Transcript of Q&A by Rep. Danny Davis on the drug shortage crisis

House Oversight and Government Reform Committee 

“Drug Shortage Crisis: Lives are in the Balance” hearing held on Nov. 30, 2011 by the Subcommittee on Health Care, District of Columbia, Census, and the National Archives

Transcript of Q&A by Rep. Danny Davis (D-Ill.):

Rep. Danny Davis (D-Ill.):

“As a member that represents over dozens of safety net hospitals in the 340B drug discount program, I am extremely concerned about the unsubstantiated suggestions linking 340B and drug shortages. It’s hard to believe that this small but critically important program is of the magnitude to affect the drug market in this way.

“Dr. Thompson, can you cite any specific evidence that the drug shortage is significantly affected by the 340B program?”


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

“Sir, in our research, we have seen no evidence to support that claim, and I personally don’t find it highly likely. The 340B program is a very small program. It makes up about 2% of the national drug market so it just doesn’t seem that likely.”


Rep. Danny Davis (D-Ill.):

“Let me ask if any of the other witnesses have any evidence that you have come into contact with or unearth that would suggest any difference?”


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

“Manufacturers feel otherwise. I mean, 340B has been significantly expanded. Drugs are starting to get diverted into that program and sold at a much lower cost to the extent that the program that we now see arbitrage in the marketplace, where hospitals are literally buying out community oncologists and other providers to try to capture the drug revenue and move it toward the hospital environment where they could earn the money on the spread for what they’re buying the drugs versus what they’re billing Medicare for.

“We’re seeing, you know, a growing proportion of the overall drug utilization to start to shift to that program. I think it creates a lot of uncertainty in the marketplace and just more impediments to people making investment decisions.

“I sympathize with the idea that we need to subsidize these hospitals. I’ve worked at some of these hospitals that are beneficiaries of this program. I wish we could find ways from a policy construct that subsidizes them directly rather than doing it indirectly by doing this sort of arbitrage on a drug revenue.”


Ted Okon, Executive Director of Community Oncology Alliance:

“I think, Mr. Davis, is first of all, the 340B program – the intent of it – is a wonderful program. What it’s meant to do, in taking care of indigent patients and patients who can’t afford care, is absolutely right-minded.

“I think we just have to keep in mind though that ASP [average sales price], because 340B discounts and Medicaid rebates as well too are not included in the calculation of the average sales price, that when we look at ASPs going down, that’s not reflective of what the manufacturers are actually paying.

“So in no way shape or form knocking 340B or Medicare or Medicaid, but I think we have to be aware that there are other pressures that press downward on the manufacturers that give upfront discounts and rebates that we just have to be aware of are actually increasing.

“If you look at the number of DISH hospitals (disproportionate share hospitals) that are qualified for 340B, it’s expanded from about 519 in 2004 and 2005 to close to [an estimated] 3,700 next year. So we just have to be aware of the impact that these discounted rebate programs are also having on ASP. That’s my point.”


Dr. Michelle Hudspeth, Division of Pediatric Hematology/Oncology of Medical University of South Carolina:

“I think it’s important to note though for children’s hospitals essentially everyone is going to be part of a DISH program. Children’s hospitals historically always serve a tremendous portion of patients who are funded by the government. So it’s important to realize the impact on kids.

“I agree with the representative from the AHSP [Dr. Kasey Thompson] comments I was reviewing, I see the rules of 2s. Two percent. 340B composes of 2% of all drugs. The other thing is if you look over the past two years, any of the drugs that have been on shortage, none of those have been on the so-called penny-pricing lists for 340B programs.”


Rep. Danny Davis (D-Ill.):

“Thank you all.

“Dr. Hudspeth, let me ask you – you mentioned earlier that your institution does not deal with gray market.”


Dr. Michelle Hudspeth: 

“That’s correct.”


Rep. Danny Davis (D-Ill.):

“Could you tell us why and the dangers that might be inherent in that kind of transaction?”


