Over the past year, the problem of drug shortages has received
markedly increased attention from the federal government. This
July, Congress passed new legislation addressing shortages (Title X
of the Food and Drug Administration Safety and Innovation Act,
which is better known as the User Fee Bill). President Obama issued
an Executive Order last October. The Food and Drug Administration
("FDA") has promulgated new regulations and a new
guidance, and it has devoted increasing resources to addressing
shortages.
This increased focus followed in the wake of the much-quoted
statistic that the number of shortages tracked by the FDA almost
tripled between 2005 and 2010, from 61 to 178. The number rose
again in 2011, to 251, amid increasing attention from health-care
providers and the mainstream media.1
Despite the recent activity, drug shortages remain only lightly
regulated. Manufacturers must report discontinuances, and a
beefed-up reporting obligation is the centerpiece of the recent
legislation. But the FDA cannot demand that a manufacturer produce
a drug, nor can the FDA control how a company prices or allocates
its products. The FDA's main tools to deal with shortages are
diligence, discretion, and persuasion: helping manufacturers with
quality problems return to the marketplace, allowing the
distribution of drugs that would be prohibited by a strict
interpretation of the regulations, and asking other companies to
ramp up to fill the gaps.
The FDA reports that it is making progress. In the six months
after the issuance of the Executive Order, the FDA claims to have
prevented 128 drug shortages. It credits industry for providing
"a six-fold increase in early notifications."2
Still, the problem continues. In the first four months of 2012, 42
new drugs were added to the shortage list,3 which
continues to list more than 100 products.4
This Commentary sets out the laws and policies framing
the government's responses to drug shortages, and how those
laws and policies have changed over the past year.
Proximate and Root Causes of Drug Shortages
The FDA tracks the immediate causes of supply disruptions. The
resulting data show a significant limitation in the FDA's
reliance on advance notification of manufacturing discontinuances:
only 8 percent of supply disruptions resulted from planned
discontinuances.
According to the FDA, the most common causes of shortages, by far,
are "problems at manufacturing facility." Such problems
are reportedly responsible for 43 percent of supply disruptions.
The other reported causes are:
- Delays in manufacturing or shipping (15 percent);
- API shortage (10 percent);
- Loss of manufacturing site (5 percent);
- Non-API component shortage (4 percent);
- Demand increase (4 percent);
- Improper labeling (2 percent); and
- Other / unknown (9 percent).5
Manufacturing disruptions would not result in shortages if the
affected company (or a competitor) could make up the shortfall
through the use of other facilities. But this has proved to be
increasingly difficult in recent years. Manufacturers tend to not
have much excess capacity, making it hard to produce additional
amounts of a drug even when supplies are tight. It is often
difficult to convert existing facilities to production of a
shortage drug. Many of the drugs in shortage have a complex
manufacturing process, often requiring dedicated equipment. Supply
chains are increasingly complex and increasingly reliant on
outsourcing to overseas facilities. And inventories at all levels
of distribution are kept lean, as "just-in-time"
inventory systems are increasingly popular.6
There is no consensus as to the root causes of shortages or the
market conditions that cause them, nor is there a consensus as to
how to effect a long-term solution. An analysis by the Department
of Health and Human Services is somewhat optimistic. According to
this report, many of the shortages ultimately stemmed from the fact
that demand for certain products has soared in recent years,
without a corresponding increase in capacity. However, projects to
increase capacity are said to be underway. While it will take some
time for supply to catch up, "[o]ver time, entry, and
expansions in capacity in the industry, should lead to a situation
where shortages due to supply disruptions are sporadic and
rare." The report's primary recommendation is for the FDA
to continue its policy of expediting review of new manufacturing
capacity that could alleviate shortages.7 Others blame
the pricing structure resulting from the 2003 Medicare
Modernization Act. According to this theory, the Medicare
Modernization Act drove down prices to the point where it is no
longer economically feasible for drug manufacturers to maintain
adequate capacity.8
A harshly worded staff report issued by the House of
Representatives blames the FDA. This report concludes that
"the crisis was largely sparked by actions of the Food and
Drug Administration." According to the report, FDA enforcement
activity caused the shutdown of significant manufacturing capacity:
"58 percent of the drugs on the shortage list were produced by
at least one facility undergoing FDA remediation." The report
portrays the FDA's enforcement activity as excessive, claiming
that there were no "instances where the shutdown was
associated with reports of drugs harming
customers."9
The FDA fired back in a letter dated July 23, 2012. In that
letter, the FDA stated its position that the questioned enforcement
activities were justified, that when "manufacturing conditions
pose a safety threat to patients ... manufacturers generally must
stop production to resolve the problem," that the FDA did not
order any shutdowns, and that it is ultimately the responsibility
of the manufacturers to ensure the safe production of their
products.10
The Manufacturers' Legal Obligations
The Food, Drug, and Cosmetic Act ("FD&C Act")
contains many provisions controlling when a manufacturer cannot
manufacture a drug, but it contains no affirmative obligation to
produce a drug, even in a shortage situation. This remains true,
notwithstanding the recent drug-shortage legislation.11
Similarly, a recent district court opinion held that there is no
liability under state tort law for a failure to produce vital
medicine.12
Section 506C of the FD&C Act addresses "discontinuance or
interruption in the production of a lifesaving product." As
recently amended, this section calls for manufacturers of certain
drugs to notify the FDA when the discontinuance or interruption of
drug manufacturing "is likely to lead to a meaningful
disruption in the supply of that drug." The drugs covered
under current Section 506C are those that are
"life-supporting," "life-sustaining," or used
to prevent or treat "a debilitating disease or
condition." Biological products are not currently covered by
Section 506C, but the FDA is empowered to change that by
regulation.
