potential Solutions 38

their products and comply with regulatory requirements. However, regulatory requirements are 

only one of many factors contributing to the lack of market participants. Multiple generic 

companies are often approved to market drugs that are in shortage but make business decisions 

not to market them. In fact, for the shortage drugs studied, most had multiple applications 

approved by FDA, but only a small number of these were for drugs that were marketed. FDA 

analysis shows that, just prior to the shortage, there were on average three companies per drug in 

shortage (“Orange Book” 2019) that were not marketing their approvals (see Figure 8).

36

Figure 8. For the shortage drugs studied, there were, on average, three companies that were 

approved to market the shortage drug but were not doing so. 

Published Research

Academics, Federal agencies, and private organizations have conducted studies to shed light on 

the factors potentially associated with drug shortages. The Task Force conducted a literature 

review to identify research contributions to the understanding of market, logistical, and 

regulatory factors affecting drug shortages. Preference was given to publications that were cited 

multiple times in peer-reviewed journals and to government publications or those from 

established private-sector organizations. A complete bibliography is provided in Appendix A; the 

material below highlights some notable contributions. 

 36 This analysis studied 152 of the 163 shortage drugs that we could match to FDA’s Orange Book database.
Drug Shortages: Root Causes and Potential Solutions 39

Ventola offered an assessment of causes, impact and management strategies just prior to a peak 

in drug shortages. They called attention to the role of manufacturers’ business decisions, 

“including insufficient profits, the introduction of generic products, market share, anticipated 

clinical demand, patent expiration, drug-approval status, regulatory compliance requirements, 

expense to correct manufacturing problems, or mergers.” Ventola also noted that, “Many of the 

drugs in short supply also tend to be generic medications, which aren’t very profitable, so 

companies don’t plan for backup capacity. Economic pressure on manufacturers can also lead 

them to maintain lower inventories of low-profit drugs or take them off the market.” (Ventola

2011)

Soon after the 2011 peak in shortages, the HHS Office of the Assistant Secretary for Planning 

and Evaluation (ASPE) issued a 2012 report finding that a rapid expansion in the scope and 

volume of products produced by the industry in a short period of time, without a corresponding 

expansion in manufacturing capacity, led to a high rate of capacity utilization in the industry. 

This may have made it difficult to maintain manufacturing quality (Haninger et al. 2011). 

Woodcock and Wosinska identified the fundamental driver of drug shortages as the market’s 

inability to observe and reward quality manufacturing (Woodcock and Wosinska 2012). This 

lack of reward for quality can reinforce price competition and encourage manufacturers to keep 

costs down by minimizing quality investments. They conclude that these dynamics may have 

produced a market situation in which quality problems have become sufficiently common and 

severe to result in drug shortages.

Berndt et al. (Berndt et al. 2017; Conti and Berndt 2019) examined longitudinal trends in generic 

drug markets from 2004-2016 and found that quarterly sales revenues for generic drugs were 

surprisingly small. The median for a unique, generic molecule, dosage-form product was just 

over $300,000 in the third quarter of 2016. Among non-oral drugs, there were fewer market 

entrants than exits. The markets for generic drugs are highly concentrated and becoming more 

so. Forty percent of drug markets were supplied by only one manufacturer, and the median 

number of manufacturers per drug market was two. These findings appear consistent with FDA’s 

analysis, which suggests that some drugs have gone into shortage because manufacturers do not 

have strong financial incentives to begin or continue to market them. It is not surprising that such 

small and highly concentrated markets – where one or two manufacturers are common – often 

have variable or unstable prices and quantities sold.
Drug Shortages: Root Causes and Potential Solutions 40

Frank et al. (2019) reported finding declines in the total consumer price index for generic 

prescription drugs sold at retail pharmacies of about 80 percent between 2007 and 2016. They 

noted that this decline provides context for interpreting some price spikes for selected old, offpatent drugs that have been widely reported in the media. 

Dave et al. performed a retrospective study of a large cohort of generic drugs that were marketed 

in the United States during 2008-2014 to determine the association between drug shortages and 

changes in generic drug prices.37 They found that low-priced generic drugs were at higher risk 

for drug shortages compared with medium- and high-priced generic drugs, and that periods of 

drug shortages were associated with modest increases in drug prices. However, the authors noted 

that their findings might not be generalizable to drugs that became generics after 2008 or those 

commonly used in an inpatient setting. (Dave et al. 2018)

Yurukoglu et al. examined whether reduced reimbursement under Medicare Part B contributed to 

shortages of sterile injectable drugs (Yurukoglu et al. 2017). They found that, after the policy 

change under the Medicare Modernization Act, shortages rose more for drugs with (1) higher 

shares of patients insured by Medicare, (2) greater decreases in provider reimbursement, and (3) 

greater decreases in manufacturers’ prices. They hypothesized that lower reimbursement put 

downward pressure on manufacturers’ prices, which reduced incentives to invest in capacity, 

reliability, and new launches. 

A 2017 report (Pew Charitable Trusts and ISPE 2017) on market factors potentially contributing 

to shortages of sterile injectable drugs identified several reasons that a manufacturer might 

decide to withdraw from a market, thus reducing the number of a drug’s suppliers: quality issues, 

the introduction of replacement drugs into the market, and business decisions to realign a 

portfolio to focus on products with either greater margins or a high risk of shortage. The 

companies also cited the need to upgrade to new equipment, achieve better supply chain design, 

establish purchaser-manufacturer incentives that would help companies mitigate the risks of 

making investments, and obtain more accurate information about the expected demand for a 

product, particularly low-volume, low-margin products. Without such information, companies 

 37 This article relies on a database of outpatient commercial prescriptions, whereas many shortages are for injectable 

drugs used primarily in hospitals that would not be captured well using prescriptions data.
Drug Shortages: Root Causes and Potential Solutions 41

would be reluctant to invest in setting up additional manufacturing capabilities to protect against 

future shortages. 

Stakeholder Perspectives 

FDA gathered information on the root causes of drug shortages and recommendations for 

solutions from a diverse array of stakeholders and by several means. On November 27, 2018 

FDA hosted a public meeting, “Identifying the Root Causes of Drug Shortages and Finding 

Enduring Solutions,” with the Robert J. Margolis, MD, Center for Health Policy, to solicit 

stakeholders’ perspectives on the forces driving shortages and potential interventions. In 

connection with the public meeting, FDA established a docket to receive public comments. In 

addition, FDA held a series of listening sessions in September and October 2018 with members 

of academia, medical societies, pharmacists’ associations, patient advocates, manufacturers, 

GPOs, and drug distributors. FDA also met individually with several concerned stakeholders 

representing hospitals, physicians, intermediaries (GPOs), and the pharmaceutical industry. 

Stakeholders provided additional information about the market forces driving shortages, the 

impact of shortages on patients and the health care system, the regulatory burdens on 

manufacturers and other stakeholders, and potential solutions. Some of the major themes that 

emerged from stakeholders were the following:

The Market Does Not Foster a Reliable Supply of Generic Drugs

Manufacturers of generic drugs state that they face a challenging business environment, which 

limits their ability to invest in manufacturing and reduces their incentives to launch new products 

or maintain existing ones. They say that they are under intense pricing pressure due to cost 

reduction efforts by health care providers and the negotiating power of a consolidated GPO 

sector, which enables GPOs to extract price concessions.

Manufacturers of generic drugs also believe that current contracting practices create a high level 

of business uncertainty as they generally do not guarantee that a certain volume of products will 

be purchased at an agreed upon price. Contracts often contain clauses that leave the manufacturer 

vulnerable to predatory pricing from competitors that are willing to undercut them to obtain 

market share, even at unsustainable prices. As a result, some generic drugs have low profit 

margins or are even selling for less than they cost to produce. Their sponsors may not have 

resources to invest in manufacturing or redundant capacity for these generic drugs. 

The pharmaceutical industry also states that it has limited ability to respond to supply disruptions 

for several reasons, and this limitation increases the probability that disruptions will lead to 

shortages. For example: 

• Manufacturers, GPOs, and distributors have moved toward “just in time” inventory 

management, so there is little redundancy in the supply chain when a disruption occurs. 
Drug Shortages: Root Causes and Potential Solutions 42

• After a supply disruption, manufacturers cannot quickly increase production because of 

the lead time and investment required to expand production capacity, and to file and gain 

regulatory approval (if needed) for any related post-approval changes to their 

manufacturing operations.38 

• Firms must also deal with an increasingly complex and global supply chain, which can 

make it difficult to procure API quickly. 

However, manufacturers are not heavily penalized for supply disruptions resulting from 

problems with their manufacturing facilities. Although GPO contracts with companies may 

include “failure to supply” clauses, these often have limited effectiveness. These clauses usually 

require the manufacturer to reimburse the GPO for the difference between the negotiated price 

and the purchase price of a drug. However, such clauses may be limited in duration and 

ineffective in situations where the required quantity of the drug is not available from another 

manufacturer. FDA responses to specific proposals from manufacturers and other stakeholders 

are in Appendix C.

Shortages Affect Every Level of the Health Care System

Stakeholders shared information about the way drug shortages affect every level of the health

care system, ultimately compromising the standard of care, producing waste, and increasing 

costs. For example: 

Medical Care

• Physicians stated that when they cannot obtain the preferred drug needed to treat patients, 

they may have to deny or delay care, or resort to using alternative medications that they 

 38FDA helps to prevent or mitigate shortages by using regulatory discretion when appropriate, while ensuring the 

highest standards of safety and efficacy. 
Drug Shortages: Root Causes and Potential Solutions 43

believe may be less safe and effective for their patients. Shortages have created 

particularly difficult challenges for specialties that rely heavily on sterile injectable drugs, 

such as oncology, anesthesiology, and emergency medicine. 

• Long-lasting shortages may have a detrimental effect on medical care, as young doctors 

and other health care providers who have been trained in an environment where the 

preferred drugs are unavailable may become unaccustomed to, and eventually unaware of 

the standard of care.

Hospitals

• Hospitals stated that to cope with drug shortages, they may divert staff from patient care, 

or hire additional staff to cope with drug shortages, which adds to their costs. They 

explained that shortages can have a profound impact on hospital operations: e.g., staff 

must adjust electronic health records, recode IT systems, repackage medications into 

different size containers, and relabel medications. Hospitals have also had to revise 

treatment protocols to adjust for drug shortages. These revisions can be extensive. 

• Hospitals also shared that when low-cost generic drugs are in shortage, they may have to 

pay more for brand or other alternative drugs or obtain medications from compounding 

facilities, which are not subject to the same level of oversight as manufacturers, or gray 

market sources. In general, they cannot pass the additional costs to payers but must 

absorb the resulting losses themselves. Although providers believe that the costs drug 

shortages impose on the health care system and patients are high, hospitals generally do 

not track the costs systematically and, as a result, management may not recognize the full 

financial impact of shortages.

• Hospitals, pharmacists, and GPOs raised concerns about the gray market,

39 which takes 

advantage of drug shortages by charging exorbitant prices for hard to find drugs. They 

believe more investigation and insight into these practices are warranted.

Patients

• Although health care providers expressed concern about the impact of shortages on their 

patients, stakeholders reported that prescribers rarely inform patients when they are using 

alternative prescription drugs. As a result, patients may have little awareness of the effect 

of drug shortages on their care.

• Patients with rare diseases are particularly vulnerable to prescription drug shortages, 

because there may be only one drug approved to treat their condition and one 

manufacturer. If a supply disruption or shortage occurs, they have no alternative. 

 39 Gray market refers to distribution channels not authorized by prescription drug manufacturers.
Drug Shortages: Root Causes and Potential Solutions 44

The Supply Chain Lacks Transparency

Stakeholders stated that currently GPOs, health care providers, and patients do not have access to 

information about where their drugs are manufactured, or the level of quality associated with the 

manufacturer or the manufacturing site. Thus, the opacity of the supply chain extends from the 

manufacturing site to the patient. Although health care providers and GPOs stated they want 

more transparency through the supply chain, the appropriate level is unclear, as stakeholders 

have different interests and needs. Stakeholders also stated that crucial pieces of information 

needed to assess a manufacturing site’s quality may be unavailable. 

• Health care providers shared that they would like more transparency through the supply 

chain to be able to identify reliable manufacturers, anticipate shortages before they occur, 

and plan their strategy for coping with the shortage. However, stakeholders acknowledge 

that individual responses to mitigate a suspected or impending shortage, such as 

hoarding, could exacerbate the shortage.

• By contrast, the pharmaceutical industry regards the location of their manufacturing 

facilities as confidential commercial information and claim that keeping this information 

private is a matter of supply security, e.g. to prevent theft or diversion attempts.

• Some private sector efforts to characterize manufacturers’ quality and reliability are 

underway. However, these efforts are hindered by lack of information about specific 

manufacturing facilities. For example, FDA’s significant observations of an inspection 

(FDA Form-483) are not proactively posted for all inspections. However, redacted 

Warning Letters (WL) are publicly available via proactive posting.

40 

Regulatory Requirements Can Affect Industry’s Responses to Supply Disruptions

Some stakeholders have stated that FDA and other agencies’ regulatory requirements may 

impede industry’s ability to mitigate shortages: e.g., by increasing the time and cost of 

responding to a supply disruption. Appendix C addresses some of the specific suggestions for 

FDA and other agencies made by industry and other stakeholders. The material below introduces 

some of those suggestions from stakeholders on their views of FDA policies and regulation as 

they relate to more efficient pathways to FDA approval of manufacturing changes, faster ANDA 

approvals, and increased harmonization of regulatory standards across international borders. 

• Under FDA regulations, a pharmaceutical firm making “major” manufacturing changes

(which can include the remediation of a facility) must submit a prior approval supplement 

 40 FDA may issue a Warning Letter (WL) close-out letter (“close-out letter’) once the Agency has completed an 

evaluation of corrective actions undertaken by a firm in response to a WL. A close-out letter may issue when, based 

on FDA’s evaluation, the firm has taken corrective action to address the violations contained in the WL. This 

procedure applies to WLs issued on or after 9/1/2009.
Drug Shortages: Root Causes and Potential Solutions 45

(PAS).41 FDA approval of a PAS can take up to 4, 8, or 10 months depending on whether 

an inspection is required, and the applicant meets certain requirements.42 By contrast, 

firms making “moderate” manufacturing changes must generally submit a Changes Being 

Effected in 30 days (CBE-30) supplement at least 30 days before the drug product is 

distributed.

43 Changes that are moderate in nature and qualify for submission as a CBE30 may be implemented by the sponsor after 30 days have passed and prior to completion 

of any review by the FDA. Because the CBE-30 process is much faster than gaining 

approval of the PAS, these industry representatives said it would be preferable to have 

more manufacturing changes made in response to a supply disruption handled through the 

CBE-30 pathway. 

• The pharmaceutical industry would like FDA to waive the pre-approval inspection for 

new processes when similar existing processes have been inspected at sites that are 

deemed lower inspectional risk by FDA. 

• Drug manufacturers have stated that they rely on an increasingly global supply chain and 

having to navigate different regulatory requirements across international borders may 

hinder their ability to launch new drugs or respond to supply disruptions. They would like 

to see increased harmonization of FDA’s regulatory standards with those of other 

countries.44

• Health care providers would like more complete information about drug shortages and 

coordination between FDA and other agencies. In particular, they would like to see better 

coordination between FDA and the Drug Enforcement Administration (DEA) to help 

prevent and mitigate shortages of drugs containing controlled substances.45 

 41 See 21 CFR 314.70(b). 42 For example, in the case of a generic drug, per the GDUFA Reauthorization Performance Goals and Program 

Enhancements Fiscal Years 2018-2022 (GDUFA II Commitment Letter), FDA has a performance goal of approving 

a PAS within 4 months if no inspection is required, 8 months if an inspection is required and an applicant meets 

requirements under I(B)(2)(b) of the GDUFA II Commitment Letter, and 10 months if an inspection is required and 

an applicant does not meet the requirements under I(B)(2)(b) of the GDUFA II Commitment Letter.

43 See 21 CFR 314.70(c). 44 As noted earlier in this report, drug companies seeking to update and improve manufacturing operations often 

must seek permission from multiple global regulatory authorities in multiple regions, creating a significant obstacle 

to timely improvements that could reduce the risk of drug shortages. To address this, FDA is working closely with 

other pharmaceutical regulators and industry representatives around the globe, through the International Council on 

Harmonization, to develop a harmonized regulatory guideline titled: Q12 Technical and Regulatory Considerations 

for Pharmaceutical Product Lifecycle Management. Q12 provides a framework to facilitate the management of postapproval Chemistry, Manufacturing and Controls (CMC) changes in a more predictable and efficient manner across 

the product lifecycle, to promote innovation and continual improvement, and strengthen quality assurance and 

reliable supply of product, including proactive planning of supply chain adjustments. For more information, see 

Appendix C and https://www.ich.org/page/quality-guidelines. 45 Please see information in Appendix C of this report about the steps DEA and FDA have taken to improve 

communications and coordination to help prevent and mitigate shortages containing controlled substances. 
Drug Shortages: Root Causes and Potential Solutions 46

• Health care providers would like FDA to provide more information about drug shortages, 

including how long they are expected to last.46 This would aid providers in their efforts to 

plan a response to the shortage.47 

• Stakeholders noted that the American Society of Health-System Pharmacists (ASHP) has 

a broader definition of shortage than FDA, which uses the definition from the FD&C Act. 

The Act defines a drug shortage as a period of time when the demand or projected 

demand for the drug within the United States exceeds its supply.

48 ASHP defines a 

shortage as a supply issue that affects how a pharmacy prepares or dispenses a drug 

product or influences patient care when prescribers must use an alternative agent. As a 

result, ASHP’s published list of shortages is much larger than FDA’s. Some providers 

find the ASHP list more comprehensive and useful for their mitigation efforts.49 

Recommendations for Enduring Solutions

Although a complex array of factors contributes to the occurrence and prolongation of drug 

shortages, the root causes themselves are foundational. They reflect market behavior driven by a 

search for cost savings in the face of a seemingly inexorable rise in health care spending. 

Addressing the problem over the long term will require the active participation of private sector 

players – purchasers, intermediaries, and manufacturers – as well as the public sector. In 

addition, FDA offers a framework for policymakers considering addressing the issue of drug 

shortages (see Appendix E). 

 46 However, it should be noted that under section 506E of the FD&C Act, FDA is generally required to publish its 

determination regarding the estimated duration of a shortage. FDA provides this information to the best of its ability 

in all shortage postings.

47 Please note that FDA’s Draft Guidance for “Notifying FDA of a Permanent Discontinuance or Interruption in 

Manufacturing of Drug or Biological Products,” which is under development and also mentioned further in the 

report under Current FDA Initiatives, discusses the requirement in section 506C of the FD&C Act for applicants and 

manufacturers to notify FDA of a permanent discontinuance in the manufacture of certain drugs or an interruption in 

the manufacture of certain drugs that is likely to lead to a meaningful disruption in supply of that product in the 

United States. This guidance is also expected to recommend that manufacturers submit additional information and 

follow additional procedures to further assist FDA’s efforts to prevent or mitigate a drug shortage. Finally, the 

guidance is expected to discuss how FDA communicates information about supply disruptions and shortages to the 

public.

48 The statutory/regulatory definition of “drug shortage” does not limit itself to medically necessary drugs (see 

506C(h)(2)).

49 Please note that FDA and ASHP routinely share information about drug shortages and have co-authored a posting 

on their respective websites outlining the reasons for the differences between the two shortage websites with regard 

to the information provided. https://www.ashp.org/Drug-Shortages/Current-Shortages/FDA-and-ASHP-ShortageParameters.
Drug Shortages: Root Causes and Potential Solutions 47

Recommendation 1: Create a Shared Understanding of the Impact of Drug Shortages and 

the Contracting Practices That May Contribute to Them 

Despite providers’ widespread recognition that drug shortages profoundly affect health care 

delivery in the U.S., there has been little private or public sector effort to collect and analyze 

comprehensive information to characterize shortages, quantify their effects, or closely observe 

the contracting practices that may be driving them. The resulting lack of information limits the 

ability to monitor or predict the frequency, duration, and intensity of shortages. It also 

undermines the motivation of both private and public sector actors to prevent them or mitigate 

their effects by paying a sustainable price for a more reliable supply of safe and effective drugs, 

especially older generics, that may be at risk of going into shortage. 

