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United States Government Accountability Office: 
GAO: 

Report to Congressional Addressees: 

February 2014: 

Drug Shortages: 

Public Health Threat Continues, Despite Efforts to Help Ensure Product 
Availability: 

GAO-14-194: 

GAO Highlights: 

Highlights of GAO-14-194, a report to congressional addressees. 

Why GAO Did This Study: 

From prolonged duration of a disease, to permanent injury, to death, 
drug shortages have led to harmful patient outcomes. FDA—-an agency 
within the Department of Health and Human Services (HHS)-—is 
responsible for protecting public health and works to prevent, 
alleviate, and resolve shortages. In 2011, GAO recommended that FDA 
should enhance its ability to respond to shortages. In 2012, FDASIA 
gave FDA new authorities to improve its responsiveness. FDASIA also 
directed GAO to study drug shortages. 

In this report, GAO (1) reviews the trends in recent drug shortages 
and describes what is known about their effect on patients and 
providers; (2) examines the causes of drug shortages; and (3) 
evaluates the progress FDA has made in addressing drug shortages. GAO 
analyzed data from FDA and the University of Utah Drug Information 
Service, which is generally regarded as the most comprehensive source 
of drug shortage information for the time period we reviewed. GAO 
interviewed officials from FDA and other federal agencies, 
organizations representing patients and providers, and drug 
manufacturers. GAO also reviewed the literature, relevant statutes, 
regulations, and documents. 

What GAO Found: 

The number of drug shortages remains high. Although reports of new 
drug shortages declined in 2012, the total number of shortages active 
during a given year—including both new shortages reported and ongoing 
shortages that began in a prior year—has increased since 2007. Many 
shortages are of generic sterile injectable drugs. Provider 
association representatives reported that drug shortages may force 
providers to ration care or rely on less effective drugs. 

Figure: Number of Active Drug Shortages from January 2007 through June 
2013: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2007; 
Ongoing shortages, which began in prior years: 40; 
New shortages, by year reported: 114; 
Number of active drug shortages: 154. 

Year: 2008; 
Ongoing shortages, which began in prior years: 56; 
New shortages, by year reported: 137; 
Number of active drug shortages: 193. 

Year: 2009; 
Ongoing shortages, which began in prior years: 74; 
New shortages, by year reported: 157; 
Number of active drug shortages: 231. 

Year: 2010; 
Ongoing shortages, which began in prior years: 127; 
New shortages, by year reported: 201; 
Number of active drug shortages: 328. 

Year: 2011; 
Ongoing shortages, which began in prior years: 184; 
New shortages, by year reported: 255; 
Number of active drug shortages: 439. 

Year: 2012; 
Ongoing shortages, which began in prior years: 261; 
New shortages, by year reported: 195; 
Number of active drug shortages: 456. 

Year: 2013 (through June 30); 
Ongoing shortages, which began in prior years: 288; 
New shortages, by year reported: 73; 
Number of active drug shortages: 361. 

Source: GAO analysis of University of Utah Drug Information Service 
data. 

[End of figure] 

The immediate cause of drug shortages can generally be traced to a 
manufacturer halting or slowing production to address quality 
problems, triggering a supply disruption. Other manufacturers have a 
limited ability to respond to supply disruptions due to constrained 
manufacturing capacity. GAO's analysis of data from the Food and Drug 
Administration (FDA) also showed that quality problems were a frequent 
cause. GAO also identified potential underlying causes specific to the 
economics of the generic sterile injectable drug market, such as that 
low profit margins have limited infrastructure investments or led some 
manufacturers to exit the market. 

While shortages have persisted, FDA has prevented more potential 
shortages in the last 2 years by improving its responsiveness. Among 
other things, FDA implemented Food and Drug Administration Safety and 
Innovation Act (FDASIA) requirements and recommendations GAO made in 
2011. FDA has also initiated other steps to improve its response to 
shortages, such as developing procedures to enhance coordination 
between headquarters and field staff. However, there are shortcomings 
in its management of drug shortage data that are inconsistent with 
internal control standards. For example, FDA has not created policies 
or procedures governing the management of the data and does not 
perform routine quality checks on its data. Such shortcomings could 
ultimately hinder FDA's efforts to understand the causes of specific 
shortages as well as undermine its efforts to prevent them from 
occurring. In addition, FDA has not conducted routine analyses of the 
data to proactively identify and evaluate the risks of drug shortages. 

What GAO Recommends: 

FDA should strengthen its internal controls over its drug shortage 
data and conduct periodic analyses to routinely and systematically 
assess drug shortage information, using this information to 
proactively identify drug shortage risk factors. HHS agreed with GAO's 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-14-194]. For more 
information, contact Marcia Crosse at (202) 512-7114 or 
crossem@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

The Number of Drug Shortages Remains High, Complicating Providers' 
Ability to Care for Patients: 

Quality Problems Coupled with Constrained Manufacturing Capacity Are 
Often the Immediate Causes of Drug Shortages, but There Are Potential 
Underlying Causes: 

FDA Is Improving Its Response to Drug Shortages, but Challenges Remain: 

Conclusions: 

Recommendations: 

Agency and Third-Party Comments and Our Evaluation: 

Appendix I: Scope and Methodology - Trends in and Causes of Drug 
Shortages: 

Appendix II: List of Organizations Interviewed: 

Appendix III: Steps Federal Agencies Have Taken to Respond to Gray 
Market Activities: 

Appendix IV: Summary of Recently Proposed Incentives to Alleviate or 
Prevent Drug Shortages: 

Appendix V: Comments from the Department of Health and Human Services: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: FDA Related Drug Shortage Provisions Enacted under Title X of 
the Food and Drug Administration Safety and Innovation Act (FDASIA), 
Public Law 112-144: 

Table 2: Summary of Critical Drug Shortages Reported from June 2011 
through June 2013, by Therapeutic Class: 

Figures: 

Figure 1: Key Drug Supply Chain Participants Affected by Drug 
Shortages: 

Figure 2: Drug Shortages Reported from January 2007 through June 2013: 

Figure 3: Distribution of the Duration of Reported Drug Shortages from 
January 2007 through June 2013: 

Figure 4: Number of Active Drug Shortages from January 2007 through 
June 2013: 

Figure 5: Distribution of Critical Drug Shortages Reported from June 
2011 through June 2013, by Route of Administration and Product Type: 

Figure 6: Reported Causes of Drug Shortages from January 2011 through 
June 2013: 

Figure 7: Key Immediate and Potential Underlying Causes of Drug 
Shortages Discussed in Literature: 

Abbreviations: 

ANDA: abbreviated new drug application: 

API: active pharmaceutical ingredient: 

CDER: Center for Drug Evaluation and Research: 

CGMP: Current Good Manufacturing Practice: 

DEA: Drug Enforcement Administration: 

DOJ: Department of Justice: 

DSS: Drug Shortage Staff: 

FDA: Food and Drug Administration: 

FDASIA: Food and Drug Administration Safety and Innovation Act: 

FDCA: Federal Food, Drug, and Cosmetic Act: 

FTC: Federal Trade Commission: 

GPO: group purchasing organization: 

HCPCS: Healthcare Common Procedure Coding System: 

HHS: Department of Health and Human Services: 

NDA: new drug application: 

NDC: national drug code: 

UUDIS: University of Utah Drug Information Service: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

February 10, 2014: 

Congressional Addressees: 

From prolonged duration of a disease, to permanent injury, to death, 
drug shortages have led to harmful outcomes for patients of all ages. 
Over the last decade, an increasing number of prescription drugs--
including life-saving and life-sustaining drugs--have been in short 
supply, preventing health care providers and patients from accessing 
medications that are essential for treatment. During shortages, 
providers--including hospitals, physicians, and pharmacists--may have 
to use medications that could be less effective for treating 
conditions or carry unwanted side-effects, if alternatives are 
available at all. 

The Food and Drug Administration (FDA)--an agency within the 
Department of Health and Human Services (HHS)--is responsible for 
overseeing the safety and effectiveness of drugs marketed in the 
United States, including addressing drug shortages. A unit within FDA, 
referred to as the Drug Shortage Staff (DSS), coordinates the agency's 
activities to prevent, alleviate, and resolve shortages. FDA defines a 
drug shortage as a situation in which the total supply of all 
clinically interchangeable versions of an FDA-regulated drug is 
inadequate to meet the current or projected demand. In November 2011, 
we reported on the growing number of drug shortages and their causes 
and found that the agency lacked sufficient authority to respond to 
shortages. We recommended that FDA strengthen its response and 
suggested that Congress consider establishing a requirement for 
manufacturers to report potential or actual supply disruptions to FDA. 
[Footnote 1] 

The Food and Drug Administration Safety and Innovation Act (FDASIA), 
enacted in July 2012, provided FDA new authorities to address drug 
shortages.[Footnote 2] It also assigned the agency new 
responsibilities. Further, FDASIA mandated us to examine several 
different aspects of shortages including their characteristics and 
causes, the effect on providers, and FDA's role in resolving them, 
among other things.[Footnote 3] This report (1) reviews the trends in 
recent drug shortages and describes what is known about their effect 
on patients and providers, (2) examines the causes of drug shortages, 
and (3) evaluates the progress FDA has made in addressing drug 
shortages. 

To review the trends in recent drug shortages, we analyzed data from 
the University of Utah Drug Information Service (UUDIS) on drugs that 
were in short supply from January 1, 2007, through June 30, 2013, 
which were the most recent data available at the time we did our work. 
[Footnote 4] These data are generally regarded as the most 
comprehensive and reliable source of drug shortage information for the 
time period we reviewed and are what we used in preparing our 2011 
report.[Footnote 5] We also examined the characteristics of 219 of 
these drugs that were reported to be in shortage at some point between 
June 1, 2011, and June 30, 2013, and that UUDIS identified as critical 
because alternative medications were unavailable, the shortages 
affected multiple manufacturers, or it received multiple reports from 
different institutions.[Footnote 6] These 219 critical shortages were 
a subset of the total number of shortages reported during this time. 
[Footnote 7] For this subset of shortages, we identified their product 
types, routes of administration, and therapeutic classes. We reviewed 
all UUDIS data used for reasonableness, outliers, and consistency, and 
based on our review, determined that the data were sufficiently 
reliable for our purposes. To describe the effect of drug shortages on 
patients and providers, we interviewed representatives from 10 
national associations representing health care providers including 
physicians, hospitals, and pharmacists.[Footnote 8] We asked these 
stakeholders a series of open-ended questions and did not 
independently validate their responses. We also reviewed relevant 
documents from the various organizations, including surveys, 
congressional testimony, and comments submitted to FDA related to drug 
shortages.[Footnote 9] 

To examine the causes of recent drug shortages we performed a search 
of research databases to identify any literature published from 
January 1, 2003, through June 30, 2013, that reported on the causes of 
drug shortages. We identified and reviewed 20 studies, which included 
journal articles, working papers, and government publications that 
either presented original research on the causes of drug shortages or 
included an in-depth discussion of the causes of drug shortages. We 
also interviewed drug manufacturers to obtain their views about the 
causes of drug shortages. Finally, we analyzed FDA data on the 
reported causes of shortages that occurred from January 1, 2011, 
through June 30, 2013.[Footnote 10] We reviewed all FDA data used for 
reasonableness, outliers, and consistency, and based on our review, 
determined that the data were sufficiently reliable for our purposes. 

To evaluate the progress FDA has made in responding to drug shortages, 
we reviewed documentation and interviewed FDA officials regarding the 
agency's current approach to managing drug shortages and implementing 
FDASIA requirements. This included reviewing FDA data related to drug 
shortages, including information contained in its recently created 
drug shortages database and information about shortages published on 
its website. We also analyzed FDA information on potential drug 
shortages the agency prevented from January 2011 through June 2013. To 
determine the number of shortages prevented, we grouped together 
shortages that involved multiple versions of a drug that had the same 
route of administration. We compared FDA's drug shortage management 
activities to the relevant standards described in the Standards for 
Internal Control in the Federal Government and to the agency's 
requirements under FDASIA.[Footnote 11] We also interviewed relevant 
market participants, such as manufacturers and provider groups, to 
obtain their perspective on the recent steps that FDA has taken to 
address shortages and the effectiveness of FDA's efforts to prevent, 
mitigate, and resolve drug shortages. 

Appendix I contains additional information on the methodology we used 
to describe the trends in and causes of drug shortages and the steps 
we took to determine the reliability of the data we used. Appendix II 
contains a complete list of the federal agencies and other 
stakeholders we interviewed for this report. 

We conducted this performance audit from January 2013 to February 2014 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Drug Shortages: 

Many participants along the entire drug supply chain are affected by 
shortages. A typical drug supply chain involves a drug manufacturer 
selling a drug to a wholesale distributor, which then sells the drug 
to a hospital or pharmacy. (See figure 1.) 

Figure 1: Key Drug Supply Chain Participants Affected by Drug 
Shortages: 

[Refer to PDF for image: illustration] 

Manufacturer: to: 
Wholesale distributor: to: 
Pharmacy, Hospital, or Physician. 

Sources: GAO; Art Explosion (images). 

[End of figure] 

Shortages of drugs can result in a variety of problems that directly 
affect the care patients receive. For example, recent research on the 
effects of drug shortages identified an increase in adverse outcomes 
among pediatric cancer patients treated with an alternative drug. 
[Footnote 12] Further, in some cases, drug shortages can even 
contribute to additional health problems. For example, one stakeholder 
said that recent shortages of drugs that supply an essential nutrient, 
like calcium, could lead to nutrient deficiencies among patients. 

FDA Oversight of Drugs: 

FDA is responsible for overseeing the safety and effectiveness of 
drugs marketed in the United States. Within FDA, the Center for Drug 
Evaluation and Research (CDER) manages these responsibilities. FDA's 
approval is required before new drugs and generic drugs can be 
marketed for sale.[Footnote 13] To obtain FDA's approval for a new 
drug, sponsors must submit a new drug application (NDA) containing 
data on the safety and effectiveness of the drug as determined through 
clinical trials and other research for review by CDER's Office of New 
Drugs. Sponsors of generic drugs may obtain FDA approval by submitting 
an abbreviated new drug application (ANDA) to the agency for review by 
CDER's Office of Generic Drugs. The ANDA must contain data showing, 
among other things, that the generic drug is bioequivalent to, or 
performs in the same manner as, a drug approved through the NDA 
process.[Footnote 14] After obtaining FDA's approval, drug companies 
that want to change any part of their original application--such as 
changes to product manufacturing location or process, type or source 
of active ingredients, or the product's labeling--must generally 
submit an application supplement to notify FDA of the change and, if 
the change has a substantial potential to have an adverse effect on 
the product, obtain FDA's approval.[Footnote 15] 

After approving new and generic drugs for marketing, FDA's 
responsibilities continue as it is charged with monitoring the safety, 
effectiveness, quality, and promotion of approved drugs, and the 
agency may take enforcement actions in response to violations of law 
and regulations. For example, as part of its efforts to ensure the 
safety of approved drugs, FDA periodically inspects drug manufacturing 
establishments to assess their ongoing compliance with Current Good 
Manufacturing Practice (CGMP) regulations.[Footnote 16] If FDA 
identifies a violation of law or regulations, it may issue a warning 
letter or take an enforcement action. In some cases, FDA may exercise 
its regulatory discretion and assess whether the risks of either 
taking a certain enforcement or other action or refraining from taking 
action will outweigh the benefits, such as when an action may cause or 
exacerbate a drug shortage.[Footnote 17] For example, if a 
manufacturing deficiency is identified, such as overfilled vials or 
the presence of contaminants, the manufacturer should take appropriate 
corrective and preventive actions, or FDA may issue a warning letter 
or take an enforcement action to require the manufacturer to do so. 
Similarly, FDA may request manufacturers of drugs whose labeling is 
not consistent with the labeling approved by FDA to correct such 
labeling, or it may take an regulatory action to require the 
manufacturers to do so. 

FDA Role in Resolving Drug Shortages: 

In 1999, FDA established the CDER Drug Shortage Program--now known as 
DSS--to coordinate issues related to drug shortages.[Footnote 18] Once 
DSS determines that a shortage is in effect or a potential shortage is 
pending, it contacts manufacturers of the drug to collect up to date 
information on inventory of the drug, demand for the drug, and 
manufacturing schedules. DSS may also coordinate its response with 
several offices including the Office of Generic Drugs, Office of New 
Drug Quality Assessment, and CDER's Office of Compliance--the office 
responsible for minimizing consumer exposure to unsafe, ineffective, 
and poor quality drugs. DSS may also work with FDA's Office of 
Regulatory Affairs--the office within FDA that oversees imports, 
inspections, and enforcement policy--and the manufacturer to help 
resolve any underlying problem a manufacturer is facing. If the 
shortage is of a controlled substance, FDA may work with the Drug 
Enforcement Administration (DEA) on any issues related to quotas for 
the production of the drug.[Footnote 19] 

When FDA is informed of a potential shortage in advance, it may take 
steps to prevent the shortage, such as providing assistance to address 
manufacturing problems.[Footnote 20] For example, it may offer 
feedback on a manufacturer's proposed approach to responding to 
quality concerns. In addition, FDA can expedite inspections of 
manufacturing establishments to facilitate the marketing of an 
alternative to a drug in shortage or can expedite inspections once 
remediation to address quality problems has been completed. 

FDA may also apply its regulatory discretion to enhance the 
availability of drugs. For example, FDA may refrain from taking 
regulatory or enforcement action to stop the distribution of a drug 
that is in shortage if the manufacturer makes the decision to continue 
marketing the drug despite a labeling or quality issue, effectively 
allowing the manufacturer to continue marketing the drug.[Footnote 21] 
In doing so, FDA balances the drug's risk to a patient with the risks 
of the drug not being available. In the event that a shortage cannot 
be averted, FDA may take other actions to enhance product 
availability. For example, in certain circumstances, FDA may not 
object to the temporary importation of drugs not approved by FDA for 
marketing in the United States, subject to appropriate controls 
effectively allowing the drugs to be temporarily marketed in the 
United States.[Footnote 22] Also, FDA can expedite the review of 
ANDAs, in order to provide additional sources of a drug in shortage, 
or supplements to ANDAs or NDAs, to provide additional capacity for 
production of an already approved drug. While there are a number of 
steps FDA can take to address a shortage, FDA cannot require 
manufacturers to start producing or continue to produce a drug. It 
also cannot require manufacturers to maintain or introduce 
manufacturing redundancies in their establishments to provide them 
with increased flexibility to respond to shortages. 

