A mandated six-month warning would allow the FDA to engage in some sort of mitigation efforts, but there are potential risks, too. Half a year seems to be a very long lead-time. FDA action could send a signal that would prompt hospitals and other providers to hoard. Likewise, if a drug maker is nervous about being punished for not giving a six-month warning, he could “cry wolf” and simply notify the FDA every six months that he is going to shut down. On the other hand, a drug maker might choose to withhold discontinuance information and suffer FDA fines rather than expose his market share to competitors. It is far from clear that this increase in regulatory power would improve the quality of information about forthcoming shortages.
Nor is it credible that the FDA will substantively improve its approval of new generic suppliers. The current shortage of sterile injectable drugs, after all, took place on the FDA’s watch. It hardly follows that legislation giving the FDA more power over drug makers will alleviate the current shortage of crucial medicines. One purpose of early notification would be to prompt the FDA into accelerating its approval process. But the FDA has good reason to do that already, knowing that the shortage of sterile injectable drugs is harmful to patients.
Furthermore, the generic pharmaceutical industry should not be over-enthused about the opportunity to pay user fees to accelerate regulatory approval. The experience of the research-based pharmaceutical industry is that such payments do have an effect, but some of the FDA’s extra income soon gets transformed into bigger bureaucracy, and the actual regulatory output does not continuously or consistently improve.[*]
These observations lead to several recommendations, mostly targeted on the supply side.
This arrangement would speed market entry by drug suppliers, including entrepreneurial generic manufacturers that would invest in market research to inform them when to ramp up production in anticipation of a forthcoming shortage. This would result in much better systemic redundancy than increasing the regulation of incumbent suppliers, as recommended by the Obama administration and (unsurprisingly) the incumbent suppliers themselves. Furthermore, because the third-party certifiers would focus solely on quality of output, not processes, drug makers would be more likely to differentiate themselves by innovating new manufacturing technologies.
Fortunately, the Medicare Part D program shows a way to eliminate the risk that the government-dictated pricing mechanism in Medicare Part B will harm access to injectable drugs. By moving injectable drugs from Part B to Part D, where drug makers negotiate prices with private insurers, the federal government will save money and ensure that prices for these drugs more closely reflect their value. Because physicians should be paid based on their services, rather than how many drugs they administer, it is likely that moving certain injectable drugs, especially cancer medicines, to Part D would result in innovative payment models. Indeed, at least one private insurer has announced an effort to pay cancer specialists for outcomes, rather than injecting drugs.[79] It should be relatively straightforward for insurers to employ such innovative payment mechanisms once certain injectable drugs are moved to Medicare Part D.
Reducing shortages of generic injectable medicines is a worthy goal. To achieve this goal, U.S. policy should reduce the FDA’s power, expand patients’ freedom to use generic injectable drugs from additional sources and encourage entrepreneurs to enter the market faster with innovative production techniques.
[*] John R. Graham, “Leviathan’s Drug Problem: Increasing Patients’ Choices Through International Competition in Pharmaceutical Regulation,” (Pacific Research Institute, 2010), 35-36, http://goo.gl/6yyMl (accessed May 21, 2012). The FDA’s most recent report concludes that the median time to standard approval in FY 2010 was 10.1 months: “FY 2011 Performance Report to the President and Congress for the Prescription Drug User Fee Act,” (Silver Spring, MD: Food and Drug Administration, 2012), 4.