The manufacturers must give notice at least six months before the
discontinuance or interruption. If this is not possible, the
manufacturer must provide the notice "as soon as
practicable." Notification will not be construed as an
admission of a regulatory violation, nor will it be construed as
evidence of off-label marketing.
The current notice requirement reflects a strengthening of the
previous version and its implementing regulations.13
Previously, the notification duty applied only to "the sole
manufacturer" of a drug.
The new drug-shortage legislation also addresses, for the first
time, the consequence of a manufacturer's failure to provide
the requisite notice. Under prior law, as the FDA acknowledged,
"[t]he advance notification provision in section 506C ... does
not include explicit enforcement authority."14 Or,
as the FDA stated more bluntly in a less-formal report, there is
"[n]o consequence for failure to
notify."15
The current legislation still does not allow the FDA to use its
primary enforcement tools. Most violations of the FD&C Act are
deemed to be "prohibited acts" under Section 301.
Sections 302 to 307 empower the FDA to respond to "prohibited
acts" by seeking injunctions, criminal and civil penalties,
product seizures, and other remedies. However, failure to provide
advance notification of a discontinuance is not (and was not ) a
"prohibited act" under Section 301, nor did any other
section of the FD&C Act set out any means for the FDA to
enforce that obligation.16
While the usual enforcement provisions of the FD&C Act remain
unavailable, the new legislation contains a more creative remedy:
The FDA will publicize failures to provide the requisite notice.
The FDA is required to "issue a letter" to a noncompliant
manufacturer pointing out the violation, and to then post the
letter (and any response) on the FDA's web site.
Formal Government Efforts To Address Drug Shortages
The notification requirement (Section 506C) was added to the
FD&C Act in 1997 through the FDA Modernization Act. The
implementing regulations did not arrive until 10 years
later.17 In contrast to this relaxed pace, the past year
has seen a far greater focus on shortages; we have seen the
issuance of an Executive Order, new regulations, new guidance
documents and, in July, legislation. These measures have
incrementally expanded the tools at the FDA's disposal. But
mostly, the new measures formalized or mandated existing FDA
policy, which remains largely unchanged.
On October 31, 2011, President Obama issued an Executive Order
titled "Reducing Prescription Drug Shortages." The
Executive Order requires the FDA to "use all appropriate
administrative tools" to combat shortages. These tools include
Section 506C, as well as "expand[ing] [the FDA's] current
efforts to expedite its regulatory reviews." The Order does
not identify any other "administrative tool" as
available
Responding to the President's order, the FDA issued an interim
final rule less than two months later.18 This rule
amends the regulations implementing Section 506C. The amendments
effectively broadened the notification obligation of Section 506C,
to the extent supportable under the then-existing
language.19
In February, the FDA issued a draft Guidance for Industry. The
Guidance's message boils down to: (i) the FDA can be effective
in averting shortages given advance warning, and (ii) manufacturers
are requested to provide the FDA with as much notice as possible,
even when notice is not required.20
Lastly, Congress passed new legislation to address the subject, as
part of the bill that also renews and expands upon the user fee
programs. As discussed above, the centerpiece of the drug-shortage
legislation is to expand the notification obligation in Section
506C. Another new feature reflects concern that the FDA has been
causing shortages through overzealous enforcement. Before sending a
warning letter or taking other enforcement action that might result
in a shortage, enforcement personnel must communicate with
personnel tasked with preventing drug shortages. Then, before
acting, the FDA must evaluate the risk of a shortage, together with
the risks associated with the contemplated
action.21
Other provisions of the bill:
- Require the FDA to maintain and publish a drug-shortage list;
- Give priority to the drug applications and facility inspections that could result in mitigating or preventing a shortage;
- Call for the Drug Enforcement Agency ("DEA") to increase production quotas of controlled substances in response to drug shortages, and to give priority for shortage-related quota requests;
- Make it easier for a hospital to divide and repackage drug doses for use within that hospital's health system;
- Call for the FDA, the Government Accountability Office, and DEA to provide reports and increase planning regarding shortage strategy; and
- Provide for implementing regulations.