On October 31, 2011, the President issued an Executive Order that 
directed FDA to use its authority to encourage manufacturers to report 
drug supply disruptions earlier, to expedite regulatory review, when 
possible, to prevent or mitigate drug shortages, and to communicate to 
the Department of Justice any findings by FDA that shortages have led 
market participants to stockpile shortage drugs or sell them at 
exorbitant prices.[Footnote 23] 

In November 2011, we found that weaknesses in FDA's ability to respond 
resulted in a predominately reactive approach to addressing shortages, 
although this was partially due to the fact that, at the time our 
report was issued, FDA did not have the authority to require 
manufacturers to notify the agency of most impending shortages. 
[Footnote 24] Our previous report contained several recommendations 
for FDA, including assessing the resources that FDA allocates to its 
DSS; developing an information system to manage data on shortages; 
ensuring that FDA's strategic plan articulates goals and priorities 
for maintaining the availability of drugs; and developing results-
oriented performance metrics related to FDA's response to drug 
shortages.[Footnote 25] FDA outlined actions it planned to take which 
were consistent with these recommendations. 

Subsequently, the enactment of FDASIA in July 2012 resulted in several 
new requirements for FDA and manufacturers intended to address drug 
shortages. (See table 1 for a summary of these provisions.) 

Table 1: FDA Related Drug Shortage Provisions Enacted under Title X of 
the Food and Drug Administration Safety and Innovation Act (FDASIA), 
Public Law 112-144: 

Provision: Task Force and Strategic Plan; 
Description: FDA must establish a task force to develop and implement 
a strategic plan for enhancing FDA's response to preventing and 
mitigating drug shortages. The law directs the task force to publish 
and submit the strategic plan to Congress by July 9, 2013. 

Provision: Manufacturer Notice; 
Description: Manufacturers must notify FDA at least 6 months prior to 
the date of a discontinuance or interruption (or as soon as possible 
if 6 months notice is not feasible) in the manufacture of a drug that 
is life supporting, life sustaining, or used to treat debilitating 
health issues. Failure to do so will result in a letter from FDA to 
which the company must reply within 30 days. If compliance does not 
occur within 45 days of FDA's letter, the agency is required to post 
its letter and any response from the manufacturer on the FDA website. 
FDA is to adopt regulations implementing these requirements by January 
9, 2014. 

Provision: Regulatory Discretion; 
Description: FDA is to identify whether a given enforcement action or 
warning letter could cause or exacerbate a drug shortage prior to 
taking the enforcement action or sending the warning letter [a warning 
letter notifies any responsible individual or firm that the agency 
considers one or more products, practices, processes, or other 
activities to be in violation of the Federal Food, Drug, and Cosmetic 
Act (FDCA), related regulations, or other federal statutes]. If so, 
FDA is to evaluate the risks of the drug shortage and the risks 
associated with the violation before taking the action or issuing the 
letter, unless there is an imminent risk of serious adverse health 
consequences or death from not taking the regulatory action. 

Provision: Expediting FDA Actions; 
Description: In response to a pending or active shortage, FDA may 
expedite the review of an abbreviated new drug application (ANDA), or 
a supplement to either an ANDA or a new drug application (NDA) that 
could prevent or mitigate a shortage. FDA may also expedite inspection 
or reinspection of an establishment to prevent or mitigate a shortage. 

Provision: Controlled Substances; 
Description: To address a pending or active shortage of a controlled 
substance, FDA may, if necessary, notify the Drug Enforcement 
Administration (DEA) of the shortage and request that the DEA increase 
the aggregate and individual production quotas for the substance to a 
level FDA deems necessary to address the shortage.[A] If DEA 
disagrees, it must provide FDA a written response to be made public on 
the FDA website explaining the decision. 

Provision: Annual Report; 
Description: FDA is required to provide Congress with an annual report 
that contains a variety of information related to drug shortages, 
including the number of shortages that occurred that calendar year, 
manufacturer notifications of potential shortages, FDA actions to 
prevent or mitigate shortages (including identifying instances where 
FDA exercised regulatory discretion), communication within FDA, FDA 
coordination with DEA, and a list of manufacturers that were issued 
noncompliance letters related to the notification requirement. The 
first annual report is due by the end of calendar year 2013. FDASIA 
authorized FDA to retain a third party to conduct a study on drug 
shortages (specifically the causes, trends, or solutions), in 
conjunction with the preparation of the annual report. 

Provision: Shortage Information; 
Description: FDA must distribute information, to the maximum extent 
practicable, on the discontinuance or interruption in the manufacture 
of a drug that is life supporting, life sustaining, or used to treat 
debilitating health issues to appropriate groups, including physician 
and patient groups. 

Provision: Third Party Notification; 
Description: FDA is required to identify or establish a mechanism for 
health care providers or other third-party organizations to report 
evidence of drug shortages to FDA. 

Provision: Shortage List; 
Description: FDA must maintain an up-to-date list of drugs in 
shortage, which, subject to public health, trade secret, and 
confidentiality concerns, must be publicly available. For each drug on 
the list, FDA must identify the reason for shortage using a standard 
list of reasons for shortages that were included in FDASIA. 

Source: GAO analysis of FDASIA. 

Note: 

[A] Controlled substances have the potential for abuse and are 
regulated by the DEA in accordance with the Controlled Substances Act. 
DEA limits the availability of these substances by establishing quotas 
for the amount of the substance that can be produced or procured each 
year. 

[End of table] 

The Number of Drug Shortages Remains High, Complicating Providers' 
Ability to Care for Patients: 

The number of drug shortages remains high, with almost half of 
critical shortages involving generic sterile injectable drugs. 
Provider association representatives identified challenges in 
responding to drug shortages without adversely affecting patient care. 

The Number of Drug Shortages Remains High and Nearly Half Involve 
Generic Sterile Injectables: 

The number of drug shortages reported each year remains high, although 
there was a decrease in 2012 relative to the record number of new 
shortages reported in 2011.[Footnote 26] We found that from 2007 
through 2011, the number of drug shortages reported increased each 
year, with a record 255 shortages reported in 2011.[Footnote 27] 
However, in 2012, for the first time since 2006, there was a decrease 
in the number of drug shortages reported. Specifically, in 2012, 195 
shortages were reported, which was a 24 percent decrease from 2011. As 
of June 30, 2013, 73 shortages had been reported in 2013. (See figure 
2.) 

Figure 2: Drug Shortages Reported from January 2007 through June 2013: 

[Refer to PDF for image: vertical bar graph] 

Year: 2007; 
Number of Shortages Reported: 114. 

Year: 2008; 
Number of Shortages Reported: 137. 

Year: 2009; 
Number of Shortages Reported: 157. 

Year: 2010; 
Number of Shortages Reported: 201. 

Year: 2011; 
Number of Shortages Reported: 255. 

Year: 2012; 
Number of Shortages Reported: 195. 

Year: 2013; 
Number of Shortages Reported: 73. 

Source: GAO analysis of University of Utah Drug Information Service 
data. 

Note: A shortage is counted as "reported' in the year that the 
University of Utah Drug Information Service is first notified of the 
shortage. The totals reported for 2007 through 2011 may differ 
slightly from what we reported in our 2011 report, due to minor 
modifications by the University of Utah Drug Information Service to 
its data since that report. See [hyperlink, 
http://www.gao.gov/products/GAO-12-116], 16. 

[End of figure] 

Over half (55 percent, or 622) of the 1,132 shortages reported since 
January 1, 2007, were for drugs that were in shortage more than once. 
Specifically, 240 drugs were in shortage on multiple occasions between 
January 1, 2007, and June 30, 2013, representing 622 individual 
shortages. 

For shortages reported since January 1, 2007, the duration of the 
shortages varied, ranging from 1 day to over 5 years. The majority of 
shortages--68 percent--lasted 1 year or less.[Footnote 28] The average 
duration of the drug shortages over this period was 340 days--slightly 
less than a year. (See figure 3.) 

Figure 3: Distribution of the Duration of Reported Drug Shortages from 
January 2007 through June 2013: 

[Refer to PDF for image: vertical bar graph] 

Frequency: Up to 1 year; 
Number of shortages: 722. 

Frequency: 1-2 years; 
Number of shortages: 174. 

Frequency: 2-3 years; 
Number of shortages: 94. 

Frequency: 3-4 years; 
Number of shortages: 46. 

Frequency: 4 or more years; 
Number of shortages: 21. 

Source: GAO analysis of University of Utah Drug Information Service 
data. 

Note: Our analysis of the duration of shortages includes 1,057 of the 
1,132 total shortages reported as new shortages from January 1, 2007, 
through June 30, 2013; we excluded 75 shortages from this analysis 
because the University of Utah Drug Information Service listed these 
shortages as lasting zero days. The majority of these represented 
manufacturers' decisions to discontinue their production of a drug. 

[End of figure] 

Though the number of shortages reported has recently declined, the 
number of active shortages remains high. The total number of active 
shortages each year has increased steadily since 2007.[Footnote 29] 
Specifically, the number of active shortages each year almost tripled 
between 2007 and 2012 from 154 in 2007 to 456 in 2012. In 2012, the 
456 active shortages were comprised of 195 new shortages and 261 
shortages that began before 2012 but remained ongoing for some period 
of time in 2012. As of June 30, 2013, there had been 361 shortages 
active in 2013, including 288 ongoing shortages that had started in 
prior years. (See figure 4.) 

Figure 4: Number of Active Drug Shortages from January 2007 through 
June 2013: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2007; 
Ongoing shortages, which began in prior years: 40; 
New shortages, by year reported: 114; 
Number of active drug shortages: 154. 

Year: 2008; 
Ongoing shortages, which began in prior years: 56; 
New shortages, by year reported: 137; 
Number of active drug shortages: 193. 

Year: 2009; 
Ongoing shortages, which began in prior years: 74; 
New shortages, by year reported: 157; 
Number of active drug shortages: 231. 

Year: 2010; 
Ongoing shortages, which began in prior years: 127; 
New shortages, by year reported: 201; 
Number of active drug shortages: 328. 

Year: 2011; 
Ongoing shortages, which began in prior years: 184; 
New shortages, by year reported: 255; 
Number of active drug shortages: 439. 

Year: 2012; 
Ongoing shortages, which began in prior years: 261; 
New shortages, by year reported: 195; 
Number of active drug shortages: 456. 

Year: 2013 (through June 30); 
Ongoing shortages, which began in prior years: 288; 
New shortages, by year reported: 73; 
Number of active drug shortages: 361. 

Source: GAO analysis of University of Utah Drug Information Service 
data. 

Note: The active shortage total for each year includes (1) new 
shortages reported that year and (2) shortages that started in a prior 
year that were still ongoing. 

[End of figure] 

Based on our review of the characteristics of a subset of drug 
shortages reported between June 1, 2011, and June 30, 2013, that UUDIS 
identified as critical, we found that 44 percent of the 219 critical 
shortages involved generic sterile injectable drugs.[Footnote 30] 
These shortages were identified by UUDIS as critical because 
alternative medicines were not available, the shortages affected 
multiple manufacturers, or it received multiple reports from different 
institutions. Of the 96 shortages that constitute the 44 percent of 
critical shortages that involved sterile injectables in generic form, 
63 shortages were of drugs available only in generic form, while 33 
shortages were of drugs that were available in both generic and brand-
name form. An additional 17 percent of critical shortages involved 
sterile injectables that were available only in brand-name form. The 
remaining percentage of critical shortages--about 39 percent--involved 
either generic or brand-name drugs administered either orally or 
through other routes.[Footnote 31] (See figure 5.) 

Figure 5: Distribution of Critical Drug Shortages Reported from June 
2011 through June 2013, by Route of Administration and Product Type: 

[Refer to PDF for image: pie-chart] 

Sterile injectable drugs available in generic form: 44%; 
Orally-administered drugs available in generic form: 18%; 
Sterile injectable drugs available only in brand-name form: 17%; 
Orally-administered drugs only available in brand-name form: 9%; 
Other drugs[A]: 12%. 

Source: GAO analysis of data from University of Utah Drug Information 
Service and Truven Health Analytics (Red Book). 

Notes: This figure reflects 219 of the 382 shortages (57 percent) 
reported during this time period. Our analysis was limited to the 
shortages the University of Utah Drug Information Service identified 
as critical. Red Book is a compendium published by Truven Health 
Analytics that includes information about the characteristics of drug 
products. 

[A] Other drugs includes those that had other routes of administration 
such as, nasal, inhalation, topical, ophthalmic, and transdermal 
methods. In total, there were 18 drugs available through other routes, 
with 4 available in generic form and the remaining 14 only available 
in brand-name form. The Other drugs category also includes 9 
additional shortages that had multiple routes of administration or for 
which either the route of administration or the product type was 
unavailable from Red Book. 

[End of figure] 

Certain therapeutic classes were more likely to have shortages 
reported than others. Specifically, four therapeutic classes--anti-
infective, anesthetic and central nervous system, cardiovascular, and 
nutritive--comprised 53 percent of critical drug shortages.[Footnote 
32] Anesthetic and central nervous system drugs and anti-infective 
drugs were the most represented therapeutic classes, with 17 and 16 
percent of shortages reported respectively.[Footnote 33] (See table 2.) 

Table 2: Summary of Critical Drug Shortages Reported from June 2011 
through June 2013, by Therapeutic Class: 

Therapeutic Class: Anesthetic and central nervous system drugs; 
Number of Critical Shortages: 37; 
Percent of Critical Shortages: 17%. 

Therapeutic Class: Anti-infective drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 34; 
Percent of Critical Shortages: 16%. 

Therapeutic Class: Cardiovascular drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 27; 
Percent of Critical Shortages: 12%. 

Therapeutic Class: Nutritive drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 18; 
Percent of Critical Shortages: 8%. 

Therapeutic Class: Endocrine metabolic drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 16; 
Percent of Critical Shortages: 7%. 

Therapeutic Class: Gastrointestinal drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 10; 
Percent of Critical Shortages: 5%. 

Therapeutic Class: Oncology drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 10; 
Percent of Critical Shortages: 5%. 

Therapeutic Class: Diagnostic drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 9; 
Percent of Critical Shortages: 4%. 

Therapeutic Class: Blood modifier drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 7; 
Percent of Critical Shortages: 3%. 

Therapeutic Class: Musculoskeletal drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 7; 
Percent of Critical Shortages: 3%. 

Therapeutic Class: Ophthalmologic drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 6; 
Percent of Critical Shortages: 3%. 

Therapeutic Class: Respiratory drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 6; 
Percent of Critical Shortages: 3%. 

Therapeutic Class: Toxicology antidote drugs; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 6; 
Percent of Critical Shortages: 3%. 

Therapeutic Class: Other[A]; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 18; 
Percent of Critical Shortages: 8%. 

Therapeutic Class: Multiple therapeutic classes; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 8; 
Percent of Critical Shortages: 4%. 

Therapeutic Class: Total; 
Number of Critical Shortages: Anesthetic and central nervous system 
drugs: 219; 
Percent of Critical Shortages: 101%[B]. 

Source: GAO analysis of data from University of Utah Drug Information 
Service and Truven Health Analytics (Red Book). 

Notes: This figure reflects 219 of the 382 shortages (57 percent) 
reported during this time period. Our analysis was limited to the 
shortages the University of Utah Drug Information Service identified 
as critical. Red Book is a compendium published by Truven Health 
Analytics that includes information about the characteristics of drug 
products. 

[A] Includes other therapeutic classes, such as dermatological drugs 
and immunological drugs, as well as 4 drugs whose therapeutic classes 
were unavailable from Red Book. 

[B] Total does not sum to 100 due to rounding. 

[End of table] 

Providers Struggle to Respond to Drug Shortages without Adversely 
Affecting Patient Care: 

Provider association representatives told us that a number of the 
challenges that we reported in 2011 were still relevant for their 
members, including delays in or rationing of care, difficulties 
finding alternative drugs, risk associated with medication errors, 
higher costs, reduced time for patient care, and hoarding or 
stockpiling of drugs in shortage. During a shortage, providers may 
have to cancel or delay procedures, which can have detrimental health 
effects on patients.[Footnote 34] Providers may also have to ration 
care by prioritizing the patients who have a greater need for the 
drug. For example, provider association representatives said that if a 
drug is used in patients across age groups, but is essential for the 
care of newborns, a hospital may institute a policy that the drug can 
only be administered to newborns and will no longer be administered to 
adults. 

In addition, representatives from the provider associations noted that 
identifying effective, alternative drugs for those in shortage can be 
difficult. In some cases, it may not be possible to find a suitable 
alternative. For example, representatives from one of the associations 
we spoke to said that emergency service providers have reported 
significant difficulties finding alternative medications for stopping 
seizures and are concerned with the viability of alternative therapies 
in certain emergency situations. A representative from another 
association said that when effective alternatives are identified and 
located, medication errors may increase because the dosage of the 
alternative drug may differ from what providers are accustomed to 
using. 

Drug shortages may result in higher drug costs as well as greater 
risks to patients. To obtain drugs in short supply, providers may turn 
to suppliers they do not typically use, including authorized 
alternative suppliers, compounding pharmacies, or gray market 
suppliers--those not authorized by the manufacturer to sell the drug--
who typically obtain small quantities of a drug that is in short 
supply and offer it for purchase at an inflated price.[Footnote 35] 
Drugs from alternative suppliers can cost significantly more, and, in 
the case of compounding pharmacies, and gray market suppliers, may 
pose risks to patients.[Footnote 36] An outbreak of fungal meningitis 
in 2012 linked to contaminated compounded drugs--resulting in over 60 
deaths and hundreds of people becoming ill--has led to questions about 
the safety and quality of compounded drugs.[Footnote 37] Because the 
origin of a gray market drug may be unknown, there is no assurance 
that it was stored and transported appropriately. As a result, 
patients who receive treatment with such drugs may experience adverse 
events or receive inadequate or inappropriate treatment.[Footnote 38] 
(See appendix III for a description of steps federal agencies have 
taken to respond to gray market activities.) 

Managing drug shortages also can detract from patient care. Providers 
may develop and institute polices for distributing drugs in short 
supply to patients, which some provider association representatives 
said may take time away from caring for patients. They may also need 
to become familiar with new products and different dosages, which may 
increase the risk for medication errors and take time away from 
patient care. Representatives from one provider association said that 
hospital pharmacists might need to devote more time than usual to work 
with the physician prescribing a drug that is in shortage to determine 
an appropriate therapeutic alternative.[Footnote 39] In some 
instances, providers have hired full-time staff whose positions are 
entirely devoted to managing drug shortages. One provider association 
representative said a well-known hospital system has eight full-time 
employees who only work on addressing drug shortages. However, a few 
representatives noted that smaller providers may not have the 
resources to hire full-time employees and existing staff may have to 
take on additional responsibilities in order to respond to shortages. 

