Many participants along the entire drug supply chain are affected by shortages. A typical drug supply chain involves a drug manufacturer selling a drug to a wholesale distributor, which then sells the drug to a hospital or pharmacy. (See fig. 1.) Shortages of drugs can result in a variety of problems that directly affect the care patients receive. For example, recent research on the effects of drug shortages identified an increase in adverse outcomes among pediatric cancer patients treated with an alternative drug. Further, in some cases, drug shortages can even contribute to additional health problems. For example, one stakeholder said that recent shortages of drugs that supply an essential nutrient, like calcium, could lead to nutrient deficiencies among patients. FDA is responsible for overseeing the safety and effectiveness of drugs marketed in the United States. Within FDA, the Center for Drug Evaluation and Research (CDER) manages these responsibilities. FDA’s approval is required before new drugs and generic drugs can be marketed for sale. To obtain FDA’s approval for a new drug, sponsors must submit a new drug application (NDA) containing data on the safety and effectiveness of the drug as determined through clinical trials and other research for review by CDER’s Office of New Drugs. Sponsors of generic drugs may obtain FDA approval by submitting an abbreviated new drug application (ANDA) to the agency for review by CDER’s Office of Generic Drugs. The ANDA must contain data showing, among other things, that the generic drug is bioequivalent to, or performs in the same manner as, a drug approved through the NDA process. After obtaining FDA’s approval, drug companies that want to change any part of their original application—such as changes to product manufacturing location or process, type or source of active ingredients, or the product’s labeling—must generally submit an application supplement to notify FDA of the change and, if the change has a substantial potential to have an adverse effect on the product, obtain FDA’s approval. CGMP regulations provide a framework for a manufacturer to follow to produce safe, pure, and high-quality drugs. See 21 C.F.R. pts. 210-211. action. In some cases, FDA may exercise its regulatory discretion and assess whether the risks of either taking a certain enforcement or other action or refraining from taking action will outweigh the benefits, such as when an action may cause or exacerbate a drug shortage. For example, if a manufacturing deficiency is identified, such as overfilled vials or the presence of contaminants, the manufacturer should take appropriate corrective and preventive actions, or FDA may issue a warning letter or take an enforcement action to require the manufacturer to do so. Similarly, FDA may request manufacturers of drugs whose labeling is not consistent with the labeling approved by FDA to correct such labeling, or it may take an regulatory action to require the manufacturers to do so. In 1999, FDA established the CDER Drug Shortage Program—now known as DSS—to coordinate issues related to drug shortages.DSS determines that a shortage is in effect or a potential shortage is pending, it contacts manufacturers of the drug to collect up to date information on inventory of the drug, demand for the drug, and manufacturing schedules. DSS may also coordinate its response with several offices including the Office of Generic Drugs, Office of New Drug Quality Assessment, and CDER’s Office of Compliance—the office responsible for minimizing consumer exposure to unsafe, ineffective, and poor quality drugs. DSS may also work with FDA’s Office of Regulatory Affairs—the office within FDA that oversees imports, inspections, and enforcement policy—and the manufacturer to help resolve any underlying problem a manufacturer is facing. If the shortage is of a controlled Once substance, FDA may work with the Drug Enforcement Administration (DEA) on any issues related to quotas for the production of the drug. When FDA is informed of a potential shortage in advance, it may take steps to prevent the shortage, such as providing assistance to address manufacturing problems. manufacturer’s proposed approach to responding to quality concerns. In addition, FDA can expedite inspections of manufacturing establishments to facilitate the marketing of an alternative to a drug in shortage or can expedite inspections once remediation to address quality problems has been completed. FDA officials said that they take steps to address shortages of both medically necessary drugs and non-medically necessary drugs, though they give priority to shortages of medically necessary drugs. additional sources of a drug in shortage, or supplements to ANDAs or NDAs, to provide additional capacity for production of an already approved drug. While there are a number of steps FDA can take to address a shortage, FDA cannot require manufacturers to start producing or continue to produce a drug. It also cannot require manufacturers to maintain or introduce manufacturing redundancies in their establishments to provide them with increased flexibility to respond to shortages. On October 31, 2011, the President issued an Executive Order that directed FDA to use its authority to encourage manufacturers to report drug supply disruptions earlier, to expedite regulatory review, when possible, to prevent or mitigate drug shortages, and to communicate to the Department of Justice any findings by FDA that shortages have led market participants to stockpile shortage drugs or sell them at exorbitant prices. In November 2011, we found that weaknesses in FDA’s ability to respond resulted in a predominately reactive approach to addressing shortages, although this was partially due to the fact that, at the time our report was issued, FDA did not have the authority to require manufacturers to notify Our previous report contained the agency of most impending shortages. several recommendations for FDA, including assessing the resources that FDA allocates to its DSS; developing an information system to manage data on shortages; ensuring that FDA’s strategic plan articulates goals and priorities for maintaining the availability of drugs; and developing results-oriented performance metrics related to FDA’s response to drug shortages. FDA outlined actions it planned to take which were consistent with these recommendations. Subsequently, the enactment of FDASIA in July 2012 resulted in several new requirements for FDA and manufacturers intended to address drug shortages. (See table 1 for a summary of these provisions.) The number of drug shortages remains high, with almost half of critical shortages involving generic sterile injectable drugs. Provider association representatives identified challenges in responding to drug shortages without adversely affecting patient care. The number of drug shortages reported each year remains high, although there was a decrease in 2012 relative to the record number of new shortages reported in 2011. We found that from 2007 through 2011, the number of drug shortages reported increased each year, with a record 255 shortages reported in 2011. However, in 2012, for the first time since 2006, there was a decrease in the number of drug shortages reported. Specifically, in 2012, 195 shortages were reported, which was a 24 percent decrease from 2011. As of June 30, 2013, 73 shortages had been reported in 2013. (See fig. 2.) Over half (55 percent, or 622) of the 1,132 shortages reported since January 1, 2007, were for drugs that were in shortage more than once. Specifically, 240 drugs were in shortage on multiple occasions between January 1, 2007, and June 30, 2013, representing 622 individual shortages. For shortages reported since January 1, 2007, the duration of the shortages varied, ranging from 1 day to over 5 years. The majority of shortages—68 percent—lasted 1 year or less.the drug shortages over this period was 340 days—slightly less than a year. (See fig. 3.) Provider association representatives told us that a number of the challenges that we reported in 2011 were still relevant for their members, including delays in or rationing of care, difficulties finding alternative drugs, risk associated with medication errors, higher costs, reduced time for patient care, and hoarding or stockpiling of drugs in shortage. During a shortage, providers may have to cancel or delay procedures, which can have detrimental health effects on patients. Providers may also have to ration care by prioritizing the patients who have a greater need for the drug. For example, provider association representatives said that if a drug is used in patients across age groups, but is essential for the care of newborns, a hospital may institute a policy that the drug can only be administered to newborns and will no longer be administered to adults. In addition, representatives from the provider associations noted that identifying effective, alternative drugs for those in shortage can be difficult. In some cases, it may not be possible to find a suitable alternative. For example, representatives from one of the associations we spoke to said that emergency service providers have reported significant difficulties finding alternative medications for stopping seizures and are concerned with the viability of alternative therapies in certain emergency situations. A representative from another association said that when effective alternatives are identified and located, medication errors may increase because the dosage of the alternative drug may differ from what providers are accustomed to using. Drug shortages may result in higher drug costs as well as greater risks to patients. To obtain drugs in short supply, providers may turn to suppliers they do not typically use, including authorized alternative suppliers, compounding pharmacies, or gray market suppliers—those not authorized by the manufacturer to sell the drug—who typically obtain small quantities of a drug that is in short supply and offer it for purchase at an inflated price. Drugs from alternative suppliers can cost significantly more, and, in the case of compounding pharmacies, and gray market suppliers, may pose risks to patients. An outbreak of fungal meningitis in 2012 linked to contaminated compounded drugs—resulting in over 60 deaths and hundreds of people becoming ill—has led to questions about the safety and quality of compounded drugs. Because the origin of a gray market drug may be unknown, there is no assurance that it was stored and transported appropriately. As a result, patients who receive treatment with such drugs may experience adverse events or receive inadequate or inappropriate treatment. (See app. III for a description of steps federal agencies have taken to respond to gray market activities.) Managing drug shortages also can detract from patient care. Providers may develop and institute polices for distributing drugs in short supply to patients, which some provider association representatives said may take time away from caring for patients. They may also need to become familiar with new products and different dosages, which may increase the risk for medication errors and take time away from patient care. Representatives from one provider association said that hospital pharmacists might need to devote more time than usual to work with the physician prescribing a drug that is in shortage to determine an appropriate therapeutic alternative. In some instances, providers have hired full-time staff whose positions are entirely devoted to managing drug shortages. One provider association representative said a well-known hospital system has eight full-time employees who only work on addressing drug shortages. However, a few representatives noted that smaller providers may not have the resources to hire full-time employees and existing staff may have to take on additional responsibilities in order to respond to shortages. Finally, the mere threat of a potential shortage can cause problems for patients and providers. While some provider association representatives reported that the lack of advance notice of a shortage hinders their ability to respond, most of the provider organizations we spoke with expressed concern that reports of an impending shortage can lead to the hoarding or stockpiling of drugs making it more difficult to access the drugs. Quality problems resulting in supply disruptions coupled with constrained manufacturing capacity were frequently cited as the immediate causes of recent drug shortages. However, we also identified multiple potential underlying causes of shortages, all of which were related to the economics of the generic sterile injectable drug market. The most frequently cited immediate cause for a drug shortage was that a manufacturer halted or slowed production after a quality problem was identified, resulting in a supply disruption. These supply disruptions were linked to, among other things, such problems as bacterial contamination or the presence of glass or metal particles in drug vials. Representatives from all eight manufacturers that we interviewed said that quality problems have contributed to recent shortages. Our analysis of FDA data shows that 40 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from quality concerns, such as particulate matter or plant maintenance issues. In addition, most of the studies we reviewed (16 of 20) reported that concerns about product quality that led to supply disruptions have been the immediate cause of most shortages. For example, one analysis found that quality problems were the cause linked to the majority of shortages of sterile injectable drugs. Another study found that the immediate cause of 46 percent of all drug shortages in 2011 was a quality problem. According to this study, the specific issues contributing to recent shortages have ranged from an inability to ensure the sterility of products to the identification of particulate matter in products. According to another study, some of the largest manufacturers of sterile injectable drugs have had quality problems that they chose to address by temporarily closing or renovating their establishments, thereby reducing or temporarily ceasing manufacturing of multiple drugs and leading to supply disruptions. Some of the temporary plant closures were proactively undertaken by the manufacturers themselves, while others were undertaken as part of their response to a warning letter from FDA. Such plant closures to address quality problems with certain drugs or production lines can result in shortages of other