Better characterization of shortages would help FDA in its work to anticipate, prevent and 

mitigate shortages. Providing more comprehensive information on shortages’ costs to patients 

and the health care delivery system may help purchasers understand the tradeoffs between 

paying the lowest possible price for generics and having reliable access to these often life-saving 

drugs over the longer term. Finally, a more detailed understanding of current contracting 

practices may suggest options for enabling manufacturers to earn sustainable risk adjusted 

returns on their products. In this way, the increased information may help address Root Cause 1: 

Lack of Incentives to Produce Less Profitable Drugs.

Among the areas most needing attention are:

• Quantification of the harms of drug shortages, particularly those that lead to worsened 

health outcomes for patients

Previous efforts to assess the costs of drug shortages have generally been limited in scope 

and depth, but nevertheless suggest that the total national impact of shortages may be 

very large (Identifying the Root Causes of Drug Shortages 2018”). Given that FDA has 

recognized and posted on its website more than one hundred shortages at a single point in 

time,50 it is especially important to have additional research to assess the full impact of 

shortages on patient outcomes and, more generally, on health care delivery and health 

care system costs. Previous estimates, at hundreds of millions of dollars annually (Kacik 

2019; Kaakeh et al. 2011; “Drug Shortages Cost U.S. Care Providers” 2011), may have 

drastically underestimated the harms of drug shortages.

• Better characterization of shortages 

Currently, private and public sector stakeholders have limited information to 

quantitatively characterize shortages in terms of their frequency, persistence, intensity, 

 50 CDER’s drug shortage list is accessible at https://www.accessdata.fda.gov/scripts/drugshortages/default.cfm; 

CBER’s drug shortage list is accessible at https://www.fda.gov/vaccines-blood-biologics/safety-availabilitybiologics/cber-regulated-products-current-shortages
Drug Shortages: Root Causes and Potential Solutions 48

and impact on available treatments in specific therapeutic categories.51 Having this 

information would help improve stakeholders’ understanding of the impact shortages 

have on the Nation’s health care. 

Several stakeholders maintain information sources that, if combined, could shed more 

light on the extent of drug shortages and their potential impacts on the health system. For 

example, wholesalers track order fill rates and inventory changes, and manufacturers 

oversee proprietary data on production capacity and production volume by facility. 

Combining this data could enable better measurement of the frequency, persistence and 

intensity of shortages and of their impacts.

• Greater transparency in private sector contracting practices

Generic drug manufacturers have cited contracting practices as a source of business 

uncertainty and “race to the bottom” pricing dynamics. FDA heard from stakeholders that 

some contracts currently include “low-price clauses” that allow GPOs to unilaterally 

walk away from a contract if a competing manufacturer is willing to supply the same 

product or bundle of products for a lower price. FDA also reviewed evidence that 

“failure-to-supply clauses” in contracts are sometimes relatively weak, requiring that an 

alternative source of the drug is available and typically recovering just 10 percent of the 

lost value (Haninger et al. 2011). More systematic study of current contracting practices 

is needed and could support development of a model contract designed to promote 

reliable access to safe and effective drugs. 

Recommendation 2: Create a Rating System to Incentivize Drug Manufacturers to Invest 

in Achieving Quality Management System Maturity

The second root cause of drug shortages, as discussed above, is that the market does not 

recognize and reward mature quality management. This proposal aims to rectify this failure by 

suggesting the development of a system to measure and rate the quality management maturity of 

individual manufacturing facilities based on specific objective indicators. A rating would 

evaluate the robustness of a manufacturing facility’s quality system and could be used to inform 

purchasers and GPOs about the state of, and commitment to, the quality management of the 

facility making the drugs they are buying. Pharmaceutical companies could, at their discretion, 

disclose the rating of the facilities where their drugs are manufactured. GPOs and purchasers 

could require disclosure of the rating in their contracts with manufacturers. This effort would 

introduce transparency into the market, and provide top-rated producers with a competitive 

advantage, potentially enabling them to obtain sustainable prices as well as grow market share.

For a full discussion of quality management maturity, please see Appendix B. 

 51 FDA publishes data on current shortages on its website and makes annual reports to Congress on the number of 

new shortages and the number of continued shortages by year, however. See 

https://www.fda.gov/media/130561/download.
Drug Shortages: Root Causes and Potential Solutions 49

As discussed above, FDA’s analysis found that quality problems are responsible for 62 percent

of the drugs that went into shortage between 2013 and 2017. Having a robust and mature quality 

management system is essential to ensure consistent and reliable drug manufacturing and quality 

performance. A system focused primarily on CGMP compliance is a quality management system

focused on meeting minimum quality standards rather than on ensuring a stable drug supply for

patients.

A stronger, more mature quality management system is one that focuses on performance,

especially outcomes that affect the patient including reducing complaints, shortages and qualityrelated adverse events. Elements of a mature system include vigilant attention to upgrading 

facilities and equipment, training that promotes superior performance, increased understanding

of the product and manufacturing process, and statistical-based monitoring of manufacturing 

processes and laboratories. Quality management maturity provides strong oversight that involves 

early detection of major variability in any of these areas, which enables senior management to 

take action to avoid quality failures before patient harm, including drug shortage, occurs.

Transparency into quality management maturity and a facility’s ability to reliably address quality 

problems and produce a quality product will provide insight into whether a drug will be likely to 

go into shortage. However, measuring quality management maturity, in terms of what and how 

to measure, is an evolving science. Several organizations have been studying various elements of 

quality management maturity, as discussed in Appendix B (St. Gallen FDA Quality Metrics 

Research Final Reports Year 1 2017 and Year 2 2018; ISPE “Quality Metrics Pilot Program”; 

Patel et al. 2015).

52, 53

Developing a system to measure and provide transparency regarding a facility’s quality 

management maturity requires engagement from FDA, industry, academia, Congress and other 

stakeholders. To provide adequate incentives to firms for investing in the quality management 

necessary to reduce the risk of drug shortages, it is important that purchasers and consumers be 

able to accurately distinguish whether a manufacturing facility has demonstrated quality 

management maturity for the products they are buying.

It is important that the quality management maturity threshold for drugs be set high enough to 

appreciably reduce the risk of drug shortages, but not so high that it either pushes manufacturers 

out of the market or dramatically increases purchasing costs. Once purchasers have this 

information, they need to be able to assess how much they would be willing to pay for drugs

supplied from sites with a mature quality management system that ensures a consistent supply of 

safe and effective drugs. The development and adoption of this rating would:

• Communicate the value of quality management maturity so it can be adopted by 

manufacturers and priced into contracts by purchasers;

 52 See also https://www.pda.org/scientific-and-regulatory-affairs/quality-culture 53 https://cmmiinstitute.com
Drug Shortages: Root Causes and Potential Solutions 50

• Promote the adoption of better tools to measure manufacturing performance to allow 

earlier detection of potential problems that could lead to shortage;

• Incentivize improvements to manufacturing infrastructure that enhance reliability of 

manufacturing and thus supply. 

No such rating system currently exists for drug manufacturing facilities. A rating system would 

need to provide clear, concise, objective information about the maturity status of a 

manufacturing site’s quality management. FDA has experience in the development and 

application of frameworks similarly focused on quality, and with appropriate resources could 

work closely with industry and other stakeholders to determine the appropriate measurements, 

standards, other metrics and processes, and incentives to identify firms with superior ratings.

Recommendation 3: Promote Sustainable Private Sector Contracts

The combination of more complete information about contracting practices and greater 

transparency of the quality management maturity of specific manufacturing sites will enable the 

development of new contracting approaches aimed at ensuring a reliable supply of medically 

important drugs. To succeed, this proposal will require the active engagement of both the private 

and public sectors. Purchasers, payers and GPOs will need to consider ways to shift some 

financial risk and uncertainty away from producers of drugs, especially older generics. 

Manufacturers will need to support a rating system for their facilities and be willing to 

selectively disclose their facilities’ ratings to introduce transparency into the drug market. The 

Agency must serve as an independent and reliable source of information about the quality 

management maturity of a given manufacturing facility.

FDA heard from stakeholders that current contracting practices create a high degree of financial 

uncertainty for generic manufacturers, and thus may contribute to business decisions leading to 

shortages. The Agency does not have expertise in private sector contracting and thus is not in a 

position to provide specific recommendations on how contracts should be designed. Instead, 

FDA believes that the private sector should establish contracts that address the first and second 

root causes of shortages by: 

• Providing Financial Incentives. Contracts should ensure that manufacturers earn 

sustainable risk-adjusted returns on their investment in launching or continuing to market 

prescription drugs, especially older generic drugs that remain important elements of the 

medical armamentarium. 

• Rewarding Manufacturers for Mature Quality Management. Similarly, contracts 

should recognize and reward manufacturing quality maturity. This could be done through 

a number of different mechanisms, such as paying higher prices for drugs manufactured 

at top-rated facilities, requiring a certain quality maturity rating as a condition of 
Drug Shortages: Root Causes and Potential Solutions 51

contracting, or guaranteeing purchase of a set volume of products from sites achieving a 

certain maturity rating. By offering escalating premiums for drugs from more highly 

rated facilities, where the rating system recognizes different levels of achievement, 

purchasers could provide the incentives and means for manufacturers to move up the 

quality management maturity spectrum. 

Payers, purchasers, and GPOs have already begun to explore options for designing contracts to 

achieve these goals, albeit without the quality maturity rating. For example, under one model, 

purchasers could agree to long-term purchasing contracts that guarantee both a minimum 

purchasing volume and a “fair” price for the drug, an approach that was presented at the 

November 27, 2018 public meeting.54 In exchange for these commitments, the contractor would 

work with manufacturers to establish supply chain redundancies, such as multiple manufacturing 

sites and safety stock, that could buffer against the risk of supply or demand disruptions turning 

into drug shortages. Another proposal by several in academia is to establish purchasing contracts 

that pay more for certain drugs in exchange for stronger failure-to-supply penalties (Jia and Zhao 

2017). 

It is likely that making information available about a given manufacturing facility’s ability to 

provide a reliable supply of safe and effective drugs, coupled with better financial rewards for 

more reliable producers, will reduce the incidence of shortages over time. However, currently 

available data are not sufficient to validate projections of the short- and long-term effects of such 

market reforms.

FDA Initiatives to Prevent and Mitigate Drug Shortages

In addition to the recommendations described above, there are several legislative proposals and 

planned FDA initiatives that focus primarily on enabling the Agency to help prevent and mitigate 

drug shortages. Although the Agency undertook some of these prior to its investigation of root 

causes, the efforts will complement the Task Force’s first recommendation, by increasing the 

Agency’s access to more complete information to characterize shortages. Some other initiatives 

will reduce logistical and regulatory challenges to increasing production after a supply 

disruption, the third root cause of shortages. They will achieve this by ensuring that 

manufacturers of products vulnerable to shortage have risk management plans in place and by 

harmonizing global regulatory requirements for approval of manufacturing changes. Appendix C 

provides additional information on FDA initiatives, some of which are described briefly below. 

• Improved Data Sharing. In a legislative proposal in the President’s FY 2020 budget, 

FDA recommends clarifying the information required to be provided about interruptions 

in manufacturing under section 506C(a) of the FD&C Act and expanding FDA’s 

 54 Slides 103-104 from November 27, 2018 Public Meeting, “Identifying the Root Causes of Drug Shortages and 

Finding Enduring Solutions” accessed July 23, 2019 at: 

https://healthpolicy.duke.edu/sites/default/files/atoms/files/duke-fda_drug_shortages_presentation_slides__0.pdf
Drug Shortages: Root Causes and Potential Solutions 52

authority to allow the Agency to impose penalties for failing to provide timely and 

adequate notification. 

• Improved Data Sharing Guidance. By the end of calendar 2019, FDA plans to publish 

a new draft guidance for industry that will explain the requirement in section 506C(a) of 

the FD&C Act for manufacturers to notify FDA of a permanent discontinuance in the 

manufacture of certain products or an interruption in the manufacture of certain products 

that is likely to lead to a meaningful disruption in supply of that product in the U.S. The 

guidance will also request that manufacturers provide additional details about the 

situation to ensure FDA has the specific information it needs to help prevent or mitigate 

shortages. 

• Risk Management Plan Requirement. FDA has recommended a legislative proposal, 

included in the President’s FY 2020 budget, that would expand the Agency’s authority to 

require application holders of certain drugs to conduct risk assessments to identify 

vulnerabilities in their manufacturing supply chain and develop plans to mitigate the risks 

associated with the identified vulnerabilities. 

• Risk Management Plan Guidance. FDA plans to publish a new draft guidance for 

industry, “Risk Management Plans to Mitigate Potential for Drug Shortages,” by the end 

of 2019. This guidance outlines a new recommendation for pharmaceutical stakeholders 

to develop, implement, and maintain a risk management plan for the purpose of 

preventing and mitigating drug shortages.

• Lengthened Expiration Dates. In a legislative proposal in the President’s FY 2020 

budget, FDA recommended expanding its authority to require, when in the interest of 

public health (e.g., to prevent or mitigate a shortage), that an applicant evaluate and label 

a product with the longest possible scientifically-determined expiration date (shelf-life). 

Shortages can be exacerbated if drugs must be discarded because they exceed a labeled 

shelf-life based on unnecessarily short expiration dates. 

• ICH Guideline Q12: Technical and Regulatory Considerations for Pharmaceutical 

Product Lifecycle Management. This internationally harmonized guideline is intended 

to be finalized later in 2019. With significant contributions and leadership from FDA 

experts, this guideline sets out tools and enablers to incentivize enhanced product and 

process understanding and an effective pharmaceutical quality system through 

opportunities for less stringent regulatory oversight of certain post-approval 

manufacturing changes. Global implementation of this guideline, once finalized, could 

facilitate the efforts of manufacturers who wish to modernize processes and equipment, 

but have found the regulatory landscape to pose a financial burden.
Drug Shortages: Root Causes and Potential Solutions 53

FDA expects the two risk management initiatives to help prevent shortages by enabling 

manufacturers to proactively assess their vulnerabilities in risk management plans and take steps 

to reduce their risks. If a manufacturing disruption does occur, expanding the Agency’s authority 

to require increased data sharing about the interruption will enhance FDA’s ability to work with 

firms to quickly increase production. Extension of expiration dates, where scientifically 

warranted, will also ease capacity constraints in the wake of a supply disruption. The ICH 

guideline Q12, when finalized, will reduce the regulatory burden on firms making post-approval 

manufacturing changes, thus allowing them to increase production more quickly. All of these 

initiatives will likely address the third root cause by easing logistical and regulatory challenges to 

increasing production following a supply disruption.

Conclusion 

From its work on this report, the Task Force believes there is no simple solution for addressing 

drug shortages. The root causes of shortages involve economic factors that are driven by both 

private and public sector decision making. Likewise, the types of enduring solutions proposed 

above will require multi-stakeholder efforts and a rethinking of business practices throughout the 

health care system. A fuller characterization of the true costs of shortages and more 

comprehensive and reliable information about their effects on patients and the health care system 

would be an important component, as they would better enable purchasers to factor the costs of 

shortages into their buying decisions. Recognizing and rewarding mature quality manufacturing 

would provide companies with incentives to achieve greater reliability in production, thus 

reducing the risk of supply disruptions and shortages. Finally, changes in how drugs are paid for, 

including potential changes in contracting, could enable generic manufacturers to charge 

sustainable prices that enable them to continue production of their products. In the past, the scale 

of drug shortages and their impacts have continually been underestimated. Absent major changes 

to the marketplace, it is likely that drug shortages will continue to adversely affect patient care

and add costs to the health care system. 
Drug Shortages: Root Causes and Potential Solutions, Appendix A 54

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For Further Reading 

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Drug Shortages: Root Causes and Potential Solutions, Appendix A 62

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Drug Shortages: Root Causes and Potential Solutions, Appendix B 65

Appendix B: Quality Management Maturity

Vision for Pharmaceutical Quality in the 21st Century 

In 2004, FDA published a report on pharmaceutical quality for the 21st century that laid out the 

following vision: “a maximally efficient, agile, flexible manufacturing sector that reliably 

produced high-quality drug products without extensive regulatory oversight.” Although we have 

made progress towards this vision, more remains to be done.

Current Good Manufacturing Practices (CGMPs) establish standards for systems that ensure

proper design, monitoring, and control of manufacturing processes and facilities. Manufacturers 

that are strongly committed to quality go beyond the CGMP standard to implement enhanced

quality management systems (QMSs) that focus on performance, facilitate continuous 

improvement, and center on patients’ needs. CGMPs provide the foundation for quality 

management systems. The existing regulatory framework, however, does not measure the 

capacity of a site to ensure ongoing quality supply. 

The capacity for robust quality assurance is determined by the maturity of the quality 

management system. Fully realizing the 21st century pharmaceutical quality vision requires a 

transparent method of evaluating and communicating quality management maturity. When 

manufacturers demonstrate rigorous oversight, understanding, and control over their 

manufacturing processes, FDA can exercise a more flexible regulatory approach, which should 

advance the goal of “high-quality drug products without extensive regulatory oversight” while 

also encouraging continual improvement of manufacturing processes. 

What is quality management maturity?

A quality management system is a collection of business processes needed to implement and 

maintain quality of product in the marketplace. These business processes focus on consistently 

meeting expectations (expressed as organizational goals and aspirations), and complying with 

regulations, policies, and processes. 

Quality management maturity starts with a foundational QMS that conforms to CGMPs and 

builds in a performance and patient focus that utilizes technology, statistical process control, and 

planning activities such as risk- management and continuous improvement plans. These planning 

activities and improved knowledge of product and process contribute to ensuring a robust supply 

of drug. As further explained below, a company that attains quality management maturity does 

not merely spot-check products for problems. Instead, in a mature quality management system,

manufacturing problems readily become evident, enabling the company to act promptly and 

continually improve product quality. 

A basic quality management system might be focused, for example, on CGMP compliance. As 

noted above in the discussion of Root Cause 2, adherence to CGMP standards is foundational, 

but is not sufficient to demonstrate a firm is applying quality management maturity standards 

that enable it to predictably prevent supply disruptions.
Drug Shortages: Root Causes and Potential Solutions, Appendix B 66

A stronger, more mature quality management system is one that focuses on performance,

especially outcomes that affect the customer/patient, including reducing quality issues that lead 

to complaints, shortages, and quality-related adverse events. Elements of a mature system 

include vigilant attention to upgrading facilities and equipment; training that promotes all 

employees’ understanding of their contributions to quality; increased understanding of the 

product and manufacturing process; and ongoing statistical-based monitoring of manufacturing 

processes and laboratories. Quality management maturity provides strong oversight that involves 

early detection of major variability in any of these areas, which enables senior management to 

take action before drug shortages occur.

Advanced quality management maturity builds in elements such as continual improvement, 

enhanced communication that encourages staff to raise issues, knowledge management to 

promote product understanding, manufacturing infrastructure investment, supply chain 

robustness, data analytics, and risk-management practices that exceed the explicit requirements 

currently in CGMPs.

Because most drug shortages are related to quality issues,

1 quality management maturity can be 

helpful in driving consistent production of quality product to meet customer demand. It is 

essential for the American public that each dosage unit from each manufactured batch has the 

quality needed to ensure their medications are safe and effective. 

Mature quality management systems, when coupled with process and product knowledge and the 

use of effective risk-management practices, can guide the building of quality into the product. 

This can also aid in managing many types of changes to facilities, equipment, and processes. In 

some cases, this may be able to obviate the need for FDA approval via formal regulatory 

submissions. Therefore, manufacturers with a mature quality management system and 

appropriate process knowledge may be able to implement certain improvements with less

stringent regulatory oversight, facilitating an increased pace at which product improvements can 

be made.

History of Quality Management Maturity

Industry has long recognized the need for the application of appropriate quality management.

Multiple models of excellence, including cross-industry and industry-specific, are available, 

some of which are described below. 

In his seminal 1979 book Quality is Free,

2 Philip B. Crosby formulated a Quality Management 

Maturity Grid (QMMG) to benchmark the maturity of processes and the extent to which these 

processes are culturally embedded. In 1987, the QMMG became the precursor maturity model 

 1 See Appendix F for information on FDA analysis. 

2 Crosby, Philip (1979). Quality is Free. McGraw-Hill. ISBN 0-07-014512-1. 
Drug Shortages: Root Causes and Potential Solutions, Appendix B 67

for the Capability Maturity Model.