Dr. Michelle Hudspeth: 

“Absolutely. It’s been well outlined by the other folks in that you simply don’t know what you’re getting. You really have no idea to really know has the drug been stored properly? Has it expired? Does it really contain what you think it contains? With that type of uncertainty, you know, patients undergoing chemotherapy are fragile. We push them to the limit. If you then expose to something that maybe can be a different drug altogether – and maybe it’s not a drug at all – there could be real inherent dangers in that. You simply don’t know what you’re getting.”


Rep. Danny Davis (D-Ill.):

“So the risks are simply not worth the cost?”


Dr. Michelle Hudspeth:



Second Round Q&A:


Rep. Danny Davis (D-Ill.):

“Mr. Okon, you asserted in your statement that Medicare is the root cause of the drug shortage, which have affected oncology drugs. I have a recent Health and Human Services study, entitled ‘The Economic Analysis of the Causes of the Drug Shortages,’ noted that 54% of the shortages are caused by production and quality problems. What is the basis of your assertion?”


Ted Okon: 

“The FDA study that I told Mr. Murphy is absolutely, positively spot on, Mr. Davis, in terms of it being right now due to a lot of manufacturing quality and problems. But again what’s happened here is that when we changed reimbursement – and the change was really well-intended. Part of it was the fallback of the fault of the execution on the CMS’s part. But the nature of ASP and the price regulating nature around that, we just have to realize what it’s done is we’ve shrunk the manufacturing base. So when you look, Mr. Davis, of how many manufacturers were in the product, and remember these products were on the market well before MMA. So when you shrunk that down, what happens is you shrink that base, now you have a manufacturing problem, you have a regulatory problem, you have a quality problem, you have a supply problem, you have so few manufacturers that you have a huge problem associated with it. That’s why I think we’re getting so profound in terms of the number of shortages because our manufacturing base has shrunk down.

“And I applaud you, and I think you should get the manufacturers in on the generic side. We all need to come around and talk and put politics aside and just solve the crisis”.


Rep. Danny Davis (D-Ill.):

“Are you saying that the HHS is a little behind?”


Ted Okon: 

“Well, Mr. Davis, I probably am saying that HHS is a little behind. Actually, if you look at the HHS report, what is kind of interesting about that is that they started talking about the economics and then they kind of stopped. So I’m wondering if somebody edited that portion of the report out. But I think that it’s a problem.”


Rep. Danny Davis (D-Ill.):

“Dr. Thompson, how would you respond to that?”


Dr. Kasey Thompson: 

“Clearly, the FDA data is accurate and we do think the economic factors do need to be looked at. One thing that we’ve learned through over a decade of looking at shortages is that there is no single root cause of these shortages. I mean, there are 10s and 20s and they run the gamut of things.

“We’ve been very supportive of the concept of looking at the range of potential economic factors that have happened that they’re being suggested. We’ve tried to sort of get insights from manufacturers and wholesalers and GPOs and others that are really the critical part of that supply chain around what some of those may be to help solve the problem. But I think a more substantial conversation with these various groups needs to happen so we better understand what the economic drivers are.”


Rep. Danny Davis (D-Ill.):

“Let me ask if any of you are saying that our regulatory activity really need to be stepped up and to come perhaps a bit more direct?”


Walter Kalmans: 

“I like the idea of directness. One of the things that I think that’s possible here is when you’re citing manufacturing issues, you know, these issues aren’t apparently related to high-cost generic drugs. They’re having no problems making enough gencitabines and docetaxel. It’s the ones that are low-cost [produced at the] same manufacturing plants. The manufacturing issues could just be defined as capacity constraints. So I think it’s a question of how you define things as a regulator.”


Ted Okon: 

“And I just want to add to Dr. Kalmans’ remarks is that you have to understand some of these generics, we’re literally talking about $1 – under $1 – to manufacture a sterile injectable. So it’s not like stamping out a generic tablet. It’s a very intricate process.”


Rep. Danny Davis (D-Ill.):

“Well, the next time I’m talking to any of them, I’m going to suggest that maybe rather than dancing that they need to come out and say here’s what we need to do. And let’s do it. Thank you, gentlemen, very much. And thank you, Dr. Hudspeth.”



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