drugs manufactured at these establishments, including those not associated with quality problems. One study noted that many shortages that are classified as being caused by delays and capacity issues are technically caused by supply disruptions related to quality. Our analysis of FDA data indicates that manufacturing delays or capacity issues accounted for 30 percent of the shortages reported between January 1, 2011, and June 30, 2013. FDA officials told us that delays or capacity issues that triggered shortages typically involved temporary shutdowns or slowdowns undertaken to perform maintenance or, in many recent cases, for remediation efforts, which then caused supply disruptions. Although quality problems were a frequently cited issue, there was not complete agreement as to whether quality problems were truly the trigger for the supply disruptions that cause shortages. Specifically, one study concluded that FDA has applied CGMPs more rigorously in its inspections of manufacturing establishments, resulting in a greater number of quality problems being identified and thus leading to manufacturing supply disruptions that then triggered shortages. Another study suggested that an increase in FDA inspections of injectable drug manufacturing establishments without evidence of an increase in quality problems has contributed to shortages of generic sterile injectable drugs. In addition, one manufacturer representative noted that FDA investigators throughout the country may differ in their interpretations of CGMPs, which the representative said creates uncertainty about whether a manufacturer’s current processes will be found to be in compliance during an FDA inspection. Therefore, from this manufacturer’s perspective, FDA’s compliance actions have been the primary cause of shortages with quality problems being a secondary cause. A second manufacturer representative said that though quality problems have contributed to recent shortages, from the manufacturer’s perspective, quality standards have also been raised. However, one study countered the claim that FDA’s enforcement has changed by stating that manufacturers often identify quality problems and it is their discoveries that trigger FDA inspections in the first place, rather than an increase in agency scrutiny. This study also noted that CGMPs, which provide a framework for a manufacturer to produce safe, pure, and high-quality drugs, have not changed in recent years. One manufacturer representative concurred that the CGMPs themselves had not changed. However, this representative noted that as manufacturing technology advances, the expectations of FDA investigators as to what represents quality manufacturing may advance as well. For example, as new manufacturing equipment becomes available, FDA investigators may expect manufacturers to install the new equipment, even if using older equipment will result in drugs of the same quality. Although not as prominently cited in the literature or the FDA data as quality problems, we identified a number of additional factors that can cause supply disruptions and ultimately result in shortages. Permanent product discontinuations: Permanent product discontinuations were another immediate cause of shortages. Our analysis of FDA data shows that 12 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from product discontinuations. According to several studies, the generic drug market is extremely concentrated, with few manufacturers producing each drug. For example, one study found that most generic sterile injectable drugs are made by three or fewer manufacturers. As a result, the discontinuation of a drug by a single manufacturer can have a significant impact on drug availability. Two studies noted that older generic drugs may be discontinued in favor of producing newer drugs that are more profitable or Three manufacturer representatives said that that have more demand.they take a number of factors into account when determining whether to discontinue manufacturing a drug. The first manufacturer representative said that in addition to price, they will also account for factors such as the medical necessity and importance of the drug when making decisions about what drugs to manufacture. The second manufacturer representative said that they do not discontinue products if they know that doing so would cause a shortage or exacerbate an existing one, although the same representative also said that products with low sales or profitability may be de-emphasized in favor of producing drugs with greater demand. The third manufacturer representative also noted that it is likely that a lower-margin product would be discontinued rather than a higher-margin product. Two manufacturer representatives said that if a drug is already in shortage, they will try to continue to manufacture it, even at low or negative profit margins, to ensure that the drug remains in the market. Unavailability of raw materials or components: The unavailability of raw materials, such as an active pharmaceutical ingredient (API), and non-API components, such as vials, also contributes to shortages. The majority of the studies we reviewed cited the unavailability of raw materials or non-API components as a cause of shortages and two reported that there is often only one API source for a given drug. This dependency on a sole API source can lead to shortages if availability becomes a problem, regardless of the number of manufacturers of a particular product. Most of the manufacturers’ representatives agreed that the unavailability of API has caused some shortages, although some representatives said that it was a relatively small percentage of them. For example, a representative from one manufacturer said that the 2011 tsunami in Japan disrupted the API supply for one of its products and led to a shortage. Although the manufacturer ultimately identified another source for the needed material, FDA had to approve the manufacturer’s new source, which was time-consuming. In addition, two manufacturer representatives mentioned that issues with non-API components had contributed to shortages. Our analysis of FDA data shows that 9 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from the unavailability of APIs or non-API components. Loss of a manufacturing site or site change: Our analysis of FDA data shows that 3 percent of the shortages reported between January 1, 2011, and June 30, 2013, were due to either the loss of a manufacturing site or site change. One manufacturer representative said that while manufacturers have experienced disruptions due to natural disasters, this has been rare. In the literature, half of the studies (10 of 20) mentioned natural disasters, such as floods or hurricanes, as a cause of shortages. Loss of, or damage to, a manufacturing site was typically given as an example of the supply disruption resulting from the disaster. Increased demand: In addition to events that result in changes in supply, we found that shortages can also be triggered by changes in demand. Our analysis of FDA data shows that 6 percent of the shortages reported between January 1, 2011, and June 30, 2013, were due to increased demand. An increase in demand, which may occur for a variety of reasons, such as the approval of an already marketed drug for a new indication or new therapeutic guidelines, can trigger a shortage. A shortage results because manufacturers cannot keep up with the increase in demand that exceeds their expectations or planned production. Increased demand was cited as a cause of shortages in 9 of the 20 studies we reviewed. Figure 6 summarizes information reported by manufacturers to FDA about the causes of drug shortages that the agency then analyzes and categorizes. The inability of other manufacturers to make up for supply disruptions experienced by their competitors due to constrained manufacturing capacity was another immediate cause of shortages. Several of the studies we reviewed generally concluded that the heavy concentration of the generic drug industry leaves few manufacturers available to respond to supply disruptions, leading to market-wide shortages. One study found that seven manufacturers dominate the generic sterile injectable market overall and also found that this market is even further concentrated for specific therapeutic classes. Specifically, this analysis indicated that in 2008, three manufacturers produced 71 percent of all generic sterile injectable oncology drugs and that three manufacturers held 91 percent of the market share of generic sterile injectable nutrients and supplements. Illustrating the interplay between supply disruptions and constrained manufacturing capacity, one 2010 study reported that a shortage of the generic sterile injectable anesthesia drug propofol resulted after one of the three manufacturers of the drug permanently discontinued its manufacturing and another experienced quality problems leading to a temporary halt in production, leaving the remaining manufacturer unable to meet the demand of the entire market. In addition to consisting of few manufacturers overall, we also found that the manufacturing capacity of the generic drug industry has been further challenged in recent years as the industry has expanded the number of generic products it manufactures. This expansion has resulted as a large number of brand-name drugs have lost patent protection, clearing the way for generic manufacturers to produce generic equivalents of these drugs. Two of the studies we examined cited the decisions of manufacturers to begin producing the generic equivalents of brand-name drugs as contributing to shortages by stretching already limited capacity. For example, one study found that the generic sterile injectable market had expanded by 52 percent between 2006 and 2010 without a commensurate increase in manufacturing capacity, leading to high utilization of available manufacturing capacity.manufacturers said that faced with limited capacity, when new generics are available for production a manufacturer may make the decision to stop producing some drugs to make room for the new products. As a result, such discontinuations could lead to shortages, but representatives from both manufacturers characterized this as a small factor in causing shortages. In addition to the challenge presented by having few manufacturers and the increase in the number of generic drugs, pressures to produce this large number of drugs on only a few manufacturing lines leaves the manufacturers that do participate in the generic sterile injectable market Since multiple drugs are often manufactured on the with little flexibility. same line, increasing production of one drug reduces the supply of other drugs and can lead to shortages. For example, one manufacturer representative said that there are usually anywhere from 30 to 50 different drugs manufactured on a given line. Further, according to one study, manufacturers of generic sterile injectable drugs do not typically have redundant manufacturing facilities.almost 900 generic sterile injectable applications that were submitted to the FDA and approved between 2000 and 2011, the authors found that only 11 applications (about 1 percent) referenced a backup facility. This becomes problematic when production in a given facility must stop for any reason as manufacturers cannot immediately move production of a drug to another facility. To do so, they must first obtain approval from FDA, which can further delay production. Specifically, in a review of A related constraint cited in the literature is that some generic sterile injectable drugs need to be manufactured on lines or in facilities dedicated solely to those drugs. One study noted that certain sterile injectable products, such as anti-infective and oncology drugs, require lines, and sometimes whole facilities, which are limited to the production of such drugs. For example, some anti-infective drugs, such as penicillin, are highly sensitizing and can trigger serious allergic reactions at very low levels and as a result, may be limited to specific manufacturing lines. Further, another study noted that a supply disruption on a dedicated line can result in shortages of multiple products of a similar type, such as oncology drugs, because other manufacturers are not able to step in due to limited capacity on their own lines.example, shortages of oncology drugs in 2011 were linked to just three dedicated oncology lines that were operated by two manufacturers. A final capacity-related constraint cited in the literature (9 of 20 studies), was how the widespread use of “just-in-time” inventory practices can increase the vulnerability of the supply chain to shortages. One of these studies said that most manufacturers only produce enough of a drug to satisfy current demand, so there is little, if any excess inventory, while another study asserts that when a manufacturer has to stop production, a supply disruption can result because of “just-in-time” inventory. One manufacturer representative said that any manufacturer typically has only a limited amount of inventory available. This representative said that manufacturers typically have about 2 to 3 months of inventory on hand, wholesale distributors usually have about 1 month, and providers only have a few weeks of inventory. Consequently, if an issue arises, a shortage can quickly result. The majority of manufacturer representatives we interviewed generally concurred with our finding from the literature that a supply disruption, for whatever reason, affecting one manufacturer can quickly lead to market- wide shortages because other manufacturers often cannot increase production enough to meet demand. For example, one manufacturer representative said that it had recently encountered capacity constraints when two other manufacturers experienced supply disruptions and one manufacturer exited the market. The representative from the manufacturer that remained said that the company did not have the capacity to ramp up production to meet the demand for all of the drugs at risk of shortage and thus had to prioritize which drugs to produce, based on market need and the severity of the shortages. Further complicating a situation like this, representatives of two manufacturers said that even if the remaining companies are able to increase their production of a drug whose supply has been disrupted, it can take time—as much as 3 months—to increase production, particularly for sterile injectables due to the complexity of manufacturing these products. We identified multiple potential underlying