Finally, the mere threat of a potential shortage can cause problems 
for patients and providers. While some provider association 
representatives reported that the lack of advance notice of a shortage 
hinders their ability to respond, most of the provider organizations 
we spoke with expressed concern that reports of an impending shortage 
can lead to the hoarding or stockpiling of drugs making it more 
difficult to access the drugs.[Footnote 40] 

Quality Problems Coupled with Constrained Manufacturing Capacity Are 
Often the Immediate Causes of Drug Shortages, but There Are Potential 
Underlying Causes: 

Quality problems resulting in supply disruptions coupled with 
constrained manufacturing capacity were frequently cited as the 
immediate causes of recent drug shortages. However, we also identified 
multiple potential underlying causes of shortages, all of which were 
related to the economics of the generic sterile injectable drug 
market.[Footnote 41] 

Supply Disruptions Stemming from Quality Problems Frequently 
Identified as Triggering Recent Shortages: 

Quality Problems Leading to Shortages: 

The most frequently cited immediate cause for a drug shortage was that 
a manufacturer halted or slowed production after a quality problem was 
identified, resulting in a supply disruption. These supply disruptions 
were linked to, among other things, such problems as bacterial 
contamination or the presence of glass or metal particles in drug 
vials. Representatives from all eight manufacturers that we 
interviewed said that quality problems have contributed to recent 
shortages.[Footnote 42] Our analysis of FDA data shows that 40 percent 
of the shortages reported between January 1, 2011, and June 30, 2013, 
resulted from quality concerns, such as particulate matter or plant 
maintenance issues.[Footnote 43] In addition, most of the studies we 
reviewed (16 of 20) reported that concerns about product quality that 
led to supply disruptions have been the immediate cause of most 
shortages.[Footnote 44] For example, one analysis found that quality 
problems were the cause linked to the majority of shortages of sterile 
injectable drugs.[Footnote 45] Another study found that the immediate 
cause of 46 percent of all drug shortages in 2011 was a quality 
problem.[Footnote 46] According to this study, the specific issues 
contributing to recent shortages have ranged from an inability to 
ensure the sterility of products to the identification of particulate 
matter in products. 

According to another study, some of the largest manufacturers of 
sterile injectable drugs have had quality problems that they chose to 
address by temporarily closing or renovating their establishments, 
thereby reducing or temporarily ceasing manufacturing of multiple 
drugs and leading to supply disruptions.[Footnote 47] Some of the 
temporary plant closures were proactively undertaken by the 
manufacturers themselves, while others were undertaken as part of 
their response to a warning letter from FDA.[Footnote 48] Such plant 
closures to address quality problems with certain drugs or production 
lines can result in shortages of other drugs manufactured at these 
establishments, including those not associated with quality problems. 
[Footnote 49] One study noted that many shortages that are classified 
as being caused by delays and capacity issues are technically caused 
by supply disruptions related to quality.[Footnote 50] Our analysis of 
FDA data indicates that manufacturing delays or capacity issues 
accounted for 30 percent of the shortages reported between January 1, 
2011, and June 30, 2013. FDA officials told us that delays or capacity 
issues that triggered shortages typically involved temporary shutdowns 
or slowdowns undertaken to perform maintenance or, in many recent 
cases, for remediation efforts, which then caused supply disruptions. 
[Footnote 51] 

Although quality problems were a frequently cited issue, there was not 
complete agreement as to whether quality problems were truly the 
trigger for the supply disruptions that cause shortages. Specifically, 
one study concluded that FDA has applied CGMPs more rigorously in its 
inspections of manufacturing establishments, resulting in a greater 
number of quality problems being identified and thus leading to 
manufacturing supply disruptions that then triggered shortages. 
[Footnote 52] Another study suggested that an increase in FDA 
inspections of injectable drug manufacturing establishments without 
evidence of an increase in quality problems has contributed to 
shortages of generic sterile injectable drugs.[Footnote 53] In 
addition, one manufacturer representative noted that FDA investigators 
throughout the country may differ in their interpretations of CGMPs, 
which the representative said creates uncertainty about whether a 
manufacturer's current processes will be found to be in compliance 
during an FDA inspection. Therefore, from this manufacturer's 
perspective, FDA's compliance actions have been the primary cause of 
shortages with quality problems being a secondary cause. A second 
manufacturer representative said that though quality problems have 
contributed to recent shortages, from the manufacturer's perspective, 
quality standards have also been raised. However, one study countered 
the claim that FDA's enforcement has changed by stating that 
manufacturers often identify quality problems and it is their 
discoveries that trigger FDA inspections in the first place, rather 
than an increase in agency scrutiny. This study also noted that CGMPs, 
which provide a framework for a manufacturer to produce safe, pure, 
and high-quality drugs, have not changed in recent years.[Footnote 54] 
One manufacturer representative concurred that the CGMPs themselves 
had not changed. However, this representative noted that as 
manufacturing technology advances, the expectations of FDA 
investigators as to what represents quality manufacturing may advance 
as well. For example, as new manufacturing equipment becomes 
available, FDA investigators may expect manufacturers to install the 
new equipment, even if using older equipment will result in drugs of 
the same quality.[Footnote 55] 

Other Immediate Causes of Shortages: 

Although not as prominently cited in the literature or the FDA data as 
quality problems, we identified a number of additional factors that 
can cause supply disruptions and ultimately result in shortages. 

Permanent product discontinuations: Permanent product discontinuations 
were another immediate cause of shortages. Our analysis of FDA data 
shows that 12 percent of the shortages reported between January 1, 
2011, and June 30, 2013, resulted from product discontinuations. 
According to several studies, the generic drug market is extremely 
concentrated, with few manufacturers producing each drug. For example, 
one study found that most generic sterile injectable drugs are made by 
three or fewer manufacturers.[Footnote 56] As a result, the 
discontinuation of a drug by a single manufacturer can have a 
significant impact on drug availability. Two studies noted that older 
generic drugs may be discontinued in favor of producing newer drugs 
that are more profitable or that have more demand.[Footnote 57] Three 
manufacturer representatives said that they take a number of factors 
into account when determining whether to discontinue manufacturing a 
drug. The first manufacturer representative said that in addition to 
price, they will also account for factors such as the medical 
necessity and importance of the drug when making decisions about what 
drugs to manufacture. The second manufacturer representative said that 
they do not discontinue products if they know that doing so would 
cause a shortage or exacerbate an existing one, although the same 
representative also said that products with low sales or profitability 
may be de-emphasized in favor of producing drugs with greater demand. 
The third manufacturer representative also noted that it is likely 
that a lower-margin product would be discontinued rather than a higher-
margin product. Two manufacturer representatives said that if a drug 
is already in shortage, they will try to continue to manufacture it, 
even at low or negative profit margins, to ensure that the drug 
remains in the market. 

Unavailability of raw materials or components: The unavailability of 
raw materials, such as an active pharmaceutical ingredient (API), and 
non-API components, such as vials, also contributes to shortages. 
[Footnote 58] The majority of the studies we reviewed cited the 
unavailability of raw materials or non-API components as a cause of 
shortages and two reported that there is often only one API source for 
a given drug.[Footnote 59] This dependency on a sole API source can 
lead to shortages if availability becomes a problem, regardless of the 
number of manufacturers of a particular product.[Footnote 60] Most of 
the manufacturers' representatives agreed that the unavailability of 
API has caused some shortages, although some representatives said that 
it was a relatively small percentage of them. For example, a 
representative from one manufacturer said that the 2011 tsunami in 
Japan disrupted the API supply for one of its products and led to a 
shortage. Although the manufacturer ultimately identified another 
source for the needed material, FDA had to approve the manufacturer's 
new source, which was time-consuming. In addition, two manufacturer 
representatives mentioned that issues with non-API components had 
contributed to shortages. Our analysis of FDA data shows that 9 
percent of the shortages reported between January 1, 2011, and June 
30, 2013, resulted from the unavailability of APIs or non-API 
components. 

Loss of a manufacturing site or site change: Our analysis of FDA data 
shows that 3 percent of the shortages reported between January 1, 
2011, and June 30, 2013, were due to either the loss of a 
manufacturing site or site change. One manufacturer representative 
said that while manufacturers have experienced disruptions due to 
natural disasters, this has been rare. In the literature, half of the 
studies (10 of 20) mentioned natural disasters, such as floods or 
hurricanes, as a cause of shortages. Loss of, or damage to, a 
manufacturing site was typically given as an example of the supply 
disruption resulting from the disaster. 

Increased demand: In addition to events that result in changes in 
supply, we found that shortages can also be triggered by changes in 
demand. Our analysis of FDA data shows that 6 percent of the shortages 
reported between January 1, 2011, and June 30, 2013, were due to 
increased demand. An increase in demand, which may occur for a variety 
of reasons, such as the approval of an already marketed drug for a new 
indication or new therapeutic guidelines, can trigger a shortage. A 
shortage results because manufacturers cannot keep up with the 
increase in demand that exceeds their expectations or planned 
production. Increased demand was cited as a cause of shortages in 9 of 
the 20 studies we reviewed. 

Figure 6 summarizes information reported by manufacturers to FDA about 
the causes of drug shortages that the agency then analyzes and 
categorizes. 

Figure 6: Reported Causes of Drug Shortages from January 2011 through 
June 2013: 

[Refer to PDF for image: pie-chart] 

Loss of manufacturing site or site change: 3%; 
Increased demand[A]: 6%; 
Active pharmaceutical ingredient (API) or non-API component Issue[B]: 
9%; 
Product discontinuation: 12%; 
Manufacturing delays and capacity issues[C]: 30%; 
Quality problems[D]: 40%. 

Source: GAO analysis of FDA data. 

Notes: This figure summarizes our analysis of information reported by 
manufacturers to FDA about the causes of drug shortages that the 
agency then analyzes and categorizes. 

[A] FDA defines increased demand as an increase in the request for a 
product relative to its traditional usage. For example, if FDA 
approves the drug for a new indication, demand may increase. 

[B] An API is any element that is intended to provide pharmacological 
activity or other direct effect in the diagnosis, cure, mitigation, 
treatment, or prevention of disease. Non-API components include 
inactive ingredients such as dyes or water for injection, and items 
such as vials and stoppers. See 21 C.F.R. § 210.3(b)(3), (7) (2013). 

[C] Manufacturing delays and capacity issues normally involve 
shutdowns or slowdowns of facilities or production lines in order to 
perform maintenance or for remediation efforts. For example, a 
shutdown of a production line to address a quality problem with one 
drug may delay manufacturing of all other drugs on that line, even if 
no quality problems have been identified with those other drugs. 

[D] "Quality problems" includes the identification of such issues as 
bacterial contamination or particulate matter (i.e., metal or glass 
particles in vials). 

[End of figure] 

Constrained Manufacturing Capacity Often Viewed as Limiting 
Manufacturers' Ability to Respond to Supply Disruptions: 

The inability of other manufacturers to make up for supply disruptions 
experienced by their competitors due to constrained manufacturing 
capacity was another immediate cause of shortages. Several of the 
studies we reviewed generally concluded that the heavy concentration 
of the generic drug industry leaves few manufacturers available to 
respond to supply disruptions, leading to market-wide shortages. 
[Footnote 61] One study found that seven manufacturers dominate the 
generic sterile injectable market overall and also found that this 
market is even further concentrated for specific therapeutic classes. 
[Footnote 62] Specifically, this analysis indicated that in 2008, 
three manufacturers produced 71 percent of all generic sterile 
injectable oncology drugs and that three manufacturers held 91 percent 
of the market share of generic sterile injectable nutrients and 
supplements. Illustrating the interplay between supply disruptions and 
constrained manufacturing capacity, one 2010 study reported that a 
shortage of the generic sterile injectable anesthesia drug propofol 
resulted after one of the three manufacturers of the drug permanently 
discontinued its manufacturing and another experienced quality 
problems leading to a temporary halt in production, leaving the 
remaining manufacturer unable to meet the demand of the entire market. 
[Footnote 63] 

In addition to consisting of few manufacturers overall, we also found 
that the manufacturing capacity of the generic drug industry has been 
further challenged in recent years as the industry has expanded the 
number of generic products it manufactures. This expansion has 
resulted as a large number of brand-name drugs have lost patent 
protection, clearing the way for generic manufacturers to produce 
generic equivalents of these drugs. Two of the studies we examined 
cited the decisions of manufacturers to begin producing the generic 
equivalents of brand-name drugs as contributing to shortages by 
stretching already limited capacity. For example, one study found that 
the generic sterile injectable market had expanded by 52 percent 
between 2006 and 2010 without a commensurate increase in manufacturing 
capacity, leading to high utilization of available manufacturing 
capacity.[Footnote 64] Representatives from two manufacturers said 
that faced with limited capacity, when new generics are available for 
production a manufacturer may make the decision to stop producing 
some drugs to make room for the new products. As a result, such 
discontinuations could lead to shortages, but representatives from 
both manufacturers characterized this as a small factor in causing 
shortages. 

In addition to the challenge presented by having few manufacturers and 
the increase in the number of generic drugs, pressures to produce this 
large number of drugs on only a few manufacturing lines leaves the 
manufacturers that do participate in the generic sterile injectable 
market with little flexibility.[Footnote 65] Since multiple drugs are 
often manufactured on the same line, increasing production of one drug 
reduces the supply of other drugs and can lead to shortages.[Footnote 
66] For example, one manufacturer representative said that there are 
usually anywhere from 30 to 50 different drugs manufactured on a given 
line. Further, according to one study, manufacturers of generic 
sterile injectable drugs do not typically have redundant manufacturing 
facilities.[Footnote 67] Specifically, in a review of almost 900 
generic sterile injectable applications that were submitted to the FDA 
and approved between 2000 and 2011, the authors found that only 11 
applications (about 1 percent) referenced a backup facility. This 
becomes problematic when production in a given facility must stop for 
any reason as manufacturers cannot immediately move production of a 
drug to another facility. To do so, they must first obtain approval 
from FDA, which can further delay production. 

A related constraint cited in the literature is that some generic 
sterile injectable drugs need to be manufactured on lines or in 
facilities dedicated solely to those drugs. One study noted that 
certain sterile injectable products, such as anti-infective and 
oncology drugs, require lines, and sometimes whole facilities, which 
are limited to the production of such drugs.[Footnote 68] For example, 
some anti-infective drugs, such as penicillin, are highly sensitizing 
and can trigger serious allergic reactions at very low levels and as a 
result, may be limited to specific manufacturing lines. Further, 
another study noted that a supply disruption on a dedicated line can 
result in shortages of multiple products of a similar type, such as 
oncology drugs, because other manufacturers are not able to step in 
due to limited capacity on their own lines.[Footnote 69] For example, 
shortages of oncology drugs in 2011 were linked to just three 
dedicated oncology lines that were operated by two manufacturers. 

A final capacity-related constraint cited in the literature (9 of 20 
studies), was how the widespread use of "just-in-time" inventory 
practices can increase the vulnerability of the supply chain to 
shortages.[Footnote 70] One of these studies said that most 
manufacturers only produce enough of a drug to satisfy current demand, 
so there is little, if any excess inventory, while another study 
asserts that when a manufacturer has to stop production, a supply 
disruption can result because of "just-in-time" inventory.[Footnote 
71] One manufacturer representative said that any manufacturer 
typically has only a limited amount of inventory available. This 
representative said that manufacturers typically have about 2 to 3 
months of inventory on hand, wholesale distributors usually have about 
1 month, and providers only have a few weeks of inventory. 
Consequently, if an issue arises, a shortage can quickly result. 

The majority of manufacturer representatives we interviewed generally 
concurred with our finding from the literature that a supply 
disruption, for whatever reason, affecting one manufacturer can 
quickly lead to market-wide shortages because other manufacturers 
often cannot increase production enough to meet demand. For example, 
one manufacturer representative said that it had recently encountered 
capacity constraints when two other manufacturers experienced supply 
disruptions and one manufacturer exited the market. The representative 
from the manufacturer that remained said that the company did not have 
the capacity to ramp up production to meet the demand for all of the 
drugs at risk of shortage and thus had to prioritize which drugs to 
produce, based on market need and the severity of the shortages. 
Further complicating a situation like this, representatives of two 
manufacturers said that even if the remaining companies are able to 
increase their production of a drug whose supply has been disrupted, 
it can take time--as much as 3 months--to increase production, 
particularly for sterile injectables due to the complexity of 
manufacturing these products. 

Drug Shortages May Stem From Underlying Causes: 

We identified multiple potential underlying causes of drug shortages 
in the literature. Half of the studies (10 of 20) we reviewed 
suggested that the immediate causes of drug shortages, such as quality 
problems, are driven by an underlying cause that stems from the 
economics of the generic sterile injectable drug market. The studies 
that cited underlying causes did not all focus on the same underlying 
cause and manufacturer representatives had mixed views on the 
potential underlying causes we identified in the literature.[Footnote 
72] 

Competition Focused Primarily on Price: 

One underlying factor we identified in the literature is that when 
choosing between different manufacturers of the same drug, purchasers 
may focus primarily on price. Six of the 20 studies mentioned either 
low prices or low profit margins as features of the generic drug 
market that may make it vulnerable to shortages. Two of the studies 
suggested that low profit margins in the generic market may affect 
manufacturers' decisions to invest in their facilities.[Footnote 73] 
Another of the six studies said that purchasers expect all generic 
drugs to be of equivalent quality and may be unable to discern 
differences in the quality of drugs, particularly sterile injectables. 
[Footnote 74] As a consequence, purchasers of sterile injectables 
focus on price when choosing among seemingly identical generic 
manufacturers at the expense of any potential differences in quality 
and the ability to reliably meet customer demand. According to this 
study, a manufacturer that strives to exceed minimum manufacturing 
standards is not rewarded with a willingness among buyers to pay more 
for the manufacturer's products. Therefore, using economic theory as a 
rationale, the authors suggested that this reduces the incentive for 
the manufacturer to sufficiently invest in maintenance or quality 
improvements at its manufacturing establishments. The study suggests 
that the lack of reward for quality is an underlying cause that may 
have led to manufacturers' minimizing investment in establishments, 
which has ultimately resulted in many of the recent quality problems 
at generic sterile injectable manufacturing establishments.[Footnote 
75] 

Five of the six drug manufacturer representatives that responded to 
this claim reported that manufacturers continue to invest in upgrading 
existing establishments and building new ones.[Footnote 76] One 
manufacturer representative stated that some generic products in 
manufacturers' portfolios are highly profitable and prompt investments 
in manufacturing facilities. Another manufacturer representative said 
that they continue to invest in making improvements to their sterile 
injectable facilities. For example, they said that they have invested 
in spare capacity on some of their lines, and as a result, are now 
better equipped to ramp up production in response to a shortage. 