3

 That same year, the Baldridge National Quality Program 

became a model to recognize U.S. organizations for achievements in quality and performance.4

In 2002, the Capability Maturity Model Integration (CMMI) was created as a process level 

improvement training and appraisal program. Many U.S. Government contracts, especially in 

software development, require it. The CMMI defines maturity levels (1-5) for processes for use 

in internal or external appraisal of an organization.

5 CMMI is currently used as the model in 

FDA’s Center for Devices and Radiological Health’s (CDRH) program for medical device 

quality.6 While the CMMI provides a useful rubric, some aspects of this approach (e.g., certain 

terminology) may not be ideally suited for comprehensive quality oversight of human drugs.

Recent literature shows that while many industries have successfully adopted quality maturity 

principles and tools, the pharmaceutical sector has been slower to capitalize on these learnings.

7,8

In 2017, Yu and Kopcha9 reinforced and extended the FDA vision for pharmaceutical quality by 

challenging industry to improve manufacturing capability to ensure reliable supply and minimize 

risk to consumers.

Research on Pharmaceutical Quality Management Maturity

To advance the pharmaceutical industry, trade associations and academics have conducted

significant research on quality management maturity, including quality metrics, quality culture, 

and operational excellence. For example, since 2004 St. Gallen University has benchmarked

hundreds of pharmaceutical manufacturers, collecting numerous quality indicators of

performance and cultural excellence. Their research demonstrates that quality metrics programs 

are a good business practice.10

The Parenteral Drug Association developed a quality culture maturity assessment tool for 

industry auditors to evaluate the quality culture of a manufacturing facility. The tool includes 

 3 Software Engineering Institute (1994). The Capability Maturity Model: Guidelines for Improving the Software 

Process. Reading, Massachusetts: Addison Wesley Longman, Inc. p. 11. ISBN 0-201-54664-7. 4 One example is described in a National Institute of Science and Technology (NIST) report: Comparison of 

Baldrige Award Applicants and Recipients with Peer Hospitals on a National Balanced Scorecard. “Hospitals using 

the Baldridge process are significantly more likely than peers to become 100 Top Hospitals award winners.”

5 https://cmmiinstitute.com/

6 https://www.fda.gov/medical-devices/quality-and-compliance-medical-devices/case-quality

7 MDIC Case for Quality Program, Maturity Model Research Report, June 2015, https://mdic.org/resource/maturitymodel-report/ 8 McKinsey & Company, Flawless: From Measuring Failure to Building Quality Robustness in Pharma, 2014, 

https://www.mckinsey.com/business-functions/operations/our-insights/mature-quality-systems 9 X. Yu, Lawrence & Kopcha, Michael. (2017). The future of pharmaceutical quality and the path to get there. 

International Journal of Pharmaceutics. 528. 10.1016/j.ijpharm.2017.06.039.

10 http://tectem.ch/institute/opex/fda
Drug Shortages: Root Causes and Potential Solutions, Appendix B 68

over 20 elements, each with a written maturity model that describes weak maturity (1) to strong 

maturity (5).

11

The International Society of Pharmaceutical Engineering (ISPE) has studied multiple aspects of 

quality management maturity and drug shortages.12,13 In 2014, ISPE published their Drug 

Shortage Assessment and Prevention Tool to provide a structured assessment of potential supply 

chain vulnerabilities that is consistent with Quality Risk Management principles.14 The tool 

enables the identification of specific risks or products that might merit priority attention. It 

identifies points to consider when assessing the gap between current operations and the desired 

robust quality system.

In 2017, an ISPE Cultural Excellence Report was published that focuses on a six-dimensional 

cultural excellence framework. This framework facilitates a holistic assessment of elements 

required to improve an organization’s quality culture. The report includes a Cultural Excellence 

Assessment Tool designed for an organization to assess the maturity of 21 key behaviors as part 

of their quality culture program.

In 2013, the first of two ISPE pilots was initiated to define and operationalize standard metrics 

reporting to the FDA and refine the proposed set of metrics and definitions, data submission 

process, and evaluation. The second pilot expanded the data set across segments, geography, and 

time to expand the knowledge and evaluate trends. Findings from the pilots confirmed the 

importance of quality culture and emphasized the difficulty in finding simple-to-collect metrics.

ISPE’s Advancing Pharmaceutical Quality (APQ) program proposes an industry-led approach to 

advance pharmaceutical quality beyond the submission of data for harmonized, reportable 

metrics. This program, still in development, includes a maturity model and evaluation for one 

element (corrective action and preventive action) of a robust quality system. The finished tool

will have a detailed maturity model for each quality system element to assess the maturity level 

and implement performance metrics.

FDA Supporting Initiatives

FDA has been promoting the modernization of quality management through multiple programs.

For example, CDRH’s Case for Quality helps to identify and promote practices that support 

consistent quality manufacturing. This will align CDRH’s regulatory, enforcement, and 

compliance approaches with those practices. The Case for Quality consists of three core 

components: (1) focus on quality, (2) enhanced data transparency, and (3) stakeholder 

engagement.15

 11 https://www.pda.org/global-event-calendar/courses/pda-quality-culture-transformation 12 https://ispe.org/initiatives/drug-shortages/publications-tools 13 https://ispe.org/initiatives/quality-metrics 14 https://www.fda.gov/media/71543/download 15 https://www.fda.gov/medical-devices/quality-and-compliance-medical-devices/case-quality
Drug Shortages: Root Causes and Potential Solutions, Appendix B 69

Quality Metrics

FDA is working on implementing a reporting program for certain key metrics (performance 

indicators).

16 On November 25, 2016, FDA issued a revised draft guidance that discusses how 

the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation 

and Research (CBER) may utilize submitted data and quality metrics to help ensure that their 

policies and practices continue to support continuous improvement and innovation in the 

pharmaceutical manufacturing industry. Many of the elements of Quality Metrics will also help 

in the larger efforts to implement QMM.

Since 2016, FDA has identified the need for additional discussion with industry. Therefore, FDA

initiated two programs: (1) a site visit program for manufacturers to demonstrate their level of 

quality maturity and (2) a feedback program in which companies can discuss their quality 

measurement approach in-depth. 

New Inspection Protocol Project (NIPP)

FDA is modernizing the manufacturing facility inspections program with a new way of 

assessing, recording, and reporting data from pre-approval and surveillance inspections for drug 

products. NIPP uses standardized electronic inspection protocols to collect data in a structured 

manner for more consistent oversight of facilities and faster and more efficient analysis of 

findings. The protocols also include additional questions related to quality maturity observed in 

facilities. 

The first phase of NIPP was aimed at developing a protocol that could be used during aseptic 

processing surveillance and pre-approval inspections. Facilities using this processing technique 

to manufacture sterile drug products are a logical starting place. If the quality of drugs intended 

for sterile injection is compromised, patient safety can be compromised. In recent years, these 

types of quality challenges have led to shortages of sterile, injectable drugs. With better and 

more consistent oversight of these manufacturing facilities, problems can be spotted earlier and 

mitigated to avert dangerous drug shortages.

Emerging Technology Program17

FDA recognizes that adopting innovative technologies to manufacturing is key to ensuring 

continuous improvement and modernizing the industry. However, implementing these new 

approaches can present technical and regulatory challenges. Pharmaceutical companies may have 

concerns that using such technologies could result in delays in FDA application approval. To 

address these concerns, CDER’s Office of Pharmaceutical Quality created the Emerging 

Technology Program (ETP) to promote the adoption of innovative approaches to pharmaceutical 

product design and manufacturing. Through the program, industry representatives can meet with 

ETT members to discuss, identify, and resolve potential technical and regulatory issues regarding 

 16 https://www.fda.gov/drugs/pharmaceutical-quality-resources/quality-metrics-drug-manufacturing 17 https://www.fda.gov/about-fda/center-drug-evaluation-and-research/emerging-technology-program
Drug Shortages: Root Causes and Potential Solutions, Appendix B 70

the development and implementation of a novel technology prior to filing a regulatory 

submission.

Site Engagement Program (SEP)18

FDA is establishing a voluntary program that encourages quality practices at selected drug 

manufacturing sites with the goal of ensuring the availability of quality pharmaceuticals. FDA is 

conducting a limited introduction of this concept based on the idea that enhanced interaction 

between the Agency and identified sites will help to prevent or mitigate shortages of certain 

finished drug products. For these products, supply disruption would result in higher risk to 

patients. The program also offers identified sites an additional opportunity to gain clarification 

on FDA’s expectations for pharmaceutical quality.

Defining Quality Management Maturity for the Pharmaceutical Industry

Current good manufacturing practice requirements set a minimum standard for methods, 

facilities, and controls used in manufacturing, processing, and packing of a drug product. A 

robust commitment to quality goes beyond the explicit minimum requirements and includes an

enhanced quality management system that focuses on continual improvement. However, the use 

of quality management maturity is far from universal in the pharmaceutical industry. FDA’s 

analysis found that for 62 percent of the drugs that went into shortage between 2013 and 2017, 

the shortages were triggered by quality problems. FDA seeks better data on the prevalence of 

mature quality systems in the pharmaceutical industry. Our current focus on inspections has 

primarily been on identifying and addressing CGMP violations and other problems, rather than 

evaluating the relative maturity of a manufacturer’s quality system.

Based on current research, knowledge-sharing with pharmaceutical manufacturers and trade 

associations, and benchmarking with other industries, FDA has identified certain performance 

indicators and behaviors that are indicative of a mature quality management system. For 

example:

• The ability of a quality system to consistently and reliably deliver quality product despite 

desired and undesired changes helps determine how well a system can perform over time 

through various conditions including changes in market demand. To ensure high 

reliability, mature companies measure delivery performance of their suppliers and 

themselves (on-time and in-full). They also have robust supplier qualification and 

management programs that include elements like ensuring supply chain redundancy and 

routinely surveying customer requirements. 

• Operational stability (e.g., measured through statistical process control, process capability 

and performance) helps identify causes of variation and find opportunities for continual 

improvement. 

 18 https://www.fda.gov/drugs/pharmaceutical-quality-resources/site-engagement-program-sep
Drug Shortages: Root Causes and Potential Solutions, Appendix B 71

• Effective continual improvement includes robust root cause analysis using standardized 

tools and corrective action and preventive action programs (e.g., effectiveness, timeliness). 

The reduction of human error can lead to a system that can prevent problems before they 

occur.

• A strong quality culture across the organization demonstrates that product quality and its 

impact on the patient drives corporate strategy and decisions. For example, this might 

include ensuring that employees understand patient impact, can escalate potential quality 

issues effectively, and are rewarded based on quality outcomes. Senior management’s 

commitment to quality can play a central role in driving quality culture by supporting staff 

development programs (e.g., mentoring, training, staff development plans, and in shopfloor operations.)
Drug Shortages: Root Causes and Potential Solutions, Appendix C 72

Appendix C: U.S. Food and Drug Administration

This report responds to a June 2018 request from Congress to identify the root causes of drug 

shortages and make recommendations for enduring solutions. However, long before receiving 

this request, FDA had been working to prevent and mitigate drug shortages through multiple 

initiatives. Some current initiatives focus on risk management plans, improved transparency, 

quality metrics, shortage forecasting, and cooperative work with other agencies on advanced 

manufacturing. The purpose of this Appendix is to (1) discuss proposed legislation and some of 

the Agency’s planned and current initiatives; and (2) respond to proposals that stakeholders have 

made that would involve changes to FDA policy or regulation. 

The Food and Drug Administration Safety and Innovation Act of 2012 (FDASIA) (Pub. L. 112-

144) gave the Agency new authorities to prevent and mitigate drug shortages, and called for the 

formation of a task force to carry out its provisions. In response, FDA established the Drug 

Shortages Task Force (FDASIA Task Force) with representation from the Center for Drug 

Evaluation and Research (CDER), the Center for Biologics Evaluation and Research (CBER), 

and the Office of Regulatory Affairs (ORA). The FDASIA Task Force is not to be confused with 

the new Task Force established by then Commissioner Scott Gottlieb, MD, in July 2018 to 

respond to a Congressional request for a report that would identify the root causes of drug 

shortages and recommend enduring solutions, a request that this report fulfills. 

Since 2012 the FDASIA Task Force, including CDER’s Drug Shortage Staff, has worked to 

implement the provisions of the Act. In 2013, the FDASIA Task Force developed a Strategic 

Plan for preventing and mitigating drug shortages, and in every year since has issued a Report to 

Congress on the number of new drug shortages as well as the shortages successfully prevented. 

Because the authorities, activities, and achievements of the FDASIA Task Force are well 

documented, the purpose of this section of the Appendix is to provide an overview of other 

actions that FDA is taking, in parallel, to prevent and mitigate shortages. 

Proposed Legislation and Planned and Current FDA Initiatives 

Risk Management

Risk Management Plan Guidance

FDA is developing a new draft guidance for industry, “Risk Management Plans to Mitigate 

Potential for Drug Shortages.” This guidance will outline a new recommendation for 

pharmaceutical stakeholders to develop, implement, and maintain risk management plans 

(RMPs) for the purpose of preventing and mitigating drug shortages. RMPs can provide 

manufacturers a framework to proactively identify, prioritize, and implement strategies that 

mitigate hazards that could potentially disrupt the drug supply chain (and could ultimately result 

in drug shortages.) It is a natural extension of the FDASIA requirement for industry to report 

potential drug shortages because this program provides a framework to prevent or mitigate the 

drug shortage. 
Drug Shortages: Root Causes and Potential Solutions, Appendix C 73

Legislative Proposal to Require Risk Management Plans

FDA has recommended a legislative proposal, which is in the President’s FY 2020 budget, that 

would authorize the Agency to require application holders of certain drugs to conduct periodic 

risk assessments to identify the vulnerabilities in their manufacturing supply chain and develop 

plans to mitigate the risks associated with the identified vulnerabilities. Currently, many

applicants lack plans to assess and address vulnerabilities in their manufacturing supply, putting 

them at risk for drug supply disruptions following disasters (e.g., hurricanes) or other reasons. 

Without these plans, recovery can be substantially delayed. One goal of this assessment would be 

to identify those potential shortage vulnerabilities. Based on the results of the assessment, the 

applicants would be required to develop a risk mitigation plan (e.g., redundant manufacturing 

capacity) to address those risks. These requirements would be applied using a risk-based 

approach to drugs that are considered “life-supporting, life-sustaining, or intended for use in the 

prevention or treatment of a debilitating disease or condition, including any such drug used in 

emergency medical care or during surgery”1 where the drug has been on the FDA drug shortage 

list in the last 5 years or meets 1 or more criteria determined by FDA to increase risk of shortage.

Increased Transparency

Improved Data Sharing: Ensuring Timely and Informative Notification

In a second legislative proposal, FDA recommends expanding the information required to be 

provided about interruptions in manufacturing under section 506C(a) of the Federal Food, Drug,

and Cosmetic Act (FD&C Act) and authorizing the Agency to impose penalties for failing to 

provide timely and adequate notification. Currently, some firms do not provide timely or 

sufficient notification related to drug shortages pursuant to section 506C(a) of the FD&C Act. 

Failing to provide timely, adequate information in the notification can preclude the Agency’s 

ability to take effective and appropriate action to address the shortage. Currently, the only 

“penalty” that FDA may pursue for noncompliance with the notification requirement under 

section 506C is a letter to the firm that is posted on FDA’s website, and this penalty applies for 

failure to notify at all or in a timely manner. 

Improved Data Sharing Guidance

By the end of calendar 2019, FDA plans to publish a new draft guidance for industry that will 

further discuss the requirement in section 506C of the FD&C Act for manufacturers to notify 

FDA of a permanent discontinuance in the manufacture of certain products or an interruption in 

the manufacture of certain products that is likely to lead to a meaningful disruption in supply of 

that product in the U.S. The guidance will also request that manufacturers provide additional 

details about the situation to ensure FDA has the specific information it needs to help prevent or 

mitigate shortages. 

 1 See section 506C(a) of the FD&C Act.
Drug Shortages: Root Causes and Potential Solutions, Appendix C 74

Quality Metrics Program

Quality issues (e.g., substandard manufacturing facilities or processes, or significant quality 

defects that are identified in the finished product) are the most common immediate cause of 

manufacturing disruptions. These situations necessitate remediation efforts to fix the issue, 

which in turn may interrupt production and lead to a shortage of drugs. 

FDA has sought input from industry on the establishment of an FDA Quality Metrics Program as 

another mechanism to promote continual improvement in manufacturing quality. Through this 

effort, the Agency has learned that it should obtain additional feedback from manufacturers who 

have already implemented their own quality metrics programs. Based on this input, FDA 

initiated a Quality Metrics Feedback Program in June 2018 with the announcement of a pilot 

program in the Federal Register.

2

 This pilot, which ran between July 30, 2018 and July 29, 

2019, was voluntary and helped the Agency gather information on quality metrics programs that 

are established and operational in industry. In addition, FDA launched a Quality Metrics Site 

Visit Program3 to enable CDER and CBER staff to observe directly at a manufacturing facility 

how quality metrics data are gathered, collected, reported to management, and used to drive 

continual improvement. 

Predictive Modeling for Drug Shortages

In 2014, GAO published a report, Drug Shortages: Public Health Threat Continues, Despite 

Efforts to Ensure Product Availability, which recommended that “FDA should strengthen its 

internal controls over its drug shortage data and conduct periodic analyses to routinely and 

systematically assess drug shortage information, using this information to proactively identify 

drug shortage risk factors.” The first recommendation was closed after the implementation of the 

Shortage Tracker, a commercially developed data system, in March 2016. The Agency is 

currently attempting to construct a predictive model. FDA anticipates that this project will 

provide insight into the complexities involved and whether such a model is feasible. If 

successful, this work may assist FDA in improving identification and mitigation of shortage risk 

factors. 

Cooperative Work with the HHS Office of the Assistant Secretary for Preparedness and 

Response and the Defense Advanced Research Projects Agency 

FDA is working with the Assistant Secretary for Preparedness and Response (ASPR) and the 

Defense Advanced Research Projects Agency (DARPA) through various paths, including 

Memorandums of Understanding (MOUs) to strengthen U.S. capabilities critical to protect the 

Nation from 21st century health security threats. 4 The partnership will ultimately provide 

 2 “Modernizing Pharmaceutical Quality Systems; Studying Quality Metrics and Quality Culture; Quality Metrics 

Feedback Program,” Federal Register, Vol. 83, No. 126, June 29, 2018, p. 30748 – 30751. 3 “Quality Metrics Site Visit Program for Center for Drug Evaluation and Research and Center for Biologics 

Evaluation and Research Staff; Information Available to Industry,” Notice. Federal Register, Vol. 83, No. 126, June 

29, 2018 p. 30751.

4 https://www.fda.gov/about-fda/domestic-mous/mou-225-17-015
Drug Shortages: Root Causes and Potential Solutions, Appendix C 75

flexible, transportable manufacturing platforms that enable response to emerging medical needs 

in the military or civilian populations, flexibly, on demand, and at the point of need. These 

systems will enable the U.S. Government to ensure supply of chemical and biological 

countermeasures and other medicines in austere environments, prevent or mitigate drug 

shortages, radically shorten the drug supply chain, and reduce U.S. dependence on overseas 

production and extensive distribution networks. 

FDA’s work with ASPR and DARPA ensures that the essential technical and policy experts are 

brought together to develop and navigate the core technologies and policies concurrently, 

ensuring that U.S. capability and policy is compatible with a changing technology and need 

landscape. For example, the FDA CDER’s Emerging Technology Team5 is working with 

DARPA and ASPR to ensure that the closed manufacturing systems under development will 

fulfill regulatory requirements, while also assessing how the new paradigm may shift regulatory 

policy.6 

Lengthening Expiration Dates 

In a legislative proposal in the President’s FY 2020 budget, FDA recommended expanding its 

authority to require, when in the interest of public health (e.g., to prevent or mitigate a shortage), 

that an applicant evaluate and label a product with the longest possible scientifically-determined 

expiration date (shelf-life). Shortages can be exacerbated if drugs must be discarded because they 

exceed a labeled shelf-life based on unnecessarily short expiration dates. 