causes of drug shortages in the literature. Half of the studies (10 of 20) we reviewed suggested that the immediate causes of drug shortages, such as quality problems, are driven by an underlying cause that stems from the economics of the generic sterile injectable drug market. The studies that cited underlying causes did not all focus on the same underlying cause and manufacturer representatives had mixed views on the potential underlying causes we identified in the literature. One underlying factor we identified in the literature is that when choosing between different manufacturers of the same drug, purchasers may focus primarily on price. Six of the 20 studies mentioned either low prices or low profit margins as features of the generic drug market that may make it vulnerable to shortages. Two of the studies suggested that low profit margins in the generic market may affect manufacturers’ decisions to invest in their facilities.expect all generic drugs to be of equivalent quality and may be unable to Another of the six studies said that purchasers discern differences in the quality of drugs, particularly sterile injectables. As a consequence, purchasers of sterile injectables focus on price when choosing among seemingly identical generic manufacturers at the expense of any potential differences in quality and the ability to reliably meet customer demand. According to this study, a manufacturer that strives to exceed minimum manufacturing standards is not rewarded with a willingness among buyers to pay more for the manufacturer’s products. Therefore, using economic theory as a rationale, the authors suggested that this reduces the incentive for the manufacturer to sufficiently invest in maintenance or quality improvements at its manufacturing establishments. The study suggests that the lack of reward for quality is an underlying cause that may have led to manufacturers’ minimizing investment in establishments, which has ultimately resulted in many of the recent quality problems at generic sterile injectable manufacturing establishments. Five of the six drug manufacturer representatives that responded to this claim reported that manufacturers continue to invest in upgrading existing establishments and building new ones. One manufacturer representative stated that some generic products in manufacturers’ portfolios are highly profitable and prompt investments in manufacturing facilities. Another manufacturer representative said that they continue to invest in making improvements to their sterile injectable facilities. For example, they said that they have invested in spare capacity on some of their lines, and as a result, are now better equipped to ramp up production in response to a shortage. Group purchasing organizations (GPO), which negotiate purchasing contracts with drug manufacturers on behalf of hospitals and other health care providers, have been cited in the literature as potentially having an underlying role in causing drug shortages. Four of the 20 studies suggested that the operating structure of GPOs results in fewer manufacturers producing generic drugs and this, in turn, contributes to a more fragile supply chain for these drugs. For example, one of the four studies asserted that GPOs reduce profits in the generic drug market, where margins are already low. This study states that because of these low manufacturer profit margins, when production problems arise, manufacturers may stop producing certain products in lieu of making investments in improvements at their establishments. Another of the four studies theorized that when generic drug manufacturers fail to win GPO contracts, manufacturers will either exit or decide not to enter the market for those drugs, contributing to the immediate cause of constrained manufacturing capacity. All of the representatives of the three GPOs that we contacted disagreed with the claim that GPOs are a cause of shortages. They emphasized that they have an incentive to avoid drug shortages and ensure that the drug manufacturers with which GPOs contact can meet GPOs’ members’ needs. Further, they said that while price is an important consideration in determining the manufacturers with whom they contract, the ability of manufacturers to ensure an adequate supply of products is critical. According to one GPO representative, generic drug manufacturers are generally profitable, which the GPO representative said demonstrates that manufacturers are not being driven out of the market. All of the GPO representatives also noted that in recent years GPOs have instituted strategies to avoid shortages. For example, one GPO representative told us that it typically tries to contract with two or more manufacturers for drugs that have a recent history of being in shortage. Of the five manufacturer representatives who commented on the claim, three stated that GPOs may contribute to shortages by exerting downward price pressure. However, one manufacturer representative disagreed that GPOs were a cause and a second manufacturer representative said that GPOs had no more of a role in causing shortages than any other supply chain participant. While the second representative said that GPOs contribute to the pressure to lower prices, the representative also noted that every participant in the supply chain contributes to the price competition. A third manufacturer representative noted that, because manufacturers have already made investments in production that they are unwilling to abandon, failing to obtain a GPO contract does not cause them to exit the market for a given drug. Further, representatives from the second and third manufacturers also told us that, in the event that a major manufacturer does not obtain a GPO contract, the manufacturer may send its sales force to hospitals directly and offer a price that is lower than the GPO contract price. Hospitals may either accept this lower priced offer or seek additional price concessions from the contracted manufacturer through the GPO. A change in Medicare Part B drug reimbursement policy was also cited in the literature (5 of 20 studies) as an underlying cause of drug shortages. In 2005, a change was implemented in how providers are reimbursed for most Medicare Part B drugs administered in an outpatient setting. Three studies we reviewed suggested that this change resulted in a sharp decrease in reimbursement to providers.focused on oncology drugs, suggested that this decrease in reimbursement caused providers to switch to higher-cost drugs for which they would receive increased reimbursement, reducing demand for One of the studies, which generics. The other two studies suggested that this decrease in reimbursement to providers also resulted in lower prices for manufacturers. Two of the three studies suggested that manufacturers responded by exiting the market for these products entirely, while the third suggested that manufacturers reduced their investments in manufacturing facilities, both of which left the generic sterile injectable market vulnerable to shortages. Four of the five manufacturer representatives who responded to this claim did not view the change in Part B reimbursement policy as a main cause of shortages, though they said it could have complicated the generic market. For example, one manufacturer representative contended that it had a negligible impact at most as the reimbursement is paid to physicians, not manufacturers. The payments that manufacturers collect are several steps removed from the physician’s reimbursement. In addition, the representative stated that even if some providers switch to more expensive alternative drugs in response to the reimbursement change, the impact would be minimal as the vast majority of generic sterile injectables are administered in hospital inpatient departments, which means that they are not reimbursed through Medicare Part B.Finally, though drugs in at least one of the therapeutic classes that have most frequently been in shortage in recent years may be reimbursed through Part B based on the Average Sales Price methodology, the extent to which all of the therapeutic classes driving recent shortages are reimbursed in this manner is unclear. Figure 7 summarizes the key immediate and potential underlying causes of drug shortages that we found in our review of the literature. Through a variety of efforts, FDA has prevented more potential shortages and improved its ability to respond to shortages since we issued our report in 2011. Among other things, FDA is working to improve its response to drug shortages by implementing FDASIA’s requirements and the recommendations we made in 2011. However, FDA lacks policies and procedures for managing and using information from its drug shortage database. FDA has taken steps that have prevented more potential shortages and improved its ability to resolve existing drug shortages since 2011, including expediting review of ANDAs and supplements, working with manufacturers to increase production, and using its regulatory discretion to allow certain products to remain on the market or bring new products to market. Based on our analysis of FDA data from January 2011 through June 2013, FDA was able to prevent 89 potential shortages in 2011, 154 potential shortages in 2012, and 50 potential shortages through June 2013. This is more than the 35 potential shortages we found that FDA prevented in 2010 and the 50 prevented through June 2011. FDA officials told us that although they relied on many of the same steps to prevent and resolve shortages prior to the enactment of FDASIA, FDASIA’s requirement that manufacturers notify FDA in advance of a potential shortage allowed FDA to employ those steps sooner. FDA officials said the notification requirement has helped the agency become more proactive and successful in its efforts. FDA officials noted there has been a sizeable increase in notifications with a six-fold increase after issuance of the drug shortages Executive Order in October 2011, a subsequent doubling of that rate after the enactment of FDASIA in July 2012, and a return to the Post-Executive Order notification rate in 2013. FDA has expedited a number of agency actions to prevent or resolve shortages, in accordance with relevant FDASIA provisions. For example, FDA may expedite the review of ANDAs, or supplements to NDAs and ANDAs, to help bring an alternative drug to market or authorize an additional API supplier or manufacturing site. FDA officials said the agency has also expedited inspections to facilitate improvements at manufacturing establishments. Expediting inspections that are required before an ANDA or supplement is approved also facilitates the availability of a needed drug. Manufacturer representatives we spoke with noted that in some cases expedited reviews or inspections have happened quickly and have helped prevent shortages. However, others told us that some application reviews or inspections have taken a long time, limiting the manufacturers’ ability to help prevent or resolve a shortage. For example, one manufacturer representative said waiting for FDA’s approval of ANDA supplements related to new raw material suppliers has been a key hindrance to the manufacturer’s ability to respond to drug shortages. In addition, FDA routinely contacts manufacturers regarding their ability to increase production in response to a potential or actual drug shortage. Although a number of manufacturer representatives said that ramping up production takes time and may not always be possible, given production capacity constraints, FDA has reported some successes. For example, when FDA determined that an impending product discontinuation might result in a shortage of a drug that treats shingles and chickenpox, it encouraged another manufacturer to increase production, thus avoiding a shortage. Similarly, when quality problems were identified in a drug used to treat eye infections in patients with acquired immune deficiency syndrome, FDA reached out to another manufacturer that was able to increase production to avert a potential shortage. Manufacturer representatives said manufacturers will generally increase production, if possible, when FDA advises them of a shortage. FDA reported to us that, from January 1, 2011, to June 30, 2013, its encouragement to manufacturers to increase production helped prevent or resolve 41 shortages. FDA officials said that in appropriate cases, the agency may attempt to use its regulatory discretion to keep products from going into short supply or from making an active shortage worse. FDA may use its discretion in deciding whether to take a certain action. FDASIA requires FDA to consider whether an enforcement action or issuance of a warning letter could reasonably cause or exacerbate a shortage of a life-saving drug.If FDA reaches such a determination, the agency must evaluate the risks associated with the impact of such a shortage upon patients and the risks associated with the violation before taking action, unless there is an imminent risk of serious health consequences or death. FDA officials said that they had used their regulatory discretion prior to the enactment of FDASIA and were continuing to do so, through communication across various FDA offices and with manufacturers. Officials noted that they try to balance the risk to patients when making their decisions. That is, they consider the risk of allowing the continued distribution of the product— despite the problems related to the possible enforcement action or warning letter—against the public health risks of the product not being available. FDA officials said they also continue to use their regulatory discretion to temporarily allow the importation of “unapproved drugs” into the United States to help prevent or resolve shortages of FDA-approved drugs that are critical to patients, in rare cases where the shortages cannot be resolved by manufacturers willing and able to supply the FDA- approved drugs in the immediate future. We previously reported that FDA had allowed for the importation of seven unapproved drugs from January 2011 through September 2011. FDA officials told us that, through June 30, 2013, they have subsequently allowed for the importation of nine additional unapproved drugs. For example, when the manufacturer of a drug used to treat patients who require total parenteral nutrition lost the use of a manufacturing site, FDA allowed importation of a comparable version of the drug not approved by FDA to prevent a potential shortage from occurring. Several stakeholders commented that FDA’s efforts to allow the importation