Role of Group Purchasing Organizations: 

Group purchasing organizations (GPO), which negotiate purchasing 
contracts with drug manufacturers on behalf of hospitals and other 
health care providers, have been cited in the literature as 
potentially having an underlying role in causing drug shortages. 
[Footnote 77] Four of the 20 studies suggested that the operating 
structure of GPOs results in fewer manufacturers producing generic 
drugs and this, in turn, contributes to a more fragile supply chain 
for these drugs.[Footnote 78] For example, one of the four studies 
asserted that GPOs reduce profits in the generic drug market, where 
margins are already low.[Footnote 79] This study states that because 
of these low manufacturer profit margins, when production problems 
arise, manufacturers may stop producing certain products in lieu of 
making investments in improvements at their establishments.[Footnote 
80] Another of the four studies theorized that when generic drug 
manufacturers fail to win GPO contracts, manufacturers will either 
exit or decide not to enter the market for those drugs, contributing 
to the immediate cause of constrained manufacturing capacity.[Footnote 
81] 

All of the representatives of the three GPOs that we contacted 
disagreed with the claim that GPOs are a cause of shortages. They 
emphasized that they have an incentive to avoid drug shortages and 
ensure that the drug manufacturers with which GPOs contact can meet 
GPOs' members' needs. Further, they said that while price is an 
important consideration in determining the manufacturers with whom 
they contract, the ability of manufacturers to ensure an adequate 
supply of products is critical. According to one GPO representative, 
generic drug manufacturers are generally profitable, which the GPO 
representative said demonstrates that manufacturers are not being 
driven out of the market. All of the GPO representatives also noted 
that in recent years GPOs have instituted strategies to avoid 
shortages. For example, one GPO representative told us that it 
typically tries to contract with two or more manufacturers for drugs 
that have a recent history of being in shortage. 

Of the five manufacturer representatives who commented on the claim, 
three stated that GPOs may contribute to shortages by exerting 
downward price pressure.[Footnote 82] However, one manufacturer 
representative disagreed that GPOs were a cause and a second 
manufacturer representative said that GPOs had no more of a role in 
causing shortages than any other supply chain participant. While the 
second representative said that GPOs contribute to the pressure to 
lower prices, the representative also noted that every participant in 
the supply chain contributes to the price competition. A third 
manufacturer representative noted that, because manufacturers have 
already made investments in production that they are unwilling to 
abandon, failing to obtain a GPO contract does not cause them to exit 
the market for a given drug. Further, representatives from the second 
and third manufacturers also told us that, in the event that a major 
manufacturer does not obtain a GPO contract, the manufacturer may send 
its sales force to hospitals directly and offer a price that is lower 
than the GPO contract price. Hospitals may either accept this lower 
priced offer or seek additional price concessions from the contracted 
manufacturer through the GPO. 

Change in Medicare Part B Reimbursement Policy: 

A change in Medicare Part B drug reimbursement policy was also cited 
in the literature (5 of 20 studies) as an underlying cause of drug 
shortages. In 2005, a change was implemented in how providers are 
reimbursed for most Medicare Part B drugs administered in an 
outpatient setting.[Footnote 83] Three studies we reviewed suggested 
that this change resulted in a sharp decrease in reimbursement to 
providers.[Footnote 84] One of the studies, which focused on oncology 
drugs, suggested that this decrease in reimbursement caused providers 
to switch to higher-cost drugs for which they would receive increased 
reimbursement, reducing demand for generics.[Footnote 85] The other 
two studies suggested that this decrease in reimbursement to providers 
also resulted in lower prices for manufacturers.[Footnote 86] Two of 
the three studies suggested that manufacturers responded by exiting 
the market for these products entirely, while the third suggested that 
manufacturers reduced their investments in manufacturing facilities, 
both of which left the generic sterile injectable market vulnerable to 
shortages.[Footnote 87] 

Four of the five manufacturer representatives who responded to this 
claim did not view the change in Part B reimbursement policy as a main 
cause of shortages, though they said it could have complicated the 
generic market.[Footnote 88] For example, one manufacturer 
representative contended that it had a negligible impact at most as 
the reimbursement is paid to physicians, not manufacturers. The 
payments that manufacturers collect are several steps removed from the 
physician's reimbursement. In addition, the representative stated that 
even if some providers switch to more expensive alternative drugs in 
response to the reimbursement change, the impact would be minimal as 
the vast majority of generic sterile injectables are administered in 
hospital inpatient departments, which means that they are not 
reimbursed through Medicare Part B.[Footnote 89] Finally, though drugs 
in at least one of the therapeutic classes that have most frequently 
been in shortage in recent years may be reimbursed through Part B 
based on the Average Sales Price methodology, the extent to which all 
of the therapeutic classes driving recent shortages are reimbursed in 
this manner is unclear.[Footnote 90] 

Figure 7 summarizes the key immediate and potential underlying causes 
of drug shortages that we found in our review of the literature. 

Figure 7: Key Immediate and Potential Underlying Causes of Drug 
Shortages Discussed in Literature: 

[Refer to PDF for image: illustration] 

Underlying causes discussed in the literature: 
Low Profit Margins: 
* Competition Focused Solely on Price; 
* Role of Group Purchasing Organizations; 
* Medicare Part B Reimbursement Change. 

Immediate causes discussed in the literature: 

Supply Disruptions: 
* Quality problems; 
* Unavailability of raw materials/components; 
* Manufacturing site loss/change; 
* Increased demand; 
* Permanent product discontinuations. 

Constrained Manufacturing Capacity: 
* Few manufacturers; 
* Increase in number of generic drugs; 
* Large number of drugs on few lines; 
* Cannot easily transfer between lines; 
* “Just-in-time” inventory practices. 

Drug Shortages: the result of: 
Supply Disruptions; 
Constrained Manufacturing Capacity. 

Source: GAO analysis based on review of literature. 

[End of figure] 

FDA Is Improving Its Response to Drug Shortages, but Challenges Remain: 

Through a variety of efforts, FDA has prevented more potential 
shortages and improved its ability to respond to shortages since we 
issued our report in 2011. Among other things, FDA is working to 
improve its response to drug shortages by implementing FDASIA's 
requirements and the recommendations we made in 2011. However, FDA 
lacks policies and procedures for managing and using information from 
its drug shortage database. 

FDA Has Prevented More Potential Shortages and Has Improved Its 
Ability to Respond to Shortages That Do Occur: 

FDA has taken steps that have prevented more potential shortages and 
improved its ability to resolve existing drug shortages since 2011, 
including expediting review of ANDAs and supplements, working with 
manufacturers to increase production, and using its regulatory 
discretion to allow certain products to remain on the market or bring 
new products to market.[Footnote 91] Based on our analysis of FDA data 
from January 2011 through June 2013, FDA was able to prevent 89 
potential shortages in 2011, 154 potential shortages in 2012, and 50 
potential shortages through June 2013.[Footnote 92] This is more than 
the 35 potential shortages we found that FDA prevented in 2010 and the 
50 prevented through June 2011. FDA officials told us that although 
they relied on many of the same steps to prevent and resolve shortages 
prior to the enactment of FDASIA, FDASIA's requirement that 
manufacturers notify FDA in advance of a potential shortage allowed 
FDA to employ those steps sooner.[Footnote 93] FDA officials said the 
notification requirement has helped the agency become more proactive 
and successful in its efforts. FDA officials noted there has been a 
sizable increase in notifications with a six-fold increase after 
issuance of the drug shortages Executive Order in October 2011, a 
subsequent doubling of that rate after the enactment of FDASIA in July 
2012, and a return to the Post-Executive Order notification rate in 
2013. 

FDA has expedited a number of agency actions to prevent or resolve 
shortages, in accordance with relevant FDASIA provisions. For example, 
FDA may expedite the review of ANDAs, or supplements to NDAs and 
ANDAs, to help bring an alternative drug to market or authorize an 
additional API supplier or manufacturing site.[Footnote 94] FDA 
officials said the agency has also expedited inspections to facilitate 
improvements at manufacturing establishments. Expediting inspections 
that are required before an ANDA or supplement is approved also 
facilitates the availability of a needed drug. Manufacturer 
representatives we spoke with noted that in some cases expedited 
reviews or inspections have happened quickly and have helped prevent 
shortages. However, others told us that some application reviews or 
inspections have taken a long time, limiting the manufacturers' 
ability to help prevent or resolve a shortage. For example, one 
manufacturer representative said waiting for FDA's approval of ANDA 
supplements related to new raw material suppliers has been a key 
hindrance to the manufacturer's ability to respond to drug shortages. 

In addition, FDA routinely contacts manufacturers regarding their 
ability to increase production in response to a potential or actual 
drug shortage. Although a number of manufacturer representatives said 
that ramping up production takes time and may not always be possible, 
given production capacity constraints, FDA has reported some 
successes. For example, when FDA determined that an impending product 
discontinuation might result in a shortage of a drug that treats 
shingles and chickenpox, it encouraged another manufacturer to 
increase production, thus avoiding a shortage. Similarly, when quality 
problems were identified in a drug used to treat eye infections in 
patients with acquired immune deficiency syndrome, FDA reached out to 
another manufacturer that was able to increase production to avert a 
potential shortage. Manufacturer representatives said manufacturers 
will generally increase production, if possible, when FDA advises them 
of a shortage. FDA reported to us that, from January 1, 2011, to June 
30, 2013, its encouragement to manufacturers to increase production 
helped prevent or resolve 41 shortages. 

FDA officials said that in appropriate cases, the agency may attempt 
to use its regulatory discretion to keep products from going into 
short supply or from making an active shortage worse. FDA may use its 
discretion in deciding whether to take a certain action. FDASIA 
requires FDA to consider whether an enforcement action or issuance of 
a warning letter could reasonably cause or exacerbate a shortage of a 
life-saving drug.[Footnote 95] If FDA reaches such a determination, 
the agency must evaluate the risks associated with the impact of such 
a shortage upon patients and the risks associated with the violation 
before taking action, unless there is an imminent risk of serious 
health consequences or death. FDA officials said that they had used 
their regulatory discretion prior to the enactment of FDASIA and were 
continuing to do so, through communication across various FDA offices 
and with manufacturers. Officials noted that they try to balance the 
risk to patients when making their decisions. That is, they consider 
the risk of allowing the continued distribution of the product--
despite the problems related to the possible enforcement action or 
warning letter--against the public health risks of the product not 
being available. FDA officials said they also continue to use their 
regulatory discretion to temporarily allow the importation of 
"unapproved drugs" into the United States to help prevent or resolve 
shortages of FDA-approved drugs that are critical to patients, in rare 
cases where the shortages cannot be resolved by manufacturers willing 
and able to supply the FDA-approved drugs in the immediate future. 
[Footnote 96] We previously reported that FDA had allowed for the 
importation of seven unapproved drugs from January 2011 through 
September 2011. FDA officials told us that, through June 30, 2013, 
they have subsequently allowed for the importation of nine additional 
unapproved drugs.[Footnote 97] For example, when the manufacturer of a 
drug used to treat patients who require total parenteral nutrition 
lost the use of a manufacturing site, FDA allowed importation of a 
comparable version of the drug not approved by FDA to prevent a 
potential shortage from occurring.[Footnote 98] 

Several stakeholders commented that FDA's efforts to allow the 
importation of unapproved drugs to address a shortage have improved, 
which has helped to resolve some critical shortages. However, some 
stakeholders noted that certain shortages could not be resolved 
quickly because it took a long time for FDA to respond to providers' 
requests to allow importation. For example, some stakeholders noted 
that delays in the importation of total parenteral nutrition products 
created significant challenges for treating patients who depend upon 
them. To help speed up the process of temporary importation, FDA 
officials said that since January 2012 they have proactively 
identified foreign manufacturers that have expressed a willingness to 
import their drugs to help with a shortage. Officials said this has 
allowed them to reach out to companies more quickly and has already 
helped the agency address one shortage. 

FDA has also reported using its regulatory discretion in other ways. 
For example, the manufacturer of a drug that may slow the progress of 
the human immunodeficiency virus and acquired immune deficiency 
syndrome lost its component supplier and was forced to find a new one. 
However, this new supplier was experiencing a quality problem. FDA 
used its regulatory discretion to allow the manufacturer to use the 
new component supplier while quality problems were being addressed 
after it determined those issues posed no significant risks to public 
health. In another instance, FDA used its regulatory discretion to 
allow the continued marketing of a drug, despite a manufacturing 
deviation, after determining the benefits of having the drug available 
outweighed the risk associated with the manufacturing error. 

FDA Is Working to Further Improve Its Response to Drug Shortages: 

FDA is taking steps to further enhance its ability to respond to 
shortages. Some of the agency's actions are required by FDASIA, some 
are in response to recommendations we made in 2011, and others were 
initiated by the agency. For example, FDA has established the Drug 
Shortages Task Force as required by FDASIA.[Footnote 99] FDA officials 
said the Drug Shortages Task Force has helped FDA revise internal 
policies and procedures, track the development of the proposed 
regulations for implementing the manufacturer notification 
requirements, and generally coordinate across the agency on issues 
related to drug shortages. 

Consistent with other FDASIA requirements, FDA is continuing to make 
shortage information available to appropriate stakeholders, including 
physicians, patient groups, and DEA; is maintaining an up-to-date list 
of drugs in shortage; and has identified a mechanism through which 
health care providers and other groups report shortage-related 
information to FDA.[Footnote 100] FDA officials told us the agency has 
been posting shortage information on its website since 1999 and 
includes information that describes how providers and others can 
report a potential drug shortage. The e-mail address and toll-free 
number listed on the website are the main mechanisms through which FDA 
receives drug shortage-related reports from health care providers or 
other third-party groups. 

FDASIA requires FDA to maintain an up-to-date list of drugs that it 
determines to be in shortage and--subject to public health, trade 
secret, and confidentiality concerns--make the list publicly 
available. FDA officials told us that, upon receiving notification of 
a potential drug shortage, the agency works to verify whether a 
shortage exists through contacting the drug's manufacturer to 
determine supply levels and comparing that to industry sales data on 
historical demand for the product. Once FDA determines that the amount 
of the drug--or pharmaceutical equivalents--appears to be insufficient 
to meet demand, the agency posts information about the shortage on its 
drug shortages website. Though FDA takes steps to respond to all 
shortages about which the agency is informed, officials said the 
agency places the highest priority on responding to shortages of drugs 
that it considers medically necessary.[Footnote 101] Nevertheless, 
officials said that FDA's website includes all verified shortages, 
regardless of whether the drug is determined to be medically 
necessary.[Footnote 102] However, FDA officials noted that the agency 
may not be notified of all potential shortages, because FDASIA only 
requires manufacturers to report disruptions in the production of 
drugs that are life supporting, life sustaining, or used to treat 
debilitating health issues. Though health care professionals can also 
notify FDA about potential shortages, FDA officials told us that the 
agency is less likely to be notified about shortages of drugs for 
which there are easy substitutes or little patient impact. 

In July 2012, as required by FDASIA, FDA began classifying the reasons 
for shortages using standardized terminology specified in the law and 
posting this information on its website along with information on 
estimated shortage duration.[Footnote 103] Also, though not required 
by FDASIA, in July 2013 FDA added information on the therapeutic 
categories of drugs in shortage to its drug shortages website. This 
change allows users, for example, to view all oncology shortages in 
one place, rather than having to review the entire list of drugs in 
shortage and identify individual drugs used in oncology themselves. 
FDA plans to improve the functionality of the website further by 
allowing users to sort shortages by other types of information as 
well. A number of stakeholders noted that the improvements to FDA's 
drug shortage website help them keep informed about drug shortages. 
However, some expressed disappointment with the passive nature of the 
website as stakeholders must proactively visit the website as opposed 
to receiving automated alerts. A number of stakeholders noted that 
notifications of shortages by therapeutic class would be particularly 
helpful for communicating the potential for a shortage to targeted 
groups earlier. FDA officials said that they plan to add active alerts 
by therapeutic category to the website. 

Although FDA continues to refine the information on its website, it is 
nonetheless dependent on what manufacturers report to the agency: the 
reported reasons for a shortage and the estimated length of the 
shortage. The information FDA receives from manufacturers and other 
sources may be incomplete and may change over time. As a result, the 
information on the website may not always be current and accurate. 
Stakeholders noted that the reasons given for the shortages are often 
categorized as "other" which can make it difficult to understand why a 
drug is in shortage. FDA officials said they use the category "other" 
when none of the classifying terminology required by FDASIA directly 
applies, although FDA officials said they try to include available 
details to help explain the cause of the shortage. In addition, FDA 
may not be able to publicly post all of the information the agency 
receives from manufacturers because some of the information provided 
to FDA is proprietary. Although some stakeholders reported that 
information on the duration of a shortage is one of the most useful 
pieces of information that can be provided, others noted that the 
estimated shortage resolution dates on FDA's website are not always 
reliable. Two stakeholders said that the estimated duration for a 
shortage is often listed as "unavailable" or "to be determined," which 
is not particularly helpful. Stakeholders noted that such inaccuracies 
may limit their ability to plan ahead. For example, a representative 
of one provider group noted that in order to plan for the multiple 
rounds of a patient's chemotherapy regimen, the provider would need to 
be sure that there will be a sufficient supply of the drug for the 
second round of chemotherapy before starting the first. Manufacturer 
representatives said the complexity of a manufacturing disruption 
often makes it difficult to provide FDA accurate estimates of the time 
it will take to resolve the disruption. 

FDA has also taken steps to respond to the recommendations we made in 
our 2011 report. In response to our recommendation that FDA develop an 
information system that would allow drug shortage data to be tracked 
in a systematic manner--to be consistent with the internal control 
standards for the federal government--the agency developed a drug 
shortage database that is used on a daily basis to track shortages, 
document the actions FDA takes to prevent and resolve shortages, and 
monitor the workload of DSS personnel.[Footnote 104] All FDA offices 
can access the database; however, the officials we spoke with said 
they request information from DSS instead of accessing the database 
directly.[Footnote 105] In September 2013, FDA informed us that it is 
now planning to transition from its existing database to an 
information system with additional capabilities and functionality. For 
example, FDA officials said they are planning to automate some of the 
data fields by extracting information from other sources that provide 
NDCs, market share, and other relevant product information. This may 
reduce the likelihood of manual entry errors and speed up the entry of 
some shortage information. The officials said the establishment of an 
information system could also help facilitate analysis related to drug 
shortages. However, they were unable to provide us with a description 
of the types of analyses they would conduct. 

FDA has also taken steps to respond to our recommendation related to 
the resources allocated to the drug shortage program.[Footnote 106] 
FDA has since increased the number of DSS personnel from 4 in 2011 to 
11 in 2013 and officials said this has improved FDA's ability to 
respond to drug shortages in a number of ways. First, it allowed FDA 
to assign each manufacturer experiencing a shortage a specific contact 
person, which FDA officials said has allowed the agency and the 
manufacturers to develop better working relationships and has improved 
information sharing. Representatives from one manufacturer we spoke 
with agreed that this effort has improved their relationship with FDA. 
In addition, a number of stakeholders, including other manufacturers' 
representatives, noted it is now easier to contact DSS officials and 
that discussions have become more regular. Second, FDA officials said 
having additional staff has allowed them to respond more quickly to 
manufacturer notifications and to identify possible approaches to 
preventing or resolving a shortage. Some stakeholders also noted that 
FDA reached out to them for additional information on specific drug 
shortages or the availability of certain drugs. Third, officials said 
it has allowed DSS to play a bigger role in revising drug shortage 
policies and procedures. 

