Transcript: Drug shortages Q&A by Sen. Chuck Grassley

Senate Committee on Finance hearing on “Drug Shortages: Why They Happen and What They Mean” held on Dec. 7, 2011

Transcript of Q&A by Sen. Chuck Grassley (R-Iowa):

Sen. Chuck Grassley (R-Iowa) IMAGE SOURCE: finance.senate.gov

Sen. Chuck Grassley (R-Iowa): 

“Thank you very much. I have quite a background for one simple question. Maybe it’s not so simple – the one question I want to ask. But let me give you the background and then any or all of you that want to tackle it.

“First of all, this is a very important hearing because I have been hearing from providers back in Iowa throughout the year about our drug shortages. It’s clear that there’s a problem and I wish the solution was very clear.

“I think what we have here is a comedy of errors of well-intentioned policy leading to unintended policy outcomes. According to a recent report from the IMS, the vast majority of drugs that are on the shortage list are generics and injectables. These are drugs that would be reimbursed under the Medicare ASP system.


“The ASP system was put in place in the Medicare Modernization Act of ’03 to combat widespread pricegameship of Medicare Part B. In 2005, the Deficit Reduction Act expanded the best price rebate to Part B drugs.

“We have also seen a dramatic increase in 340B institutions in the last five years taking advantage of that low-price regime. Finally, the patent system encourages manufacturers to race into the market when the drug comes off patent and the market drives the price to the bottom.

“These well-intentioned policies to drive costs down for the government as a payer have led to very unintended policy outcomes. These policies have changed the way the market operates for generic injectable drugs.

“These drugs now operate using what is called just-in-time inventory. There’s tremendous pressure for supply to meet demand perfectly. Drugs in this case are often expensive to produce and return a very low margin. Supply is extremely sensitive to problems with aging physical plants.


“The government reimbursement system for these drugs drive the prices down but at the consequence of sensitive supply that it’s had more problems recently with shortages. I do understand the drug pricing theory and see how it can affect supply.

“What I’m hoping is that in the future, the committee will further explore specific outcomes. I’d like to have the generic manufacturers testify – like Bedford, APP, Hospira, or Teva. I’d like to hear from IMS, which tracks the drug data so precisely and produce the drug shortage report that I referenced earlier. I’d like to hear from GPOs or distributors. I’d like specifically to ask what the impact of long-term price contracts is on the supply.

“So for you witnesses is if any of you could answer this question or now respond later in writing, I’d appreciate it. My question is: I understand the theory, as I just pointed out, about how the pricing mechanism that the government puts in place can affect supply. Can you give me one specific example of a drug that’s on the current shortage list because of pricing mechanism and how that worked? I’d like to understand the real world example in practice not just in theory.”

 

Dr. Patrick Cobb, Frontier Cancer Center and Blood Institute:

“If you take the example of Carboplatin, which is a chemotherapy drug, when it came off patent and it came under the ASP model, the price of Carboplatin plummeted by more than 60%. So what happened was that you had several companies that made the drug. But as the pricing pressure came along, more and more manufacturers got out of making Carboplatin. So it was the classic race to the bottom. So all you’re left with was a few manufacturers that made the drug.

“The problem under the ASP model is that once these competitors got out, the ones that are left behind don’t have the ability to increase their prices again to make up for investments that they have to make in manufacturing because of the six month lag in when ASP is reported. If they do that, then the price of the drug becomes way over what cancer clinics like mine can make. So that’s the problem is that the manufacturers that are left can’t make increase prices to make up for their costs.”

 

Sen. Chuck Grassley (R-Iowa): 

“Anybody else have similar experience or their point of view? Anybody? Or would you like to respond in writing?”

 

Dr. Kasey Thompson, Vice President of Policy, Planning and Communications for the American Society of Health-System Pharmacists (ASHP):

“Well, I would just because say my organization tracks drug shortages that you had mentioned the discussion with pharmaceutical manufacturers, GPOs, and the wholesaling industry is a very important one to have. The categories that shortages fall under manufacturing is the biggest. Quality issue is the other. Then I-don’t-know is the other category. And you have to believe within that category, there’s a lot of economic factors that exist. I just think that the pharmaceutical industry is going to have to describe what the real solutions will be that would help them in that category.”

 

Dr. Scott Gottlieb, Resident Fellow at the American Enterprise Institute:

“The example that Dr. Cobb use, I think, is indicative of what’s happening in the market generally, which is that the cost of goods has gone up and the prices can’t adjust for that. Some of these cancer drugs, including the ones that he reference, have precious metals in them, and we know what’s happening with the precious metals market in terms of pricing. As the cost goes up, you would hope in a functional market, you could take a price increase. But once these ASPs get blown, once they get busted and driven way down, sometimes by manufacturers that get in and out of market but don’t plan to be there in any sustained period of time, you can’t raise ASP again. It’s sort of functionally impossible to bring ASP back up, even if the cost of goods rise. So manufacturers in turn end up taking losses on these kinds of products as the cost of goods go up.”

 

Sen. Chuck Grassley (R-Iowa): 

“Okay. Thank you all very much. Thank you, Mr. Chairman.”

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