of unapproved drugs to address a shortage have improved, which has helped to resolve some critical shortages. However, some stakeholders noted that certain shortages could not be resolved quickly because it took a long time for FDA to respond to providers’ requests to allow importation. For example, some stakeholders noted that delays in the importation of total parenteral nutrition products created significant challenges for treating patients who depend upon them. To help speed up the process of temporary importation, FDA officials said that since January 2012 they have proactively identified foreign manufacturers that have expressed a willingness to import their drugs to help with a shortage. Officials said this has allowed them to reach out to companies more quickly and has already helped the agency address one shortage. FDA has also reported using its regulatory discretion in other ways. For example, the manufacturer of a drug that may slow the progress of the human immunodeficiency virus and acquired immune deficiency syndrome lost its component supplier and was forced to find a new one. However, this new supplier was experiencing a quality problem. FDA used its regulatory discretion to allow the manufacturer to use the new component supplier while quality problems were being addressed after it determined those issues posed no significant risks to public health. In another instance, FDA used its regulatory discretion to allow the continued marketing of a drug, despite a manufacturing deviation, after determining the benefits of having the drug available outweighed the risk associated with the manufacturing error. FDA is taking steps to further enhance its ability to respond to shortages. Some of the agency’s actions are required by FDASIA, some are in response to recommendations we made in 2011, and others were initiated by the agency. For example, FDA has established the Drug Shortages Task Force as required by FDASIA. FDA officials said the Drug Shortages Task Force has helped FDA revise internal policies and procedures, track the development of the proposed regulations for implementing the manufacturer notification requirements, and generally coordinate across the agency on issues related to drug shortages. As required by FDASIA, FDA officials also noted that they have continued to work with DEA on shortages related to controlled substances. describes how providers and others can report a potential drug shortage. The e-mail address and toll-free number listed on the website are the main mechanisms through which FDA receives drug shortage-related reports from health care providers or other third-party groups. FDASIA requires FDA to maintain an up-to-date list of drugs that it determines to be in shortage and—subject to public health, trade secret, and confidentiality concerns—make the list publicly available. FDA officials told us that, upon receiving notification of a potential drug shortage, the agency works to verify whether a shortage exists through contacting the drug’s manufacturer to determine supply levels and comparing that to industry sales data on historical demand for the product. Once FDA determines that the amount of the drug—or pharmaceutical equivalents—appears to be insufficient to meet demand, the agency posts information about the shortage on its drug shortages website. Though FDA takes steps to respond to all shortages about which the agency is informed, officials said the agency places the highest priority on responding to shortages of drugs that it considers medically necessary. Nevertheless, officials said that FDA’s website includes all verified shortages, regardless of whether the drug is determined to be medically necessary. However, FDA officials noted that the agency may not be notified of all potential shortages, because FDASIA only requires manufacturers to report disruptions in the production of drugs that are life supporting, life sustaining, or used to treat debilitating health issues. Though health care professionals can also notify FDA about potential shortages, FDA officials told us that the agency is less likely to be notified about shortages of drugs for which there are easy substitutes or little patient impact. In July 2012, as required by FDASIA, FDA began classifying the reasons for shortages using standardized terminology specified in the law and posting this information on its website along with information on estimated shortage duration. Also, though not required by FDASIA, in July 2013 FDA added information on the therapeutic categories of drugs in shortage to its drug shortages website. This change allows users, for example, to view all oncology shortages in one place, rather than having to review the entire list of drugs in shortage and identify individual drugs used in oncology themselves. FDA plans to improve the functionality of the website further by allowing users to sort shortages by other types of information as well. A number of stakeholders noted that the improvements to FDA’s drug shortage website help them keep informed about drug shortages. However, some expressed disappointment with the passive nature of the website as stakeholders must proactively visit the website as opposed to receiving automated alerts. A number of stakeholders noted that notifications of shortages by therapeutic class would be particularly helpful for communicating the potential for a shortage to targeted groups earlier. FDA officials said that they plan to add active alerts by therapeutic category to the website. Although FDA continues to refine the information on its website, it is nonetheless dependent on what manufacturers report to the agency: the reported reasons for a shortage and the estimated length of the shortage. The information FDA receives from manufacturers and other sources may be incomplete and may change over time. As a result, the information on the website may not always be current and accurate. Stakeholders noted that the reasons given for the shortages are often categorized as “other” which can make it difficult to understand why a drug is in shortage. FDA officials said they use the category “other” when none of the classifying terminology required by FDASIA directly applies, although FDA officials said they try to include available details to help explain the cause of the shortage. In addition, FDA may not be able to publicly post all of the information the agency receives from manufacturers because some of the information provided to FDA is proprietary. Although some stakeholders reported that information on the duration of a shortage is one of the most useful pieces of information that can be provided, others noted that the estimated shortage resolution dates on FDA’s website are not always reliable. Two stakeholders said that the estimated duration for a shortage is often listed as “unavailable” or “to be determined,” which is not particularly helpful. Stakeholders noted that such inaccuracies may limit their ability to plan ahead. For example, a representative of one provider group noted that in order to plan for the multiple rounds of a patient’s chemotherapy regimen, the provider would need to be sure that there will be a sufficient supply of the drug for the second round of chemotherapy before starting the first. Manufacturer representatives said the complexity of a manufacturing disruption often makes it difficult to provide FDA accurate estimates of the time it will take to resolve the disruption. FDA has also taken steps to respond to the recommendations we made in our 2011 report. In response to our recommendation that FDA develop an information system that would allow drug shortage data to be tracked in a systematic manner—to be consistent with the internal control standards for the federal government—the agency developed a drug shortage database that is used on a daily basis to track shortages, document the actions FDA takes to prevent and resolve shortages, and monitor the workload of DSS personnel. All FDA offices can access the database; however, the officials we spoke with said they request information from DSS instead of accessing the database directly. In September 2013, FDA informed us that it is now planning to transition from its existing database to an information system with additional capabilities and functionality. For example, FDA officials said they are planning to automate some of the data fields by extracting information from other sources that provide NDCs, market share, and other relevant product information. This may reduce the likelihood of manual entry errors and speed up the entry of some shortage information. The officials said the establishment of an information system could also help facilitate analysis related to drug shortages. However, they were unable to provide us with a description of the types of analyses they would conduct. FDA has also taken steps to respond to our recommendation related to the resources allocated to the drug shortage program. FDA has since increased the number of DSS personnel from 4 in 2011 to 11 in 2013 and officials said this has improved FDA’s ability to respond to drug shortages in a number of ways. First, it allowed FDA to assign each manufacturer experiencing a shortage a specific contact person, which FDA officials said has allowed the agency and the manufacturers to develop better working relationships and has improved information sharing. Representatives from one manufacturer we spoke with agreed that this effort has improved their relationship with FDA. In addition, a number of stakeholders, including other manufacturers’ representatives, noted it is now easier to contact DSS officials and that discussions have become more regular. Second, FDA officials said having additional staff has allowed them to respond more quickly to manufacturer notifications and to identify possible approaches to preventing or resolving a shortage. Some stakeholders also noted that FDA reached out to them for additional information on specific drug shortages or the availability of certain drugs. Third, officials said it has allowed DSS to play a bigger role in revising drug shortage policies and procedures. FDA also improved the staffing resources available for responding to drug shortages by assigning drug shortage coordinators in each of its 20 district offices. In addition, it developed written procedures to enhance coordination between headquarters staff in DSS, the CDER Office of Compliance, and staff in the district offices on issues related to drug shortages.have helped bring drug shortage-related concerns to light earlier, such as violative inspections at establishments that manufacture a large volume of drugs. Officials said this has improved FDA’s ability to work with such FDA officials told us that the drug shortage coordinators manufacturers early in order to prevent drug shortages. FDA held a retreat in July 2012 to educate the drug shortage coordinators and other staff on FDA’s processes for responding to drug shortages. The retreat included a number of FDA offices, including CDER Office of Compliance, DSS, Office of Generic Drugs, Office of New Drug Quality Assessment, and Office of Regulatory Affairs, and officials said the retreat helped attendees understand drug shortage responsibilities of the various FDA offices. As required by FDASIA, FDA’s Drug Shortages Task Force developed a strategic plan that identifies its goals and priorities for mitigating and resolving ongoing shortages and for preventing future shortages. This is also in line with our 2011 recommendation that FDA ensure that the agency’s strategic plan articulates goals and priorities for maintaining the availability of all medically necessary drugs. Though FDA officials said the agency has not made this change in the agency-wide strategic plan, FDA’s drug shortages strategic plan includes two goals related to maintaining drug availability, each with a number of tasks for achieving the goal. The first goal—to improve and streamline FDA’s current mitigation activities once the agency is notified of a supply disruption or shortage—includes four tasks: streamline internal FDA processes; improve data and response tracking; clarify roles and responsibilities of manufacturers; and enhance public communication about drug shortages. The second goal—to develop prevention strategies to address the underlying causes of production disruptions to prevent drug shortages— contains three tasks: develop methods to incentivize and prioritize manufacturing quality; use regulatory science to identify early warning signals of shortages; and increase knowledge to develop new strategies to address shortages. As part of this second goal, the strategic plan describes efforts FDA is considering to help address manufacturing and quality issues, including broader use of manufacturing metrics to assist in the evaluation of manufacturing quality and developing incentives for high-quality manufacturing. Finally, FDA officials said that their annual report on drug shortages, which was due December 31, 2013, will contain information on performance measures to assess and quantify the implementation of the agency’s goals and response to drug shortages, as we recommended in 2011. As of January 31, 2014, the annual report has not been released. While FDA is planning on establishing a new information system to track drug shortage data, it lacks policies, procedures, and specific training materials related to management and use of its existing drug shortage database. While FDA did create a database glossary, which briefly defines a number of the data fields, an official told us that no other documents or training materials have been created because staff use the existing database every day and are therefore familiar with its operation. Further, while FDA officials said they plan to create policies for entering data in the planned new drug shortage information system and create a tutorial for users, they have not yet done so. This lack of documentation may limit the agency’s ability to communicate proper use of the existing and new databases to staff and could also ultimately lead to inconsistencies in the use of the database. The lack of policies and procedures is also inconsistent with internal control standards for the federal government, which state that agencies should have controls over information processes, including procedures and standards to ensure the completeness and accuracy of processed data. For example, internal controls require the appropriate documentation of system controls and that such documents be