FDA also improved the staffing resources available for responding to 
drug shortages by assigning drug shortage coordinators in each of its 
20 district offices. In addition, it developed written procedures to 
enhance coordination between headquarters staff in DSS, the CDER 
Office of Compliance, and staff in the district offices on issues 
related to drug shortages.[Footnote 107] FDA officials told us that 
the drug shortage coordinators have helped bring drug shortage-related 
concerns to light earlier, such as violative inspections at 
establishments that manufacture a large volume of drugs. Officials 
said this has improved FDA's ability to work with such manufacturers 
early in order to prevent drug shortages. FDA held a retreat in July 
2012 to educate the drug shortage coordinators and other staff on 
FDA's processes for responding to drug shortages. The retreat included 
a number of FDA offices, including CDER Office of Compliance, DSS, 
Office of Generic Drugs, Office of New Drug Quality Assessment, and 
Office of Regulatory Affairs, and officials said the retreat helped 
attendees understand drug shortage responsibilities of the various FDA 
offices.[Footnote 108] 

As required by FDASIA, FDA's Drug Shortages Task Force developed a 
strategic plan that identifies its goals and priorities for mitigating 
and resolving ongoing shortages and for preventing future shortages. 
This is also in line with our 2011 recommendation that FDA ensure that 
the agency's strategic plan articulates goals and priorities for 
maintaining the availability of all medically necessary drugs. Though 
FDA officials said the agency has not made this change in the agency-
wide strategic plan, FDA's drug shortages strategic plan includes two 
goals related to maintaining drug availability, each with a number of 
tasks for achieving the goal. The first goal--to improve and 
streamline FDA's current mitigation activities once the agency is 
notified of a supply disruption or shortage--includes four tasks: 
streamline internal FDA processes; improve data and response tracking; 
clarify roles and responsibilities of manufacturers; and enhance 
public communication about drug shortages. The second goal--to develop 
prevention strategies to address the underlying causes of production 
disruptions to prevent drug shortages--contains three tasks: develop 
methods to incentivize and prioritize manufacturing quality; use 
regulatory science to identify early warning signals of shortages; and 
increase knowledge to develop new strategies to address shortages. As 
part of this second goal, the strategic plan describes efforts FDA is 
considering to help address manufacturing and quality issues, 
including broader use of manufacturing metrics to assist in the 
evaluation of manufacturing quality and developing incentives for high-
quality manufacturing. 

Finally, FDA officials said that their annual report on drug 
shortages, which was due December 31, 2013, will contain information 
on performance measures to assess and quantify the implementation of 
the agency's goals and response to drug shortages, as we recommended 
in 2011. As of January 31, 2014, the annual report has not been 
released. 

FDA Lacks Policies and Procedures for Its Use and Management of Drug 
Shortage Data: 

While FDA is planning on establishing a new information system to 
track drug shortage data, it lacks policies, procedures, and specific 
training materials related to management and use of its existing drug 
shortage database. While FDA did create a database glossary, which 
briefly defines a number of the data fields, an official told us that 
no other documents or training materials have been created because 
staff use the existing database every day and are therefore familiar 
with its operation. Further, while FDA officials said they plan to 
create policies for entering data in the planned new drug shortage 
information system and create a tutorial for users, they have not yet 
done so. This lack of documentation may limit the agency's ability to 
communicate proper use of the existing and new databases to staff and 
could also ultimately lead to inconsistencies in the use of the 
database. The lack of policies and procedures is also inconsistent 
with internal control standards for the federal government, which 
state that agencies should have controls over information processes, 
including procedures and standards to ensure the completeness and 
accuracy of processed data.[Footnote 109] For example, internal 
controls require the appropriate documentation of system controls and 
that such documents be readily available for review. Such 
documentation may include management directives, administrative 
policies, and operating manuals; none of which have been prepared for 
the existing database.[Footnote 110] 

Related to FDA's lack of policy and procedures for its existing drug 
shortage database, we also found that FDA lacks sufficient controls to 
ensure the quality of the data in the existing database. For example, 
FDA officials said there are no automated data checks to ensure the 
accuracy of the data in the database. Instead, officials review the 
data for accuracy at the end of each year by relying on their memories 
of events, emails, and meeting notes. The first such data check was 
completed in 2012. Officials said they plan to perform another such 
review at the end of 2013, in preparation for the annual report to 
Congress. This practice is inconsistent with the internal control 
standards for the federal government, which require agencies to design 
controls, which may include data checks that help ensure completeness, 
accuracy, and validity of database entries. Without such data checks, 
FDA's existing database may be more likely to have errors, incomplete 
data, and inconsistent data. We asked officials to provide us with any 
documentation of their 2012 review of the existing database for 
accuracy and they were unable to do so. FDA officials said they plan 
to incorporate automated data checks in their new information system, 
which may eliminate the need for subsequent manual quality checking. 
FDA officials told us that, as of January 2014, any new drug shortages 
will be entered into their new information system. 

In addition, FDA has not conducted routine analyses of its existing 
drug shortage database to identify, evaluate, and respond to the risks 
of drug shortages proactively. Again, according to the internal 
control standards for the federal government, agencies should 
comprehensively identify risk through qualitative and quantitative 
methods, including data collected in the course of their work. 
[Footnote 111] FDA's drug shortages strategic plan states that the 
agency will explore using risk-based approaches to identify early 
warning signs of problems that could lead to production disruptions. 
However, FDA currently uses data on an ad hoc basis to respond to 
specific shortages as opposed to using the data to identify trends or 
patterns that may help it predict and possibly prevent shortages. 
According to FDA officials, other than producing the annual report 
required by FDASIA, the agency has not established regular schedules 
for generating reports in the database and is not currently using the 
database to conduct regular trend analyses. By only using the database 
to respond to individual shortages as they occur, FDA is missing 
opportunities to use the data proactively to enhance the agency's 
ability to prevent and mitigate drug shortages. 

Conclusions: 

FDA has made progress in preventing potential drug shortages and 
responding to actual shortages since we issued our last report in 
2011. In part, this progress can be attributed to the new FDASIA 
requirement that manufacturers provide FDA with information about 
potential or current shortages of drugs that are life supporting, life 
sustaining, or used to treat debilitating health issues. This 
additional information has improved the agency's ability to act more 
quickly when it learns of a potential shortage. Yet, the number of 
shortages remains high, despite the fact that FDA has taken steps to 
prevent and mitigate shortages, such as expediting application reviews 
and inspections, exercising enforcement discretion in appropriate 
cases, and helping manufacturers respond to quality problems. Many 
shortages are prolonged, with some spanning multiple years. As a 
result, patients and providers continue to struggle as essential and 
life-saving medications--such as anti-infective, nutritive, and 
cardiovascular drugs--remain in short supply. These shortages 
complicate patient care and may lead to adverse outcomes with serious 
consequences. 

Although there are potential underlying causes of drug shortages, FDA 
has made important strides in responding to some immediate causes. 
However, some of the causes identified in our literature review and 
conversations with manufacturers are beyond the agency's authority, as 
it does not have control over private companies' business decisions. 
For example, FDA is unable to require manufacturers to start producing 
or continue producing drugs, or to build redundant manufacturing 
capacity, regardless of the severity of a shortage. Nonetheless, FDA 
can take steps to maximize the agency's ability to use the information 
at its disposal to address drug shortages. We continue to believe in 
the importance of our prior recommendation that FDA should develop an 
information system that would facilitate the agency's response to 
shortages. FDA took the first step in implementing this recommendation 
by creating a database on drug shortages. However, a key component of 
any system is assuring the reliability of the data. Our current work 
shows that the agency lacks adequate policies and procedures governing 
the use of its database, as well as sufficient checks to ensure the 
data's reliability--in both cases, the failure to do so is 
inconsistent with internal controls for the federal government. These 
shortcomings could hinder FDA's efforts to understand the causes of 
shortages as well as undermine its efforts to prevent them from 
occurring. Additionally, FDA's ability to manage risk-based decisions, 
including when to use regulatory discretion, and proactively help 
prevent and resolve shortages may be hindered by its lack of routine 
analysis of the data it collects. FDA may be missing an opportunity to 
identify causes of shortages, risks for shortages, and patterns in 
events which may be early indicators of shortages for certain types of 
manufacturers, drugs, or therapeutic classes. Though FDA has taken 
important steps to better prevent and address shortages, the large 
number of potential shortages itself suggests a market still at risk 
of continuing supply disruptions. 

Recommendations: 

To enhance its oversight of drug shortages, particularly as the agency 
fine-tunes the manner in which it gathers data on shortages and 
transitions from its database to a more robust system, we recommend 
that the Commissioner of FDA take the following two actions: 

* develop policies and procedures for the use of the existing drug 
shortages database (and, ultimately, the new drug shortages 
information system) to ensure staff enter information into the 
database in a consistent manner and to ensure the accuracy of the 
information in the database; and: 

* conduct periodic analyses using the existing drug shortages database 
(and, eventually, the new drug shortages information system) to 
routinely and systematically assess drug shortage information, and use 
this information proactively to identify risk factors for potential 
drug shortages early, thereby potentially helping FDA to recognize 
trends, clarify causes, and resolve problems before drugs go into 
short supply. 

Agency and Third-Party Comments and Our Evaluation: 

We provided a draft of this report for comment to HHS, the Department 
of Justice, and the Federal Trade Commission. We also provided 
excerpts of this report for comment to the Department of Defense, the 
Department of Homeland Security (for review of the U.S. Coast Guard), 
the Department of Veterans Affairs, and UUDIS. We received written 
comments from HHS, which are reproduced in appendix V. We also 
received technical comments from HHS, the Department of Defense, the 
Federal Trade Commission, and UUDIS, which we incorporated as 
appropriate. The Department of Homeland Security, the Department of 
Justice, and the Department of Veterans Affairs did not have any 
comments based on their review. 

In its comments, HHS stated that drug shortages remain a significant 
public health issue and emphasized its commitment to preventing new 
shortages and resolving those that are already ongoing. HHS agreed 
with our recommendations to enhance its oversight by developing 
policies and procedures for its drug shortages database and by 
conducting periodic analyses of these data to identify drug shortage 
risk factors. Regarding our first recommendation, HHS said it agrees 
that policies and procedures for data entry are important to help 
assure the timely, accurate, and consistent inputting of data into its 
drug shortage database. Regarding our second recommendation, HHS 
agreed that it could make better use of its drug shortage data to 
identify trends, clarify causes of shortages, and resolve problems 
before drugs go into short supply. However, HHS noted that there are 
many factors that can trigger or exacerbate a shortage and that it 
lacks some relevant data, such as detailed information on 
manufacturing capability, to create a comprehensive forecasting system 
for drug shortages. We acknowledge that the agency's access to certain 
information is limited, but believe that routine analysis of available 
data could nonetheless reveal some early indicators of shortages. 

Although HHS agreed with our recommendations, it took issue with our 
use of UUDIS data concerning the persistence of recent shortages. HHS 
said that these data may overstate the number of shortages that 
persist because UUDIS considers a shortage to be ongoing unless all 
NDCs for a given product are available, even if some manufacturers 
that currently produce the drug have increased production enough to 
meet all demand. We recognize that there are differences in the way 
UUDIS and FDA define, and therefore count, shortages. Our report notes 
that FDA considers a shortage to be resolved when the total supply of 
the drug and any pharmaceutical equivalents is sufficient to meet 
demand in the market overall. UUDIS defines shortages more broadly, 
focusing on supply issues that affect how pharmacies prepare and 
dispense a product or that influence patient care when prescribers 
must choose an alternative therapy because of supply issues. According 
to a UUDIS official, tracking all NDCs for all manufacturers is 
important for providers because using substituting one package size 
for another may create a safety issue. To enhance clarity, we have 
provided additional detail in our report to describe UUDIS's methods 
for defining and tracking shortages. 

Moreover, it is important to note that we used UUDIS data because FDA 
was unable to provide data on shortages that would allow for an 
analysis of trends. As we have previously reported, until FDA 
established a database containing shortage information in 2011, the 
agency did not systematically maintain data on shortages.[Footnote 
112] In the absence of FDA data, the data from UUDIS was the only data 
that we could identify that would allow for a meaningful analysis of 
drug shortages over time. 

We are sending copies of this report to the Secretary of the 
Department of Health and Human Services, the Attorney General, the 
Chairman of the Federal Trade Commission, appropriate congressional 
committees, as well as other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or crossem@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who make key contributions 
to this report are listed in appendix VI. 

Signed by: 

Marcia Crosse: 
Director, Health Care: 

List of Addressees: 

The Honorable Tom Harkin: 
Chairman: 
The Honorable Lamar Alexander: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Fred Upton: 
Chairman: 
The Honorable Henry A. Waxman: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Anna G. Eshoo: 
Ranking Member: 
Subcommittee on Communications and Technology: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Frank Pallone, Jr. 
Ranking Member: 
Subcommittee on Health: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Diana DeGette: 
Ranking Member: 
Subcommittee on Oversight and Investigations: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable John D. Dingell: 
House of Representatives: 

The Honorable Edward J. Markey: 
United States Senate: 

[End of section] 

Appendix I: Scope and Methodology - Trends in and Causes of Drug 
Shortages: 

As part of our report objectives, we reviewed the trends in recent 
drug shortages and examined the causes of drug shortages. This 
appendix provides further detail on our methods. 

Trends: 

To review the trends in recent drug shortages, we identified the 
number of drugs that were in short supply from January 1, 2007, 
through June 30, 2013, and examined the characteristics of drugs that 
were reported to be in shortage from June 1, 2011, through June 30, 
2013. Specifically, to review trends in recent drug shortages that 
occurred from January 1, 2007, through June 30, 2013, we analyzed data 
from the University of Utah Drug Information Service (UUDIS), which 
were the most recent data available at the time we did our work. 
[Footnote 113] These data are generally regarded as the most 
comprehensive and reliable source of drug shortage information for the 
time period we reviewed and are what we used in preparing our 2011 
report.[Footnote 114] We focused our analysis on shortages of 
prescription drugs.[Footnote 115] We reviewed UUDIS' drug shortage 
data to identify (1) the total number of new shortages reported each 
year and (2) the total number of active shortages each year. To 
calculate the total number of new shortages reported each year, we 
counted shortages only for the year in which UUDIS was first notified 
and not in any subsequent years during which the shortage may have 
been active.[Footnote 116] To calculate the number of active shortages 
in each year, we included both shortages reported that year and any 
shortages that had started in a prior year, but were still ongoing 
during the year.[Footnote 117] We also identified the duration of any 
shortages reported from January 1, 2007, through June 30, 2013, and 
the number of drugs that had been in short supply on more than one 
occasion. To identify drugs that had been in short supply more than 
once, we grouped together shortages of clinically interchangeable 
versions of a drug that were administered through the same route, such 
as injection. We confirmed our grouping of these shortages with a 
knowledgeable pharmacist from UUDIS. 

To analyze the characteristics of shortages, we reviewed 219 drug 
shortages that were newly reported between June 1, 2011, and June 30, 
2013, and that UUDIS identified as critical.[Footnote 118] These 
critical shortages were a subset of the total number of shortages 
reported during this time. Specifically, these 219 shortages 
represented 57 percent of the 382 shortages reported between June 1, 
2011, and June 30, 2013. UUDIS identified these shortages as critical 
because alternative medications were unavailable, the shortages 
affected multiple manufacturers, or it received multiple reports from 
different institutions. For these critical shortages, we obtained drug 
shortage bulletins created by UUDIS, which contain the national drug 
codes (NDC) associated with each shortage.[Footnote 119] Using these 
NDCs, we analyzed Red Book data to determine the product types, routes 
of administration, and therapeutic classes of the critical 
shortages.[Footnote 120] We reviewed all UUDIS data for 
reasonableness, outliers, and consistency, and determined that the 
data were sufficiently reliable for our purposes. 

Causes: 

Literature Review: 

To examine the causes of recent drug shortages, we conducted a 
structured search of research databases using various combinations of 
relevant search terms including, "drug", "shortage", "supply", 
"medication", and "generic" to identify any literature published from 
January 1, 2003, through June 30, 2013, that reported on the causes of 
drug shortages.[Footnote 121] We then reviewed the abstracts for 714 
articles and the full-text of 176 of those articles to determine 
whether they addressed the causes of drug shortages and met our 
inclusion criteria. Our inclusion criteria included journal articles 
and government publications, as well as policy briefs or papers, in 
which the causes of drug shortages were examined through the 
presentation of original research. Because there is not a large volume 
of peer-reviewed literature that incorporates original research, we 
also included articles that provided an in-depth discussion of the 
causes of drug shortages. However, we excluded editorials and news 
wire articles from our review. Finally, we included directly relevant 
studies to which we were referred by stakeholders, but which did not 
appear in our initial search. Based on these steps, we identified 20 
articles that were published between March 1, 2005, and March 31, 
2013, and then summarized the causes of shortages on which these 
articles reported.[Footnote 122] While our search criteria were for 
shortages of all drug types, the majority of the articles we 
identified were focused on generic sterile injectables, which have 
frequently been in shortage in recent years. For the purposes of 
reporting on our literature review, we identified and summarized the 
causes frequently discussed in the literature and did not list all 
topics mentioned in each article we reviewed. Some causes that were 
mentioned only sparingly in the literature were not included in our 
review. 

Articles Included in Literature Review: 

American Society of Health-System Pharmacists. "ASHP Guidelines on 
Managing Drug Product Shortages in Hospitals and Health Systems." 
American Journal of Health-System Pharmacy, vol. 66, no.15 (2009): 
1399-1406. 

Balkhi, B., L. Araujo-Lama, E. Seoane-Vazquez, R. Rodriguez-Monguio, 
S. L. Szeinbach, and E. R. Fox. "Shortages of Systemic Antibiotics in 
the U.S.A.: How Long Can We Wait?" Journal of Pharmaceutical Health 
Services Research, vol. 4, no. 1 (2013): 13-17. 

Born, K. "Time and Money: An Analysis of the Legislative Efforts to 
Address the Prescription Drug Shortage Crisis in America." The Journal 
of Legal Medicine, vol. 33, no. 2 (2012): 235-251. 

Department of Health and Human Services. Office of the Assistant 
Secretary for Planning and Evaluation, Economic Analysis of the Causes 
of Drug Shortages. Washington, D.C.: October 2011. 

Department of Health and Human Services. Food and Drug Administration. 
A Review of FDA's Approach to Medical Product Shortages. Silver 
Spring, Md: October 2011. 

Dorsey, E. R., J. P. Thompson, E. J. Dayoub, B. George, L. A. 
Saubermann, and R. G. Holloway. "Selegiline Shortage: Causes and Costs 
of a Generic Drug Shortage." Neurology, vol. 73, no. 3 (2009): 213-217. 

Gatesman, M. L., and T.J. Smith. "The Shortage of Essential 
Chemotherapy Drugs in the United States." The New England Journal of 
Medicine, vol. 365, no. 18 (2011): 1653-1655. 

Gehrett, B. K. "A Prescription for Drug Shortages." JAMA: The Journal 
of the American Medical Association, vol. 307, no. 2 (2012): 153-154. 