ICH Guideline Q12: Technical and Regulatory Considerations for Pharmaceutical 

Lifecycle Management

Mature quality management systems were envisioned as a basis for regulatory flexibility in 

making post-approval manufacturing changes in the ICH guideline Q10 Pharmaceutical Quality 

System. However, the regulatory flexibility suggested by ICH Q10 has not yet been fully 

realized. Further, where requirements for post-approval changes differ amongst global regulatory 

authorities, implementing the improvements called for by a mature quality management system 

can involve significant time and expense. These issues have been the basis for the development 

of an internationally harmonized guideline, ICH guideline Q12: Technical and Regulatory 

Considerations for Pharmaceutical Product Lifecycle Management, which is intended to be 

finalized later this year. With significant contributions and leadership from FDA experts, this 

guideline sets out tools and enablers to incentivize enhanced product and process understanding 

and an effective pharmaceutical quality system through opportunities for less stringent regulatory 

oversight of certain post-approval manufacturing changes. Global implementation of this 

guideline, once finalized, could facilitate the efforts of manufacturers who wish to modernize 

processes and equipment, but have found the regulatory landscape to pose a financial burden.

 5 https://www.fda.gov/about-fda/center-drug-evaluation-and-research/emerging-technology-program 6 https://www.phe.gov/ASPRBlog/pages/BlogArticlePage.aspx?PostID=318
Drug Shortages: Root Causes and Potential Solutions, Appendix C 76

Stakeholder Proposals to FDA 

Essential Medicines List 

Some stakeholders have suggested that FDA develop a list of essential medicines and explore the 

possibility of increasing financial incentives and/or reporting requirements for these drugs. As 

part of the Drug Shortage Task Force activities, FDA set out to develop a set of criteria that 

would readily allow a manufacturer to determine if a drug is considered at risk for shortage. FDA 

took this approach because a static list of drugs would not be able to take into account changing 

factors such as additional drug approvals, changing quality conditions in manufacturing 

facilities, changes in medical practice, and other variables that could change over time. The 

Agency considered a variety of risk factors and vulnerabilities, including those related to national 

security interests, attributes of the drug, and manufacturing facilities. FDA also considered how 

application of these criteria could be integrated into current FDA processes and inform future 

FDA actions intended to prevent or mitigate shortage.

Regarding drugs for which shortage could impact national security, FDA considered those drugs 

used in emergency response and those used in response to specific chemical, biological, and 

radiological/nuclear (CBRN) threats and emerging infectious diseases. FDA identified a number 

of existing resources that identify drugs that meet these criteria, such as the Strategic National 

Stockpile Formulary (a non-public list), the HHS Chemical Hazards Emergency Medical 

Management (CHEMM) antidotes for chemical threats (2017), and the Advanced Cardiac Life 

Support (ACLS) Crash Cart Supply and Equipment Checklist (2016), among others.

When considering product-related risk factors, FDA explored how to identify drugs of interest 

(referred to as “medically necessary,” “essential,” or “important” by various stakeholders). As 

there are different definitions available from different organizations, FDA proposed to apply the 

criteria from section 506C of the FD&C Act, which outlines drug shortage notification 

requirements. Under section 506C(a), the requirement for notification to FDA about a possible or 

actual shortage applies to drugs that are life-supporting, life-sustaining, or intended for use in the 

prevention or treatment of a debilitating disease or condition, including any such drug used in 

emergency medical care or during surgery that are not radio pharmaceutical drug products or 

other products designated by FDA. FDA also sought product-specific factors associated with 

drug shortage. The only specific predictive factor FDA identified was prior history on the FDA 

drug shortage list. In particular, the analysis found that a drug that was on the FDA drug shortage 

list in the past 3 to 5 years has an approximately 15-20 percent chance of reappearing on that list 

within 1 year.

FDA also evaluated possible manufacturing facility-related risk factors that might assist in 

identifying drugs at risk for shortage. Our assessment revealed that a component supply chain 

with limited capacity (e.g., a single active pharmaceutical ingredient [API] facility or a single 

finished dosage form facility) was not a sufficiently discerning risk factor, as a large percentage 

of currently marketed drugs meet this criterion and yet many of those drugs have not experienced 

shortage. Narrowing this criterion to where such a single facility has experienced significant 
Drug Shortages: Root Causes and Potential Solutions, Appendix C 77

quality issues may further enhance the ability to predict the risk of shortage, but the impact of 

this added criterion requires further assessment. 

FDA considered other factors such as market share, volume of the market, and environmental 

factors (e.g., weather, conflict), but did not find that these factors provided any additional 

predictive capability. The Agency will continue its efforts to identify factors that help FDA and 

manufacturers predict and/or mitigate shortage.

Better Coordination Between FDA and the Drug Enforcement Administration (DEA)

In the past 15 years, shortages of prescription drugs containing controlled substances, such as 

narcotics and stimulants, have increased nationwide, limiting providers’ and patients’ access to 

medications needed for treatment. During FDA’s solicitation of public input into the drivers and 

solutions for drug shortages in 2018-2019, some stakeholders expressed a desire for better 

coordination between the FDA and the DEA, with a view to better mitigation of shortages of 

drugs typically used for anesthesia and pain management. 

In February 2015, the U.S. Government Accountability Office (GAO) reported on a 

study7

examining shortages of drugs containing controlled substances. In the 2015 report, GAO 

made seven recommendations, including that the DEA and FDA should update their MOU and 

agree on steps each should take regarding drug shortages. In March 2015, FDA and DEA 

implemented a recommendation to finalize an information-sharing agreement with FDA 

regarding drug shortages. 

• In March 2015, DEA and FDA updated the MOU to establish procedures regarding the 

exchange of proprietary and other sensitive information between the two agencies. The MOU 

calls for the development of separate plans to specify what information is to be shared and 

with whom it is to be shared. 

• After establishing the MOU, DEA and FDA met to determine the specific procedures for 

sharing information about drug shortages and developed draft work plans. While the drafts 

circulated between the two agencies for comment, FDA and DEA began to actively share 

information and by August 2017 had successfully completed numerous exchanges. 

• In March 2018, the work plans were cleared through both agencies and signed. FDA believes 

that it has now completed implementation of this recommendation.

Faster ANDA Approvals 

Industry members made suggestions to evaluate existing regulatory frameworks and further 

expedite application reviews and facility approval processes to accelerate the entry of generics 

and API suppliers. FDA has decreased the time it takes to review and approve applications over 

the years and continues to seek ways to improve overall processes, but FDA remains focused on 

 7 “DRUG SHORTAGES: Better Management of the Quota Process for Controlled Substances Needed; 

Coordination between DEA and FDA Should Be Improved,” GAO-15-202. February 2015.
Drug Shortages: Root Causes and Potential Solutions, Appendix C 78

protecting the public health and must perform due diligence in its drug reviews and facility 

inspection processes.

Better Communication and Coordination During ANDA Review 

Industry stated that navigating multiple FDA offices can be confusing and suggested FDA 

appoint a senior-level drug shortage navigator to coordinate with each manufacturer who submits 

an ANDA for a drug shortage product. This position should reside within the OGD and 

responsibilities would include shepherding drug applications through the internal review and 

approval processes at FDA and maintaining contact with the manufacturer. 

The Drug Shortage Staff within CDER, who report to the Office of the Center Director, already 

provide overall coordination of priority ANDAs and supplemental ANDAs that are expected to 

prevent or address a drug shortage. CDER’s Office of Generic Drugs (OGD) also has project 

management staff charged with tracking reviews of ANDAs and helping to resolve issues, and a 

Drug Shortage Coordinator. For shortage-related ANDAs and supplemental ANDAs, the Drug 

Shortage Staff works closely with the OGD Drug Shortage Coordinator to expedite reviews and 

inspections for submissions that could help mitigate or resolve a drug shortage and prevent future 

shortages.

Expand the FMD-135 Program 

Industry recommended that FDA enhance the FMD-135 Program through its Office of 

Regulatory Affairs and the Center for Drug Evaluation and Research, so that it can devote more 

resources and expedite advice under the FMD-135 program. Providing manufacturers with 

hands-on advice about new manufacturing processes or facilities could expedite a supply of 

critically needed drugs to market. 

FDA appreciates industry’s interest in increasing production capacity to address a drug shortage.

The FMD-135 is a narrowly defined program targeted at reviewing plans for construction of new 

or modifications of facilities prior to commercial production, most useful when a firm wishes to 

take a manufacturing approach for which the technology or design requirements have not been 

well clarified by existing guidance. It is therefore necessarily limited in scope, and only one of 

several resources that FDA provides to industry to help bring new capacity online or remediate 

manufacturing sites that have had a quality problem. 

Drug Efficacy Study Implementation Compliance Policy Initiative

Industry recommended refining the unapproved Drug Efficacy Study Implementation (DESI) 

drugs compliance policy initiative to permit the use of real-world evidence to demonstrate 

efficacy and streamline and simplify the filing requirements for DESI drugs. 

The 1962 Kefauver-Harris Amendments to the FD&C Act require that new drugs be proven 

effective, as well as safe, to obtain FDA approval. The amendment also required FDA to 

evaluate the effectiveness of the approximately 3,400 drug products that the Agency had 

approved only for safety between 1938 and 1962. DESI is FDA’s administrative implementation 

of this effectiveness evaluation.
Drug Shortages: Root Causes and Potential Solutions, Appendix C 79

FDA has made substantial progress with the DESI program, as nearly all DESI proceedings have 

been closed. Only a few DESI proceedings that lack FDA’s final determination of effectiveness 

remain open today.

The use of real-world evidence in the evaluation of drugs that were part of or are currently being 

reviewed under DESI proceedings neither depends on nor requires any changes to CDER’s

Marketed Unapproved Drugs—Compliance Policy Guide (CPG), Section 440.100 (September 

19, 2011). Instead, once a DESI proceeding closes, and regardless of the Agency’s final 

effectiveness determination, each drug firm marketing the drug that was subject to the DESI 

proceeding is required to obtain an FDA approved application (or approved supplement to a 

previously approved application) that demonstrates both safety and effectiveness. The drug does 

not retain its DESI status once the proceeding closes. Rather, older drugs that were previously 

part of the DESI program would, like any drug subject to section 505 of the FD&C Act, fall into 

one of two categories: they become approved (for both safety and effectiveness) or they remain 

unapproved. 

With respect to marketed unapproved drugs, prior inclusion in a DESI proceeding is not relevant 

to consideration of real-world evidence in FDA’s evaluation of an application for drug approval. 

Such drugs should be treated like all other drugs for which an application has been submitted, 

and whether real-world evidence is appropriate under that circumstance should be considered in 

light of the guidance, Submitting Documents Using Real-World Data and Real-World Evidence 

to FDA for Drugs and Biologics, Guidance for Industry. 

For those drugs currently subject to open DESI proceedings, the consideration of real-world 

evidence would significantly delay the administrative closure of those still-open proceedings. For 

the open DESI proceedings, volumes of effectiveness data have already been submitted to the 

Agency over the past several decades, and this data has been reviewed and evaluated by the 

Office of New Drugs (OND). It is an FDA priority to administratively close the remaining open 

DESI proceedings and provide a final effectiveness determination for the drugs in these 

proceedings. When a DESI proceeding closes, if the drug subject to that proceeding is 

determined to lack substantial evidence of effectiveness, firms can resubmit applications to be 

evaluated by OND for safety and efficacy under the appropriate standards applicable to all drugs 

subject to section 505 of the FD&C Act.

Finally, pursuant to CDER’s Marketed Unapproved Drugs CPG, drugs subject to an ongoing 

DESI proceeding are permitted to remain on the market during the pendency of that proceeding.

Expanded Use of the Changes Being Effected-30 Program

Industry stakeholders proposed adjusting regulations to enable what are considered to be 

moderate manufacturing changes to be submitted as Changes Being Effected-30 (CBE-30)

supplements. Re-entering the market may require a new API source and manufacturing site, 

which would require a prior approval supplement (PAS). Changes that qualify for submission as 

a CBE-30 may be implemented by the sponsor 30 days after the submission of the supplement to 

FDA, and the CBE-30 supplement process is therefore a faster process than filing a PAS. 
Drug Shortages: Root Causes and Potential Solutions, Appendix C 80

The CBE-30 program is already intended to be used for “moderate” manufacturing changes, 

while “major” ones must be approved under a PAS. However, if a facility has a compliance 

history, the firm may use the “comparability protocol” to reduce the time for approval. FDA 

published a draft guidance for industry, Comparability Protocols for Human Drugs and 

Biologics, in April 2016 and expects to finalize it in calendar 2019. However, FDA cannot rely 

on a comparability protocol for a new facility with no compliance history. 

Medical Device Reporting

Some stakeholders have suggested that the Agency require medical device manufacturers to

notify FDA in the event of an interruption or discontinuation of certain medical devices and

equipment needed to administer drugs, such as containers to dilute drugs for IV infusion. 

Currently, no law requires medical device manufacturers to notify FDA when they become 

aware of a circumstance that could lead to a device shortage. Such circumstances may include, 

for example: discontinuation of a device; interruption of the manufacture of the device (e.g., due 

to scarcity of a raw material or unavailability of a component part); or loss of or damage to a 

manufacturing facility. FDA’s Fiscal Year 2020 Budget Request includes a legislative proposal 

to address device shortages. This proposal would ensure FDA has timely and accurate 

information about likely or confirmed national shortages of essential devices to enable FDA to 

take steps to promote the continued availability of devices of public health importance. 

Specifically, under this proposal, FDA would be granted authority to: require firms to notify 

FDA of an anticipated significant interruption in the supply of an essential device; require all 

manufacturers of devices determined to be essential to periodically provide FDA with 

information about the manufacturing capacity of the essential device(s) they manufacture; and 

authorize the temporary importation of devices whose risks presented when patients and health 

care providers lack access to critically important medical devices outweigh compliance with U.S. 

regulatory standards.

Enhanced Industry Reporting of Inventories. 

Some stakeholders have recommended that FDA require manufacturers of essential critical drugs 

to report their monthly inventories to the FDA by entering data directly into an FDA database. 

This information would give FDA transparency to the supply levels with an overall picture of 

drug supply capacity across manufacturers. FDA is currently exploring additional data sources.

Extend FDASIA Title 10 Requirements. 

Stakeholders recommended extending Title 10 requirements to require industry to provide FDA 

with information on API sources, production locations, duration of expected shortages, and more 

details on manufacturing quality issues. FDA is pursuing an extension of FDASIA Title 10 

requirements through legislative proposals in the President’s FY2020 budget, as discussed 

above. 
Drug Shortages: Root Causes and Potential Solutions, Appendix C 81

Publicly Identify Manufacturing Locations

Some stakeholders recommended making manufacturing locations transparent. However, the 

pharmaceutical industry generally regards these locations as trade secret or confidential 

commercial information and has stated that revealing them to the public would create a security 

risk.8 

Early Warning System

Industry recommended that FDA establish an early warning system to alert companies when a 

contract manufacturing firm is cited for GMP issues that could negatively impact multiple 

products. However, companies already have access to this information. 

FDA’s inspection classification data base is updated every 30 days with results from surveillance 

inspections. Final classifications of inspection results are made within 90 days of the close of 

inspection. Stakeholders who are interested can check the data base once a month to determine 

the status of contract manufacturers. FDA also notes that pharmaceutical firms could specify in 

their contracts with contract manufacturing firms that the latter notify them promptly of any 

GMP issues found in an FDA inspection. 

Monitoring Distribution Patterns for Drugs in Shortage

Industry recommended that FDA require national wholesalers to implement checks and balance 

systems for shortage drugs, similar to suspicious order monitoring requirements for controlled 

substances, to identify potential diversions of shortage drugs to the gray market. However, 

FDA’s governing statutes do not set up such systems specifically to address potential diversions 

of shortage drugs.

Better Communication and Navigation with FDA Processes

Industry suggested that FDA pursue post-4839 meetings with sponsors. They recommended that 

CDER meet with a sponsor of a drug shortage product upon request after the sponsor submits its 

483 response. Industry suggested that this approach would allow for effective and timely 

remediation of the identified 483 issues.

FDA believes that it has adequate policies and procedures in place that address industry concerns 

related to communications post-issuance of a Form 483. Recently, in response to Section 806 of 

the FDA Reauthorization Act of 2017 (FDARA), FDA implemented processes to ensure timely 

reviews of responses to 483s. In addition, sponsors of drug products in shortage also already 

have existing mechanisms to engage the Agency through the Drug Shortages Staff, and FDA 

does consider all requests for meetings related to remediation, particularly if a drug is in 

shortage. 

 8 FDA Listening session with manufacturers, October 1, 2018. 

9 An FDA Form 483 is issued to firm management at the conclusion of an inspection when an investigator(s) has 

observed any conditions that in their judgment may constitute violations of the FD&C Act and related Acts. (See 

https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/fdaform-483-frequently-asked-questions) 
Drug Shortages: Root Causes and Potential Solutions, Appendix C 82

Economic Incentives

Some industry stakeholders have suggested that FDA could help prevent or mitigate drug 

shortages by providing economic incentives such as waiving ANDA application fees or facility 

fees for essential medicines that have routinely been on shortage, or offering tax incentives to 

bring API sources and manufacturing back to the U.S.

Based on our available data, it is unlikely that waivers of ANDA application fees would provide 

an incentive for generic manufacturers to bring a drug to market. As highlighted in FDA’s 

analysis, 62 percent of drugs newly in shortage between 2013-2017 resulted from issues with 

manufacturing quality. Addressing these issues through expanding or modernizing a 

manufacturing facility can cost up to $100 million.10 In contrast, user fees for generic drugs 

under the Generic Drug User Fee Amendments (GDUFA) in Fiscal Year 2019 are much smaller: 

$178,799 per original application; $211,305 and $226,305 per year for domestic and foreign 

finished product manufacturers; and up to $1,862,167 per year for companies that hold more than 

20 approved applications. The value of the waiver is small in proportion to the total cost of 

expanding, modernizing, or building new capacity. 

Typically, manufacturers produce multiple drugs at a given facility and few manufacturers would 

dedicate a facility to manufacturing only a shortage drug or drugs. For this reason, there would 

be few situations in which waiving facilities fees for shortage drugs would be feasible. 

As the U.S. Treasury section of the Appendix states, tax incentives often do not work and must 

be carefully targeted to have an impact. Although some localities may provide tax incentives for 

manufacturers to locate production, the cost and regulatory requirement differentials between the 

U.S. and locations overseas, particularly China, have provided a powerful incentive for 

companies to locate manufacturing there.

 10 Ferierra et al., “A Comparison of Capital and Operating Costs of Aseptic Processing Facilities,” Advanced Aseptic 

Processing. Edited by J. Akers and J. Agallaco, Informa Publishing (U.K.).
Drug Shortages: Root Causes and Potential Solutions, Appendix D 83

Appendix D: Agencies and Offices Participating in the Drug Shortages 

Task Force

The Drug Shortages Task Force brings together officials not only from the U.S. Food and Drug 

Administration, but also from several partner agencies including the Centers for Medicare and 

Medicaid Services, the Department of Defense, the Department of Veterans Affairs, the Federal 

Trade Commission, and the Office of the Assistant Secretary for Preparedness and Response

within the Department of Health and Human Services. In addition, the Task Force has consulted 

with officials from the Defense Advanced Research Projects Agency, the U.S. Department of the 

Treasury, and the Drug Enforcement Administration within the U.S. Department of Justice. Each 

of these organizations has a unique perspective based on its authorities, mission, and activities. 

In the course of its work, the Task Force has consulted with each of these organizations to better 

understand how their activities might affect drug shortages, their potential contributions to longterm solutions, and the limitations imposed by their enabling legislation and authorities. The 

material below provides a summary of what the Task Force has learned and was provided by the 

agencies themselves.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 84

Centers for Medicare and Medicaid Services 

The Centers for Medicare & Medicaid Services (CMS) pledges to put patients first in all of its 

programs – Medicaid, Medicare, and the Health Insurance Exchanges. To do this, the Agency 

strives to empower patients to work with their doctors and make health care decisions that are 

best for them. This means giving them meaningful information about quality and costs to be 

active health care consumers. It also includes supporting innovative approaches to improving 

quality, accessibility, and affordability, while finding the best ways to use innovative technology 

to support patient-centered care. 