readily available for review. Such documentation may include management directives, administrative policies, and operating manuals; none of which have been prepared for the existing database. Related to FDA’s lack of policy and procedures for its existing drug shortage database, we also found that FDA lacks sufficient controls to ensure the quality of the data in the existing database. For example, FDA officials said there are no automated data checks to ensure the accuracy of the data in the database. Instead, officials review the data for accuracy at the end of each year by relying on their memories of events, emails, and meeting notes. The first such data check was completed in 2012. Officials said they plan to perform another such review at the end of 2013, in preparation for the annual report to Congress. This practice is inconsistent with the internal control standards for the federal government, which require agencies to design controls, which may include data checks that help ensure completeness, accuracy, and validity of database entries. Without such data checks, FDA’s existing database may be more likely to have errors, incomplete data, and inconsistent data. We asked officials to provide us with any documentation of their 2012 review of the existing database for accuracy and they were unable to do so. FDA officials said they plan to incorporate automated data checks in their new information system, which may eliminate the need for subsequent manual quality checking. FDA officials told us that, as of January 2014, any new drug shortages will be entered into their new information system. In addition, FDA has not conducted routine analyses of its existing drug shortage database to identify, evaluate, and respond to the risks of drug shortages proactively. Again, according to the internal control standards for the federal government, agencies should comprehensively identify risk through qualitative and quantitative methods, including data collected in the course of their work. FDA’s drug shortages strategic plan states that the agency will explore using risk-based approaches to identify early warning signs of problems that could lead to production disruptions. However, FDA currently uses data on an ad hoc basis to respond to specific shortages as opposed to using the data to identify trends or patterns that may help it predict and possibly prevent shortages. According to FDA officials, other than producing the annual report required by FDASIA, the agency has not established regular schedules for generating reports in the database and is not currently using the database to conduct regular trend analyses. By only using the database to respond to individual shortages as they occur, FDA is missing opportunities to use the data proactively to enhance the agency’s ability to prevent and mitigate drug shortages. FDA has made progress in preventing potential drug shortages and responding to actual shortages since we issued our last report in 2011. In part, this progress can be attributed to the new FDASIA requirement that manufacturers provide FDA with information about potential or current shortages of drugs that are life supporting, life sustaining, or used to treat debilitating health issues. This additional information has improved the agency’s ability to act more quickly when it learns of a potential shortage. Yet, the number of shortages remains high, despite the fact that FDA has taken steps to prevent and mitigate shortages, such as expediting application reviews and inspections, exercising enforcement discretion in appropriate cases, and helping manufacturers respond to quality problems. Many shortages are prolonged, with some spanning multiple years. As a result, patients and providers continue to struggle as essential and life-saving medications—such as anti-infective, nutritive, and cardiovascular drugs—remain in short supply. These shortages complicate patient care and may lead to adverse outcomes with serious consequences. Although there are potential underlying causes of drug shortages, FDA has made important strides in responding to some immediate causes. However, some of the causes identified in our literature review and conversations with manufacturers are beyond the agency’s authority, as it does not have control over private companies’ business decisions. For example, FDA is unable to require manufacturers to start producing or continue producing drugs, or to build redundant manufacturing capacity, regardless of the severity of a shortage. Nonetheless, FDA can take steps to maximize the agency’s ability to use the information at its disposal to address drug shortages. We continue to believe in the importance of our prior recommendation that FDA should develop an information system that would facilitate the agency’s response to shortages. FDA took the first step in implementing this recommendation by creating a database on drug shortages. However, a key component of any system is assuring the reliability of the data. Our current work shows that the agency lacks adequate policies and procedures governing the use of its database, as well as sufficient checks to ensure the data’s reliability—in both cases, the failure to do so is inconsistent with internal controls for the federal government. These shortcomings could hinder FDA’s efforts to understand the causes of shortages as well as undermine its efforts to prevent them from occurring. Additionally, FDA’s ability to manage risk- based decisions, including when to use regulatory discretion, and proactively help prevent and resolve shortages may be hindered by its lack of routine analysis of the data it collects. FDA may be missing an opportunity to identify causes of shortages, risks for shortages, and patterns in events which may be early indicators of shortages for certain types of manufacturers, drugs, or therapeutic classes. Though FDA has taken important steps to better prevent and address shortages, the large number of potential shortages itself suggests a market still at risk of continuing supply disruptions. To enhance its oversight of drug shortages, particularly as the agency fine-tunes the manner in which it gathers data on shortages and transitions from its database to a more robust system, we recommend that the Commissioner of FDA take the following two actions: develop policies and procedures for the use of the existing drug shortages database (and, ultimately, the new drug shortages information system) to ensure staff enter information into the database in a consistent manner and to ensure the accuracy of the information in the database; and conduct periodic analyses using the existing drug shortages database (and, eventually, the new drug shortages information system) to routinely and systematically assess drug shortage information, and use this information proactively to identify risk factors for potential drug shortages early, thereby potentially helping FDA to recognize trends, clarify causes, and resolve problems before drugs go into short supply. We provided a draft of this report for comment to HHS, the Department of Justice, and the Federal Trade Commission. We also provided excerpts of this report for comment to the Department of Defense, the Department of Homeland Security (for review of the U.S. Coast Guard), the Department of Veterans Affairs, and UUDIS. We received written comments from HHS, which are reproduced in appendix V. We also received technical comments from HHS, the Department of Defense, the Federal Trade Commission, and UUDIS, which we incorporated as appropriate. The Department of Homeland Security, the Department of Justice, and the Department of Veterans Affairs did not have any comments based on their review. In its comments, HHS stated that drug shortages remain a significant public health issue and emphasized its commitment to preventing new shortages and resolving those that are already ongoing. HHS agreed with our recommendations to enhance its oversight by developing policies and procedures for its drug shortages database and by conducting periodic analyses of these data to identify drug shortage risk factors. Regarding our first recommendation, HHS said it agrees that policies and procedures for data entry are important to help assure the timely, accurate, and consistent inputting of data into its drug shortage database. Regarding our second recommendation, HHS agreed that it could make better use of its drug shortage data to identify trends, clarify causes of shortages, and resolve problems before drugs go into short supply. However, HHS noted that there are many factors that can trigger or exacerbate a shortage and that it lacks some relevant data, such as detailed information on manufacturing capability, to create a comprehensive forecasting system for drug shortages. We acknowledge that the agency’s access to certain information is limited, but believe that routine analysis of available data could nonetheless reveal some early indicators of shortages. Although HHS agreed with our recommendations, it took issue with our use of UUDIS data concerning the persistence of recent shortages. HHS said that these data may overstate the number of shortages that persist because UUDIS considers a shortage to be ongoing unless all NDCs for a given product are available, even if some manufacturers that currently produce the drug have increased production enough to meet all demand. We recognize that there are differences in the way UUDIS and FDA define, and therefore count, shortages. Our report notes that FDA considers a shortage to be resolved when the total supply of the drug and any pharmaceutical equivalents is sufficient to meet demand in the market overall. UUDIS defines shortages more broadly, focusing on supply issues that affect how pharmacies prepare and dispense a product or that influence patient care when prescribers must choose an alternative therapy because of supply issues. According to a UUDIS official, tracking all NDCs for all manufacturers is important for providers because using substituting one package size for another may create a safety issue. To enhance clarity, we have provided additional detail in our report to describe UUDIS’s methods for defining and tracking shortages. Moreover, it is important to note that we used UUDIS data because FDA was unable to provide data on shortages that would allow for an analysis of trends. As we have previously reported, until FDA established a database containing shortage information in 2011, the agency did not systematically maintain data on shortages. In the absence of FDA data, the data from UUDIS was the only data that we could identify that would allow for a meaningful analysis of drug shortages over time. We are sending copies of this report to the Secretary of the Department of Health and Human Services, the Attorney General, the Chairman of the Federal Trade Commission, appropriate congressional committees, as well as other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or crossem@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who make key contributions to this report are listed in appendix VI. As part of our report objectives, we reviewed the trends in recent drug shortages and examined the causes of drug shortages. This appendix provides further detail on our methods. To review the trends in recent drug shortages, we identified the number of drugs that were in short supply from January 1, 2007, through June 30, 2013, and examined the characteristics of drugs that were reported to be in shortage from June 1, 2011, through June 30, 2013. Specifically, to review trends in recent drug shortages that occurred from January 1, 2007, through June 30, 2013, we analyzed data from the University of Utah Drug Information Service (UUDIS), which were the most recent data available at the time we did our work. These data are generally regarded as the most comprehensive and reliable source of drug shortage information for the time period we reviewed and are what we used in preparing our 2011 report. We focused our analysis on shortages of prescription drugs.(1) the total number of new shortages reported each year and (2) the total We reviewed UUDIS’ drug shortage data to identify number of active shortages each year. To calculate the total number of new shortages reported each year, we counted shortages only for the year in which UUDIS was first notified and not in any subsequent years during which the shortage may have been active. To calculate the number of active shortages in each year, we included both shortages reported that year and any shortages that had started in a prior year, but We also identified the duration of any were still ongoing during the year.shortages reported from January 1, 2007, through June 30, 2013, and the number of drugs that had been in short supply on more than one occasion. To identify drugs that had been in short supply more than once, we grouped together shortages of clinically interchangeable versions of a drug that were administered through the same route, such as injection. We confirmed our grouping of these shortages with a knowledgeable pharmacist from UUDIS. To analyze the characteristics of shortages, we reviewed 219 drug shortages that were newly reported between June 1, 2011, and June 30, 2013, and that UUDIS identified as critical. These critical shortages were a subset of the total number of shortages reported during this time. Specifically, these 219 shortages represented 57 percent of the 382 shortages reported between June 1, 2011, and June 30, 2013. UUDIS identified these shortages as critical because alternative medications were unavailable, the shortages affected multiple manufacturers, or it received multiple reports from different institutions. For these critical shortages, we obtained drug shortage bulletins created by UUDIS, which contain the national drug codes (NDC) associated with each shortage. Using these NDCs, we analyzed Red Book data to determine the product types, routes of administration, and therapeutic classes of the critical shortages. We reviewed all UUDIS data for reasonableness, outliers, and consistency, and determined that the data were sufficiently reliable for our purposes. To examine the causes of recent drug shortages, we conducted a structured search of research databases using various combinations of relevant search terms including, “drug”, “shortage”, “supply”, “medication”, and “generic” to identify any literature published from January 1, 2003, through June 30, 2013, that reported on the causes of drug shortages. We then reviewed