Graham, John. R. The Shortage of Generic Sterile Injectable Drugs: 
Diagnosis and Solutions. Midland, Mich.: Mackinac Center for Public 
Policy, June 2012. 

Griffith, M. M., A. E. Gross; S.H. Sutton, M.K. Bolon. J. S. Esterly, 
J. A. Patel, M. J. Postelnick, T. R. Zembower, and M. H. Scheetz. "The 
Impact of Anti-infective Drug Shortages on Hospitals in the United 
States: Trends and Causes." Clinical Infectious Diseases, vol. 54, no. 
5 (2012): 684-691. 

Hoffman, S. "The Drugs Stop Here: A Public Framework to Address the 
Drug Shortage Crisis." Food and Drug Law Journal, vol. 67, no. 1 
(2012): 1-22. 

Jensen, V., R. Kimzey, and J. Saliba. "An Overview of the FDA's Drug 
Shortage Program." Pharmacy and Therapeutics, vol. 30, no. 3 (2005): 
174-175 & 177. 

Jensen, V., and B. A. Rappaport. "The Reality of Drug Shortages--The 
Case of the Injectable Agent Propofol." The New England Journal of 
Medicine, vol. 363, no. 9 (2010): 806-807. 

Johnson, P. J. "The Ongoing Drug Shortage Problem Affecting the NICU." 
Neonatal Network, vol. 31, no. 5 (2012): 323-327. 

Kweder, S.L., and S. Dill. "Drug Shortages: The Cycle of Quantity and 
Quality." Clinical Pharmacology & Therapeutics, vol. 93, no. 3 (2013): 
245-251. 

Schweitzer, S. O. "How the U.S. Food and Drug Administration Can Solve 
the Prescription Drug Shortage Problem." American Journal of Public 
Health, vol. 103, no. 5 (2013): e10-e14. 

U.S. House of Representatives. Committee on Oversight and Government 
Reform. Staff Report. "FDA's Contribution to the Drug Shortage 
Crisis." (Washington, D.C.: June 2012). 

Ventola, C. L. "The Drug Shortage Crisis in the United States: Causes, 
Impact, and Management Strategies." Pharmacy and Therapeutics, vol. 
36, no.11 (2011): 740-742 & 749-757. 

Woodcock, J., and M. Wosinska. "Economic and Technological Drivers of 
Generic Sterile Injectable Drug Shortages." Clinical Pharmacology & 
Therapeutics, vol. 93, no. 2 (2013): 170-176. 

Yurukoglu, A. "Medicare Reimbursements and Shortages of Sterile 
Injectable Pharmaceuticals." National Bureau of Economic Research 
Working Paper No.17987 (2012). 

Stakeholder Views: 

We also interviewed, and in some cases, obtained written responses 
from, manufacturers and group purchasing organizations (GPO) regarding 
the causes of drug shortages identified through our literature review 
because the reported causes we identified were related to the role 
that these stakeholders have in the drug supply chain.[Footnote 123] 
We interviewed three leading national associations representing drug 
manufacturers, both brand-name and generic, and five generic sterile 
injectable manufacturers. Specifically, we selected the top three 
manufacturers of generic sterile injectables between 2010 and 2012. We 
also selected two additional manufacturers, which were among the 
manufacturers associated with the highest number of shortages, 
according to a 2011 report by the IMS Institute for Healthcare 
Informatics.[Footnote 124] We provided manufacturers and manufacturer 
associations with a list of potential causes based on our review of 
the literature and asked them to comment on each cause either through 
interviews or in writing. Finally, we selected the three largest GPOs 
based on their self-reported purchasing volume in fiscal year 2011 and 
asked each to comment on causes in writing.[Footnote 125] 

Analysis of FDA Data: 

We also analyzed FDA data on the reported causes of shortages for all 
shortages that it was notified about from January 1, 2011, through 
June 30, 2013. All data came from the database that FDA has developed 
to track shortages and reflects information reported by manufacturers 
to FDA that is subsequently analyzed and categorized by the agency. 
FDA defines a shortage as when the total supply of a drug and any 
pharmaceutical equivalents is inadequate to meet demand.[Footnote 126] 
FDA's definition of a shortage differs from UUDIS' and UUDIS also 
tracks shortages that do not meet FDA's definition of a shortage. For 
example, according to FDA officials, UUDIS will track shortages that 
only affect one manufacturer, even if other manufacturers of the same 
drug have supply available. FDA, however, will not consider such a 
situation to be a shortage if the other manufacturers that can supply 
the drug can meet national demand. We interviewed FDA Drug Shortages 
Staff about the data and reviewed it for reasonableness, outliers, and 
consistency, and for our purposes, we determined that the data were 
sufficiently reliable. 

[End of section] 

Appendix II: List of Organizations Interviewed: 

Federal Agencies: 

1. Centers for Medicare & Medicaid Services: 
2. Department of Defense: 
3. Department of Justice: 
4. Department of Veterans Affairs: 
5. Federal Trade Commission: 
6. Food and Drug Administration: 
7. Indian Health Service: 
8. National Institutes of Health: 
9. Office of the Assistant Secretary for Planning and Evaluation, 
Department of Health and Human Services: 
10. U.S. Coast Guard: 

Provider Organizations: 

1. American Academy of Pediatrics: 
2. American College of Clinical Pharmacy: 
3. American Hospital Association: 
4. American Medical Association: 
5. American Pharmacists Association: 
6. American Society for Parenteral and Enteral Nutrition: 
7. American Society of Clinical Oncology: 
8. American Society of Health-System Pharmacists: 
9. Children's Hospital Association: 
10. National Community Pharmacists Association: 

Wholesale Distributors: 

1. AmerisourceBergen Corporation: 
2. Cardinal Health: 
3. McKesson Corporation: 

National Manufacturer Associations: 

1. Biotechnology Industry Organization: 
2. Generic Pharmaceutical Association: 
3. Pharmaceutical Research and Manufacturers of America: 

Manufacturers: 

1. APP, a division of Fresenius Kabi USA, LLC: 
2. Ben Venue Laboratories, Inc.
3. Hospira, Inc.
4. Teva Pharmaceuticals USA: 
5. West-Ward Pharmaceuticals: 

Group Purchasing Organizations: 

1. MedAssets: 
2. Novation, LLC: 
3. Premier, Inc. 

Other Groups: 

1. Healthcare Supply Chain Association: 
2. International Association of Fire Chiefs: 
3. Institute for Safe Medication Practices: 
4. National Association of Medicaid Directors: 
5. Oley Foundation: 
6. Physicians Against Drug Shortages: 
7. Safety Net Hospitals for Pharmaceutical Access: 

[End of section] 

Appendix III: Steps Federal Agencies Have Taken to Respond to Gray 
Market Activities: 

In the event of a drug shortage, providers who are unable to obtain 
drugs from their regular wholesale distributors may resort to 
purchasing drugs through distribution channels that were not 
authorized by the manufacturer, referred to as the gray 
market.[Footnote 127] Gray market suppliers typically obtain small 
quantities of a drug that is in short supply and offer it for purchase 
at an inflated price.[Footnote 128] Because the origin of gray market 
drugs may be unknown, there is no guarantee of the drug's pedigree or 
assurance that it was stored and transported appropriately, 
potentially putting patients at risk.[Footnote 129] 

This appendix describes steps federal agencies have taken in response 
to activities associated with the gray market for shortage drugs. To 
identify steps that federal agencies have taken, we interviewed 
officials from FDA, the Department of Justice (DOJ), and the Federal 
Trade Commission (FTC); reviewed federal laws and regulations, 
including an Executive Order on reducing prescription drug shortages 
issued on October 31, 2011; and examined agency documents. 

Federal Role in Relation to the Gray Market for Shortage Drugs: 

Among other things, the October 31, 2011, drug shortages Executive 
Order directed FDA to communicate to DOJ any findings by FDA that 
shortages have led market participants to stockpile shortage drugs or 
sell them at exorbitant prices.[Footnote 130] The Executive Order also 
directed DOJ to determine whether these activities violate federal 
law, and if so, to take appropriate enforcement actions. 

Certain activities involved with the sale of shortage drugs on the 
gray market could violate federal law--namely, the Federal Food, Drug, 
and Cosmetic Act (FDCA) and federal antitrust laws. Working together, 
FDA and DOJ are responsible for investigating and prosecuting 
violations of the FDCA, including provisions prohibiting 
counterfeiting and noncompliance with drug pedigree requirements. 
Under the FDCA, FDA is responsible for ensuring the safety, 
effectiveness, and quality of domestic and imported prescription 
drugs. This includes developing standards and identifying and 
validating effective technologies to secure the drug supply chain 
against counterfeit and diverted drugs.[Footnote 131] Among other 
requirements, the FDCA requires that drugs meet purity and quality 
standards, are authentic, and are stored under proper conditions. In 
addition, the FDCA requires a drug's path through the supply chain to 
be documented through a drug pedigree.[Footnote 132] FDA may take 
certain administrative actions against those that manufacture, market, 
or sell drugs that violate FDCA requirements. DOJ, often in 
consultation with FDA, may bring civil and criminal actions for such 
violations.[Footnote 133] 

FTC and DOJ's Antitrust Division are responsible for enforcing federal 
antitrust laws, which are designed to preserve and protect market 
competition.[Footnote 134] The federal antitrust laws include the 
Sherman Act, the Federal Trade Commission Act, and the Clayton Act. 
The Sherman Act, enforced by DOJ, prohibits monopolization and 
restraints of trade, and civil and criminal penalties may be imposed 
for violations of the act.[Footnote 135] The Federal Trade Commission 
Act, enforced by FTC, bans unfair methods of competition and unfair or 
deceptive acts or practices.[Footnote 136] For example, collusion by 
drug manufacturers to set prices may violate both the Sherman Act and 
the Federal Trade Commission Act. The Clayton Act, jointly enforced by 
DOJ and FTC, regulates mergers and acquisitions and prohibits those 
that may substantially lessen competition or create a monopoly and 
are, therefore, likely to increase prices for consumers.[Footnote 137] 
The Federal Trade Commission Act and Clayton Act are civil statutes 
that do not carry criminal penalties. 

Depending on the circumstances, there could be other authorities under 
which federal agencies could investigate and prosecute gray market 
activities. This includes, for example, the mail fraud statute, which 
makes it a crime to use the U.S. mail to commit a fraud, such as 
facilitating the sale of a shortage drug with a fake pedigree through 
the U.S. mail.[Footnote 138] 

Federal Agencies Review Gray Market Complaints for Illegal Activity: 

Consistent with the October 31, 2011, Executive Order on drug 
shortages, three federal agencies--FDA, DOJ, and FTC--review 
information concerning possible gray market sales of shortage drugs 
from a number of sources and have taken other steps to respond to 
relevant directives contained in the order.[Footnote 139] Yet 
officials from all three federal agencies told us that their 
authorities in relation to the gray market are limited. They explained 
that the selling of shortage drugs by suppliers not authorized by the 
manufacturer alone, even at exorbitant prices, does not itself violate 
federal law. Though gray market sales may violate agreements between 
manufacturers and wholesale distributors, such sales may not violate 
federal law unless they are made outside the legal distribution 
system. As a result, there have been no prosecutions or enforcement 
actions taken by federal agencies solely on the basis of gray market 
activities. 

FDA has compiled gray market solicitations into quarterly reports that 
it shares with DOJ as part of its response to the Executive Order's 
directive to communicate findings that shortages have led to the 
stockpiling or sale of shortage drugs at exorbitant prices.[Footnote 
140] From January 2012--when FDA first began providing this 
information to DOJ--through October 2013, FDA shared information on 
solicitations from 26 different wholesale distributors. According to 
FDA officials, these solicitations typically originate as e-mails to 
providers containing advertisements that list the drugs for sale and, 
in some cases, the prices, which the providers then forward to FDA. 
FDA officials said that some of the gray market solicitations were for 
sterile injectables in shortage, including drugs related to cancer 
treatment, emergency medicine, antibiotics, and nutritive products. 
For example, one solicitation stated that a wholesale distributor was 
offering an intravenous multi-vitamin for $785, when the average 
wholesale price for that same vitamin was $8.61. 

FDA officials told us that they review the solicitations to determine 
whether they violate the FDCA, such as a wholesale distributor making 
false claims about a drug or diverting a drug outside the legal 
distribution system. FDA has opened a number of investigations in 
relation to the solicitations to examine whether counterfeiting or 
diversion had occurred, but did not identify any illegal activity. 
[Footnote 141] For example, when the anesthetic propofol was in 
shortage, FDA did not object to the temporary importation of an 
unapproved version of the drug, but limited distribution to the 
manufacturer of the drug.[Footnote 142] However, in January 2010 FDA 
initiated two investigations related to complaints that the imported 
drug was being distributed by wholesale distributors, rather than the 
manufacturer. In both cases, FDA could not substantiate a criminal 
violation, so it closed the investigations. FDA officials told us that 
the FDCA does not prohibit hoarding or stockpiling of shortage drugs 
or regulate drug pricing. As a result, as of December 2013, FDA had 
not taken any enforcement action related to the gray market 
solicitations they reviewed, but had provided information from the 
solicitations to DOJ.[Footnote 143] 

Officials from DOJ told us that, as required by the Executive Order, 
they review FDA's quarterly reports for information that could 
indicate the drug listed was diverted for illegal purposes. For 
example, DOJ considers whether there is evidence of use of fake 
pedigrees in violation of the FDCA. DOJ officials noted that the 
solicitations listed in the quarterly reports sometimes indicate that 
a drug is being sold for a higher-than-normal price; however, selling 
drugs at elevated prices alone is not illegal. Such sales may be 
illegal, for example, if the drugs are bought and sold through 
diversion from the legal distribution system. DOJ officials told us 
that as of November 2013, DOJ had not launched any investigations or 
taken any enforcement actions based on the solicitations listed in the 
quarterly reports, because, according to DOJ officials, the reports 
have not indicated that any solicitation was unlawful.[Footnote 144] 
According to DOJ officials, based on information obtained separately 
from the quarterly reports, the agency has launched at least one 
investigation into activity in which there are indications of the 
illegal sales of shortage drugs through diversion. 

FTC staff told us they investigate complaints about the gray market 
received from the public, as well as complaints referred to them by 
FDA and Congress, to determine whether an antitrust investigation is 
warranted. FTC receives complaints from the public through a toll-free 
telephone number, an email address, and through the U.S. mail. 
[Footnote 145] FTC staff told us that they review these complaints to 
determine whether there is enough information, such as evidence that 
the company is engaging in any coordinated antitrust behavior in 
violation of the Federal Trade Commission Act or the Clayton Act, to 
warrant an investigation. According to FTC staff, as of November 2013 
they had not launched any full-phase investigations or taken any 
enforcement actions related to the pharmaceutical gray market. Though 
not a full-phase investigation, FTC staff told us that in the fall of 
2011 they conducted an initial investigation to determine whether 
wholesale distributors or other parties were engaged in any conduct 
that violated federal antitrust laws, such as colluding to hoard drugs 
in shortage and then selling the drugs at higher prices. However, they 
were unable to find any evidence that widespread hoarding was 
occurring. Instead, they found cases where a single wholesale 
distributor acting alone would buy a few vials of a shortage drug and 
then sell it at a higher price--a practice that is not illegal. 

In addition, in response to the Executive Order, federal agencies have 
worked together in an attempt to respond to gray market activities. In 
2012, FDA, DOJ, FTC, and the National Association of Attorneys General 
convened three meetings to discuss the legal authorities that might 
apply to the gray market and the activities that each was undertaking 
related to this issue. Officials told us that in the future, they will 
meet on an "as needed" basis. 

FDA officials told us that the agency is considering whether 
additional legal authorities to help address the pharmaceutical gray 
market and secure the drug supply chain would be beneficial. Such 
authorities may include registration and reporting requirements for 
wholesale distributors, potential prohibitions on wholesale 
distributors purchasing products from pharmacies, and pedigree and 
track-and-trace options.[Footnote 146] FDA officials also noted that 
gray markets do not cause shortages, but are a symptom of such 
shortages. To the extent that FDA and other stakeholders address drug 
shortages, opportunities for gray markets to develop will become more 
limited. DOJ officials told us that DOJ does not have the authority to 
address drug pricing and stockpiling of drugs per se, but noted that 
the agency does have the authority to prosecute suppliers operating 
outside of the legal distribution system, regardless of the drug's 
shortage status or price. Officials did not take a position as to 
whether additional authority over drug stockpiling and exorbitant 
pricing is necessary. FTC staff told us that they do not believe 
additional FTC authority in relation to the pharmaceutical gray market 
is necessary. They stated that the FTC's existing enforcement 
authority would be adequate to take action in relation to the inflated 
pricing of a shortage drug if such pricing was a consequence of 
anticompetitive conduct. If, however, the inflated pricing resulted 
from factors other than anticompetitive conduct, assessment of such 
issues would be outside the scope of the FTC's competition expertise. 

[End of section] 

Appendix IV: Summary of Recently Proposed Incentives to Alleviate or 
Prevent Drug Shortages: 

Some have suggested that incentivizing drug manufacturers to address 
the purported causes of drug shortages could alleviate or prevent such 
shortages. Proposed incentives include those related to regulatory 
activities undertaken by FDA or financial incentives that the federal 
government could provide to manufacturers.[Footnote 147] Some 
incentives target immediate causes of drug shortages, such as by 
rewarding manufacturers for a strong quality record, thereby reducing 
the likelihood of quality-related supply disruptions, or by increasing 
redundancy in drug supply chains. Other proposed incentives target 
underlying causes, such as by increasing manufacturer revenue in order 
to encourage manufacturers to remain in the market and continue 
investments in production facilities. 

This appendix provides a synopsis of incentives we identified that 
were (1) proposed by drug manufacturers and associations representing 
them in response to a February 2013 request from FDA for comment 
[Footnote 148] or (2) included in bills introduced in the 112th 
Congress and 113th Congress, through June 2013.[Footnote 149] We 
reviewed all manufacturer and association responses to FDA's request 
for comment and identified 10 responses that included incentives to 
alleviate or prevent shortages. We identified one bill with provisions 
intended to create incentives to alleviate or prevent drug shortages. 
[Footnote 150] Next, we summarized the proposed incentives identified 
in our review and provided the summary list to manufacturer and 
association representatives and to FDA for comment. We obtained 
comments from three leading national associations representing drug 
manufacturers, both brand and generic, and five generic sterile 
injectable manufacturers. For one incentive related to exempting 
certain products from Medicaid rebates and 340B discounts, we also 
obtained comments from relevant stakeholder groups whose members would 
be affected by this exemption.[Footnote 151] 

Regulatory Incentives: 

Expedited and streamlined reviews: Most of the comments submitted by 
manufacturers in response to FDA's request for comment proposed 
expediting or streamlining FDA review of regulatory submissions. 
Submissions that could be expedited included application supplements 
related to the approval of redundant manufacturing sites or new drug 
applications (NDA) or abbreviated new drug applications (ANDA) from 
manufacturers with a record of quality manufacturing and an adequate 
risk management plan to prevent shortages.[Footnote 152] According to 
FDA, as of June 30, 2013, there were more than 900 manufacturing 
supplements to NDAs, more than 5,700 manufacturing and chemistry 
supplements to ANDAs, and more than 2,700 ANDAs pending review. 
Therefore, proponents of expediting FDA review of regulatory 
submissions--including applications and supplements--note that 
increasing the speed of such reviews could provide an incentive to 
manufacturers to establish redundant manufacturing capacity to which 
production could be shifted in the event of manufacturing problems at 
a primary production facility, thereby avoiding a shortage. Further, 
by rewarding manufacturers with a history of quality manufacturing, 
expediting reviews could provide an incentive to ensure quality-
related production problems--and ensuing shortages--do not occur in 
the first place. 