To these ends, CMS administers the Medicare program and works with state governments to 

administer the Medicaid program. Within Medicare, CMS administers several programs: Part A, 

which covers inpatient hospital, skilled nursing, and hospice care; Part B, which covers 

medically necessary services and supplies, including outpatient care and preventive care; and

Part D, which adds prescription drug coverage to Parts A and B for beneficiaries who elect it. 

Part D plans are offered by private sponsors but must conform to Federal guidelines. There is 

also Part C, which includes Medicare Advantage Plans, whose benefits combine the coverages 

under traditional Medicare A, B, and potentially D as well. 

Some stakeholders have suggested that Medicare and Medicaid reimbursement policies may 

reduce the incentive for manufacturers to market certain drugs, and thus contribute to shortages. 

However, drugs are reimbursed differently under each of these programs, and quantitative data 

about the relationship between Federal reimbursement policies and drug shortages are scarce. 

Some stakeholders asked if CMS had quantified how much drug shortages are costing our public 

programs. CMS does not collect the information needed for this analysis and indicated that 

HHS/ASPE is developing a report on these costs. 

Medicare

Part A

Under Part A, CMS bundles payments for hospital services using a system of diagnostic related 

groups (DRGs). A DRG is part of a medical case classification system that standardizes 

prospective payment for hospitals. In general, a DRG payment covers the cost of all charges 

associated with an inpatient stay from the time of admission to the time of discharge, including 

the cost of any drugs used to treat the patient. The DRG system is intended to encourage cost 

containment, because hospitals whose costs exceed the DRG payment will experience a loss for 

the inpatient stay involved, while those whose costs are less can earn a profit. The level of DRG 

reimbursement varies by region and is calculated based on the average costs of hospitals in the 

same region, with adjustments for case intensity, so each hospital is tacitly encouraged to 

compete with its regional peers on cost containment. 

During FDA’s listening sessions and the November 2018 public meeting on drug shortages, 

some stakeholders raised questions about the possible impact of DRGs on drug shortages; e.g., 

whether the cost containment pressures they exert are incenting hospitals to buy the cheapest 

drug available, thus driving down generic prices to unsustainable levels. Some suggested that 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 85

changes in CMS’ reimbursement policies might provide better incentives for manufacturers to 

market shortage drugs. 

For example, some stakeholders have recommended that CMS consider a policy of paying for 

shortage drugs outside of the DRG. This, they believe, could ensure that their reimbursement is 

high enough to provide an incentive for manufacturers to market the drug. However, CMS does 

not have the statutory authority to move shortage drugs out of a DRG. Also, this tactic may be 

counter to the Administration’s strategy of encouraging health care cost containment by setting 

reimbursement levels and allowing providers to make their own decisions about how to operate 

efficiently. CMS is advancing a value-based transformation of health care, with a move in 

emphasis from paying for individual items and services to making bundled payments for entire 

episodes of care, with incentives to contain costs. 

Some stakeholders have noted that CMS already has a process in place for New Technology 

Add-on Payments or NTAPs for DRGs and pass-through payments for Ambulatory Payment 

Classifications (APCs, a classification system similar to DRGs for outpatient care) to supplement 

bundled payments. Some stakeholders have asked whether CMS might follow a similar approach 

for shortage drugs. However, the NTAP program is only available to new technologies that meet 

the definition of newness of the technology, exceed cost criterion thresholds, and demonstrate 

substantial clinical improvement over existing services or technologies. Due to the time needed 

to approve NTAPs (for DRGs) and the existing criteria, it would not be feasible for shortage 

drugs to be considered unless submitted applications meet all three criteria.

Stakeholders also raised the question of whether CMS could drive changes in hospitals’ 

contracting practices through Medicare Conditions of Participation (CoP) or similar mechanisms. 

For example, could CMS require hospitals to enter into contracts for guaranteed supply, or 

exchange higher prices/reimbursement for stronger penalties when drugs go into shortage? 

The statutory authority for CoP is limited to establishing health and safety standards that address 

systems and processes of care at a given facility. Thus, it would not be possible to use CoP as a 

mechanism for forcing hospitals to modify their contracting practices, which are a hospital rather 

than a Federal governance issue. 

CMS does not have information on the fraction of shortage drugs that are reimbursed primarily 

by Medicare. Because Part A payments for drugs are bundled within the DRG reimbursement 

covering all the services provided during an episode of care, CMS cannot determine which 

specific drugs (active pharmaceutical ingredient/dosage form/manufacturer) have been used for 

specific inpatient cases. Even if CMS had this information, it would not know how much other 

payers, such as private insurers offering Medigap plans, have paid for shortage drugs. 

Part B

Under Part B, CMS reimburses drugs based on an Average Sales Price (ASP), calculated 

quarterly. It is unlikely that the use of ASP has a negative financial impact on providers, because 

the ASP is updated quarterly. Although there is a lag between the period on which the 

calculation is based and the period during which the ASP is used for reimbursement (e.g., the 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 86

April-June ASP is based on sales from the previous October-December), the frequency of 

updates largely compensates for this lag. 

Part D

Part D coverage is provided through Medicare-approved private drug plans offered by plan 

sponsors. Under Federal guidelines, sponsors independently negotiate pharmacy reimbursement 

with pharmacies and price concessions with manufacturers. Pharmacy reimbursement under Part 

D is based on ingredient cost, a dispensing fee, and sales tax. Ingredient costs are generally based 

on the Average Wholesale Price (AWP) discounted by a specified percentage or maximum 

allowable cost negotiated by plan sponsors. 

Medicare subsidizes the cost of drugs covered under approved Part D plans. To be approved by 

Medicare, these plans must cover certain medications but are otherwise free to establish their 

own formularies, which vary and thus enable beneficiaries to have choices. Medicare Part D 

plans use tiered copayment systems designed to incent beneficiaries to use more cost-effective 

drugs. These tiered copayment systems follow CMS guidance. 

Some stakeholders, citing a 2018 Avalere Health report,1 have claimed that a 2016 CMS 

guidance that addresses formulary composition has led to unintended consequences by allowing 

both brand and generic drugs to occupy the same non-preferred tier. They believe that this policy 

prevents generics from competing effectively on price with brands, and as a result is responsible 

for reducing generic market penetration.

CMS sought comment regarding an alternative to the tier composition policy whereby plan 

sponsors would be prohibited from placing generics on brand formulary tiers and brand drugs on 

generic formulary tiers and eliminating the non-preferred drug tier. CMS analyses of formulary 

placement and Prescription Drug Event (PDE) data comparing generic access in 2011 to 2019 do

not indicate that this alternative approach would result in the beneficiary savings asserted in the 

cited Avalere report. CMS has concluded that a broad prohibition of the inclusion of generic 

drugs on non-preferred tiers would result in preferred formulary placement of a number of 

generic drugs that are high cost and/or high risk for adverse events, especially in elderly patients. 

This could increase out-of-pocket costs for generic medications in some circumstances. For 

example, in order to meet actuarial equivalence, plans may raise their generic tier copayment 

amount in order to account for the need to add more expensive generic drugs to the generic drug 

tier, increasing the cost for the majority of generic drugs on the formulary. This alternative tier 

composition policy could also result in an increase to Part D premiums due to reduction in 

flexibility in plan design and reduced negotiating leverage with drug manufacturers.

However, while CMS analysis of CY 2019 formularies shows robust access to cost-effective 

generic medications and that Part D sponsors have been achieving very high generic dispensing 

and substitution rates, it notes that there are limited instances when Part D sponsors are not 

including generic alternatives when available. Instead, sponsors are only covering the brand 

drugs, which decreases generic substitution and increases beneficiary costs. Further, CMS has 

noted that some sponsors, despite having the generic at a more preferred formulary status than 

 1 “Generic Drugs in Medicare Part D: Trends in Tier Structure and Placement.” Avalere Health. May 22, 2018.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 87

the brand, are not achieving optimal generic substitution. While CMS is declining to change its 

tier composition policy at this time, it will continue to monitor beneficiary access to generic 

alternatives, utilization of multi-source brands when generics are available, and situations where 

the brand drug is situated more favorably in comparison to the generic with regards to tiering and 

utilization management. CMS will consider future policy changes should this trend continue.

CMS is aware of strategies that can be used to encourage generic use and has already adopted or 

proposed some. These include:

• Allowing certain low-cost generic drugs to be substituted onto Part D plan formularies at 

any point during the year, so that beneficiaries immediately have access to them and 

lower cost sharing;

• Requiring Part D plans to increase transparency and provide enrollees and their doctors 

with a patient’s out-of-pocket cost obligations for prescription drugs when a prescription 

is written;

• Implementing a statutory requirement signed by President Trump to prohibit pharmacy 

gag clauses in Part D, which prevent pharmacists from notifying consumers of lower-cost 

options for obtaining their medications. 

Medicaid

Medicaid receives rebates on drugs provided to its beneficiaries under the Medicaid Drug Rebate 

Program.2 The Bipartisan Budget Act of 2015 includes a provision that requires generic drug 

makers to pay an additional rebate to Medicaid if the prices of their generic drugs rise at a rate 

faster than inflation. This provision, which previously applied only to brand-name drugs, is 

informally known as the “CPI-U rebate” or “CPI-U penalty.”

The additional rebate for generics applies to rebate periods starting in the first quarter of 2017. 

The amount of the additional rebate is equal to the average manufacturer price (AMP) for the 

current quarter minus the baseline AMP, adjusted for inflation. Meanwhile, the adjustment for 

inflation is calculated as the Consumer Price Index for all Urban Consumers (CPI-U) for the 

month immediately before the reporting quarter, divided by the baseline CPI-U.

Some have noted that because the prices of some generics are so low, even a modest increase in 

price could trigger the CPI-U rebate. For example, if a company manufacturing a drug selling for 

$1.00 raised its price by 5 percent to $1.05, while the CPI-U increase is only 2.3 percent, the 

company would be affected by the penalty. Furthermore, some have noted that if the costs of 

manufacturing inputs rise faster than the CPI-U, the CPI-U rebate would undermine the ability of 

drug manufacturers to recoup these rising costs. As a result, the CPI-U rebate could erode the 

incentive for the manufacturer to continue marketing the drug and increase the likelihood of drug 

shortages.3

 2 For an explanation of the Medicaid Rebate Program, see https://www.medicaid.gov/medicaid/prescriptiondrugs/medicaid-drug-rebate-program/index.html. 3 Richard Manning and Fred Selck, Bates-White Economic Consulting, “Penalizing Generic Drugs with the CPI 

Rebate Will Reduce Competition and Increase the Likelihood of Drug Shortages,” September 12, 2017. Accessible 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 88

The argument that the CPI-U rebate will make it difficult for manufacturers to recoup rising input 

costs may be weak, however. There is little evidence that manufacturing input costs are rising 

faster than the CPI-U, and they are likely to be captured in the rising costs of consumer goods that 

the CPI-U measures. 

Some state Medicaid programs offer financial incentives for pharmacists to dispense generics, as 

an additional strategy to encourage generic use. 

 at https://www.accessiblemeds.org/sites/default/files/2017-09/Bates-White-White-Paper-Report-CPI-Penalty-09-12-

2017.pdf.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 89

Defense Advanced Research Projects Agency and HHS Office of the Assistant 

Secretary for Preparedness and Response 

The mission of the Defense Advanced Research Projects Agency (DARPA) is to make pivotal 

investments in breakthrough technologies for national security. DARPA explicitly reaches for 

transformational change instead of incremental advances, addressing challenges that span the 

spectrum from deep science to systems to capabilities. DARPA works within an innovation 

ecosystem that includes academic, corporate, and governmental partners to transform 

revolutionary concepts and even seeming impossibilities into practical capabilities. The ultimate 

results have included not only game-changing military capabilities such as precision weapons 

and stealth technology, but also such icons of modern civilian society such as the Internet, 

automated voice recognition and language translation, and global positioning system receivers 

small enough to embed in myriad consumer devices.4 

The mission of the HHS Office of the Assistant Secretary for Preparedness and Response 

(ASPR) is to safeguard the Nation’s health during times of disasters, emergencies, and disease 

outbreaks, and secondly, to strive to reduce and eliminate threats to the Nation’s health security. 

ASPR’s authorities, policies, and programs ensure that Americans have access to potentially lifesaving pharmaceuticals and medical supplies for use in a public health emergency. In addition, 

ASPR builds relationships with Federal, state, local, tribal, and territorial government partners 

and the private sector to identify and mitigate risks to key systems and infrastructure so that 

Americans have access to quality health care every day. 

Currently, ASPR and DARPA are partnering to explore novel sustainment strategies and develop 

point-of-need manufacturing solutions that disrupt entrenched paradigms for production and 

distribution of small-molecule medicines and biologics. Specifically, DARPA and ASPR are 

working on validating automated, portable capabilities that produce medicines and vaccines in 

dosage form, as either finished pills or injectables. Their partnership will ultimately provide 

flexible, transportable manufacturing platforms that enable response to emerging medical needs 

in the military or civilian populations, flexibly, on demand, and at the point of need. These 

systems will enable the U.S. Government to ensure supply of chemical and biological 

countermeasures and other medicines in austere environments, prevent or mitigate drug 

shortages, radically shorten the drug supply chain, and reduce U.S. dependence on overseas 

production and extensive distribution networks. 

ASPR and DARPA are working together and with other agencies such as the FDA through 

various paths, including Memorandums of Understanding (MOUs) to strengthen U.S. 

capabilities critical to protect the Nation from 21st century health security threats. 5 These 

partnerships ensure that the essential technical and policy experts are brought together to develop 

and navigate the core technologies and policies concurrently, ensuring that our capability and 

policy is compatible with a changing technology and need landscape. For example, FDA 

 4 https://www.darpa.mil/about-us/about-darpa 5 https://www.fda.gov/about-fda/domestic-mous/mou-225-17-015
Drug Shortages: Root Causes and Potential Solutions, Appendix D 90

CDER’s Emerging Technology Team (ETT)6 is working with DARPA and ASPR to ensure that 

the closed manufacturing systems under development will fulfill regulatory requirements, while 

also assessing how the new paradigm may shift regulatory policy.7

 6 https://www.fda.gov/about-fda/center-drug-evaluation-and-research/emerging-technology-program 7 https://www.phe.gov/ASPRBlog/pages/BlogArticlePage.aspx?PostID=318
Drug Shortages: Root Causes and Potential Solutions, Appendix D 91

Department of Defense 

The Department of Defense (DoD) must ensure a reliable drug supply to America’s military 

forces so that they are adequately healthy and protected to deter war and safeguard the Nation’s 

security. As a result, readiness is a prime concern, and DoD ensures access to drugs through a 

variety of mechanisms.

To help meet its service readiness sustainment requirements, the Defense Logistics Agency 

(DLA) Troop Support has sought various methods to garner access to pharmaceuticals. One such 

arrangement is the use of contingency contracts in which DLA pays its vendors a fee for access 

to a guaranteed quantity of specific products in a designated timeframe. Although this approach 

is less costly than purchasing and holding drugs in inventory, if there is an urgent need, DLA 

must rely heavily on vendors to meet their contractual delivery schedules.

DLA leverages the following types of contracts to ensure medical readiness:

• Industrial Base Maintenance Contracts create long term partnerships with selected 

manufacturers to maintain production capabilities.

• Prime Vendor War Readiness provides pre-negotiated access to prime vendor stocks.

• Vendor Managed Inventory Contracts create long term partnerships with distributors that 

provide guaranteed product availability.

• Corporate Exigency Contracts create long term partnerships with manufacturers 

providing guaranteed product availability.

• Commercial Product Visibility Contracts provide the data necessary to support critical 

medical IT planning and execution applications. 

These contingency contracts give DoD access to approximately $720 million worth of material, 

on a time-phased basis, should the DoD have a contingency that necessitates a surge in support. 

Despite these efforts, DoD has experienced problems with access to certain drugs. Although it 

does not hold backorders in the traditional sense, the DLA does receive feedback from prime 

vendors on drugs that cannot be supplied due to their manufacturer backorders and strict 

allocations. Once a drug is unavailable, DLA urges its customers to order alternatives. 

To estimate the scale of the problem, DLA used data from its Global Prime Vendor Contract for 

the period from October 2018 through March 2019 and examined order rejections related to 

Manufacturer Backorder and Manufacturer Allocation. The DoD analyzed the data and used a 

threshold of 50 instances or more of rejections for each National Drug Code (NDC) to determine 

unavailability. During this period, DLA found that approximately 1,334 NDCs were 

experiencing unavailability due to Manufacturer Backorder and 238 were experiencing 

availability issues due to Manufacturer Allocation. 

DoD’s access to generic drugs is also limited by the Trade Agreements Act (TAA) of 1979, a 

Federal law applicable to all Federal contracts. TAA prohibits Federal agencies from acquiring 

products made in certain countries. In the case of drugs, both the finished product and the active 

pharmaceutical ingredient (API) must be developed in a TAA-compliant country, unless the API 

undergoes substantial transformation in a compliant country. Because the APIs for many generic 

drugs are made in China and India, which are not TAA-compliant, DoD cannot purchase them 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 92

but must instead buy the more expensive compliant generic or brand version. In Fiscal 2018, an

estimated 75 percent of the drugs DLA purchased were brands, and only 25 percent were 

generic. 

Currently, the DoD does not maintain the data needed to determine how much more it pays for 

compliant drugs when TAA compliant generics are not available. However, the Department 

recently had an independent study conducted that estimated cost reductions based on waiving 

TAA compliance. The study analysts estimated that waiving TAA compliance requirements 

would reduce DoD’s costs between $36 million and $83 million annually depending on the scope 

of the waiver. 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 93

Department of Veterans Affairs

The Department of Veterans Affairs (VA) is responsible for providing vital services, including 

health care services, benefits programs, and access to national cemeteries, to America’s former 

military personnel and their dependents. 

On behalf of all Federal purchasers, the VA administers several Federal Supply Schedules (FSS) 

under delegated authority from the General Services Administration. Included in this delegated 

authority is the Federal Supply Schedule for pharmaceuticals. The FSS serves multiple Federal 

entities including the Department of Defense (DoD), Bureau of Prisons (BoP), U.S. Public 

Health Service (PHS), Indian Health Service (IHS) and the VA, and covers approximately 15 

million beneficiaries. The beneficiaries VA serves have low prescription co-payments and 

statutory authority exempts many beneficiaries from prescription co-payments based on a variety 

of factors, including Service Connected Disabilities and their ability to pay. Beneficiaries also 

have an annual cap on prescription co-payments. 

Public Law 102-585 (also known as The Veterans Health Care Act of 1992) places upper limits 

on the prices drug manufacturers can charge “Big 4” Federal customers relative to what they 

charge non-Federal purchasers for drugs required to be listed in the FSS. The Big 4 Agencies are 

VA, the Department of Defense, the Public Health Service and the Coast Guard. Public Law 

102-585 dictates that drug manufacturers may charge the Big 4 no more than 76 percent of the 

average price for which they sell an FSS drug to non-Federal purchasers.

The VA uses several approaches to obtain medicines for veterans, all of which are subject to 

established procurement hierarchies. If generic drugs are available via the FSS, the agency may 

buy through those contracts if a VA or joint National Contract with Other Government Agencies 

(OGAs) is not in place. If the needed drugs cannot be obtained through any of the contracts, VA 

can purchase on the open market using the Streamlined Acquisition Procedures outlined in the 

Federal Acquisition Regulation (FAR) or by submitting a procurement request to a warranted 

contracting officer. 