the abstracts for 714 articles and the full-text of 176 of those articles to determine whether they addressed the causes of drug shortages and met our inclusion criteria. Our inclusion criteria included journal articles and government publications, as well as policy briefs or papers, in which the causes of drug shortages were examined through the presentation of original research. Because there is not a large volume of peer-reviewed literature that incorporates original research, we also included articles that provided an in-depth discussion of the causes of drug shortages. However, we excluded editorials and news wire articles from our review. Finally, we included directly relevant studies to which we were referred by stakeholders, but which did not appear in our initial search. Based on these steps, we identified 20 articles that were published between March 1, 2005, and March 31, 2013, and then summarized the causes of shortages on which these articles reported.While our search criteria were for shortages of all drug types, the majority of the articles we identified were focused on generic sterile injectables, which have frequently been in shortage in recent years. For the purposes of reporting on our literature review, we identified and summarized the causes frequently discussed in the literature and did not list all topics mentioned in each article we reviewed. Some causes that were mentioned only sparingly in the literature were not included in our review. American Society of Health-System Pharmacists. “ASHP Guidelines on Managing Drug Product Shortages in Hospitals and Health Systems.” American Journal of Health-System Pharmacy, vol. 66, no.15 (2009): 1399-1406. Balkhi, B., L. Araujo-Lama, E. Seoane-Vazquez, R. Rodriguez-Monguio, S. L. Szeinbach, and E. R. Fox. “Shortages of Systemic Antibiotics in the U.S.A.: How Long Can We Wait?” Journal of Pharmaceutical Health Services Research, vol. 4, no. 1 (2013): 13-17. Born, K. “Time and Money: An Analysis of the Legislative Efforts to Address the Prescription Drug Shortage Crisis in America.” The Journal of Legal Medicine, vol. 33, no. 2 (2012): 235-251. Department of Health and Human Services. Office of the Assistant Secretary for Planning and Evaluation, Economic Analysis of the Causes of Drug Shortages. Washington, D.C.: October 2011. Department of Health and Human Services. Food and Drug Administration. A Review of FDA’s Approach to Medical Product Shortages. Silver Spring, Md: October 2011. Dorsey, E. R., J. P. Thompson, E. J. Dayoub, B. George, L. A. Saubermann, and R. G. Holloway. “Selegiline Shortage: Causes and Costs of a Generic Drug Shortage.” Neurology, vol. 73, no. 3 (2009): 213- 217. Gatesman, M. L., and T.J. Smith. “The Shortage of Essential Chemotherapy Drugs in the United States.” The New England Journal of Medicine, vol. 365, no. 18 (2011): 1653-1655. Gehrett, B. K. “A Prescription for Drug Shortages.” JAMA: The Journal of the American Medical Association, vol. 307, no. 2 (2012): 153-154. Graham, John. R. The Shortage of Generic Sterile Injectable Drugs: Diagnosis and Solutions. Midland, Mich.: Mackinac Center for Public Policy, June 2012. Griffith, M. M., A. E. Gross; S.H. Sutton, M.K. Bolon. J. S. Esterly, J. A. Patel, M. J. Postelnick, T. R. Zembower, and M. H. Scheetz. “The Impact of Anti-infective Drug Shortages on Hospitals in the United States: Trends and Causes.” Clinical Infectious Diseases, vol. 54, no. 5 (2012): 684-691. Hoffman, S. “The Drugs Stop Here: A Public Framework to Address the Drug Shortage Crisis.” Food and Drug Law Journal, vol. 67, no. 1 (2012): 1-22. Jensen, V., R. Kimzey, and J. Saliba. “An Overview of the FDA’s Drug Shortage Program.” Pharmacy and Therapeutics, vol. 30, no. 3 (2005): 174-175 & 177. Jensen, V., and B. A. Rappaport. “The Reality of Drug Shortages—The Case of the Injectable Agent Propofol.” The New England Journal of Medicine, vol. 363, no. 9 (2010): 806-807. Johnson, P. J. “The Ongoing Drug Shortage Problem Affecting the NICU.” Neonatal Network, vol. 31, no. 5 (2012): 323-327. Kweder, S.L., and S. Dill. “Drug Shortages: The Cycle of Quantity and Quality.” Clinical Pharmacology & Therapeutics, vol. 93, no. 3 (2013): 245-251. Schweitzer, S. O. “How the U.S. Food and Drug Administration Can Solve the Prescription Drug Shortage Problem.” American Journal of Public Health, vol. 103, no. 5 (2013): e10-e14. U.S. House of Representatives. Committee on Oversight and Government Reform. Staff Report. “FDA’s Contribution to the Drug Shortage Crisis.” (Washington, D.C.: June 2012). Ventola, C. L. “The Drug Shortage Crisis in the United States: Causes, Impact, and Management Strategies.” Pharmacy and Therapeutics, vol. 36, no.11 (2011): 740-742 & 749-757. Woodcock, J., and M. Wosinska. “Economic and Technological Drivers of Generic Sterile Injectable Drug Shortages.” Clinical Pharmacology & Therapeutics, vol. 93, no. 2 (2013): 170-176. Yurukoglu, A. “Medicare Reimbursements and Shortages of Sterile Injectable Pharmaceuticals.” National Bureau of Economic Research Working Paper No.17987 (2012). We also interviewed, and in some cases, obtained written responses from, manufacturers and group purchasing organizations (GPO) regarding the causes of drug shortages identified through our literature review because the reported causes we identified were related to the role that these stakeholders have in the drug supply chain. We interviewed three leading national associations representing drug manufacturers, both brand-name and generic, and five generic sterile injectable manufacturers. Specifically, we selected the top three manufacturers of generic sterile injectables between 2010 and 2012. We also selected two additional manufacturers, which were among the manufacturers associated with the highest number of shortages, according to a 2011 report by the IMS Institute for Healthcare Informatics. We provided manufacturers and manufacturer associations with a list of potential causes based on our review of the literature and asked them to comment on each cause either through interviews or in writing. Finally, we selected the three largest GPOs based on their self-reported purchasing volume in fiscal year 2011 and asked each to comment on causes in writing. We also analyzed FDA data on the reported causes of shortages for all shortages that it was notified about from January 1, 2011, through June 30, 2013. All data came from the database that FDA has developed to track shortages and reflects information reported by manufacturers to FDA that is subsequently analyzed and categorized by the agency. FDA defines a shortage as when the total supply of a drug and any pharmaceutical equivalents is inadequate to meet demand. FDA’s definition of a shortage differs from UUDIS’ and UUDIS also tracks shortages that do not meet FDA’s definition of a shortage. For example, according to FDA officials, UUDIS will track shortages that only affect one manufacturer, even if other manufacturers of the same drug have supply available. FDA, however, will not consider such a situation to be a shortage if the other manufacturers that can supply the drug can meet national demand. We interviewed FDA Drug Shortages Staff about the data and reviewed it for reasonableness, outliers, and consistency, and for our purposes, we determined that the data were sufficiently reliable. 2. Novation, LLC 3. Premier, Inc. In the event of a drug shortage, providers who are unable to obtain drugs from their regular wholesale distributors may resort to purchasing drugs through distribution channels that were not authorized by the manufacturer, referred to as the gray market. Gray market suppliers typically obtain small quantities of a drug that is in short supply and offer it for purchase at an inflated price. Because the origin of gray market drugs may be unknown, there is no guarantee of the drug’s pedigree or assurance that it was stored and transported appropriately, potentially putting patients at risk. This appendix describes steps federal agencies have taken in response to activities associated with the gray market for shortage drugs. To identify steps that federal agencies have taken, we interviewed officials from FDA, the Department of Justice (DOJ), and the Federal Trade Commission (FTC); reviewed federal laws and regulations, including an Executive Order on reducing prescription drug shortages issued on October 31, 2011; and examined agency documents. Among other things, the October 31, 2011, drug shortages Executive Order directed FDA to communicate to DOJ any findings by FDA that shortages have led market participants to stockpile shortage drugs or sell them at exorbitant prices. The Executive Order also directed DOJ to determine whether these activities violate federal law, and if so, to take appropriate enforcement actions. 21 U.S.C. § 355e. Counterfeit drugs, which are defined in law at 21 U.S.C. § 321(g)(2), include, for example, those sold under a product name without proper authorization— where the drug is mislabeled in a way that suggests that it is the authentic and approved product—as well as unauthorized generic versions of FDA-approved drugs that mimic trademarked elements of such drugs. Diverted drugs are legitimate drugs that are illegally bought, sold, or otherwise circulated outside of the legal distribution system that has been established to ensure safety and quality. Diversion can involve such activities as illegal sales of prescription drugs by physicians, patients, or pharmacists; prescription forgery; or pharmacy theft. drugs that violate FDCA requirements. DOJ, often in consultation with FDA, may bring civil and criminal actions for such violations. FTC and DOJ’s Antitrust Division are responsible for enforcing federal antitrust laws, which are designed to preserve and protect market competition. Federal Trade Commission Act, and the Clayton Act. The Sherman Act, enforced by DOJ, prohibits monopolization and restraints of trade, and civil and criminal penalties may be imposed for violations of the act. The Federal Trade Commission Act, enforced by FTC, bans unfair methods of competition and unfair or deceptive acts or practices. For example, collusion by drug manufacturers to set prices may violate both the Sherman Act and the Federal Trade Commission Act. The Clayton Act, jointly enforced by DOJ and FTC, regulates mergers and acquisitions and prohibits those that may substantially lessen competition or create a monopoly and are, therefore, likely to increase prices for consumers.The Federal Trade Commission Act and Clayton Act are civil statutes that do not carry criminal penalties. FTC only has the authority to investigate civil antitrust cases. If the case is criminal in nature, FTC refers it to DOJ. activities. This includes, for example, the mail fraud statute, which makes it a crime to use the U.S. mail to commit a fraud, such as facilitating the sale of a shortage drug with a fake pedigree through the U.S. mail. Consistent with the October 31, 2011, Executive Order on drug shortages, three federal agencies—FDA, DOJ, and FTC—review information concerning possible gray market sales of shortage drugs from a number of sources and have taken other steps to respond to relevant directives contained in the order.agencies told us that their authorities in relation to the gray market are limited. They explained that the selling of shortage drugs by suppliers not authorized by the manufacturer alone, even at exorbitant prices, does not itself violate federal law. Though gray market sales may violate agreements between manufacturers and wholesale distributors, such sales may not violate federal law unless they are made outside the legal distribution system. As a result, there have been no prosecutions or enforcement actions taken by federal agencies solely on the basis of gray market activities. Yet officials from all three federal FDA has compiled gray market solicitations into quarterly reports that it shares with DOJ as part of its response to the Executive Order’s directive to communicate findings that shortages have led to the stockpiling or sale of shortage drugs at exorbitant prices. From January 2012—when FDA first began providing this information to DOJ—through October 2013, FDA shared information on solicitations from 26 different wholesale distributors. According to FDA officials, these solicitations typically originate as e-mails to providers containing advertisements that list the drugs for sale and, in some cases, the prices, which the providers then forward to FDA. FDA officials said that some of the gray market solicitations were for sterile injectables in shortage, including drugs related to cancer treatment, emergency medicine, antibiotics, and nutritive products. For example, one solicitation stated that a wholesale distributor was offering an intravenous multi-vitamin for $785, when the average wholesale price for that same vitamin was $8.61. FDA officials told us that they review the solicitations to determine whether they violate the FDCA, such as a wholesale distributor making false claims about a drug or diverting a drug outside the legal distribution system. FDA has opened a number of investigations in relation to the solicitations to examine whether counterfeiting or diversion had occurred, but did not identify any illegal activity. For example, when the anesthetic propofol was in shortage, FDA did not object to the temporary importation of an unapproved version of the drug, but limited distribution to the manufacturer of the drug. However, in January 2010 FDA initiated two investigations related to complaints that the imported drug was being distributed by wholesale distributors, rather than the manufacturer. In both cases, FDA could not substantiate a criminal violation, so it closed the investigations. FDA officials told us that the FDCA does not prohibit hoarding or stockpiling of shortage drugs or regulate drug pricing. As a result, as of December 2013, FDA had not taken any enforcement action related to the gray market solicitations they reviewed, but had provided information from the solicitations to DOJ. Officials from DOJ told us that, as required by the Executive Order, they review FDA’s quarterly reports for information that could indicate the drug listed was diverted for illegal purposes. For example, DOJ considers whether there is evidence of use of fake pedigrees in violation of the FDCA. DOJ officials noted that the solicitations listed in the quarterly reports sometimes indicate that a drug is being sold for a higher-than- normal price; however, selling drugs at elevated prices alone is not illegal. Such sales may be illegal, for example, if the drugs are bought and sold through diversion from the legal distribution system. DOJ officials told us that as of November 2013, DOJ had not launched any investigations or taken any enforcement actions based on the solicitations listed in the quarterly reports, because, according to DOJ officials, the reports have not indicated that any solicitation was unlawful. According to DOJ officials, based on information obtained separately from the quarterly reports, the agency has launched at least one investigation into activity in which there are indications of the illegal sales of shortage drugs through diversion. FTC staff told us they investigate complaints about the gray market received from the public, as well as complaints referred to them by FDA and Congress, to determine whether an antitrust investigation is warranted. FTC receives complaints from the public through a toll-free telephone number, an email address, and through the U.S. mail.staff told us that they review these complaints to determine whether there is enough information, such as evidence that the company is engaging in any coordinated antitrust behavior in violation of the Federal Trade Commission Act or the Clayton Act, to warrant an investigation. According to FTC staff, as of November 2013 they had not launched any full-phase investigations or taken any enforcement actions related to the pharmaceutical gray market. Though not a full-phase investigation, FTC staff told us that in the fall of 2011 they conducted an initial investigation to determine whether wholesale distributors or other parties were engaged in any conduct that violated federal antitrust laws, such as colluding to hoard drugs in shortage and then selling the drugs at higher FTC prices. However, they were unable to find any evidence that widespread hoarding was occurring. Instead, they found cases where a single wholesale distributor acting alone would buy a few vials of a shortage drug and then sell it at a higher price—a practice that is not illegal. In addition, in response to the Executive Order, federal agencies have worked together in an attempt to respond to gray market activities. In 2012, FDA, DOJ, FTC, and the National Association of Attorneys General convened three meetings to discuss the legal authorities that might apply to the gray market and the activities that each was undertaking related to this issue. Officials told us that in the future, they will meet on an “as needed” basis. FDA officials told us that the agency is considering whether additional legal authorities to help address the pharmaceutical gray market and secure the drug supply chain would be beneficial. Such authorities may include registration and reporting requirements for wholesale distributors, potential prohibitions on wholesale distributors purchasing products from pharmacies, and pedigree and track-and-trace options. FDA officials also noted that gray markets do not cause shortages, but are a symptom of such shortages. To the extent that FDA and other stakeholders address drug shortages, opportunities for gray markets to develop will become more limited. DOJ officials told us that DOJ does not have the authority to address drug pricing and stockpiling of drugs per se, but noted that the agency does have the authority to prosecute suppliers operating outside of the legal distribution system, regardless of the drug’s shortage status or price. Officials did not take a position as to whether additional authority over drug stockpiling and exorbitant pricing is necessary. FTC staff told us that they do not believe additional FTC authority in relation to the pharmaceutical gray market is necessary. They stated that the FTC’s existing enforcement authority would be adequate to take action in relation to the inflated pricing of a shortage drug if such pricing was a consequence of anticompetitive conduct. If, however, the inflated pricing resulted from factors other than anticompetitive conduct, assessment of such issues would be outside the scope of the FTC’s competition expertise. Some have suggested that incentivizing drug manufacturers to address the purported causes of drug shortages could alleviate or prevent such shortages. Proposed incentives include those related to regulatory activities undertaken by FDA or financial incentives that the federal government could provide to manufacturers. Some incentives target immediate causes of drug shortages, such as by rewarding manufacturers for a strong quality record, thereby reducing the likelihood of quality-related supply disruptions, or by increasing redundancy in drug supply chains. Other proposed incentives target underlying causes, such as by increasing manufacturer revenue in order to encourage manufacturers to remain in the market and continue investments in production facilities. In February 2013, FDA published a notice in the Federal Register with a request for comment about its drug shortages task force and strategic plan. Two of FDA’s questions related to incentives: 1c. Are there incentives that FDA can provide to encourage manufacturers to establish and maintain high-quality manufacturing practices, to develop redundancy in manufacturing operations, to expand capacity, and/or to create other conditions to prevent or mitigate shortages? and 2. In our work to prevent shortages of drugs and biological products, FDA regularly engages with other U.S. Government Agencies. Are there incentives these Agencies can provide, separately or in partnership with FDA, to prevent shortages? 78 Fed. Reg. 9928 (Feb. 12, 2013). manufacturer and association representatives and to FDA for comment. We obtained comments from three leading national associations representing drug manufacturers, both brand and generic, and five generic sterile injectable manufacturers. For one incentive related to exempting certain products from Medicaid rebates and 340B discounts, we also obtained comments from relevant stakeholder groups whose members would be affected by this exemption. Expedited and streamlined reviews: Most of the comments submitted by manufacturers in response to FDA’s request for comment proposed expediting or streamlining FDA review of regulatory submissions. Submissions that could be expedited included application supplements related to the approval of redundant manufacturing sites or new drug applications (NDA) or abbreviated new drug applications (ANDA) from manufacturers with a record of quality manufacturing and an adequate risk management plan to prevent shortages.June 30, 2013, there were more than 900 manufacturing supplements to NDAs, more than 5,700 manufacturing and chemistry supplements to ANDAs, and more than 2,700 ANDAs pending review. Therefore, proponents of expediting FDA review of regulatory submissions— including applications and supplements—note that increasing the speed of such reviews could provide an incentive to manufacturers to establish redundant manufacturing capacity to which production could be shifted in the event of manufacturing problems at a primary production facility, thereby avoiding a shortage. Further, by rewarding manufacturers with a history of quality manufacturing, expediting reviews could provide an According to FDA, as of incentive to ensure quality-related production problems—and ensuing shortages—do not occur in the first place. While representatives of the stakeholders we interviewed were generally supportive of this potential incentive, they also identified some limitations. One stakeholder cautioned that the resource-intensive nature of building in redundancy means it is a long-term solution, the implementation of which could hinder efforts to address current shortages. Another stakeholder noted that maintaining redundant manufacturing capacity is expensive and that expedited review alone may not provide enough of an incentive to establish such capacity. FDA officials noted that expediting reviews of regulatory submissions is a tool the agency already uses to address shortages. However, FDA officials cautioned that expanding the pool of submissions eligible for expedited review, without regard to the risk of shortage, could slow down review of all submissions and make expediting reviews meaningless. Representatives from one stakeholder echoed this concern, noting that, though faster than standard review times, in their experience there is already a backlog for review of supplements that have been expedited to address current shortages. Representatives from this stakeholder noted that without additional FDA resources devoted to the review of applications and supplements, making additional regulatory submissions eligible for expedited review would be problematic. FDA officials also noted that, although redundancy can help prevent a shortage if production stops, many shortages are the result of production disruptions driven by failures in manufacturing quality systems. Therefore, FDA officials told us that it is more important to prioritize incentives to improve manufacturing quality systems over those that expand capacity. To that end, as part of its drug shortages strategic plan goal to develop long-term prevention strategies in order to prevent shortages, FDA states that it will continue to expedite reviews to mitigate shortages, including the review of submissions for facility upgrades to improve quality. Flexibility in meeting regulatory requirements: A few manufacturers proposed that FDA could allow for flexibility in meeting regulatory requirements for manufacturers with a strong history of compliance with current good manufacturing practice regulations or robust risk management plans to prevent shortages. For example, they suggest that FDA could reduce the level of agency review for such change notifications as manufacturing site transfers, if the manufacturer had a history of production without quality issues. When proposing such incentives, supporters commented that, as it could allow manufacturers to implement manufacturing changes more quickly, reducing the level of agency review could provide an incentive for quality production. Incentivizing quality production could thus reduce the likelihood of a quality-related supply disruption and shortage. One stakeholder generally supported this approach, as long as all manufacturers were still held to the same standards and any change in requirements was accompanied by FDA guidance on the new approach. FDA officials told us that the agency has issued guidance documents to help identify types of changes after an application is approved that represent a lower risk. They added that the agency is currently exploring new approaches to the review of application products. To ensure that drugs are produced in conformance with federal statutes and regulations, including good manufacturing practice regulations, FDA may inspect the establishments where drugs are manufactured. We previously reported that FDA inspected domestic drug manufacturing establishments about once every 2.5 years and generally inspected foreign manufacturing establishments much less frequently. In part, this difference in frequency of inspection was due to the fact that, at the time, FDA was required to inspect every 2 years those domestic establishments that manufacture drugs in the United States, but there was no comparable requirement for inspecting foreign establishments. GAO, Drug Safety: FDA Has Conducted More Foreign Inspections and Begun to Improve Its Information on Foreign Establishments, but More Progress is Needed, GAO-10-961 (Washington, D.C.: Sept. 30, 2010). respond to issues raised by the FDA investigator conducting the inspection and in terms of production disruptions caused by the inspection itself. As it could reduce costs and disruptions for the manufacturer, if carefully designed so that manufacturers would still be inspected with some frequency, increasing the interval between inspections may provide an additional incentive for compliance with good manufacturing practices, which could reduce the likelihood of manufacturing quality issues and resultant shortages. One stakeholder commented that decreasing inspection frequency could be an effective incentive in the long term, but at present, frequent inspections set a high bar for manufacturers in this industry. FDA officials noted that the agency already considers compliance history as a major factor when determining the frequency of inspection of a manufacturing site. Further, in response to new Food and Drug Administration Safety and Innovation Act (FDASIA) authority, the agency is in the process of establishing a risk- based inspection schedule for all establishments. FDA officials told us that they are considering incorporating additional factors, such as process performance metrics and shortage performance, into their selection model. Transparency regarding compliance status of manufacturing sites: In documents submitted in response to FDA’s request for comment, a few manufacturers proposed increasing the transparency of manufacturing establishment compliance status such as by assigning site scores or an FDA stamp of approval, which could help those engaged in drug purchasing and drug pricing negotiations—including providers, group purchasing organizations, insurers, and consumers—make informed purchasing and pricing decisions. Proponents of this approach suggest that FDA’s provision of such quality metrics could make additional information publicly available for consideration in making purchasing and pricing decisions, thereby giving manufacturers an additional incentive for the highest quality production and making quality-related supply disruptions less likely to occur. Representatives from the stakeholders we spoke with were generally skeptical of this approach. One noted that providers and group purchasing organizations—which are the primary decision makers for sterile injectable purchases, where shortages have recently been concentrated—assume that quality is built in to any FDA-approved drug and may not be able to readily interpret quality metrics. Representatives from one stakeholder told us that FDA has spent extensive time and effort educating prescribers and the public that there is one quality standard for all FDA-approved drugs and that, from this stakeholder’s perspective, further differentiating quality with ratings would diminish confidence in the nation’s drug supply and lead to confusion and mistrust. Representatives from another stakeholder expressed skepticism that the market would respond