FDA Policies and Informal Efforts To Prevent
Shortages
The FDA effort to mitigate drug shortages is led by employees of
the Drug Shortage Program. Since the FDA lacks authority to impose
mandates upon the manufacturers, the FDA's main tools are
publicity, prioritizing, arm-twisting, and "regulatory
discretion."
When first apprised of a shortage or a discontinuance, the FDA is
required to inform physician, health-care provider, and patient
organizations "to the maximum extent possible." The
FDA's primary means of publicizing drug shortages is a
"drug shortages" page on the FDA web site. The FDA had
been posting this information without formal direction from
Congress, but the FDA is now required to maintain the list pursuant
to a new Section 506E. This publicity helps health-care providers
plan for the possibility that they will not be able to obtain the
listed drugs.
Publicity, however, is not an unmitigated benefit. The Executive
Order found that "some participants in the market may use
shortages as opportunities to hoard scarce drugs or charge
exorbitant prices." Where the FDA learns of such activity, it
is directed to communicate that information to the Department of
Justice to "determine whether these activities are consistent
with applicable law." Such so-called "gray market"
transactions are also the subject of congressional
scrutiny.22 Furthermore, the FDA and others cast doubt
on whether the "gray market" drugs are properly
"stored and handled or whether they are expired, counterfeit,
or otherwise substandard"23 and this August a
distributor pled guilty to conspiracy to distribute drugs with
false pedigrees.24
However, there is widespread consensus that "gray
market" transactions are a symptom, not a cause, of the drug
shortage problem. There do not appear to be any laws prohibiting
limiting redistribution of drugs at any mark-up.
Upon placing a drug on the shortage list, the FDA determines
whether the affected drug is "medically necessary,"
meaning that it is "used to treat or prevent a serious disease
or medical condition for which there is no other adequately
available drug product." Unapproved drugs can be deemed
medically necessary, as can unapproved ("off-label")
uses.25 The FDA usually finds that shortage drugs are
medically necessary. When the FDA identifies a drug as medically
necessary, the FDA will then make it a priority to prevent or
alleviate the shortage.
The FDA's simplest tool, and apparently its most effective, is
to put filings concerning the shortage drug at the front of the
line. Where the supply disruption resulted from manufacturing
quality issues, the FDA can help by approving the restart of
manufacturing operations as soon as the manufacturer fixes the
problem. "Expedited review" can also involve the approval
of a new manufacturer to make the product or the API. This
February, the FDA expedited its review and approval of
methotrexate, a drug used to treat children with leukemia. The FDA
estimates that 71 percent of the shortages it prevents were
prevented through "expedited review."26 The
recent drug-shortage legislation has now formalized this
long-standing policy in a new Section 506C(g).
When a shortage drug is manufactured by multiple suppliers, the
FDA frequently will ask other firms to ramp up or initiate
production. Where the shortage drug is subject to the Controlled
Substances Act, increased production may be subject to quotas
imposed by the DEA. The FDA has resolved a few shortages through
coordination with the DEA. Under the new legislation, such
coordination is now mandatory, and the DEA must respond to
shortage-related quota requests within 30 days.27
Lastly, the FDA will sometimes end or prevent shortages through
the exercise of "regulatory discretion." This could mean
allowing critical medicine to be sold notwithstanding unresolved
quality problems. One example of this was allowing a drug to be
sold even though it was contaminated with glass shards. A filter
was provided with the product, along with instructions to
pharmacists to filter the product before administration. The
FDA's arsenal also includes permitting the import of unapproved
drugs to substitute for a shortage drug. In February, the FDA
issued a news release touting that it had addressed the shortage of
Doxil, a cancer drug, by temporarily allowing the import of
unapproved Lipodox.28
Conclusion
Substantial efforts are underway to mitigate drug shortages. The
FDA's Drug Shortage Program has gone from four employees to 11,
Congress has given them additional tools, and both Congress and the
President have demanded that the FDA make full use of these
tools.
The challenge faced by both industry and government is to prove
that the current remedies will substantially solve the
drug-shortage problem. The drug industry is in most respects
characterized by fierce competition among manufacturers that are
highly protective of their confidential information. The industry
is in many respects controlled by pervasive, mandatory regulations,
implemented by a bureaucracy that is often more deliberate than
speedy. Can the problem of drug shortages be resolved through
reporting and cooperation by industry, guided by a nimble FDA that
suggests solutions it cannot mandate?
Footnotes
1. Surveys indicating the impact of drug shortages are discussed in: FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 8-9, 12.