In the event a competitively bid VA National Contract supplier lacks product to fulfill an order 

due to a national drug shortage, and the VA must purchase the product elsewhere, the national 

contract vendor may be asked to credit the VA for any purchases made in excess of what the 

contracted product for the same quantity would have cost. Based on back order reimbursement 

from the first two quarters of VA Fiscal Year 2019 where VA elected to exercise this contract 

clause, it is estimated that these back orders will cause an increased cost of $2.5 million for the 

entire fiscal year. The magnitude of VA’s actual excess cost for Fiscal Year 2019 due to 

procuring alternate supplies of drugs due to national shortages is estimated to be significantly 

larger than the amount it will recoup via contract penalties.8

All drugs purchased by VA must comply with the Trade Agreements Act (TAA) and the Buy 

American Act (BAA). A Federal Acquisition Regulation (FAR) process exists for VA to obtain a 

waiver to buy a non-TAA or non-BAA compliant drug, but this approach takes months to 

 8 Estimate provided in an email from Jennifer L Zacher, Assistant Chief Consultant, VA Pharmacy Benefits 

Management Services, to FDA on April 7, 2019. 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 94

complete for each drug shortage and does not work in practice. When no other options are 

available, VA allows the use of 503B compounders9 but strongly advises against it due to the 

associated risk. If VA facilities choose to outsource to a compounder, there are requirements the 

pharmacy must meet. VA has a growing number of contracts where they cannot find a supplier.

When drugs are in shortage in the United States, importation might enable the VA to procure 

them for its beneficiaries. However, importation is generally not an option since many products 

do not comply with the TAA and BAA. For several years, VA has advanced a legislative 

proposal to amend Subchapter II of Chapter 81, Title 38 of the United States Code to allow VA 

pharmaceutical procurements to be exempt from the TAA and BAA under certain conditions that 

could negatively affect the health of veteran patients. However, no legislative action has been 

taken on the proposal to date.

 9 Refers to outsourcing facilities that compound consistent with section 503B of the FD&C Act (21 U.S.C. 353B).
Drug Shortages: Root Causes and Potential Solutions, Appendix D 95

Drug Enforcement Administration 

The Drug Enforcement Administration (DEA) administers and enforces the Controlled 

Substances Act (CSA) to help ensure the availability of controlled substances, including certain 

prescription drugs, for legitimate use while limiting their availability for abuse and diversion. 

The CSA requires the DEA to set quotas to manage the amount of certain substances that are 

available in the United States. The CSA also requires those handling controlled substances to 

register with the DEA. In addition, the DEA works to disrupt and dismantle major drug 

trafficking organizations and uses confidential informants to help facilitate investigative efforts. 

Controlled Substances Quota Process

The DEA sets an annual aggregate production quota (APQ) for each basic class of Schedule 1 

and II controlled substances. The APQ is a “top line” number that specifies the maximum 

amount of each controlled substance that can be manufactured in the United States in a given 

year to provide for the estimated medical, scientific, research, and industrial needs of the United 

States, lawful export requirements, and the establishment and maintenance of reserve stocks. It 

then sets bulk and procurement quotas for individual manufacturers. Generally, the DEA sets 

quotas for active ingredients, not active ingredient dosage forms. Prior to the enactment of the 

Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients 

and Communities Act (SUPPORT Act enacted October 24, 2018), it could not tell individual 

manufacturers what prescription drugs and in what formulation to make with their quota 

allotment. With the enactment of the SUPPORT Act, the DEA may under specific conditions 

listed in the Act direct a manufacturer to utilize its allotted quota for specific formulations. 21 

U.S.C. 826(a)(2).

Because of the opioid crisis, the DEA has recently been under pressure to lower several APQs, 

which has had a cascading effect on manufacturers. Under a provision of FDASIA that amended 

the DEA quota law (21 U.S.C.826(h)), any manufacturer who believes that the DEA is not 

giving them a sufficient quota to meet legitimate medical needs can contact the FDA to trigger 

the FDASIA provision. After an internal review, the FDA contacts the DEA with the information 

provided by the manufacturer and a synopsis of FDA’s internal assessment, the DEA then has 30 

days to respond. So far, the DEA has not received any requests from the FDA under this 

mechanism. FDA also monitors drug shortages and if it observes a shortage of prescription drugs 

containing controlled substances, can also contact the DEA under the current Memorandum of 

Understanding (MOU) to discuss if a quota adjustment is warranted. 

The DEA does not believe that it has ever contributed to a drug shortage, as manufacturers’ 

business decisions are beyond its control and the quotas assigned to manufacturers already have 

a “built in cushion.” When the DEA sets a quota for a manufacturing company, it incorporates 

information not only on projected needs, but also on expected, product development 

requirements, manufacturing losses and an inventory allowance based on 50 percent of the 

average current and prior year’s company’s sales. Excess quota that is not used in a given year 

expires and cannot be utilized to procure or manufacture new material. However, any material 

that was in the manufacturing process at the end of the calendar year may be completed without 

new quota for the new year. In addition, manufacturers can request an increase in quota at any 

time during the year, and as many times as needed. For approval, the manufacturer generally 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 96

must demonstrate new product development requirements or an increase in demand from the 

current year’s sales not previously contemplated. 

GAO Report on DEA Management of the Quota Setting Process

In the past 15 years, shortages of prescription drugs containing controlled substances, such as 

narcotics and stimulants, have increased nationwide, limiting providers’ and patients’ access to 

medications needed for treatment. In February 2015, the U.S. Government Accountability Office 

(GAO) reported on a study10 examining shortages of drugs containing controlled substances. The 

GAO report claimed that the DEA had not effectively administered the quota process managing 

the amount of certain controlled substances available for use in the United States, and that it 

needed to strengthen its coordination with FDA to prevent and mitigate shortages. The DEA 

raised multiple objections to the GAO report. However, during FDA’s solicitation of public input 

into the drivers and solutions for drug shortages in 2018-2019, some stakeholders expressed a 

desire for better coordination between the Agency and the DEA.

In the 2015 report, GAO made seven recommendations, including that the DEA and FDA should 

update their MOU and agree on steps that each should take regarding drug shortages. In March 

2015, the DEA implemented one recommendation to finalize an information-sharing agreement 

with FDA regarding drug shortages. In June 2016, the DEA implemented a second 

recommendation strengthening the internal controls in the quota system.11 On July 16, 2018, the 

DEA published a final rule to strengthen the process for setting controls over diversion of 

controlled substances and make other improvements in the quota management regulatory system 

for the production, manufacturing, and procurement of controlled substances.12

 10 “DRUG SHORTAGES: Better Management of the Quota Process for Controlled Substances Needed; 

Coordination between DEA and FDA Should Be Improved,” GAO-15-202. February 2015. 11 DRUG ENFORCMENT ADMINISTRATION: Additional Actions Needed to Address Prior GAO 

Recommendations, GAO -`6-737T, a testimony before the Committee of the Judiciary, U.S. Senate. 12 Department of Justice, Drug Enforcement Administration 21CFR Part 1303 [Docket No. DEA-480] RIN 1117-

AB48, Controlled Substances Quotas,” Action: Final Rule, Federal Register Vol 83, No. 136 Monday, July 16, 

2018, p. 32784.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 97

Federal Trade Commission

The mission of the Federal Trade Commission (FTC) is to protect consumers and competition by 

preventing anticompetitive, deceptive, and unfair business practices through law enforcement, 

advocacy, and education without unduly burdening legitimate business activity. Congress has 

empowered the FTC to take action to prevent unfair methods of competition, such as illegal 

anticompetitive agreements among firms to increase prices or restrict supply, and illegal 

exclusionary or predatory practices. In addition to enforcing laws that prohibit unreasonable 

restraints of trade, the FTC is authorized to challenge mergers and acquisitions that are likely to 

reduce competition and lead to higher prices, lower quality goods or service, or less innovation. 

Although the FTC has no authority to regulate the price of prescription drugs, nor general 

authority to make markets more competitive, protecting American consumers from 

anticompetitive activity in the health care sector has long been one of its most important 

responsibilities. The FTC combats high prices and drug shortages by enforcing the antitrust laws 

to stop anticompetitive conduct or mergers that are likely to lead to higher prices or reduced 

supply.13 The FTC’s enforcement efforts and merger analysis are guided by public policy 

underlying the antitrust laws, namely, the promotion of consumer welfare.

Although a unilateral decision to raise prices or stop marketing a product, without more, is not 

actionable under the antitrust laws,14 an agreement among competitors to fix prices or reduce 

output is illegal.15 The FTC has the authority to prosecute anticompetitive conduct that limits 

consumer access to affordable prescription drugs, and in some cases, seek monetary relief for 

those harmed by the illegal conduct. 

Complaints about drug shortages and price spikes come to the FTC from various sources 

including consumers, other government agencies, Congress, trade press, and news reports. 

Complaints are assigned to divisions in the FTC’s Bureau of Competition that specialize in the 

pharmaceutical industry and are investigated as they arise. These efforts go back at least two 

decades. For example, in December 1998, the FTC filed suit against Mylan Laboratories and 

three other drug companies, charging them with restraint of trade, monopolization, and 

conspiracy to monopolize the markets for two generic drugs through exclusive dealing 

arrangements. The FTC alleged that Mylan and its co-conspirators agreed to deny access to the 

active pharmaceutical ingredients (API) needed to manufacture lorazepam and clorazepate 

tablets. Without access to the API, Mylan’s competitors were unable to manufacture and sell the 

two drugs, allowing Mylan to raise prices approximately 2000-3000 percent, depending on bottle 

 13 For a list of FTC conduct and merger enforcement actions in the pharmaceutical industry, see Overview of FTC 

Actions in Pharmaceutical Products and Distribution (June 2019), 

https://www.ftc.gov/system/files/attachments/competition-policy-guidance/overview_pharma_june_2019.pdf 14 Organisation for Economic Co-operation and Development, Excessive Pricing in Pharmaceutical Markets—Note 

by the United States, 28 November 2018, https://one.oecd.org/document/DAF/COMP/WD(2018)111/en/pdf 15 Naked agreements to fix prices or restrict output may prosecuted criminally. Enforcement authority for criminal 

violations of the antitrust laws, such as price fixing and bid rigging, is vested solely in the Department of Justice.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 98

size and dosage strength. The FTC settled the case with the defendants, returning $100 million in 

illegal profits to injured consumers and state agencies.16

For nearly as long, the FTC has challenged a number of reverse payment agreements (also 

known as “exclusion payment” or “pay-for-delay” agreements) between branded drug companies 

and their generic rivals. Such agreements entail settlements of patent litigation in which the 

branded drug company pays its potential generic competitor to abandon a patent challenge and 

delay entering the market with a lower cost, generic product. Branded drug companies have used 

such agreements to buy more protection from competition than their patent rights provide, at the 

expense of competition and consumers.17

In addition, the FTC has challenged unilateral conduct by branded drug companies to illegally 

maintain a monopoly position by engaging in a strategy known as “product hopping”18 and 

through abuse of governmental processes, such as sham litigation,19 or repetitive and meritless 

regulatory filings (such as citizen petitions to the FDA).20 The FTC also has acknowledged that 

misuse of restricted drug distribution programs, such as Risk Evaluation and Mitigation 

Strategies (REMS), may limit supply and violate the antitrust laws. Branded drug companies

allegedly have used restricted distribution of drug samples to thwart efforts by generic 

competitors to establish bioequivalence in order to obtain FDA approval.21 Branded drug 

companies’ actions to deter generic rivals have delayed or blocked consumer access to lower cost 

drug products.

The second way the FTC considers how high drug prices and shortages may impact consumer 

welfare is through its review of mergers in the pharmaceutical industry. The FTC reviews 

mergers and acquisitions that may facilitate or exacerbate high drug prices or shortages where 

 16 FTC Reaches Record Financial Settlement to Settle Charges of Price-fixing in Generic Drug Market,

https://www.ftc.gov/news-events/press-releases/2000/11/ftc-reaches-record-financial-settlement-settle-charges-price 17 Federal Trade Commission v. Actavis, Inc., 570 U.S. 756 (2013). In re Androgel Antitrust Litigation (No. II),

MDL Docket No. 2084 (All Cases) 1:09-MD-2084-TWT. The FTC settled this case before trial in February 2019. 

https://www.ftc.gov/news-events/press-releases/2019/02/ftc-enters-global-settlement-resolve-reverse-paymentcharges

18 Federal Trade Commission v. Reckitt Benckiser Group PLC, Case No. 1:19-cv-00028-JPJ-PMS (W.D. Va.), FTC 

File No. 131-0036 (Reckitt agreed to pay $50 million to settle FTC allegations that Reckitt violated the antitrust 

laws through a deceptive product hopping scheme to thwart lower-priced generic competition to its branded 

Suboxone tablets. FTC’s complaint alleged that before generic versions of the tablets became available, Reckitt 

developed a new film version of Suboxone and misrepresented that the new film version was safer than the tablets), 

https://www.ftc.gov/news-events/press-releases/2019/07/reckitt-benckiser-group-plc-pay-50-million-consumerssettling-ftc

19 Federal Trade Commission v. AbbVie Inc., et al., Case No. 2:14-cv-051510-HB (E.D. Pa.), FTC File No. 121-

0028 (complaint filed seeking a permanent injunction and other equitable relief on September 8, 2014), 

https://www.ftc.gov/enforcement/cases-proceedings/121-0028/abbvie-inc-et-al 20 Federal Trade Commission v. Shire ViroPharma Inc., Civil Action No. 1:17-cv-00131-RGA (D. Del.), FTC File 

No. 1210062 (complaint filed February 7, 2017), 

https://www.ftc.gov/enforcement/cases-proceedings/121-0062/shire-viropharma 21 Without taking a position on the merits, the FTC filed an amicus brief in a private suit contending that Mylan’s 

antitrust claims are not barred as a matter of law. Mylan Pharmaceuticals v. Celgene Corp., Case No. 2:14-CV2094-ES-MAH (D. N.J. June 17, 2014), https://www.ftc.gov/system/files/documents/amicus_briefs/mylanpharmaceuticals-inc.v.celgene-corporation/140617celgeneamicusbrief.pdf.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 99

the parties sell competing drug products and the merged firm may be able to exercise market 

power post-merger.22 For branded drug companies, the focus typically is on overlaps in a 

therapeutic category, and for generic drug companies, the focus typically is on overlaps in 

specific molecules. 

The FTC frequently requires divestiture of assets and related intellectual property rights as a 

condition of approving a merger between two pharmaceutical companies that market competing 

products or have competing drugs in development. For example, in July 2016, the FTC ordered 

Teva to divest the rights and assets related to 79 pharmaceutical products to 11 firms to address 

competitive concerns raised by its acquisition of Allergan, preserving competition in markets 

where Teva and Allergan competed or would likely have competed in the future if not for the 

merger.23 Moreover, some markets, such as generic injectables, are susceptible to supply 

disruptions and shortages, which makes them especially sensitive to a reduction in the number of 

competitors.24

The FTC and the FDA have a long history of working together to ensure that safe and effective 

drugs are accessible and affordable for consumers. For instance, on July 27, 2017, then Acting 

Director of the FTC’s Bureau of Competition, Markus Meier, spoke on a panel with thenCommissioner of Food and Drugs Scott Gottlieb regarding Antitrust Concerns and the FDA 

Approval Process before the House of Representatives Judiciary Committee’s Subcommittee on 

Regulatory Reform, Commercial, and Antitrust Law.25 Mr. Meier also participated as a panelist 

at the FDA’s Public Meeting: The Hatch-Waxman Amendments: Ensuring a Balance Between 

Innovation and Access on July 18, 2017.26 The FTC also consults industry experts and uses 

research and market reports related to the pharmaceutical industry to advocate for regulatory 

policies that encourage more competition. On November 8, 2017, the FDA joined the FTC in a 

public workshop, “Understanding Competition in Prescription Drug Markets: Entry and Supply 

Chain Dynamics,” in Washington DC.27 This workshop considered, inter alia: 1) questions 

concerning whether generic drug companies have enough incentives to enter markets where the 

brand drug is off-patent; 2) the role of intermediaries such as pharmacy benefits managers 

 22 The FTC maintains a comprehensive merger review program to identify and prevent pharmaceutical mergers that 

may reduce competition and lead to higher prices for specific pharmaceutical products. For a list of merger cases in 

the pharmaceutical industry, see Sections IV and V in Overview of FTC Actions in Pharmaceutical Products and 

Distribution (June 2019), 

https://www.ftc.gov/system/files/attachments/competition-policy-guidance/overview_pharma_june_2019.pdf 23 FTC Approves Final Order Preserving Competition in Markets for 79 Pharmaceutical Products, 

https://www.ftc.gov/news-events/press-releases/2016/07/ftc-requires-teva-divest-over-75-generic-drugs-rival-firmssettle

24 FTC Puts Conditions on Mylan’s Proposed Acquisition of Agila from Strides, https://www.ftc.gov/newsevents/press-releases/2013/09/ftc-puts-conditions-mylans-proposed-acquisition-agila-strides 25 Antitrust Concerns and the FDA Approval Process Subcommittee on Regulatory Reform, Commercial, and 

Antitrust Law (Committee on the Judiciary), 

https://docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=106333 26 Public Meeting: The Hatch-Waxman Amendments: Ensuring a Balance Between Innovation and Access, 

https://www.fda.gov/news-events/public-calendar-meetings-fda-officials/public-calendar-july-16-22-2017 27 Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics, 

https://www.ftc.gov/news-events/events-calendar/2017/11/understanding-competition-prescription-drug-marketsentry-supply
Drug Shortages: Root Causes and Potential Solutions, Appendix D 100

(PBMs) and group purchasing organizations (GPOs); 3) how well providers and consumers 

understand the roles of PBMs and GPOs in the drug supply chain; and 4) how these 

intermediaries may impact the affordability and availability of prescription drugs in the United 

States.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 101

HHS Office of the Assistant Secretary for Preparedness and Response 

The mission of the HHS Office of the Assistant Secretary for Preparedness and Response 

(ASPR) is to save lives and protect Americans from 21st century threats. ASPR leads the 

Nation’s medical and public health preparedness for, response to, and recovery from disasters 

and public health emergencies. To accomplish this mission, ASPR collaborates with the private 

sector; community members; health care coalitions; state, local, tribal, and territorial 

governments; and other partners across the country. The strength of our Nation’s public health 

and medical infrastructure, as well as the capabilities necessary to quickly mobilize a coordinated 

national response to pandemics, attacks and disasters, are essential to save lives and protect all 

Americans. 

The continuity of medical services depends on the consistency of a reliable supply chain in both 

steady state and response. The medical supply chain is an incredibly sophisticated system, with 

private sector partners working across a global market and relying on just-in-time delivery. 

Disruptions to the system can have critical impacts on patient care. ASPR’s involvement with 

drug shortages is inextricably linked to its impact on health care delivery during emergencies and 

disasters. As a further concern, disasters can exacerbate shortage issues, such as the shortage of 

intravenous (IV) saline solution, which became more acute during the 2017 hurricane season. 

Multiple ASPR components are actively involved in supporting work on drug shortages, 

including the Division of Critical Infrastructure Protection (CIP); the Strategic National 

Stockpile (SNS); the Biomedical Advanced Research and Development Authority (BARDA); the 

Hospital Preparedness Program (HPP); and ASPR’s Technical Resources, Assistance Center, and 

Information Exchange (TRACIE). ASPR authorities, policies, and programs ensure access to 

potential life-saving pharmaceuticals and medical supplies for use in a public health emergency. 

CIP promotes resilience of the Nation’s health infrastructure by leading a dynamic public-private 

partnership, drawing from all aspects of the Healthcare and Public Health (HPH) Sector, to 

manage risk and coordinate effective response to 21st century threats. Coordinating with private 

and public sector partners, CIP works to identify potential courses of action to both better 

understand and address supply chain issues, promotes resilience, and fosters connections across 

the sector. CIP further works to understand foreign dependencies within the supply chain and 

identify how policy decisions and geopolitical concerns could impact access to products in the 

health care delivery system. Through communication, information sharing and analysis, and 

policy development, ASPR is able to support the continuity of life saving and life sustaining 

supply chain capabilities in the Nation’s Healthcare and Public Health Sector.

The SNS manages and delivers life-saving medical countermeasures (MCM) during a public 

health emergency. It is the largest federally owned repository of pharmaceuticals, critical 

medical supplies, Federal Medical Stations (FMS), and medical equipment available for rapid 

delivery to support Federal, state, and local response to health security threats. If a biological, 

chemical, radiological, or nuclear event occurred on United States soil today, the SNS is the only 

Federal resource readily available to respond once state and local MCM supplies are depleted. 

