Transcript: Drug shortages Q&A by Sen. Orrin Hatch

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. Orrin Hatch (R-Utah):


Sen. Orrin Hatch (R-Utah):

“We’re delighted to have all of you here and to have your testimony. But let me just ask this question. Since the government indirectly impacts drug pricing through reimbursements to providers, if we raise reimbursement for drug acquisition, how will we know the profits will ultimately reach the manufacturers to spur additional investments?

“I’ll start with you, doctor, and anybody else who’d care to remark about it.”

 

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

“Sir, I don’t know if I have a great answer to that question. We’ve really looked at over the last 10 years a lot of the manufacturing drivers that have influenced shortages and have been very interested in the new economic arguments that have resulted. So perhaps I’ll pass that question on to others who might be able to more…”

 


Sen. Orrin Hatch (R-Utah):

“All right, anybody else care to take a crack at that?”

 

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

“This is a very competitive market and if the manufacturers have the capabilities to take price increases, they will. The only way if you allow the ASP [average sales price] to become unbundled, if you will, or it isn’t sticky anymore, the only way for that price to ultimately be reflected on the market place is for the manufacturers to take price a increase which ultimately flows to what the doctor gets reimbursed or provider gets reimbursed for administering that drug. But if you look at the other entities that are in the supply chain, it’s also very highly competitive – if you look at the GPOs and the other PPMs that handle these specialty pharma companies. So there’s no reason to believe that they’re going to be able to capture that margin. It’s going to flow back to the manufacturers.”

 

Dr. Rena Conti, Assistant Professor of Health Policy and Economics at the University of Chicago: 

“I agree.”

 

Sen. Orrin Hatch (R-Utah): 

“Okay. Let me ask you this. While shortages are not new, they have gotten progressively worse over the past several years. Isn’t true that when reimbursement was substantially higher, we were not experiencing such severe shortages in the marketplace?”

 

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

“That is true, Senator. Back in 2003 before MMA [Medicare Modernization Act] was implemented, there were not many chemotherapy drug shortages. There’s only about three at that time. After ASP [average sales price] is implemented, prices on these drugs have plunged. For some of them they’ve dropped more than 50% for a group of 13 of those drugs. By last year, there were 23 chemotherapy drugs that were short. So that’s what led my conclusion that the root cause of this is economics and the reimbursement system that was set up by MMA for generic drugs.”

 

Dr. Rena Conti, Assistant Professor of Health Policy and Economics at the University of Chicago: 

“In addition, consolidation of generic drug industry has increased substantially over this period and that also increases the cost pressure for manufacturers to really drive down the cost, or the efficiencies, of producing these therapies and also to shift away from lower margin, low-demanded drugs to much more higher revenue potential drugs for the firm. So it’s not just the incentives on the physicians to really shift away from generic cheap drugs that they get reimbursed for but it’s also pressures on the manufacturers to produce other types of drugs.”

 

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

“That consolidation also increases risks because when you have a manufacturing problem because the manufacturing has been consolidated as well you could knock out many lines of many different drugs by taking out a single facility.

“I think there’s two sides to this equation. At the very time that we implemented policies that drove down the reimbursement for these products, over that same period of time, we implemented policies that dramatically increased the cost of productions of these products. The equation doesn’t line up anymore, if you will.

“I think as a policy matter if we want to implement tighter and more stringent regulatory scrutiny of the manufacturing products, we’re going to have to pay for it. That’s what you’ve seen in this market recently.

“I would estimate that if you look at the top five manufacturers, probably about 15% of the available manufacturing capacities are now currently offline or being remediated. Now, that’s a good component of your shortage right there.”

 

Sen. Orrin Hatch (R-Utah): 

“Thank you for this. Some have questioned the impact of changing the reimbursement for generic injectables on alleviating the drug shortages. Yet you disagree. Now this is for Dr. Cobb. You disagree as do contributors to the New England Journal of Medicine and Dr. Ezekiel Emanuel, another noted oncologist and for senior official of the Obama administration. Can you explain in more detail, Dr. Cobb, about how changes to federal reimbursement policies could create additional capacity and supply in the market for these drugs. And if anybody else would like to answer, that’ll be fine too.”

 

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

“Yes. I think one of the thoughts is that branded chemotherapy drugs have taken over the market when that’s really not the case. If you look at the unit sales of generic drugs, those have actually surpassed the sales of branded drugs. For a lot of these generic drugs that we’re talking about being short, there’s just isn’t any other alternative. I think that’s a big problem for the generic drugs. There are very few instances where you can substitute a branded one for a generic one. Sometimes that doesn’t always apply to here.”

 

Dr. Rena Conti, Assistant Professor of Health Policy and Economics at the University of Chicago: 

“I would add that shortages increase the time costs for physicians to find workarounds solutions. Those time costs do not bind equally across all providers in the marketplace. What I mean by that is community oncology practices and practices that are very limited in terms of their resources are likely going to be ones that are most affected by the shortages. They’re going to be most unable to work around a shortage or try to find another potential therapy in a short period of time to treat patients.”

 

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

“I think, you know, something else has to be looked at. You know, MMA still may just be coincidental. You have to look at – we’ve been tracking this over 10 years – that more drugs have gone off patent over a time period and made it more lucrative for manufacturers to enter other businesses.

“54% of shortages are manufacturing problems – many of these longstanding. So what we believe, in addition to looking at the impact of reimbursement, also looking at ways to provide incentives to manufacturers to get these down production lines back online and to increase capacities to produce these drugs. It’s a very important area to look at in addition to the economic factors related to reimbursement.”

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