2. FDA Voice, Six Month Check-Up: FDA's Work on Drug Shortages (May 3, 2012). See also Letter from Jeanne Ireland (Assistant Commissioner for Legislation, FDA) to Representative Elijah E. Cummings (July 23, 2012) (reporting that the FDA averted 195 drug shortages in 2011 and more than 90 in 2012 as of the date of the letter).
3. FDA Voice, Six Month Check-Up: FDA's Work on Drug Shortages (May 3, 2012).
4. www.fda.gov/Drugs/DrugSafety/DrugShortages/ucm050792.htm (last visited August 16, 2012).
5. FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 16.
6. Government Accountability Office, Drug Shortages; FDA's Ability to Respond Should Be Strengthened at 5-8; FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 29-32;
7. U.S. Dept. of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, ASPE Issue Brief; Economic Analysis of the Causes of Drug Shortages (October 2011).
8. This was the consensus of witnesses who testified at a November 30, 2011, hearing before the House Subcommittee on Health Care, District of Columbia, Census and the National Archives. See also U.S. House of Representatives, Committee on Oversight and Government Reform, FDA's Contribution to the Drug Shortage Crisis, (staff report) (June 15, 2012) at 3-5.
9. U.S. House of Representatives, Committee on Oversight and Government Reform, FDA's Contribution to the Drug Shortage Crisis, (staff report) (June 15, 2012).
10. Letter from Jeanne Ireland (Assistant Commissioner for Legislation, FDA) to Representative Elijah E. Cummings (July 23, 2012).
11. This legislation is collected in Title X of the Food and Drug Administration Safety and Innovation Act ("FDASIA"), which was signed into law on July 9, 2012.
12. Lacognata v. Hospira, Inc., Case No. 8:12-cv-822-T-30TGW (M.D. Fla. July 2, 2012).
13. 21 C.F.R. §§ 341.81(b)(3)(iii), 314.92.
14. FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 18.
15. FDA, U.S. Drug Shortages (September 30, 2011).
16. A notification of discontinuance is one of a number of post-approval reports required under 21 C.F.R. § 314.81. Under § 314.81(d), "[i]f an applicant fails to make reports required under this section, FDA may withdraw approval of the application and, thus, prohibit continued marketing of the drug product that is the subject of the application." However, the FDA has not identified §314.81(d) as being applicable to notifications of discontinuance. More fundamentally, it would seem to be both overreaching and counterproductive to respond to a drug shortage by prohibiting a manufacturer from returning to the market.
17. 72 FR 58999 (Oct. 18, 2007).
18. 76 FR 78530 (Dec. 19, 2011).
19. See 21 C.F.R. § 314.81(b)(3)(iii)(d) (adding broad definitions of "discontinuance" and "sole manufacturer").
20. FDA, draft Guidance for Industry, Notification to FDA of Issues that May Result in a Prescription Drug or Biological Product Shortage (February 2012).
21. These provisions are codified as § 506D(a)(1)(B)(ii) and 506D(b) of the FD&C Act. The FDA contends that it is already its policy that the Office of Compliance consults with the Drug Shortage Program staff before issuing a warning letter. Letter from Jeanne Ireland (Assistant Commissioner for Legislation, FDA) to Representative Elijah E. Cummings (July 23, 2012) at 3.
22. In an effort to combat "gray market" sales, Representative Cummings has introduced a bill that would prohibit distributors from purchasing prescription drugs from pharmacies. See H.R. 5853. These transactions were also the focus of a July 25 Senate Committee hearing and a staff report. U.S. Congress, Shining Light on the "Gray Market"; An Examination of Why Hospitals Are Forced To Pay Exorbitant Prices For Prescription Drugs Facing Critical Shortages, (staff report) (July 25, 2012).
23. FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 29.
24. On August 11, 2012, Altec Medical, Inc., pled guilty to one felony count of conspiracy. The predicate crimes were wire fraud and violation of the requirement that a wholesale distributor of a drug provide purchasers with "a statement ... identifying each prior sale, purchase, or trade of such drug ." FD&C Act, § 503(e)(1)(A). Altec was aware that it was being supplied drugs that had passed through unlicensed suppliers, notwithstanding pedigrees that falsely stated that the drugs had come from nationally known drug distributors. United States v. Altec Medical, Inc., Case 1:12-cr-20457-RNS (S.D.Fla., Aug. 11, 2012).
25. Center for Drug Evaluation and Research, Manual of Policies and Procedures 6003.1, Drug Shortage Management at 2-3.
26. FDA, A Review of FDA's Approach to Medical Product Shortages (October 31, 2011) at 21.
27. FD&C Act, § 506C(e), 506D(a)(1)(D); Controlled Substances Act, § 306(h).
28. FDA News Release, "FDA acts to bolster supply of critically needed cancer drugs" (Feb. 21, 2012).
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