By Nanci Bompey

January 5, 2012

The House Energy and Commerce Committee is expected to consider both economic incentives and regulatory reforms as part of a comprehensive package aimed at stemming drug shortages, according to industry sources who are closely watching for an indication of what solutions to the drug shortage crisis could be included as part of reauthorization of the Prescription Drug User Fee Act this year. The sources said the direction the committee takes could indicate how a slew of potential legislative solutions could be narrowed down.
The majority committee staff on Energy and Commerce is interested in addressing the drug shortage problem and working on pulling both the short-term and long-term solutions together, which include both economic incentives and regulatory reforms, industry sources said. A committee spokeswoman said witnesses at a September hearing of the health subcommittee testified that "many factors contribute to drug shortages and the health subcommittee is currently working together with all involved parties in a bipartisan manner to determine the best solutions."

Many proposals to stem drug shortages have been floated during recent months as Congress and the administration have intensified their attention on the issue, with hearings being held in multiple committees in both chambers focusing on the economics of the shortages, the role of stakeholders and regulators, and possible incentives to encourage manufacturing of these drugs that are in high demand and short supply.

"I think they are all on the table. People haven't made a decision yet what that final decision looks like," the source said. "When the House comes out with their bill, it will be a good indicator of how things are narrowing down." "My sense is people are really trying to figure it out" before making a decision, the source said, adding that the most likely vehicle to move the legislation forward would be PDUFA. "Any conversations about doing something legislatively are around PDUFA rather than a standalone bill given the environment we are in."

Legislation has been introduced in both chambers to require early notification by manufacturers and other bills are aimed at curbing the so-called gray market, while Sen. Orrin Hatch (R-UT) is allegedly working on changing reimbursement of these drugs to spur investment, which has garnered attention from at least one Democrat (see FDA Week, Dec. 9)
Industry sources said Rep. John Carney (D-DE) is also working on a proposal aimed at the regulatory part of the solution, which could include ways to expedite approval of drugs in shortage. They are also waiting for action from a bipartisan group of senators focused on the issue.

In addition to Hatch's plan -- which could include exclusion of some medications from the 340B drug discount and Medicaid rebate programs, and basing reimbursement for these drugs based on wholesale acquisition cost instead of average sales price -- other economic incentives are also being discussed, including tax credits for research and development or creating manufacturing redundancy, sources said, although they added that they have not seen any language reflecting these ideas yet.
Industry sources said they are not opposed to the Hatch proposal -- which has gained significant interest in policy circles -- but expressed some concern over possible timelines, which could include a three-year exclusion of certain drugs from the drug discount and rebate programs, and CMS' average sales price formula.

"If we are focusing on stimulating investment for people to make those products, that may not be a long enough runway to make that beneficial," the source said. Erin Fox, manager at the drug information service at the University of Utah, said while the Hatch proposal might work for oncology drugs -- which have garnered increased attention recently -- these drugs only account for around 10 percent of drugs in shortage. The proposal would not help for other generic injectable drugs, that are mainly used in hospitals, which charge based on diagnosis-related groups (DRGs), adding that changing reimbursement could also have unintended consequences. In addition, Fox said the decline in availability of oncology drugs coincides with the closure in 2010 of a large plant that made many of these medications, not necessarily changes to reimbursement of these drugs.

"The numbers don't add up to support that argument," she said, noting that an HHS report on shortages also said the agency could not find a definitive link between shortages and reimbursement. "I think it's a hard argument to make that all shortages are caused by this reimbursement ... I am advocating for a careful evaluation of those reimbursement issues that will truly make a difference."

Kasey Thompson, vice president at the American Society of Health-System Pharmacists, who has raised concerns about reimbursement changes, said "people are looking at it seriously" and his group is "trying to get a better sense of if there are issues there."
Fox and Thompson said lawmakers should consider incentives to build manufacturing facilities or upgrade aging factories. Fox said quality problems have accounted for many of the shortages, and citations show that some manufacturing sites where the shortages occurred have problems with rust and mold, symptoms of aging facilities. But, she noted that these problems are not well-known publicly, making it difficult to create these types of incentives. Thompson said lawmakers should look at creating incentive structures that industry would find helpful in making decisions about manufacturing products in shortage, tracing these ideas back to the causes of the shortage, including manufacturing and quality issues.
One industry source said while tax credits may be a good idea, they may be a hard sell in Congress.

"To be honest, the struggle is creating incentives while also being cognizant of cost," one source said. "That is the struggle: How do you do something meaningful but keep it contained?"
While stakeholders await a legislative package, they agreed that increased attention on the issue by Congress and the administration has helped to drive the discussion toward a solution. In addition to an executive order in October to boost reporting of shortages and increase FDA resources, FDA last week issued a interim final rule clarifying notification requirements for sole suppliers.

Generic drug manufacturers last week also unveiled an Accelerated Recovery Initiative that calls for an independent third party to gather supply information from supply chain stakeholders, and industry sources said there could be more of these stakeholder solutions outside of the statutory realm, although some of the legislative proposals could also bolster these efforts. One industry source said the "folks in Congress are helping to drive the issue" but the solution may not come from "one huge statutory provision."

"A lot of good work is being done even if there's not a big legislative package," the source said. "That is not to say that the issue raised by incentives or the reimbursement question, or to further underscore FDA's authority, are not real and legitimate ideas, but it is a more complicated and multifacted problem than we just need to change the law and everything will change."