While representatives of the stakeholders we interviewed were 
generally supportive of this potential incentive, they also identified 
some limitations. One stakeholder cautioned that the resource-
intensive nature of building in redundancy means it is a long-term 
solution, the implementation of which could hinder efforts to address 
current shortages. Another stakeholder noted that maintaining 
redundant manufacturing capacity is expensive and that expedited 
review alone may not provide enough of an incentive to establish such 
capacity. FDA officials noted that expediting reviews of regulatory 
submissions is a tool the agency already uses to address shortages. 
However, FDA officials cautioned that expanding the pool of 
submissions eligible for expedited review, without regard to the risk 
of shortage, could slow down review of all submissions and make 
expediting reviews meaningless. Representatives from one stakeholder 
echoed this concern, noting that, though faster than standard review 
times, in their experience there is already a backlog for review of 
supplements that have been expedited to address current shortages. 
Representatives from this stakeholder noted that without additional 
FDA resources devoted to the review of applications and supplements, 
making additional regulatory submissions eligible for expedited review 
would be problematic. FDA officials also noted that, although 
redundancy can help prevent a shortage if production stops, many 
shortages are the result of production disruptions driven by failures 
in manufacturing quality systems. Therefore, FDA officials told us 
that it is more important to prioritize incentives to improve 
manufacturing quality systems over those that expand capacity. To that 
end, as part of its drug shortages strategic plan goal to develop long-
term prevention strategies in order to prevent shortages, FDA states 
that it will continue to expedite reviews to mitigate shortages, 
including the review of submissions for facility upgrades to improve 
quality. 

Flexibility in meeting regulatory requirements: A few manufacturers 
proposed that FDA could allow for flexibility in meeting regulatory 
requirements for manufacturers with a strong history of compliance 
with current good manufacturing practice regulations or robust risk 
management plans to prevent shortages.[Footnote 153] For example, they 
suggest that FDA could reduce the level of agency review for such 
change notifications as manufacturing site transfers, if the 
manufacturer had a history of production without quality issues. 
[Footnote 154] When proposing such incentives, supporters commented 
that, as it could allow manufacturers to implement manufacturing 
changes more quickly, reducing the level of agency review could 
provide an incentive for quality production. Incentivizing quality 
production could thus reduce the likelihood of a quality-related 
supply disruption and shortage. One stakeholder generally supported 
this approach, as long as all manufacturers were still held to the 
same standards and any change in requirements was accompanied by FDA 
guidance on the new approach. FDA officials told us that the agency 
has issued guidance documents to help identify types of changes after 
an application is approved that represent a lower risk. They added 
that the agency is currently exploring new approaches to the review of 
application products. 

Decreased inspection frequency: Some manufacturers proposed the 
incentive of reduced frequency of FDA inspection for manufacturing 
establishments with a strong history of compliance with good 
manufacturing practices or robust risk management plans to prevent 
shortages.[Footnote 155] Proponents of such an approach told us that 
inspections are costly for the inspected establishment in terms of 
resources required to respond to issues raised by the FDA investigator 
conducting the inspection and in terms of production disruptions 
caused by the inspection itself. As it could reduce costs and 
disruptions for the manufacturer, if carefully designed so that 
manufacturers would still be inspected with some frequency, increasing 
the interval between inspections may provide an additional incentive 
for compliance with good manufacturing practices, which could reduce 
the likelihood of manufacturing quality issues and resultant 
shortages. One stakeholder commented that decreasing inspection 
frequency could be an effective incentive in the long term, but at 
present, frequent inspections set a high bar for manufacturers in this 
industry. FDA officials noted that the agency already considers 
compliance history as a major factor when determining the frequency of 
inspection of a manufacturing site. Further, in response to new Food 
and Drug Administration Safety and Innovation Act (FDASIA) authority, 
the agency is in the process of establishing a risk-based inspection 
schedule for all establishments.[Footnote 156] FDA officials told us 
that they are considering incorporating additional factors, such as 
process performance metrics and shortage performance, into their 
selection model. 

Transparency regarding compliance status of manufacturing sites: In 
documents submitted in response to FDA's request for comment, a few 
manufacturers proposed increasing the transparency of manufacturing 
establishment compliance status such as by assigning site scores or an 
FDA stamp of approval, which could help those engaged in drug 
purchasing and drug pricing negotiations--including providers, group 
purchasing organizations, insurers, and consumers--make informed 
purchasing and pricing decisions. Proponents of this approach suggest 
that FDA's provision of such quality metrics could make additional 
information publicly available for consideration in making purchasing 
and pricing decisions, thereby giving manufacturers an additional 
incentive for the highest quality production and making quality-
related supply disruptions less likely to occur. 

Representatives from the stakeholders we spoke with were generally 
skeptical of this approach. One noted that providers and group 
purchasing organizations--which are the primary decision makers for 
sterile injectable purchases, where shortages have recently been 
concentrated--assume that quality is built in to any FDA-approved drug 
and may not be able to readily interpret quality metrics. 
Representatives from one stakeholder told us that FDA has spent 
extensive time and effort educating prescribers and the public that 
there is one quality standard for all FDA-approved drugs and that, 
from this stakeholder's perspective, further differentiating quality 
with ratings would diminish confidence in the nation's drug supply and 
lead to confusion and mistrust. Representatives from another 
stakeholder expressed skepticism that the market would respond to such 
information by allowing for higher prices. Likewise, representatives 
from multiple stakeholders noted that information about FDA 
inspections of manufacturing establishments and warning letters are 
already available online and are presumably already used when making 
purchasing and pricing decisions. 

FDA officials confirmed that they currently provide information on the 
compliance status of manufacturing sites on the agency's website and 
added that they are looking for new ways to provide transparency in 
this area.[Footnote 157] They cautioned that there are significant 
questions and issues regarding how to provide more transparent 
compliance information to the public, such as the fact that FDA cannot 
disclose either confidential commercial information or trade secret 
information. Nevertheless, as part of its drug shortages strategic 
plan goal to develop long-term strategies in order to prevent 
shortages, FDA states that it is examining the broader use of quality 
metrics to assist in the evaluation of manufacturing quality. However, 
the plan also notes that although FDA can make quality information 
available to the public, including inspection outcomes, recalls, and 
shortages, buyers ultimately decide whether they will use these data 
when making purchasing decisions. 

Financial Incentives: 

Guaranteed purchase: A few manufacturers proposed that the federal 
government guarantee the purchase of a given volume of certain drugs. 
This would allow manufacturers to ensure capacity for a given 
production volume regardless of whether there is sufficient market 
demand. Representatives from one stakeholder that supported this 
proposal told us that such an incentive might bring more 
predictability to both the volume of product made and product margins. 
In turn, this guarantee could create some predictability in a 
manufacturer's ability to invest in their facilities, resulting in 
continued high quality and compliant production. One stakeholder noted 
that such an incentive may be useful in terms of ensuring the 
availability of future capacity, but at present would not be an 
effective tool to address shortages as there is simply no excess 
capacity available even if the government could guarantee purchase 
volume. FDA officials noted that establishing such a program would be 
challenging. For example, identifying a list of drugs eligible for 
guaranteed purchase would be difficult, because it is hard to predict 
which drugs are vulnerable to shortage in advance and the particular 
drugs at risk of shortage may change rapidly. 

Reduction in fees: Both recently-introduced federal legislation and 
some manufacturers proposed reducing manufacturer fees to help 
alleviate or prevent drug shortages. As introduced in the 112th 
Congress, H.R. 6611 proposed exempting certain drugs from the annual 
branded prescription drug fee established by the Patient Protection 
and Affordable Care Act in order to provide an incentive for brand-
name drug manufacturers to enter the market to produce a drug in short 
supply.[Footnote 158] Proponents of this approach state that a 
reduction in the annual branded prescription drug fee could induce 
brand-name companies to re-enter the market. One stakeholder also 
noted that brand-name manufacturers may have more idle capacity than 
generic manufacturers, so encouraging them to re-enter a market could 
be effective in addressing shortages. 

A few manufacturers proposed a reduction in or waiver of various user 
fees if the manufacturer demonstrates that they have built redundant 
capacity into their manufacturing plan.[Footnote 159] Proponents of 
user fee reductions noted that building redundancy into a 
manufacturing plan is resource intensive and that a fee reduction to 
help offset these costs could incentivize manufacturers to build 
redundancy which could help prevent supply disruptions. At the same 
time, one stakeholder that supported this approach noted that, though 
user fees add up, reducing such fees would not make a large enough 
economic difference to impact a manufacturer's decision to enter or 
exit a market. FDA officials first noted that any changes to the user 
fee structure would have to be negotiated with industry and then 
enacted by Congress. They stated that, although the agency is open to 
using user fees as a way to prevent shortages and encourage 
manufacturers to help address a shortage that does arise, there are 
some uncertainties about doing this. For example, definitions of 
redundancy are unclear and mechanisms ensuring redundant capacity is 
not repurposed would need to be developed and enforced. Finally, FDA 
officials also cautioned that reducing or waiving fees for certain 
manufacturers could increase fees on other manufacturers. This is 
because the total amount of user fees FDA collects is fixed in statute 
and the annual fees assessed against individual manufacturers are 
determined by dividing the fixed statutory amount by the forecasted 
number of fee-paying entities. As a result, elimination of, or a 
reduction in, fees for some parties would effectively transfer these 
costs to the remaining fee-paying entities. 

Tax incentives: In order to offset the costs of such investment, some 
manufacturers proposed tax credits targeted to manufacturers that 
invest in redundant manufacturing capacity. Multiple stakeholders 
noted that, given the significant costs associated with new 
manufacturing establishments, such an incentive would only be 
effective for manufacturers that already operated such establishments. 
Representatives from one stakeholder noted that the time, resources, 
and approvals to create a new manufacturing site are likely to take 
more than 3 years with associated costs totaling tens of millions of 
dollars. Therefore, tax credits are a strong incentive for companies 
to re-invest in existing infrastructure, not necessarily to create new 
infrastructure. FDA officials told us that modernizing existing 
facilities to prevent quality and safety issues that lead to shortages 
can go a long way to prevent shortages even in a system with little 
redundancy. They noted that such incentives would need to encourage 
manufacturers to purchase new equipment, renovate facilities, and 
implement new manufacturing processes and technologies. 

Changes in drug pricing or reimbursement: As introduced in the 112th 
Congress, H.R. 6611 proposed changing the reimbursement rate or 
pricing system for generic sterile injectable products for which there 
are three or fewer active manufacturers. Such changes are intended to 
prevent shortages by providing an incentive to manufacturers to 
continue production in a concentrated market. Specifically, the bill 
proposed changing the calculation of the Medicare reimbursement rate 
for generic sterile injectable products for which there are three or 
fewer active manufacturers from average sales price plus 6 percent to 
wholesale acquisition cost.[Footnote 160] It would also exempt such 
products from Medicaid rebates and 340B discounts. 

The premise of the Medicare reimbursement change proposal is that 
basing reimbursement on wholesale acquisition cost will enable 
manufacturers to adjust their prices to meet supply and demand, which 
some claim the current reimbursement structure prevents.[Footnote 161] 
By allowing manufacturers to more readily adjust their prices and 
achieve a profit, this proposal aims to provide an incentive for 
manufacturers to remain in the market, thereby preventing further 
erosion of manufacturing capacity, which could make the generic 
sterile injectable market even more vulnerable to shortages. 
Proponents note that this incentive could positively affect 
manufacturer profit and influence a manufacturer's decision about 
participating in the market for a particular drug. One stakeholder 
cautioned that, in their opinion, using reimbursement as an incentive 
increases the risk of fraud and abuse. 

The premise of the Medicaid rebate and 340B discount exemptions 
proposal is that such rebates exert additional downward pressure on 
already extremely low prices, thereby limiting manufacturers' ability 
to sustain production and upgrade facilities. Removing such rebates 
and discounts would provide additional revenue to manufacturers, 
thereby potentially providing them an incentive to remain in the 
market and maintain manufacturing capacity or to re-enter the market. 
Proponents state that this incentive may help influence manufacturer 
margins, thereby providing revenue to invest in production capacity to 
ensure demand is met. However, some stakeholders caution that these 
exemptions would increase costs to patients and the government 
(including increasing drug costs and administrative costs to the 
government for tracking such an exemption). Representatives from one 
stakeholder group we interviewed noted that, according to its 
inquiries, the majority of generic sterile injectable drugs are 
manufactured by three or fewer manufacturers, in which case nearly all 
such drugs would be subject to this exemption, whether the drug had 
ever been in shortage or not. Further, stakeholders noted that generic 
sterile injectable drugs are often administered in hospital inpatient 
departments and are therefore not subject to Medicaid rebates, which 
only apply to outpatient drugs. One stakeholder stated that for the 
few drugs in this group that are subject to Medicaid rebates, the cost 
of these drugs is already low, which would result in a minimal 
financial impact of such an exemption. Finally, one stakeholder stated 
that 340B discount exemptions would have a minimal influence on drug 
shortages. 

[End of section] 

Appendix V: Comments from the Department of Health and Human Services: 

Department of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

January 17, 2014: 

Marcia Crosse: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. Crosse: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled, "Drug Shortages: Public Health Threat 
Continues, Despite Efforts to Help Ensure Product Availability" (GA0-
14-194). 

The Department appreciates the opportunity to review this report prior 
to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

The Department Of Health And Human Services' (HHS) General Comments To 
The Government Accountability Office's Draft Report, Entitled, "Drug 
Shortages: Public Health Threat Continues, Despite Efforts To Help 
Ensure Product Availability" (GAO-14-194): 

HHS is committed to the prevention of new drug shortages and the 
resolution of ongoing drug shortages, which remain a significant 
public health issue in the United States. The GAO report recognizes 
HHS's successes in preventing and mitigating drug shortages. As the 
GAO report notes, we have done this by making the best use of the 
increase in notifications from manufacturers and other stakeholders 
since the President issued his Executive Order and Congress enacted 
the FDA Safety and Innovation Act (FDASIA). HHS will continue to use 
every tool available under its existing authorities to respond to 
potential shortage threats. 

We agree that, while HHS has made considerable progress in preventing 
new shortages, some shortages persist. However, we are concerned that 
the data presented by GAO may overstate this problem by counting any 
shortage where not all National Drug Codes have been restored by all 
manufacturers as an ongoing shortage. This overstates shortage
persistence because there are many instances where not all 
manufacturers are producing all product codes but the manufacturers 
that are currently producing the drug have increased production of 
their product codes to meet all demand. 

HHS agrees with the GAO recommendations to continue improving the 
collection of drug shortage data and to better leverage such data, 
where possible, to assist in identifying trends, clarifying causes, 
and resolving problems before drugs go into short supply. HHS 
considers the drug shortage data as one part of a larger system of 
data that would help identify problems with quality drug manufacturing 
as they evolve. The focus of this effort is on preventing shortages by 
getting ahead of quality problems, consistent with the long-term 
approach laid out in FDA's October 2013 Strategic Plan for Preventing 
and Mitigating Drug Shortages (Drug Shortage Strategic Plan). 
[hyperlink, 
http://www.fda.govklownloads/druqs/druqsafety/drugshortaqes/ucm372566.pd
f]. 

HHS agrees that there are many factors that can trigger or exacerbate 
a shortage; however, we lack the relevant data to create a 
comprehensive forecasting system for drug shortages. For example, we 
do not have access to economic/product margin information or detailed 
data associated with manufacturing capability or capacity. A 
comprehensive forecasting system would require this information both 
for drugs in shortage and not in shortage. 

HHS agrees that policies and procedures for data entry are important 
to help assure the timely, accurate, and consistent inputting of data 
into the drug shortage database. As GAO points out, FDA has ongoing 
work that is summarized in the FDA's Drug Shortage Strategic Plan to 
assure that such policies and procedures are established. HHS will 
also continue its dialogue with manufacturers and other stakeholders 
to help ensure that drugs are available to patients who need them. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Marcia Crosse, (202) 512-7114, crossem@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Geri Redican-Bigott, Assistant 
Director; Katherine L. Amoroso; Zhi Boon; Leia Dickerson; Sandra 
George; Alison Goetsch; Cathleen Hamann; Rebecca Hendrickson; Eagan 
Kemp; Sarah-Lynn McGrath; Yesook Merrill; and Leslie Powell made key 
contributions to this report. 

[End of section] 

Related GAO Products: 

Drug Compounding: Clear Authority and More Reliable Data Needed to 
Strengthen FDA Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-13-702]. Washington, D.C.: July 31, 
2013. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-13-283]. Washington, D.C.: February 
2013. 

Drug Shortages: FDA's Ability to Respond Should Be Strengthened. 
[hyperlink, http://www.gao.gov/products/GAO-12-315T]. Washington, 
D.C.: December 15, 2011. 

Drug Shortages: FDA's Ability to Respond Should Be Strengthened. 
[hyperlink, http://www.gao.gov/products/GAO-12-116]. Washington, D.C.: 
November 21, 2011. 

Drug Safety: FDA Faces Challenges Overseeing the Foreign Drug 
Manufacturing Supply Chain. [hyperlink, 
http://www.gao.gov/products/GAO-11-936T]. Washington, D.C.: September 
14, 2011. 

Food and Drug Administration: Response to Heparin Contamination Helped 
Protect Public Health; Controls That Were Needed for Working With 
External Entities Were Recently Added. [hyperlink, 
http://www.gao.gov/products/GAO-11-95]. Washington, D.C.: October 29, 
2010. 

Food and Drug Administration: Opportunities Exist to Better Address 
Management Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-279]. Washington, D.C.: February 
19, 2010. 

Food and Drug Administration: FDA Faces Challenges Meeting Its Growing 
Medical Product Responsibilities and Should Develop Complete Estimates 
of Its Resource Needs. [hyperlink, 
http://www.gao.gov/products/GAO-09-581]. Washington, D.C.: June 19, 
2009. 

Human Capital: Key Principles for Effective Strategic Workforce 
Planning. [hyperlink, http://www.gao.gov/products/GAO-04-39]. 
Washington, D.C.: December 11, 2003. 

Standards for Internal Control in the Federal Government. [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] Washington, D.C.: 
November 1999. 

