The shortage of cytarabine, a drug critical to the cure of one form of leukemia, acute myeloid leukemia, entered public consciousness in early 2011. With cytarabine-based therapy, the cure rate is 40%; without it there are no cures. This resulted in mainstream media publicizing the problem of chemotherapy shortages and its impact on thousands of lives. In-depth analyses identified several reasons for the drug shortages: shortages in supply of raw materials; production problems; contamination of materials; aging production plants; limited inventories of generic drugs (to reduce company costs); limited profit margins; possible FDA overregulation and long timelines to approve new sources of generics; and others.
Drug shortages are almost uniquely associated with generic drugs (small profit margins) and rarely with patented drugs (large profit margins). Also, they are common in the U.S., but uncommon in Europe and elsewhere, where generic drug prices are on average higher than in the U.S. This suggests the main cause of drug shortages is economic.
The analyses also uncovered drug black marketing strategies. In essence, some intermediary distributors (including well-meaning large hospital conglomerates and pharmacies aiming to protect themselves from shortages) that become aware of drug production problems with an aging plant or with supply of raw material, stockpile particular drugs in large quantities. This, in part, precipitates the drug shortage, which then allows unregulated vendors to sell the drug at huge markups, sometimes 600% to 8,000% of the original prices.
As a result of these concerns, federal legislation required drug manufacturers to give advance warning (at least six months) to allow the FDA to prepare for and avoid drug shortages. “The Gray Market Drug Reform and Transparency Act of 2013,” sponsored by U.S. Rep. Elijah Cummings, proposed to ban the practice of “gray market” drug sales.
Three years after the cytarabine shortage became widespread public knowledge, chemotherapy drug shortages continue to vex doctors and threaten patients’ lives. While substitution of some chemotherapy drugs in short supply with others may be possible, many do not have good substitutes. Including drug substitutes in established curative regimens for particular cancers may lessen the chances of cure, modify the toxicity profiles, or lead to uncertain results.
The Government Accountability Office (GAO) issued a report in February 2014 confirming the persistence of drug shortages, mostly generic, as a threat to public health. In 2012, there were a total of 261 ongoing drug shortages that began in prior years, and 195 new shortages. The numbers in 2013 (through June 30) are better. A New York Times article indicated that “what drives shortages is often a mystery. The drug industry rarely spells out the precise reason for shortages, citing its need to protect competitive trade information.” However, the mystery is not deep: follow the money.
There are two main reasons why chemotherapy drug shortages remain a problem: 1) Medicare average sales price (ASP) + 6% rule (resulting in very low generic drug prices and few competing generic companies); and 2) the drug black market.
What is the Medicare ASP + 6% rule? Before 2003, Medicare reimbursed 95% of the average wholesale price of a drug. The business model then was for oncologists to buy drugs at lower prices and sell them at higher prices in their offices. Because of the unregulated prices set by manufacturers, oncologists paid 66% to 88% of the ASP and made good profits (20% to 50%). This practice lowered costs in general, since it is cheaper to give chemotherapy in doctors’ offices than in hospital settings. It encouraged doctors to practice in more rural areas (less competition, more profits) and made it easier for patients to receive care in nearby offices than at distant hospitals. In essence, it was a win-win situation for all.
The Medicare Modernization Act of 2003 introduced well-intended legislation to prevent excessive profits. The Medicare formula for reimbursement of physician-administered drugs under Part B capped at 6% the amount of the ASP that it will reimburse physicians for drugs used in their practices. This is referred to as “Medicare ASP + 6%.” In simple terms, an oncologist cannot charge more than 6% of the ASP drug price. This made it difficult for manufacturers to raise the drug prices more than 6% in any six-month period, and left little flexibility for prices to adapt to free market supply and demand. The Medicare Modernization Act was implemented in 2005. Chemotherapy drug shortages escalated in 2006 and increased drastically since 2008. In Europe there is no Medicare + ASP 6%-like rule. Generic chemotherapy drugs are priced on average slightly higher in Europe and, because of better profit margins, multiple generic companies remain in the market. Consequently, chemotherapy drug shortages are few or nonexistent.
Charging the ASP + 6% rule to allow more profits may worsen the situation with the already very high prices of patented (brand) drugs, recently routinely increased by 10% to 12% annually (exemplified by the price of imatinib [Gleevec], which increased from $28,000/year in 2001 to $92,000/year in 2012). Solutions to alleviate the generic chemotherapy drug shortages may be simple: 1) establish bottom prices for chemotherapy generics (perhaps 3% to 5% of patented drugs) and/or keep ASP + 6% for brand drugs, but change the formula to ASP + 10% to 20% for generics; 2) require the FDA to establish clearer warning signals for potential drug shortages, strengthen its drug shortage data, conduct periodic analyses on shortages, and react more promptly to importation of similar generics before shortages occur; and 3) enforce the illegality of black market strategies.
Hagop Kantarjian, M.D., is the Baker Institute Scholar in Health Policy. He serves as a professor and chair of the Department of Leukemia at The University of Texas MD Anderson Cancer Center, where he is also the Kelcie Margaret Kana Research Chair and associate vice president for global academic programs.
Vivian Ho, Ph.D., is the James A. Baker III Institute Chair in Health Economics, a professor in the department of medicine at Baylor College of Medicine, and a professor in the Department of Economics at Rice University.