Additionally, SNS is a significant purchaser of pharmaceuticals and medical supplies, and 

maintains relationships with key members of the supply chain to strategically address supply 

availability within the United States. Together with Federal and private sector partners, the SNS 
Drug Shortages: Root Causes and Potential Solutions, Appendix D 102

analyzes integrated procurement, storage, and delivery models to identify ways to increase 

supply availability within the United States, such as increasing production of key products and 

utilizing strategies like vendor-managed inventory and alternative distribution models.

BARDA supports the development and transition of medical countermeasures against chemical, 

biological, radiological, and nuclear threats, as well as pandemic influenza and other emerging 

infectious diseases, from research through advanced development towards consideration for 

approval by the FDA and inclusion into the SNS. BARDA’s Division of Research, Innovation, 

and Ventures (DRIVe) plans to leverage new authorities under the 21st Century Cures Act to 

stimulate medical countermeasures innovation to solve systemic challenges. The team identifies 

promising new technologies across the country using an entrepreneurial approach to address 

public health emergencies; current focus areas include sepsis, early, pre-symptomatic detection 

of infection, and a variety of innovative interventions to improve MCM evaluation, production, 

delivery, and administration.

HPP is the nation’s only source of Federal funding to support regional health care system 

preparedness. HPP improves patient outcomes and minimizes the need for Federal and 

supplemental state resources during emergencies through the development and sustainment of 

health care coalitions (HCCs). HCCs are comprised of diverse and often competitive health care 

organizations with differing priorities and objectives within a geographic area. HCCs have been 

active during intravenous fluid and drug shortages, including information sharing about 

contingency strategies and current inventories. The HCC provides a central mechanism for 

information sharing and management coordination between and among health care facilities to 

ensure the consistency of use and recommendations during shortages. The ability to share 

information improves situational awareness, optimizes the use of resources, and mitigates the

impact of the emergency on the facilities themselves and existing and potential patients. In 2019, 

HPP elevated the significance of supply chain awareness and preparedness for shortages by 

directing coalitions to more formally identify sources for medicine and supplies and prepare to 

manage shortages cooperatively, when they arise.

ASPR TRACIE was created to meet the information and technical assistance needs of regional 

ASPR staff, health care coalitions, health care entities, health care providers, emergency 

managers, public health practitioners, and others working in disaster medicine, health care 

system preparedness, and public health emergency preparedness. ASPR TRACIE provides vetted 

resources for common topics of inquiry housed in a library, a centralized method to provide 

technical assistance for health and medical preparedness activities, and a mechanism for end 

users to communicate directly and share promising practices, questions, and peer-to-peer 

answers. ASPR TRACIE has developed and compiled resources to help stakeholders prepare for 

and manage drug shortages and the allocation of scarce resources. In 2017, ASPR TRACIE 

hosted a webinar on Clinicians and Coalitions: A Conversation about Finding Solutions for 

Medical Shortages.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 103

U.S. Department of the Treasury

The U.S. Department of the Treasury's mission is to maintain a strong economy and create 

economic and job opportunities by promoting the conditions that enable economic growth and 

stability at home and abroad, strengthen national security by combating threats and protecting the 

integrity of the financial system, and manage the U.S. Government’s finances and resources 

effectively.28

The Treasury is organized into two major components the Departmental offices and 

the operating bureaus. The Departmental Offices are primarily responsible for the formulation of 

policy and management of the Department as a whole, while the operating bureaus carry out the 

specific operations assigned to the Department. Taxation falls within the Treasury’s jurisdiction, 

as its basic functions include:

• Collecting taxes, duties and monies paid to and due to the United States and paying all 

bills of the United States;

• Advising on domestic and international financial, monetary, economic, trade and tax 

policy;

• Enforcing Federal finance and tax laws;

• Investigating and prosecuting tax evaders, counterfeiters, and forgers.

Some stakeholders have suggested that tax credits might be used as a mechanism to prevent or 

mitigate drug shortages, e.g., by providing incentives for manufacturers:

• To invest in modern manufacturing systems, which are less prone to the quality problems 

that can lead to supply disruptions and shortages; 

• To locate their facilities in the United States rather than overseas, which would shorten

and strengthen the supply chain. Long, complex supply chains are believed to be 

vulnerable to disruptions resulting in shortages;

• To begin marketing, or continue to market, an unprofitable drug that otherwise would 

have no business case and be vulnerable to going into shortage. 

According to the Treasury, there is limited evidence that tax credits are effective in achieving 

their goals. To be effective, a tax credit must be well designed. The industry receiving the credit 

needs to identify and communicate the critical factors providing levers for achieving the credit’s 

goal, and this is often difficult to do. Furthermore, tax credits granted under highly specific 

conditions are often difficult to administer: e.g., it may be hard to correctly identify the parties 

who qualify for the credit. To the extent of a market failure, the Treasury may wish to use tax 

credits to address the issue, but as the Government aims to maintain stable tax revenue, credits 

given to one party may require that taxes be raised for another.

The Tax Cuts and Jobs Act of 2017 introduced sweeping changes to the tax code. It promised to 

stimulate job growth, incentivize companies to repatriate profits from abroad and invest in the 

U.S. economy. The Treasury is hopeful that the changes will provide an incentive for drug 

 28 See https://home.treasury.gov/about/general-information/role-of-the-treasury.
Drug Shortages: Root Causes and Potential Solutions, Appendix D 104

manufacturers to invest in modern manufacturing systems at domestic sites. However, it is too 

early to assess the effect that the changes to the tax code will have on the pharmaceutical 

industry. 
Drug Shortages: Root Causes and Potential Solutions, Appendix E 105

Appendix E: A Framework for Enduring Solutions to Drug Shortages

The recommendations presented in this report are non-exhaustive but as this landscape continues 

to evolve, policymakers may want to consider using this framework in the future. In this 

appendix, FDA includes a framework that policymakers can apply to determine whether an 

additional proposed solution (or set of solutions) to drug shortages would be enduring. Based on 

the root causes FDA identified earlier in the report, the Agency believes that enduring solutions 

to drug shortages should address the following objectives: 

1. Increasing the economic sustainability of drug manufacturing and distribution

A solution in this area should provide predictability in production costs, pricing, and 

volume sold; increase flexibility in contracting and sourcing of finished drugs and raw 

materials; and ensure that no one group of stakeholders is favored in contracts for 

purchasing drugs. 

2. Enhancing supply chain resiliency

A solution in this area should provide increased transparency to purchasers on drug 

manufacturing and quality maturity, while also establishing mechanisms to reward supply 

chain resiliency and reductions in the severity of drug shortages. 

Enduring solutions should also satisfy the following broad considerations to help ensure that they 

would be effective and feasible to implement: 

1. Providing total benefits to society that exceed total implementation costs

An enduring solution should effectively address the harms of drug shortages without 

requiring too many resources to implement. For example, it could improve treatment 

outcomes or the availability of drugs, reduce staffing needs for responding to drug 

shortages, or reduce costs for purchasing alternative treatments. Likewise, it should seek 

to minimize any direct costs of implementing the solution or any indirect costs for 

adjusting or adapting to it.

2. Distributing net benefits to most, if not all, affected stakeholder groups

An enduring solution should encourage stakeholders to implement it by not overly 

favoring or penalizing any one group. Several categories of stakeholders should be 

considered, including drug manufacturers; supply chain intermediaries such as GPOs, 

PBMs, and wholesalers; health care providers such as hospitals and pharmacies; payers 

(both public and private); and patients.

3. Avoiding any major unintended consequences that could increase the total costs 

associated with the solution, or that could otherwise undermine its effectiveness

Similar to the first consideration, an enduring solution should avoid generating other 

adverse impacts that could undermine its success once implemented. These might include 

discouraging drug manufacturers from remaining in the marketplace, contributing to 

excessive hoarding or stockpiling among drug purchasers, or disclosing commercial 

confidential information and trade secrets.
106

Appendix F: Technical Summary of FDA’s Analysis

Background

To supplement FDA’s review of the published literature and the feedback the Agency received 

from stakeholders, FDA economists and other staff carried out several additional quantitative 

analyses to further elucidate the root causes of drug shortages.

FDA selected quantitative analyses that met the following three criteria:

1) Utility – the analysis had the potential to either filter out potential root causes or evaluate 

the importance of what remained.

2) Originality – there were few to no prior analyses on the topic, or previous analyses were 

several years out of date.

3) Feasibility – there were sufficient data, methods, and time available to complete the 

analysis.

FDA explored analyses that would help to address each of the three criteria listed above. While it 

initially considered developing a predictive model to identify risk factors for drug shortages, 

there was not enough time available to implement this approach.1

Table 1 below lists each of the quantitative analyses that FDA completed for the report and 

which of the three root causes they supported. 

 1

FDA is continuing to work on this predictive model as part of a longer-term project. For more information about 

this effort, see Appendix C.
107

Table 1: Quantitative Analyses Completed for the Drug Shortage Report

Root Cause(s) 

Supported

Analysis Key Questions 1 2 3

General Characteristics of 

Shortage Drugs

- What were the reasons reported to 

FDA for the shortages?

- How did the drugs in shortage differ 

from the drugs not in shortage along 

economic, medical, and other 

dimensions?

- Are there any groups of shortage 

drugs that stand out based on these 

characteristics?

X X X

Market Trends for Shortage 

Drugs

- What were the trends in revenues, 

prices, and quantities sold prior to, 

during, and after the shortage?

- How much did the shortage drugs and 

manufacturing facilities comprise of a 

company’s overall revenues?

- How did these results compare to 

similar drugs that did not go into 

shortage?

- How many approved but unmarketed 

applications were there for shortage 

drugs?

X X

Impacts of Shortages - How large was the gap between 

previous and current production

during the shortage?

- How were the drugs in shortage used 

medically?

- How did these impacts vary across the 

phases of the shortage lifecycle?

X X

Market Response to Shortages - Did sustained price increases occur 

during shortages?

- Did companies enter the market or 

increase production?

- Did quantity sold return to previous 

levels once the shortage ended?

X X

Other Potential Drivers of 

Shortages

- Did shortages follow failed 

inspections or previous shortages?

- Did shortages coincide with approval 

of newer drugs with a similar route of 

administration?

- Were shortage drugs manufactured by 

someone other than the applicant?

X X X

As part of the Market Trends for Shortage Drugs analysis (see above), FDA also attempted to 

measure trends in the profitability of specific drugs as well as the companies that made them. 

The Agency carried out a preliminary analysis using two separate approaches but found both to 

be infeasible due to limitations of the available data. For more information about these 

approaches and the challenges encountered, see the General Methodology section for Key 

Finding 2.
108

In the rest of this appendix, the Agency provides a more detailed summary of the data, 

methodology, and results that support the analysis presented in the report. Note that results were 

combined from several of the analyses listed above to develop each of the key findings.

Dataset Development

Sample

To construct the sample, FDA extracted monthly IQVIA National Sales Perspective (NSP) data 

for prescription drugs covering January 2010 to August 2018.2 FDA defined a drug by grouping 

products by active ingredient (CombinedSalt), route of administration (ProdForm1) and dosage 

form (ProdForm3); it also removed drugs from this dataset based on USC and ATC codes that 

were unlikely to meet FDA’s definition of a drug3 or therapeutic biologic, such as vaccines and

biological drug products derived from blood. This yielded a total of 3,357 drugs in the dataset.

FDA then merged this IQVIA dataset with an internal FDA list of drug shortages provided by the 

Center for Drug Evaluation and Research (CDER) Drug Shortage Staff (DSS) and identified 130 

shortages beginning between calendar years 2013 and 2017, corresponding to 163 drugs in the 

sample. 

Metrics

For each drug in the sample, FDA calculated its price in a specific month by dividing its total 

revenues by its volume sold – either the number of pills (Extended Units) for tablets and 

capsules, or the number of dosing units (Eaches). Revenues and prices were inflation-adjusted to 

August 2018 using the Producer Price Index series WPU0638, which includes non-seasonally 

adjusted data from pharmaceutical products.4

FDA calculated the number of approved application holders marketing the drug in each month 

by first matching up each drug to the FDA Orange Book, and then removing applications that 

had been withdrawn from approval at the time.5 An approved application holder was deemed to 

be marketing the drug if it had: (1) an active NDC listed in FDA’s NDC Directory for June 2019, 

and (2) positive sales in the NSP database 4 months prior to going into shortage. 

 2 IQVIA. National Sales Perspective. January 2010 to August 2018. Extracted: October 2018.

3 Section 201(g) of the FD&C Act (21 USC 321(g)) provides that the term "drug" means:

(A) articles recognized in the official United States Pharmacopoeia, official Homoeopathic Pharmacopoeia of the 

United States, or official National Formulary, or any supplement to any of them; and (B) articles intended for use in 

the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and (C) articles (other 

than food) intended to affect the structure or any function of the body of man or other animals; and (D) articles 

intended for use as a component of any articles specified in clause (A), (B), or (C). (Source: 

https://www.fda.gov/regulatory-information/search-fda-guidance-documents/classification-products-drugs-anddevices-and-additional-product-classification-issues#statutorydef) 4 https://www.bls.gov/ppi/

5 https://www.fda.gov/drugs/drug-approvals-and-databases/approved-drug-products-therapeutic-equivalenceevaluations-orange-book
109

FDA determined whether a drug had a generic version in the market in each month by using the 

Brand/Generic column in the IQVIA data to flag whether a product with a value of “generic” or 

“other” had positive sales in that month. FDA also calculated the age of the product by taking the 

earlier of the approval dates in the Orange Book: Approved Drug Products with Therapeutic 

Equivalence Evaluations6 and its first marketing date in the IQVIA data (Product Launch Date) 

for all companies that ever sold the drug during the study time period.

Finally, in many cases FDA defines these metrics at their values from “just prior to the 

shortage,” which refers to 4 months before the shortage start date in FDA data. This allows the 

analysis to account for potential delays between when the shortage first occurred and when FDA 

was first notified.

Summary Statistics

The 163 drugs in the sample, just prior to the shortage, tended to:

• Be administered via injection: 103 (63 percent)

• Have a generic version in the market: 109 (67 percent)

• Be older products: with a median time since first approval or marketing of 34.8 years

• Be lower price, higher volume products: 93 (57 percent) had both lower prices and higher 

volume sold than the median within their dosage form

• Have several more companies approved to market than were actually marketing: For the 

shortage drugs studied, there were, on average, three companies that were approved to 

market but were not doing so. 

The analyses that follow are based on this set of 163 drugs in shortage, and in some cases 

involve comparisons against other drugs that did not go into shortage. In the remainder of this 

technical appendix, FDA provides an overview of the analysis and describes how it supports the 

findings presented in the report. 

Key Findings

Key Finding 1 – Quality issues were the most common reason for disruptions that became 

shortages

Because the root causes of supply disruptions are likely to differ from those of demand 

disruptions, FDA evaluated which categories of disruptions have been most prevalent among 

drugs that ultimately go into shortage, i.e., when the market is unable to prevent the shortage and 

it is formally declared by FDA.

Methodology

In this work, FDA analyzes the reasons for drug shortages submitted to FDA by manufacturers

and categorized by the Center for Drug Evaluation and Research (CDER) Drug Shortage Staff 

(DSS).

 6 Id., at 3.
110

Under Title X of the Food and Drug Administration Safety and Innovation Act,7 manufacturers 

of certain drug products8 are required to submit notifications to FDA of permanent 

discontinuations and other meaningful supply disruptions in the United States, including the 

reasons for these events. This information is required to be submitted to FDA at least six months 

prior to the event, or if that is not possible as soon as practicable. Manufacturers that do not 

comply with this provision of the Act are subject to having a non-compliance letter posted on the 

FDA website. To this date five of these letters have been posted.9

For each of the 163 drugs in the sample that went into shortage, FDA identified a reason for the 

shortage based on information entered into FDA’s databases using these notifications. FDA 

aggregated these reasons into five main categories, which are defined below:

1) Quality Issues – When there is a manufacturing problem, either with a specific product or 

an entire facility, that temporarily leads to unavailability of that product or a delay in 

shipping it to end users. For example, particulate matter in the product or unavailability 

of raw materials.

2) Product Discontinuation – When a manufacturer permanently discontinues a product 

from sale and there is no concurrent quality problem. It is important to note that FDA is 

unable to determine if this is for an economic reason.

3) Increase in Demand – When market-wide demand for the product has increased, and 

there is no other problem that is making the product unavailable to end users. For 

example, if a more severe than expected flu season occurs and manufacturers are unable 

to keep up with demand for antiviral drugs that can treat the flu.

4) Natural Disaster – When any problems that led to the drug shortage were solely due to a 

natural disaster, i.e., the drug was not already in shortage and was not experiencing these 

problems prior to the natural disaster. For example, when Hurricane Maria struck Puerto 

Rico in September 2017 and damaged the power grid, some manufacturing facilities were 

forced to shut down production.

5) Unknown – When the manufacturer provided insufficient information to FDA to 

categorize the shortage.

Results

Figure 1 summarizes the most prevalent reasons for disruptions among the sample of 163 drugs. 

FDA found that 115 of these drugs (71 percent) experienced a supply disruption (either a quality 

issue, a product discontinuation, or a natural disaster), and that 101 of these supply disruptions 

(88 percent) were specifically tied to quality issues. 

 7 See Public Law 112-144. 8 These include products that are life-supporting, life-sustaining, or intended for use in the prevention or treatment of 

a debilitating disease or condition; and which are not a radiopharmaceutical drug 9 https://www.fda.gov/drugs/drug-shortages/drug-shortages-non-compliance-notification-requirement
111

Among the reasons that were known, this largely followed a similar pattern to previously 

published data from 2011; however, 29 (18 percent) of the reasons for disruptions were 

unknown, which represented a notable increase from previous data.10

Figure A1. Most drugs in shortage were experiencing supply disruptions, specifically quality 

issues.

Source: Internal FDA Data

Key Finding 2 – Shortages were often associated with drugs that had a weak business case

Many stakeholders hypothesized that quality issues and shortages are more likely to occur when 

either the drug or the facility where the drug is made is insufficiently profitable to justify 

investing in improvements to manufacturing processes (i.e., it has a weak business case).

To understand how a drug’s business case may relate to the incidence of shortages, FDA 

examined broader economic trends for shortage drugs, as well as the relative importance of these 

shortage drugs and their manufacturing facilities to each company’s overall portfolio of drugs. 

FDA also compared these metrics against those of non-shortage drugs with similar 

characteristics. 

 10 Woodcock J, Wosinska M. Economic and technological drivers of generic sterile injectable drug shortages. Clin 

Pharmacol Ther. 2013;93(2):170-6
112

General Methodology

Framework for Determining a Drug’s Business Case

Ideally, FDA would have evaluated the business case for a drug by directly measuring its 

profitability. However, for the reasons explained in the following paragraphs, FDA could not 

directly measure the profitability of shortage drugs.

The first approach for doing this attempted to estimate the overall profitability of generic drug 

manufacturing using financial statements (10-K forms) for publicly traded pharmaceutical 

companies that are reported to the Securities and Exchange Commission (SEC).11 These 

statements capture information on gross and net profits of these firms, often separated by 

business segment (e.g. brand drugs vs. generic drugs). However, further review of these 

statements for several large- and mid-size companies revealed that pharmaceutical companies 

often record financial information differently, and that many companies changed their practices 

over time. This made it challenging to compare financial performance across companies, or to 

estimate trends within the same company.

The second approach attempted to estimate the profitability of individual generic drugs using 

data on international drug sales from IQVIA’s MIDAS database.12 The MIDAS database 

captures quarterly international sales and volume data that is locally recorded at the 

manufacturer, wholesale, or pharmacy level for over 60 countries between fourth quarter of 2012 

and third quarter of 2018. 

FDA attempted to use MIDAS data to estimate the profitability of individual generic drugs by 

assuming that drugs sold overseas in lower or middle income13 countries might more closely 

reflect the marginal cost of manufacturing.14 FDA made the distinction between lower- and 

middle-income countries to account for potential differences in manufacturing practices and 

quality maturity between drugs marketed in the United States and other countries with different 

regulatory requirements. For example, middle-income countries, particularly in Europe, often 

have differences in prices due to the significant role that the public sector plays in 

pharmaceutical purchasing and the use of external reference pricing.15 FDA classified countries 

as lower- or middle-income based on per-capita gross domestic product and retained only the 

countries that had the same products marketed in the U.S. Available low-income countries 

included India, Ecuador, Tunisia, Thailand, and the Dominican Republic. Available middleincome, European countries included Greece, Latvia, Hungary, Poland, Lithuania, Estonia, the 

Slovak Republic, and Turkey. 