[End of section] 

Footnotes: 

[1] GAO, Drug Shortages: FDA's Ability to Respond Should be 
Strengthened, [hyperlink, http://www.gao.gov/products/GAO-12-116] 
(Washington, D.C.: Nov. 21, 2011). 

[2] Pub. L. No. 112-144, 126 Stat. 993 (2012). 

[3] In addition to the FDASIA mandate that we report on drug 
shortages, members of the Senate Judiciary Committee have requested 
that we conduct an examination specifically related to the shortages 
of controlled substances. As a result, issues unique to controlled 
substances are not specifically discussed in this report. 

[4] Our analysis focuses on shortages of prescription drugs, so we 
excluded shortages of over-the-counter drugs, biologics (including 
vaccines), medical devices, and orally-administered vitamins from our 
analysis even though UUDIS also tracks and includes these shortages in 
its data. UUDIS broadly defines a shortage as a supply issue that 
affects how pharmacies prepare and dispense a product or that 
influences patient care when prescribers must choose an alternative 
therapy because of supply issues. Once UUDIS identifies a shortage, it 
generally does not consider a shortage to be resolved until the drug 
is available again in all strengths and package sizes from all 
manufacturers that currently produce the drug. For example, UUDIS 
could be notified of a shortage involving three manufacturers: 
Manufacturer A has no product available; Manufacturers B and C still 
do, but have limited supply of certain package sizes. According to a 
UUDIS official, UUDIS would consider the shortage to be resolved (1) 
when Manufacturers A, B, and C all have all strengths and package 
sizes back in stock; (2) if Manufacturer A decides to discontinue its 
product, when Manufacturers B and Manufacturer C both have all 
strengths and package sizes back in stock; or (3) when UUDIS obtains 
other information indicating that a shortage has been resolved, such 
as FDA telling UUDIS that Manufacturers B and C have increased supply 
and all market need has been met. 

[5] [hyperlink, http://www.gao.gov/products/GAO-12-116], 2. At the 
time of our previous report, FDA did not have a database containing 
information on drug shortages for the time period we reviewed. Since 
the publication of that report, FDA has developed a database that it 
uses to track shortages. For the purposes of this report, we used the 
drug shortage data maintained by UUDIS because the time period we 
reviewed included data from years that predate FDA's development of 
its database and to provide comparable information on the trends and 
characteristics of drug shortages to that which we presented in our 
2011 report. In that report, we analyzed UUDIS data on the number of 
drug shortages reported between January 1, 2001, and June 20, 2011. 

[6] In our 2011 report, we examined the characteristics of critical 
drug shortages identified between January 1, 2009, and June 20, 2011. 
[hyperlink, http://www.gao.gov/products/GAO-12-116], 2. 

[7] These 219 shortages represented 57 percent of the 382 shortages 
reported from June 2011 through June 2013. 

[8] We also interviewed officials from five federal agencies that are 
major purchasers of prescription drugs--the Department of Defense, the 
Department of Veterans Affairs, the U.S. Coast Guard, the National 
Institutes of Health, and the Indian Health Service--to obtain 
information on how shortages may affect federal spending. 

[9] In February 2013, FDA published a Notice in the Federal Register 
with a request for comment about its drug shortages task force and 
strategic plan. 78 Fed. Reg. 9928 (Feb. 12, 2013). 

[10] FDA did not have data readily available on the reported causes of 
shortages that began prior to January 1, 2011. 

[11] See GAO, Standards for Internal Control in the Federal 
Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999). 

[12] Estimated 2-year cancer-free survival for children with Hodgkin's 
lymphoma treated by members of the Pediatric Hodgkin Lymphoma 
Consortium fell from 88 to 75 percent after the drug cyclophosphamide 
was substituted for mechlorethamine, when the latter was in shortage. 
The researchers concluded that there was no credible explanation for 
this decline other than the drug substitution. M. L. Metzger, A. 
Billett, and M. P. Link, "The Impact of Drug Shortages on Children 
with Cancer--The Example of Mechlorethamine," New England Journal of 
Medicine, vol. 367, no. 26 (2012). 

[13] 21 U.S.C. § 355. 

[14] 21 U.S.C. § 355(j). The application for generic drugs is 
abbreviated because FDA does not require sponsors to conduct, or 
provide evidence from, clinical trials that are required of sponsors 
of new drugs. 

[15] 21 C.F.R. §§ 314.70, 314.97 (2013). Specifically, any change that 
has a substantial potential to adversely affect factors such as the 
identity, strength, quality, purity, or potency of a drug product 
requires FDA review and approval of a "prior approval" supplement before 
a drug manufactured using this change can be distributed. 

[16] CGMP regulations provide a framework for a manufacturer to follow 
to produce safe, pure, and high-quality drugs. See 21 C.F.R. pts. 210-
211. 

[17] In determining how to respond to a shortage, FDA takes steps to 
determine whether a drug is medically necessary, defined as any drug 
that is used to treat or prevent a serious disease or medical 
condition for which there is no other adequately available drug that 
is judged by medical staff to be an appropriate substitute. Officials 
previously told us that they do not typically consider exercising 
regulatory discretion to respond to shortages of non-medically 
necessary drugs because these drugs are, by definition, not used to 
treat serious diseases or medical conditions, or other clinically 
interchangeable versions of the drug are available. 

[18] The Drug Shortage Program became known as DSS when CDER elevated 
it from the Office of New Drugs to the Immediate Office of the Center 
Director within CDER. 

[19] Controlled substances have the potential for abuse and are 
regulated by the DEA in accordance with the Controlled Substances Act. 
They include narcotics, stimulants, depressants, sedatives, and 
anabolic steroids. DEA limits the availability of these substances by 
establishing quotas for the substance that can be produced or procured 
each year. 

[20] FDA officials said that they take steps to address shortages of 
both medically necessary drugs and non-medically necessary drugs, 
though they give priority to shortages of medically necessary drugs. 

[21] FDA officials explained that the agency's exercise of regulatory 
discretion does not mean that these products meet regulatory standards 
for approval, or that a manufacturer has a legal right to distribute 
them. Rather, FDA may decide not to object to the distribution of the 
drug for a limited time for public health reasons. 

[22] FDA officials said they may also identify other alternative 
sources of drugs, some of which may not require importation. For 
example, a U.S. manufacturer of a drug which is approved for 
distribution in Canada may be allowed to temporarily market the drug 
in the United States, in response to a drug shortage. 

[23] Exec. Order No. 13,588 reprinted at 3 C.F.R. 281 (2012). 

[24] [hyperlink, http://www.gao.gov/products/GAO-12-116], 35. At the 
time, FDA's sole authority over manufacturers' reporting of drug 
shortages pertained to the discontinuation of approved drugs that were 
life-supporting, life-sustaining, or for use in the prevention of a 
debilitating disease or condition, when such drugs were produced by 
only one manufacturer. 

[25] [hyperlink, http://www.gao.gov/products/GAO-12-116], 43-44. 

[26] A shortage is only counted in the total for "reported" shortages 
in the year that UUDIS is first notified of the shortage. For example, 
a shortage reported in July 2010 and resolved in March 2012 would only 
be counted as a reported shortage in 2010. It would not be counted as 
a reported shortage in either 2011 or 2012, although it would be 
counted in the total number of active shortages in each of those years. 

[27] From January 1, 2001, through December 31, 2006, a total of 443 
shortages were reported to UUDIS. In 2001, 102 shortages were 
reported, but there were fewer than 100 shortages reported in each 
year from 2002 through 2006. 

[28] We excluded 75 shortages from this analysis because UUDIS listed 
these shortages as lasting zero days. The majority of these 
represented manufacturers' decisions to discontinue their production 
of a drug. 

[29] The active shortage total for each year includes both (1) new 
shortages reported that year and (2) shortages that started in a prior 
year that were still ongoing. For example, a shortage reported in July 
2010 and resolved in March 2012 would be counted as an active shortage 
in three different years (2010, 2011, and 2012). 

[30] UUDIS identified 219 of the 382 shortages reported from June 1, 
2011, through June 30, 2013 as critical shortages. We reviewed the 
characteristics of those 219 critical shortages, which represented 57 
percent of all shortages reported during this time. 

[31] In our November 2011 report, we found that for critical shortages 
reported between January 1, 2009, and June 20, 2011, 53 percent of the 
shortages were generic sterile injectable drugs and 15 percent were 
brand-name sterile injectable drugs. The remaining shortages (32 
percent) were shortages of generic and brand-name drugs available 
through other routes, such as drugs that were orally-administered. See 
[hyperlink, http://www.gao.gov/products/GAO-12-116], 19. 

[32] Examples of shortages in these therapeutic classes during this 
time period included, acyclovir and doxycycline (anti-infective); 
propofol and diazepam (anesthesia and central nervous system); 
nitroglycerin and verapamil (cardiovascular); and potassium chloride 
and sodium phosphate (nutritive). 

[33] We previously found that anesthetic and central nervous system 
drugs and anti-infective drugs were among the therapeutic classes with 
the most shortages reported between January 1, 2009, and June 20, 
2011. Previously, 23 percent of shortages were anesthetic and central 
nervous system drugs and 14 percent of shortages were anti-infective 
drugs. See [hyperlink, http://www.gao.gov/products/GAO-12-116], 21. 

[34] According to a 2011 American Hospital Association survey, over 80 
percent of the 820 responding hospitals reported that patient 
treatment had been delayed as a result of drug shortages. See American 
Hospital Association, AHA Survey on Drug Shortages (Washington, D.C.: 
July 12, 2011). 

[35] Drug compounding is the process by which a pharmacist or doctor 
combines, mixes, or alters ingredients to create a drug tailored to 
the medical needs of an individual patient. Compounding is typically 
used to prepare drugs that are not commercially available. See GAO, 
Drug Compounding: Clear Authority and More Reliable Data Needed to 
Strengthen FDA Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-13-702] (Washington, D.C.: July 31, 
2013). 

[36] Higher costs resulting from drug shortages may also have 
implications for federal spending on drugs. Officials from federal 
agencies that are major purchasers of prescription drugs--including 
the Department of Defense, the Department of Veterans Affairs, the 
U.S. Coast Guard, the National Institutes of Health, and the Indian 
Health Service--generally told us that, as a result of drug shortages, 
there have been circumstances in which they paid more for drugs that 
were in short supply from suppliers from which they did not typically 
purchase. Though the alternative suppliers varied by agency, such 
purchases at a higher cost included those made directly from 
manufacturers, from authorized secondary wholesale distributors, and 
from other sources. (Officials from three of these agencies noted that 
purchases made directly from manufacturers and authorized secondary 
wholesale distributors were only slightly higher than the prices the 
agencies typically paid.) For the most part, officials from these 
agencies told us that they were not aware of any purchases from gray 
market suppliers and that the majority of their drug purchases are 
made through their typical, authorized purchasing channels. However, 
Indian Health Service officials told us that, on occasion, the agency 
has resorted to purchasing drugs from gray market suppliers to ensure 
patients and providers have access to needed drugs. 

[37] [hyperlink, http://www.gao.gov/products/GAO-13-702], 1. 

[38] The Institute for Safe Medication Practices reported in Gray 
Market, Black Heart: Pharmaceutical Gray Market Finds a Disturbing 
Niche During the Drug Shortage Crisis that over 10 percent of the 549 
hospitals that participated in its July/August 2011 survey were aware 
of product authenticity issues, medication errors, or adverse drug 
reactions that were associated with the use of products purchased from 
the gray market. (Horsham, PA: Aug. 25, 2011). 

[39] We previously reported that alternative drugs may be less 
effective, have a higher likelihood of adverse events, and may lead to 
medication errors, as health care providers may have to treat patients 
with drugs that are unfamiliar to them. See [hyperlink, 
http://www.gao.gov/products/GAO-12-116], 9. 

[40] To prevent potential hoarding and stockpiling during a shortage--
as well as deter gray market operations--wholesale distributors may 
institute an allocation system, which provides any remaining inventory 
and any future shipments of the drug, by considering the customers' 
purchase history. For example, a wholesale distributor representative 
said that if a manufacturer is shipping only 50 percent of their prior 
volume of a given drug, a wholesale distributor's allocation system 
will only allow customers to purchase 50 percent of their historical 
purchase amount. 

[41] In subsequent work, we intend to further explore the causes of 
drug shortages. 

[42] For the purposes of reporting, responses from "manufacturer 
representatives" include the responses from the five individual 
manufacturers and the three national manufacturer associations we 
interviewed. 

[43] The FDA data reflects information reported by manufacturers to 
FDA that is subsequently analyzed and categorized by the agency. 

[44] For the purposes of reporting on our literature review--which 
included peer-reviewed articles, as well as government publications, 
and other journal articles that were not peer-reviewed--we identified 
and summarized the causes frequently discussed in the literature and 
did not list all topics mentioned in each article we reviewed. For 
example, we did not include causes that were mentioned only sparingly 
in the literature. Further, as shortages have been concentrated in the 
generic sterile injectable market in recent years, the literature on 
the subject of shortages and comments from manufacturer 
representatives largely focused on the causes of shortages specific to 
that market. As a result, our discussion about the causes of shortages 
may not be applicable to all shortages. 

[45] Department of Health and Human Services, Office of the Assistant 
Secretary for Planning and Evaluation, Economic Analysis of the Causes 
of Drug Shortages (Washington, D.C.: October 2011), 13. 

[46] S.L. Kweder and S. Dill, "Drug Shortages: The Cycle of Quantity 
and Quality," Clinical Pharmacology & Therapeutics, vol. 93, no. 3 
(2013), 247. 

[47] Department of Health and Human Services, Economic Analysis, 13. 

[48] Reporting in March 2013, Kweder and Dill said that in the past 3 
years, 4 of the top 10 manufacturers of sterile injectable drugs 
received warning letters from the FDA that they chose to address by 
closing establishments or slowing production. See Kweder and Dill, 
"Drug Shortages," 248. 

[49] Kweder and Dill, "Drug Shortages," 247. 

[50] J. Woodcock and M. Wosinska, "Economic and Technological Drivers 
of Generic Sterile Injectable Drug Shortages," Clinical Pharmacology & 
Therapeutics, vol. 93, no.2 (2013), 171. 

[51] In this way, quality problems can ultimately trigger supply 
disruptions for drugs for which a quality problem has not been 
identified. For example, if a specific product or production line in a 
manufacturing establishment is found to have a quality problem, a 
manufacturer may shut down the entire establishment or change its 
manufacturing schedule at that establishment while trying to correct 
the quality problem. This shutdown or change may affect the 
manufacturing of other drugs produced at the establishment and lead to 
shortages of those drugs, even if no quality problems have been 
identified with those other drugs. FDA would classify the cause of the 
shortage of the original drug as a quality problem, but it would 
classify the cause of any shortages of the other affected drugs as a 
manufacturing delay and capacity issue. 

[52] U.S. House of Representatives, Committee on Oversight and 
Government Reform, Staff Report, "FDA's Contribution to the Drug 
Shortage Crisis," (Washington, D.C.: June 2012), 16-18. As evidence of 
increased rigor in FDA inspections, this study cites, in part, an 
overall increase in the number of warning letters issued. FDA 
officials told us that the increase in the number of warning letters 
issued by the agency between 2010 and 2011 that was cited in the study 
was primarily due to the activities of the agency's Center for Tobacco 
Products. FDA officials also stated that during this time the level of 
warning letters issued to firms for manufacturing quality deficiencies 
decreased. 

[53] John R. Graham, The Shortage of Generic Sterile Injectable Drug: 
Diagnosis and Solutions (Midland, Mich.: Mackinac Center for Public 
Policy, June 2012), 5. FDA officials told us that inspections of 
sterile injectable manufacturing establishments have long been a high 
priority and such sites receive regular inspections. 

[54] Kweder and Dill, "Drug Shortages," 248. 

[55] According to FDA officials, the agency does not require 
manufacturers to adopt state of the art technology or use the most 
modern manufacturing equipment in drug production or testing to meet 
its standards of quality. FDA officials also said requirements and 
inspections do not, as a rule, specify or limit the type of equipment 
or technology used in drug manufacturing, although FDA encourages the 
voluntary adoption of new technology that leads to improved drug 
quality. 

[56] Department of Health and Human Services, Economic Analysis, 6. 

[57] V. Jensen, R. Kimzey, and J. Saliba, "An Overview of the FDA's 
Drug Shortage Program," Pharmacy and Therapeutics, vol. 30, no. 3 
(2005); and V. Jensen and B. A. Rappaport, "The Reality of Drug 
Shortages--The Case of the Injectable Agent Propofol," The New England 
Journal of Medicine, vol. 363, no. 9 (2010). 

[58] An API is any element that is intended to provide pharmacological 
activity or other direct effect in the diagnosis, cure, mitigation, 
treatment, or prevention of disease. Non-API components include 
inactive ingredients, such as dyes or water for injection, and items 
such as vials and stoppers. See 21 C.F.R. § 210.3(b)(3), (7) (2013). 

[59] B.K. Gehrett, "A Prescription for Drug Shortages," JAMA: The 
Journal of the American Medical Association, vol. 307, no. 2 (2012); 
and Jensen, Kimzey, and Saliba, "An Overview," 175. 

[60] Jensen, Kimzey, and Saliba, "An Overview," 175. 

[61] We also reported on this challenge in 2011, as both officials 
from FDA and manufacturers told us that when only a few manufacturers 
make a drug and one manufacturer's drug is in short supply, it can be 
difficult for the others to substantially increase production of a 
drug to ensure that demand for a drug is met. See [hyperlink, 
http://www.gao.gov/products/GAO-12-116], 26. 

[62] Woodcock and Wosinska, "Economic and Technological Drivers,"174. 

[63] Jensen and Rappaport, "Reality of Drug Shortages," 806. 

[64] Department of Health and Human Services, Economic Analysis, 9. 

[65] Department of Health and Human Services, Economic Analysis, 6; 
and Jensen and Rappaport, "Reality of Drug Shortages," 806. 

[66] C. L.Ventola, "The Drug Shortage Crisis in the United States: 
Causes, Impact, and Management Strategies," Pharmacy and Therapeutics, 
vol. 36, no.11 (2011). 

[67] Woodcock and Wosinska, "Economic and Technological Drivers,"174. 

[68] Woodcock and Wosinska, "Economic and Technological Drivers," 174. 

[69] Department of Health and Human Services, Food and Drug 
Administration, A Review of FDA's Approach to Medical Product 
Shortages. (Silver Spring, Md: October 2011). 

[70] For example, see American Society of Health-System Pharmacists, 
"ASHP Guidelines on Managing Drug Product Shortages in Hospitals and 
Health Systems," American Journal of Health-System Pharmacy, vol. 66, 
no.15 (2009); and Ventola, "Drug Shortage Crisis in the United 
States," 749. 

[71] Jensen and Rappaport, "Reality of Drug Shortages," 806, and 
Gehrett, "Prescription for Drug Shortages," 154. 

[72] