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Tackling America’s Drug Shortage Crisis

By: John S Lim, PharmD Candidate c/o 2013

America’s focus on healthcare, as well as its position as one of the wealthiest nations of the industrialized world, is incongruous with the consequences of drug shortages suffered by its population. Shortages in pharmaceutical supply compromise quality of life while increasing health care costs. The pharmaceutical expenditure of the United States has increased alarmingly from just around 7% of our GDP in the 1970s to 16%1, making our health care expenditure an inexplicable outlier among similarly prosperous and developed nations. Hence it is imperative to trace the origins of drug shortages and to devise solutions to them. There are two main causes of drug shortages: a lack of incentive for generic manufacturers and the shutdown of entire product lines due to lapses in quality control. Even though one has to consider the implications of the drug shortage crisis, there are possible  solutions.

An important consequence of the drug shortage crisis is the rise in ‘gray market’ sellers. These sellers take advantage of the current shortage and mark up their prices by over 1000%. For example, a drug indicated for hypertension normally priced at $25.90 can sell for up to $1200 in these gray markets. Frequent gray market purchases can cost hospitals up to 415 million dollars annually.2 Worse, such products are not regulated—drugs sold in the gray market at 1000% mark-ups may end up having poorer quality than the batches shut down due to poor quality control.

“Why would I make propofol for 48 cents for a 20-cc vial?” asks Robert Rifkin, MD, an oncologist at the Colorado-based Rocky Mountain Cancer Centers and member of McKesson Specialty Health.3 Such questions, and the stagnant inelastic market for generics, make it inefficient to produce drugs with unsatisfactory returns. The FDA states, “54% of [drug] shortages were due to quality or manufacturing issues.”3 Absent adequate compensation, manufacturers will not produce, and more money will bleed into gray markets.

Instead of spending resources cracking down on illegal businesses, it is more effective to tackle the drug shortage crisis itself. A possible solution is a two-fold remedy that incorporates a new manufacturers’ system with increased compensation.

The first part of the remedy is to bind manufacturers together. This way, the surpluses and deficits of products from each manufacturer would offset each other, and through a subsystem of wholesalers, we can monitor and optimize medication delivery. Information gained and shared through this system would consolidate the drug market and ease its cutthroat competition. Manufacturers would be able to ‘share’ the market.

The second part of the remedy is to increase compensation. Insurance companies change the billing for medications in short supply, which billing would include an increased price for the scarce drug with delivery costs. By paying more for drugs in shortage, insurance companies and therefore patients would help jump-start the production of low profit generics.

The manufacturer-binding system, along with a change in billing, would prevent manufacturers from undercutting each other. Different drugs would be assigned to different manufacturers, with premium compensations during a shortage. Information on shortages can be shared; therefore, manufacturing profit margins will be similar across the board. A network of wholesalers shared by multiple manufacturers can provide diversification—the wholesalers would be able to purchase from different ‘parent’ manufacturers (as opposed to having one bulk supplier per product). Prompt delivery of any type of medication from the closest wholesaler would be possible, and ‘gray-vendors’ would lose business.

Even though this new manufacturer-binding system is a potential solution to ‘gray markets’ and slowdowns in generic production, the problem of quality control still remains. Jonathan Kafer, Vice President of Sales and Marketing of Teva Health Systems, said “Part of the reason why the number of shortages has spiked so much recently is the way the manufacturing process works today: if there is a problem with manufacturing one oncology drug, the drugmaker has to shut down the entire “suite” that manufactures all its oncology drugs.”3 The FDA has enforced strict guidelines designed to maintain patient safety. However, if these guidelines end up causing drug shortages, which force hospitals to look to gray vendors, perhaps some liberties can be granted so as not to defeat the purpose of regulation—patient care. A simple solution to this problem might be to increase the scope of quality control tests for drugs with limited production and higher expected rates of failure to meet standards. Instead of shutting down entire lines after discovering a faulty product, more of the product should be scrutinized to avoid wasting a possibly good product.

The drug distribution system is not perfect. Profit margins are just as important to manufacturers as the patients served. Instead of an overhaul, working with the system to increase profitability and reduce waste might help ameliorate the drug shortage crisis. With people’s lives at hand, overreacting to a problem with legal clauses is not the solution. Rather, we must strive to fix the drug shortage crisis as quickly as possible.


  1. Baker, Samuel. “U.S. National Health Spending, 2006.” http://hspm.sph.sc.edu/Courses/Econ/Classes/nhe06/ (accessed January 23, 2012).
  2. Johnson, Linda. “Hospital Drug Shortages Present Costly Crisis.” Huffpost Healthy Living. http://www.huffingtonpost.com/2011/09/24/hospital-drug-shortages_n_979173.html (accessed January 27, 2012)
  3. Frieden, Joyce. “No Easy Fix for Drug Shortage Crisis.” Medpage Today. http://www.medpagetoday.com/PublicHealthPolicy/FDAGeneral/28749 (accessed January 27, 2012).


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