 11 U.S. Securities and Exchange Commission. The Electronic Data Gathering, Analysis, and Retrieval System 

(EDGAR). https://www.sec.gov/edgar.shtml 12 IQVIA MIDAS. 2012Q4 to 2018Q3. Extracted: January 2019. 13 FDA focused on middle income countries in Europe to identify ones that may have regulatory requirements more 

similar to those in the U.S.

14 FDA used this approach due to the general lack of product specific cost (and by extension, profit margin) data in 

public documents, including SEC financial statements; this is often considered business confidential information. 15 Souliotis K, Papageorgiou M, Politi A, Athanasiadis A. Pharmaceutical Pricing Policy in Greece: Toward a 

Different Path. Front Public Health. 2016;4:185. Published 2016 Aug 31
113

FDA matched products marketed overseas in at least one lower- or middle-income country with 

the equivalent product in the United States. The Agency then estimated gross profit margins for 

each matched product, one quarter prior to the shortage or in the quarter during the shortage, by 

first multiplying the total U.S. quantity sold by the difference between the U.S. price and the 

lower- or middle-income median (or lowest available) price of that product. This estimated profit 

was then divided by the total U.S. revenue of that product in that quarter to arrive at the gross 

profit margin.

FDA ultimately felt that this method did not accurately estimate profitability for several reasons. 

First, the standard deviation of profit margins across products and quarters was consistently 

large, which did not allow for easy interpretation or statistical testing. Second, estimated profit 

margins could not be calculated for up to 73 percent of shortage drugs – this was either because 

the product itself did not appear to be available in other countries, or no sales data were available 

in other countries during or in the months leading up to the shortage. Third, given different 

regulatory, manufacturing, and marketing standards between the United States and lower- and 

middle-income countries, FDA was unsure of whether a lower- or middle-income country’s price 

was a useful proxy of production cost. 

Due to these limitations in measuring profitability, FDA instead developed a framework to 

evaluate the business case that companies may have faced with the shortage drugs prior to the 

shortage. 

The first step in this approach was to divide drugs based on whether their revenues were 

increasing or decreasing prior to the shortage. To do so, FDA fit univariate, linear regressions 

(n=154) of the drugs’ revenues on the number of months from the beginning of calendar year 

2010 to the starting month of the shortage.16 FDA considered those drugs with positive slopes to 

have had increasing revenues prior to the shortage, while those with negative slopes had 

decreasing revenues. Of the 154 drugs, 73 (47 percent) of them had increasing revenues prior to 

the shortage whereas 81 (53 percent) had decreasing revenues.

For each of these two groups, FDA examined whether there were differences among shortage 

drugs and similar non-shortage drugs using the following indicators:

1) The drug’s revenues, prices, and volumes sold

2) The drug’s share of a company’s total sales

3) The manufacturing facility’s share of a company’s total sales

FDA defined similar non-shortage drugs as those that were never in shortage during the study 

period, and which had a comparable route of administration, age, price, and volume sold17 as of 

the first month with positive sales. For the route of administration, FDA matched drugs based on 

whether they were likely to require sterile manufacturing processes.18 For the remaining 3 

 16 Although there were 163 total shortages, only 154 shortages had sales prior to the shortage start date. 17 Price and volume sold were calculated as percentiles within the drug’s dosage form, excluding drugs that had no 

sales over the previous 12 months.

18 Routes of administration that fell into this category included injection, ophthalmic, inhalation, implant, lung, 

vaginal, and urological.
114

characteristics, FDA performed a nearest neighbor match after standardizing the variables. For 

each shortage drug, FDA selected the 50 nearest drugs based on these 3 characteristics that also 

matched on the route of administration.

For each of these indicators, FDA followed a similar process. Using the sample of drugs that 

went into shortage and had sales prior to the shortage, FDA calculated the indicator in question 

for each shortage drug prior to the shortage start date. FDA then calculated the indicator in the 

same way for each of the 50 similar non-shortage drugs corresponding to each shortage drug. For 

the similar non-shortage drugs, FDA aggregated indicators across these drugs to create one 

comparison value for each shortage drug. Finally, FDA further aggregated both values – for the 

shortage drug and its aggregated comparators – across all shortage drugs and compared these 

results. 

In aggregating these indicators, FDA used the following summarization techniques to capture the 

central tendency of the sample data.

1) Mode – In this case, the observation with the highest volume sold

2) Arithmetic Mean – A traditional sample mean, although this may potentially be 

influenced by extreme values

3) Median – To exclude potential extreme values, but without taking account of the full 

distribution of the data 

4) Geometric Mean – To exclude potential extreme values while accounting for the full 

distribution of the data. Note that this measure is often similar to the arithmetic mean 

when extreme values are not present but has different statistical and mathematical 

properties.

To evaluate statistical significance when comparing results between shortage drugs and similar 

non-shortage drugs, FDA performed hypothesis tests for each indicator at the final level of 

aggregation using several methods. When FDA used a t-test, it assumed that the samples had 

unequal variances. When FDA used a pivot confidence interval to estimate a p-value, it carried 

out 1000 bootstrapped replications to estimate the error in these indicators and made no 

assumptions about sample distributions.

The Drug’s Revenues, Prices, and Volumes Sold

Because FDA couldn’t directly measure the profitability of shortage drugs, it instead indirectly 

explored this question by examining trends in the revenues, prices, and volumes sold of these 

drugs, compared with similar non-shortage drugs. 

Methodology

To compare trends in these indicators, FDA first scaled these variables by their magnitude just 

prior to the shortage. For each shortage drug, FDA then took the geometric mean of these 

rescaled variables in each month before the shortage across its similar non-shortage drugs. For 

each month’s calculation, FDA excluded similar non-shortage drugs that had a value exactly 

equal to zero.
115

To ensure that there were sufficient data for analysis, FDA excluded shortage drugs that did not 

have positive sales for at least one-third of their months before the start of the shortage. This left 

144 of the 154 remaining shortage drugs to analyze. 

For each of the remaining shortage drugs and each set of similar non-shortage drugs, FDA 

separately estimated the average trend in each indicator using a linear regression of the natural 

log of each variable on the month, from January 2010 to the start of the shortage. To compare 

trends between shortage and similar non-shortage drugs, FDA took the arithmetic mean of the 

regression coefficients for each trend within the two groups and applied a t-test to the differences 

in these means to evaluate statistical significance. 

Results 

Of the 144 drugs with sufficient data prior to the shortage, 73 (51 percent) experienced steadily 

decreasing revenues (see Figure 2A). Among these drugs, the magnitude of the decline was

greater than similar non-shortage drugs: on average, 12.9 percent per year, compared with a 3.3 

percent decline, (p<0.001). During this decline in revenue, prices of these same drugs declined 

2.5 percent on average per year, compared to a 2.9 percent increase in price among similar nonshortage drugs (p<0.01). Despite both groups facing a declining volume of drugs sold, there was 

no discernable difference in this metric between drugs with declining revenue that went into 

shortage and similar non-shortage drugs that did not. 

In contrast, 71 (49 percent) of the drugs with sufficient data prior to the shortage experienced 

steadily increasing revenue (see Figure 2B). Among these drugs, the magnitude of the increase 

was on average 23.6 percent per year, compared with a 1.0 percent increase among the similar 

non-shortage drugs (p<0.01). While there was no statistically significant difference in price 

trends, the drugs that went into shortage experienced faster increases in quantity sold: a 13.6 

percent increase for the drugs in shortage, compared to a 1.2 percent decline for similar nonshortage drugs (p<0.01).
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Figure A2. Drugs in shortage that faced decreasing revenues before shortage saw statistically 

significant differences in both their revenue and price changes compared to similar non-shortage 

drugs. Drugs in shortage that faced increasing revenues before shortage saw a statistically significant 

difference in both their revenue and volume changes compared to similar non-shortage drugs. 

Sources: IQVIA. National Sales Perspective. January 2010 to August 2018. Extracted: October 2018; 

Internal FDA Data

Notes: ***=p<.001; **=p<.01; *=p<.05 

Magnitudes of revenue changes were calculated for observations with sufficient data for analysis - 73/81 shortage drugs with 

decreasing revenue, 71/73 for shortage drugs with increasing revenue.

The Drug’s Share of a Company’s Total Sales

To analyze the importance of shortage drugs in a company’s portfolio relative to similar nonshortage drugs, FDA first compared the share of a company’s total sales between drugs in each 

group.

Methodology

For each of the 154 remaining shortage drugs, FDA calculated its share of a company’s total 

revenue just prior to the shortage. When a drug was sold by more than one company, FDA only 

considered the share of the revenue earned for the company that had the highest volume sold. 
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For each shortage drug’s corresponding similar non-shortage drugs, FDA applied the same 

process as with the shortage drugs. FDA then took the geometric mean across these drugs’ shares 

to create an analogous metric to the shortage drug. 

FDA used pivot confidence intervals to estimate whether the difference between the geometric 

means in these two groups was statistically significant.

Results 

Drugs that faced declining revenues before a shortage earned 0.16 percent of the company’s total 

revenue just prior to the shortage, compared with 0.34 percent earned by similar non-shortage 

drugs (p<.01). However, drugs that faced increasing revenues before a shortage exhibited no 

statistical difference, with a 0.44 percent share of revenue earned in a company’s portfolio, 

compared to 0.29 percent for similar drugs that did not go into shortage.

The Manufacturing Facility’s Share of a Company’s Total Sales

Similarly, FDA also investigated the importance of shortage drugs by examining the share of a 

company’s revenue earned from their manufacturing facilities, comparing shortage drugs to 

similar non-shortage drugs.

Methodology

To compare the importance of manufacturing facilities between these two groups, the Agency 

first linked internal FDA registration and listing data to the dataset to identify all finished dosage 

form manufacturing facilities that may be producing a drug.19 This left 104 of the 154 remaining 

shortage drugs and 1,879 of the 3,357 drugs from the IQVIA data to analyze. FDA assumed that 

if multiple facilities were potentially making a product, they each produced an equal proportion 

of its revenue and volume sold. As a robustness check, FDA also considered only shortage drugs 

and similar non-shortage drugs where the available data allowed the Agency to precisely 

estimate the quantities and revenues of all drug products made at their respective facilities (i.e., 

when they were registered at only a single manufacturing facility).20

For each shortage drug and company, FDA then took the revenue earned at each manufacturing 

facility just prior to the shortage and divided it by the total amount of revenue earned by that 

company in the same month. When there was more than one manufacturing facility for a 

particular drug and company, FDA only considered the one that had the highest volume sold.21

FDA then applied the same process for each shortage drug’s corresponding similar non-shortage 

drugs. The Agency created an analogous metric by taking the geometric mean across the similar 

non-shortage drugs. 

 19 FDA’s data do not capture how much of a drug is produced at each manufacturing facility 20 This robustness check left 74% of shortage drugs and 66% of similar non-shortage drugs in the sample 21 Given the assumption of equal production across manufacturing facilities that make the same product, it is 

possible that there were multiple facilities that sold the same volume. In these cases, FDA took the arithmetic mean 

of the revenue shares across those manufacturing facilities.
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As before, FDA used pivot confidence intervals to estimate whether the difference between the 

geometric means in these two groups was statistically significant.

Results 

Manufacturing facilities that produced shortage drugs that faced decreasing revenues before a 

shortage earned 2.6 percent of a company’s revenue just prior to the shortage, compared to 5.8 

percent earned by facilities that manufactured similar non-shortage drugs (p<.001). Similarly, 

facilities that manufactured shortage drugs that faced increasing revenues before a shortage 

earned 3.7 percent of a company’s revenue just prior to the shortage, compared to 5.9 percent 

earned by facilities that manufactured similar non-shortage drugs (p<.05).

The robustness check indicated that in both groups, the facilities that manufactured the shortage 

drugs still accounted for a smaller amount of their company’s total revenues. However, the 

finding for the drugs in shortage that exhibited increasing revenues was no longer statistically 

significant at the 5 percent level.

Summary

The 53 percent of shortage drugs with declining revenues leading up to a shortage may have had 

a weak business case at both the product and facility levels. In addition to falling revenues, these 

drugs also faced falling prices and quantities. Likewise, these drugs and manufacturing facilities 

appeared to be financially less important to a company than similar products and facilities that 

did not go into shortage. These results suggest that the declining revenue drugs were becoming 

relatively less profitable over time and may have been experiencing falling demand.

The remaining 47 percent of shortage drugs with increasing revenues leading up to a shortage 

did not appear to have a weak business case at the product level but may have had a weak 

business case at the facility level. Among these drugs, both prices and volume sold were 

increasing, and they contributed a comparable share to a company’s revenue as similar nonshortage drugs – suggesting that they may have been facing increasing demand. Yet, these drugs 

were potentially produced at manufacturing facilities that were less important to a company, 

suggesting that the business case for these drugs was not as strong as the other results may 

indicate. 

Key Finding 3: The marketplace often fails to respond to drug shortages in a way that selfcorrects shortages

Given that some of the drugs that went into shortage appeared to have a weak business case, 

FDA further explored market responses to drug shortages more broadly and whether shortages 

were self-correcting.

Methodology

Economic theory suggests that, in well-functioning markets, several milestones should occur 

during drug shortages that allow them to self-correct:
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1) When demand exceeds supply, prices increase as the result of increased scarcity; these 

price increases continue until the market is able to close the gap between demand and 

supply. 

2) With these higher prices, existing and/or new manufacturers are incentivized to increase 

production in this market. 

3) Once this occurs, if the product is still useful to health care providers, quantities sold 

should eventually be restored to close to what they were prior to the shortage

To evaluate whether the drugs in the sample followed this pattern, FDA used three measures of 

the marketplace response to drug shortages corresponding to each of the milestones described

above. We focused on these specific measures because they seemed appropriate in light of 

comments we received during listening sessions. 

Measure 1: Price Increase

• At any point during the shortage, did the price of the drug increase by at least 50 percent 

over its level from just prior to the start of the shortage? 

• Did this price increase continue for at least 6 consecutive months, or to the end of the 

study period if less than six months?

Measure 2: Production Increase22

• At any point during the shortage, did at least one of the following occur compared with 

just prior to the start of the shortage?23

o Entry of a new supplier (quantity increasing from zero to a positive number)

o Increased production from an existing supplier (quantity starting from a positive 

number and increasing by any amount)

• Did this entry or increased production, when aggregated across all suppliers meeting 

these criteria in a given month of the shortage, amount to at least 50% of the unavailable 

quantity, defined as follows?

o Calculate a baseline quantity by taking the monthly average of the volume sold 

between 4 and 15 months prior to the start of the shortage.

o In each month of the shortage, subtract from this baseline quantity the volume 

sold by all suppliers, including those not meeting the criteria described above. 

o Take the monthly average of this amount over all months up to and including the 

month in question to determine the unavailable quantity.

 22 FDA believes that this approach improves upon the previous method (used in the original edition of this report) by 

evaluating whether the entry or increase in production by a specific company appreciably contributed to resolving 

the broader shortage. Under the previous method, it was possible for a company to increase production by 50% but 

make only a negligible contribution to the overall market (e.g., increasing from 100 to 150 doses sold in a market 

that consists of millions of doses per month). In addition, the previous method was incapable of detecting entry in 

situations with a large amount of market exit, since the total number of companies may have decreased despite some 

entry occurring.

23 FDA’s definition of a shortage combines multiple companies selling clinically interchangeable versions of the 

drug. Even if the market as a whole is in shortage, individual companies may not all be experiencing a supply or 

demand disruption at the same time.
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• Did this result continue for at least six consecutive months, or to the end of the study 

period if less than six months?

Measure 3: Quantity Restoration24

• Calculate a baseline quantity by taking the monthly average of the volume sold between 4 

and 15 months prior to the start of the shortage.

• In each of the first 12 months of the shortage (or however many there were if it resolved 

sooner),

25 divide the volume sold by this baseline quantity. Take the monthly average of 

this amount over all of these months.

• Determine whether this average was greater than or equal to 100 percent.

FDA performed robustness checks for all three of the measures and confirmed that the 

qualitative conclusions did not change. For the first measure, FDA considered alternative 

thresholds ranging between 25 and 50 percent, as well as an alternative time horizon of three 

months.26 For the second measure, FDA considered the maximum as well as the average in 

calculating the unavailable quantity.27 For the third measure, FDA considered alternative time 

horizons of 6, 18, and 24 months.28

Results

FDA’s findings suggest that the marketplace often fails to respond to drug shortages in a way 

that allows them to self-correct (see Figure 3). Of the 122 drugs in shortage with sufficient data 

to calculate all three measures,

29 just 2 drugs (2 percent) experienced all three milestones. 

Likewise, among the individual measures:

• Only 18 percent (28/156) had a sustained price increase (i.e., an increase of 50 percent 

or more that began during the shortage and lasted for 6 months).

30 Among these same 

 24 FDA believes that this new approach better captures the market’s response to the previous two milestones 

compared to the original edition of this report. Under the prior approach, 63 drugs are dropped from the calculation 

because their shortages had either not yet resolved or had not resolved for at least 4 months. Using this approach, 

FDA can capture, for a larger fraction of the drugs in shortage, whether the drug was persistently unavailable or 

whether the market was able to make the drug temporarily available prior to the resolution of the shortage. 

Furthermore, FDA switched from using 80 percent to 100 percent to identify drugs that experienced full quantity 

restoration, rather than being mostly, but not entirely restored.

25 According to FDA data, 55/141 (39%) of the drugs in shortage resolved within 12 months. This calculation 

excludes 22 drugs in shortage that were still ongoing at the end of the dataset but for less than 12 months.

26 For example, using a 3-month time horizon still yields 18 percent of drugs. Likewise, a 25 percent price increase 

over 6 months yields 25 percent of drugs. 27 Using the maximum instead yields 36% of drugs. 28 For example, 34% of drugs meet these criteria at 6 months, and 29% at 24 months.

29 Some drugs have insufficient data to evaluate certain measures. For the first measure, 7 of the 163 drugs were not 

sold prior to going in shortage. For the second, 22 of the 163 drugs were not sold during the baseline period, had 

insufficient data to match all suppliers over time, or had more quantity sold on average during the shortage than in 

the baseline period. For the third, 24 of the 163 drugs were not sold during the baseline period, or the shortage was 

ongoing but did not yet reach 12 months in duration.

30 There are two reasons why the results could also potentially overestimate the total number of sustained price 

increases occurring after shortage. First, roughly half of shortage drugs exhibited increasing price trends prior to 
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drugs, 13 saw either new suppliers enter the market or existing suppliers increase 

production as described below. Only four had production restored to the level prior to the 

shortage.31,32

• Only 42 percent (59/141) had significant production increases (either new suppliers 

entering the market or existing suppliers increasing production during the shortage to 

restore at least 50 percent of the unavailable quantity). Among these same drugs, 20 had 

their quantity restored to at least33 100 percent of its amount prior to the shortage as 

described below.

34

• Only 30 percent (42/139) had the quantity of the drug restored to at least 100 

percent of its amount prior to the shortage (after 12 months of being in shortage, or at 

the end of the shortage if it had already resolved within 12 months).

Figure A3. Few drugs in shortage experienced market response milestones that 

could help the shortages self-correct. Only 18% experienced a sustained price 

increase; 42% experienced a significant production increase, and 30% had supply 

restored to at least their pre-shortage levels.

Sources: IQVIA. National Sales Perspective. January 2010 to August 2018. Extracted: October 2018; Internal FDA

 going in shortage, and it is possible that their prices could have continued to increase even if they had not gone into 

shortage. Second, the analyses may also include gradual price increases that accumulated over a longer time period.

31 Some of the 28 drugs have insufficient data to also evaluate the other two measures. For the second measure, this 

corresponds to three drugs, and for the third measure this is two drugs. 32 This finding may differ from prior published research because FDA focuses on large price increases and uses a 

measure that aggregates across the whole market for each of the drugs in shortage. 33 A drug can have its quantity sold restored to more than 100 percent, corresponding to production increasing 

beyond its pre-shortage amount. 34 Nine of the 59 drugs have insufficient data to also evaluate the quantity restoration measure. 
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