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323. At the end of Q4 2023, that was the number of ongoing and active drug shortages in the U.S., according to AHSP, which describes itself as the “largest association of pharmacy professionals in the United States.” The organization says the number represents an all-time high since it began tracking data in 2001.

Although the numbers are getting worse, the bottom line is that drug shortages are nothing new, since this troublesome issue has been plaguing the U.S. healthcare system for decades. However, the difference now seems to be the persistent increase in shortages with no apparent end in sight — which may explain the growing calls from stakeholders and building urgency for someone to do something. 

But since the root causes of drug shortages are complex and multifactorial, there will be no easy answers or quick fixes that will resolve things overnight. Still, both the federal government and lawmakers are stepping up with proposals to help mitigate the situation to better ensure patients can get the drugs they need, when they need them. 

Here, we’ll provide an overview of a recent policy proposal from the U.S. Department of Health and Human Services (HHS) that could have a big impact on stakeholders in the healthcare supply chain.  

HHS: Drug shortages white paper

On April 2, HHS released a white paper entitled, “Policy Considerations to Prevent Drug Shortages and Mitigate Supply Chain Vulnerabilities in the United States,” which focuses on generic sterile injectable medicines used in inpatient settings — with a caveat that recommendations may apply to other settings and markets. In the white paper, the agency highlights steps it has taken to address drug shortages and includes proposals for consideration. 

One of those steps is the creation of a new Supply Chain Resilience and Shortage Coordinator role “to strengthen implementation of strategies to enhance supply chain resilience for pharmaceuticals and other medical products.” 

Although the agency describes additional efforts, it concludes that “effective longer-term solutions may require additional authorities and resources to align market incentives in order to reward investment in supply chain resilience.” which is why HHS recommends developing and implementing a Manufacturer Resiliency Assessment Program (MRSP) and a Hospital Resilient Supply Program (HRSP). 

Both are described in key highlights of the white paper, which include:

  • Drug shortages have a wide impact — touching patients, families, caregivers, healthcare professionals, healthcare organizations, and other entities across the healthcare system.
  • Drug shortages have existed for decades — with key issues that include “a broad lack of transparency, concentration among middlemen, and prices for generic drugs that are driven to levels so low that they create insufficient incentives for redundancy or resilience-oriented manufacturing, distribution, and purchasing.” As a result, pharmaceutical supply chains are “brittle, disruption-prone, and too slow to recover from shortages.”
  • Supply chain resilience is essential to mitigate and limit the impact of disruptions and is aided by “diversification of supply—both in redundancy of manufacturing capacity and a balance of domestic and diversified foreign sourcing—and the presence of reliable, efficient, and sustainable, robust manufacturing practices.”
  • Although HHS has made “significant strides in shoring up the system’s ability to respond to shortages,” additional “statutory authorities and funding” are needed to create “more impactful and enduring solutions,” which also require the participation of stakeholders across the supply chain.

One of the policy concepts described for consideration involves private sector collaboration to develop and implement the MRAP and HRSP: “…the combination of these programs would bring transparency into the market, link purchasing and payment decisions to supply chain resilience practices, and incentivize investments in supply chain resilience and diversification in the supply chain—including domestic manufacturing—at a scale that would drive impactful change in the market.”

As described in the whitepaper, the following provides a brief glimpse at both.

Manufacturer Resiliency Assessment Program

According to the white paper, an MRAP could measure how resilient manufacturers are and increase transparency regarding the prescription drug supplier base. 

“Actors throughout the supply chain could use this information to better inform drug development, purchasing, production, and other activities,” HHS says. “Through a PPP [public-private partnership], a private entity administering the MRAP would assign resilience scores to manufacturers of generic drugs, based on an assessment of manufacturer practices and past performance. The MRAP could develop new manufacturing resilience metrics (e.g., manufacturer and/or product ratings) and a process to assess manufacturers’ practices to address market information failures and promote improvements in manufacturing performance.”

Key points about MRAP include: 

  • Metrics could be developed that reflect manufacturers’ “quality management maturity, manufacturing redundancy, and API/KSM sourcing diversity, among other resilience-related metrics” to enhance transparency. 
  • The MRAP would provide “oversight of a nongovernmental national accreditation body and conduct core activities including establishing accreditation standards, collecting data, conducting analyses, developing and submitting reporting requirements and consulting with a new or established group of experts.”
  • The national accreditation body would be established by “external nonprofit organizations that meet HHS standards and requirements for accreditation…”
  • The national accreditation body would “conduct manufacturer assessments based on criteria developed by the MRAP and report the ratings to HHS,” which would then use the ratings in its HRSP Program.
  • Manufacturers would be incentivized to participate “based on the expectations that hospitals would use this information in their purchasing decisions and would be willing to pay higher prices for drugs from more resilient manufacturers and supply chain systems.”
  • Manufacturers would be responsible for paying for their assessments.

Hospital Resilient Supply Program

On the flip side, HHS underscores the need for resilience in prescription drug demand. 

“A Hospital Resilient Supply Program (HRSP) could establish demand incentives and/or penalties, facilitating hospital purchasing that prioritizes supply chain resilience, rather than the current structure which generally prioritizes cost alone,” the agency says. “To start, hospitals that provide inpatient services would need to consider quality management maturity and the reliability of drug supply in their purchasing practices.”

Key points about the HRSP include:

  • It would “draw on the same principles behind existing CMS programs, such as the Promoting Interoperability program (formerly the Medicare and Medicaid Electronic Health Record Incentive Program).”
  • It could “optimize new and existing authorities to link Medicare payments and/or penalties to hospitals based on a hospital scorecard that would be a combination of attestations and ratings reflecting the hospitals’ achievement and progress in adopting practices that promote supply chain resilience or prevent shortages.”
  • Such metrics may include “hospital inventory management practices (stockpiling or buffer stocks) and hospital contracting practices with middlemen (e.g., inclusion of effective failure-to-supply clauses, minimum purchasing volume requirements, long-term contracts) that promote supply chain resilience; and whether the hospital purchases from diverse sources, including domestic ones, thus supporting redundancy in the market.”
  • MRAP could provide HRSP with information about “the reliability of manufacturers that hospitals purchase from, thus expanding the hospital scorecard to base purchasing decisions on manufacturer resilience as well as price.”

“As a whole, the scorecard developed by the HRSP could include lagging and leading indicators of practices that promote supply chain resilience among hospitals, middlemen, and manufacturers,” HHS says. “HRSP could develop the scorecard for payments and/or incentives for an initial set of drugs that are considered eligible and eventually expand to other products prioritized by MRAP or CMS.”

HHS says that if HRSP is successful, it could be expanded to the outpatient setting or to include medical devices. 

Various experts are weighing in on the white paper and new HHS proposals, with one citing various government contributors to drug shortages that were not addressed — and another describing the outlook regarding federal policy to address drug shortages as “murky.”

“While the ideas in HHS’s white paper offer insight into their current thinking around drug shortages, the paper’s conceptual framework raises more questions than it answers,” writes Jeffrey Davis and Leigh Feldman on the Regs and Eggs blog. “And the fact that HHS presented the proposal outside of both the typical process for requesting new authorities and outlays (the President’s Budget) and the notice-and-comment rule-making process may be an indication that HHS views tangible solutions as a ways off.”

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