to such information by allowing for higher prices. Likewise, representatives from multiple stakeholders noted that information about FDA inspections of manufacturing establishments and warning letters are already available online and are presumably already used when making purchasing and pricing decisions. FDA officials confirmed that they currently provide information on the compliance status of manufacturing sites on the agency’s website and added that they are looking for new ways to provide transparency in this area. They cautioned that there are significant questions and issues regarding how to provide more transparent compliance information to the public, such as the fact that FDA cannot disclose either confidential commercial information or trade secret information. Nevertheless, as part of its drug shortages strategic plan goal to develop long-term strategies in order to prevent shortages, FDA states that it is examining the broader use of quality metrics to assist in the evaluation of manufacturing quality. However, the plan also notes that although FDA can make quality information available to the public, including inspection outcomes, recalls, and shortages, buyers ultimately decide whether they will use these data when making purchasing decisions. Guaranteed purchase: A few manufacturers proposed that the federal government guarantee the purchase of a given volume of certain drugs. This would allow manufacturers to ensure capacity for a given production volume regardless of whether there is sufficient market demand. Representatives from one stakeholder that supported this proposal told us that such an incentive might bring more predictability to both the volume of product made and product margins. In turn, this guarantee could create some predictability in a manufacturer’s ability to invest in their facilities, resulting in continued high quality and compliant production. One stakeholder noted that such an incentive may be useful in terms of ensuring the availability of future capacity, but at present would not be an effective tool to address shortages as there is simply no excess capacity available even if the government could guarantee purchase volume. FDA officials noted that establishing such a program would be challenging. For example, identifying a list of drugs eligible for guaranteed purchase would be difficult, because it is hard to predict which drugs are vulnerable to shortage in advance and the particular drugs at risk of shortage may change rapidly. Reduction in fees: Both recently-introduced federal legislation and some manufacturers proposed reducing manufacturer fees to help alleviate or prevent drug shortages. As introduced in the 112th Congress, H.R. 6611 proposed exempting certain drugs from the annual branded prescription drug fee established by the Patient Protection and Affordable Care Act in order to provide an incentive for brand-name drug manufacturers to enter the market to produce a drug in short supply. Proponents of this approach state that a reduction in the annual branded prescription drug fee could induce brand-name companies to re-enter the market. One stakeholder also noted that brand-name manufacturers may have more idle capacity than generic manufacturers, so encouraging them to re- enter a market could be effective in addressing shortages. A few manufacturers proposed a reduction in or waiver of various user fees if the manufacturer demonstrates that they have built redundant capacity into their manufacturing plan.reductions noted that building redundancy into a manufacturing plan is resource intensive and that a fee reduction to help offset these costs could incentivize manufacturers to build redundancy which could help prevent supply disruptions. At the same time, one stakeholder that supported this approach noted that, though user fees add up, reducing such fees would not make a large enough economic difference to impact a manufacturer’s decision to enter or exit a market. FDA officials first noted that any changes to the user fee structure would have to be negotiated with industry and then enacted by Congress. They stated that, although the agency is open to using user fees as a way to prevent shortages and encourage manufacturers to help address a shortage that does arise, there are some uncertainties about doing this. For example, definitions of redundancy are unclear and mechanisms ensuring redundant capacity is not repurposed would need to be developed and enforced. Finally, FDA officials also cautioned that reducing or waiving fees for certain manufacturers could increase fees on other manufacturers. This is because the total amount of user fees FDA collects is fixed in statute and the annual fees assessed against individual manufacturers are determined by dividing the fixed statutory amount by the forecasted number of fee-paying entities. As a result, elimination of, or a reduction in, fees for some parties would effectively transfer these costs to the remaining fee-paying entities. Tax incentives: In order to offset the costs of such investment, some manufacturers proposed tax credits targeted to manufacturers that invest in redundant manufacturing capacity. Multiple stakeholders noted that, given the significant costs associated with new manufacturing establishments, such an incentive would only be effective for manufacturers that already operated such establishments. Representatives from one stakeholder noted that the time, resources, and approvals to create a new manufacturing site are likely to take more than 3 years with associated costs totaling tens of millions of dollars. Therefore, tax credits are a strong incentive for companies to re-invest in existing infrastructure, not necessarily to create new infrastructure. FDA officials told us that modernizing existing facilities to prevent quality and safety issues that lead to shortages can go a long way to prevent shortages even in a system with little redundancy. They noted that such incentives would need to encourage manufacturers to purchase new equipment, renovate facilities, and implement new manufacturing processes and technologies. Changes in drug pricing or reimbursement: As introduced in the 112th Congress, H.R. 6611 proposed changing the reimbursement rate or pricing system for generic sterile injectable products for which there are three or fewer active manufacturers. Such changes are intended to prevent shortages by providing an incentive to manufacturers to continue production in a concentrated market. Specifically, the bill proposed changing the calculation of the Medicare reimbursement rate for generic sterile injectable products for which there are three or fewer active manufacturers from average sales price plus 6 percent to wholesale acquisition cost. It would also exempt such products from Medicaid rebates and 340B discounts. The premise of the Medicare reimbursement change proposal is that basing reimbursement on wholesale acquisition cost will enable manufacturers to adjust their prices to meet supply and demand, which some claim the current reimbursement structure prevents.manufacturers to more readily adjust their prices and achieve a profit, this proposal aims to provide an incentive for manufacturers to remain in the market, thereby preventing further erosion of manufacturing capacity, which could make the generic sterile injectable market even more vulnerable to shortages. Proponents note that this incentive could positively affect manufacturer profit and influence a manufacturer’s decision about participating in the market for a particular drug. One stakeholder cautioned that, in their opinion, using reimbursement as an incentive increases the risk of fraud and abuse. The premise of the Medicaid rebate and 340B discount exemptions proposal is that such rebates exert additional downward pressure on already extremely low prices, thereby limiting manufacturers’ ability to sustain production and upgrade facilities. Removing such rebates and discounts would provide additional revenue to manufacturers, thereby potentially providing them an incentive to remain in the market and maintain manufacturing capacity or to re-enter the market. Proponents state that this incentive may help influence manufacturer margins, thereby providing revenue to invest in production capacity to ensure demand is met. However, some stakeholders caution that these exemptions would increase costs to patients and the government (including increasing drug costs and administrative costs to the government for tracking such an exemption). Representatives from one stakeholder group we interviewed noted that, according to its inquiries, the majority of generic sterile injectable drugs are manufactured by three or fewer manufacturers, in which case nearly all such drugs would be subject to this exemption, whether the drug had ever been in shortage or not. Further, stakeholders noted that generic sterile injectable drugs are often administered in hospital inpatient departments and are therefore not subject to Medicaid rebates, which only apply to outpatient drugs. One stakeholder stated that for the few drugs in this group that are subject to Medicaid rebates, the cost of these drugs is already low, which would result in a minimal financial impact of such an exemption. Finally, one stakeholder stated that 340B discount exemptions would have a minimal influence on drug shortages. In addition to the contact named above, Geri Redican-Bigott, Assistant Director; Katherine L. Amoroso; Zhi Boon; Leia Dickerson; Sandra George; Alison Goetsch; Cathleen Hamann; Rebecca Hendrickson; Eagan Kemp; Sarah-Lynn McGrath; Yesook Merrill; and Leslie Powell made key contributions to this report. Drug Compounding: Clear Authority and More Reliable Data Needed to Strengthen FDA Oversight. GAO-13-702. Washington, D.C.: July 31, 2013. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 2013. Drug Shortages: FDA’s Ability to Respond Should Be Strengthened. GAO-12-315T. Washington, D.C.: December 15, 2011. Drug Shortages: FDA’s Ability to Respond Should Be Strengthened. GAO-12-116. Washington, D.C.: November 21, 2011. Drug Safety: FDA Faces Challenges Overseeing the Foreign Drug Manufacturing Supply Chain. GAO-11-936T. Washington, D.C.: September 14, 2011. Food and Drug Administration: Response to Heparin Contamination Helped Protect Public Health; Controls That Were Needed for Working With External Entities Were Recently Added. GAO-11-95. Washington, D.C.: October 29, 2010. Food and Drug Administration: Opportunities Exist to Better Address Management Challenges. GAO-10-279. Washington, D.C.: February 19, 2010. Food and Drug Administration: FDA Faces Challenges Meeting Its Growing Medical Product Responsibilities and Should Develop Complete Estimates of Its Resource Needs. GAO-09-581. Washington, D.C.: June 19, 2009. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Standards for Internal Control in the Federal Government. GAO/AIMD-00-21.3.1 Washington, D.C.: November 1999.

Summary: From prolonged duration of a disease, to permanent injury, to death, drug shortages have led to harmful patient outcomes. FDA—an agency within the Department of Health and Human Services (HHS)—is responsible for protecting public health and works to prevent, alleviate, and resolve shortages. In 2011, GAO recommended that FDA should enhance its ability to respond to shortages. In 2012, FDASIA gave FDA new authorities to improve its responsiveness and mandated GAO to study drug shortages. In this report, GAO (1) reviews the trends in recent drug shortages and describes what is known about their effect on patients and providers; (2) examines the causes of drug shortages; and (3) evaluates the progress FDA has made in addressing drug shortages. GAO analyzed data from FDA and the University of Utah Drug Information Service, which is generally regarded as the most comprehensive source of drug shortage information for the time period we reviewed. GAO interviewed officials from FDA and other federal agencies, organizations representing patients and providers, and drug manufacturers. GAO also reviewed the literature, relevant statutes, regulations, and documents. The number of drug shortages remains high. Although reports of new drug shortages declined in 2012, the total number of shortages active during a given year—including both new shortages reported and ongoing shortages that began in a prior year—has increased since 2007. Many shortages are of generic sterile injectable drugs. Provider association representatives reported that drug shortages may force providers to ration care or rely on less effective drugs. The immediate cause of drug shortages can generally be traced to a manufacturer halting or slowing production to address quality problems, triggering a supply disruption. Other manufacturers have a limited ability to respond to supply disruptions due to constrained manufacturing capacity. GAO's analysis of data from the Food and Drug Administration (FDA) also showed that quality problems were a frequent cause. GAO also identified potential underlying causes specific to the economics of the generic sterile injectable drug market, such as that low profit margins have limited infrastructure investments or led some manufacturers to exit the market. While shortages have persisted, FDA has prevented more potential shortages in the last 2 years by improving its responsiveness. Among other things, FDA implemented Food and Drug Administration Safety and Innovation Act (FDASIA) requirements and recommendations GAO made in 2011. FDA has also initiated other steps to improve its response to shortages, such as developing procedures to enhance coordination between headquarters and field staff. However, there are shortcomings in its management of drug shortage data that are inconsistent with internal control standards. For example, FDA has not created policies or procedures governing the management of the data and does not perform routine quality checks on its data. Such shortcomings could ultimately hinder FDA's efforts to understand the causes of specific shortages as well as undermine its efforts to prevent them from occurring. In addition, FDA has not conducted routine analyses of the data to proactively identify and evaluate the risks of drug shortages. FDA should strengthen its internal controls over its drug shortage data and conduct periodic analyses to routinely and systematically assess drug shortage information, using this information to proactively identify drug shortage risk factors. HHS agreed with GAO's recommendations.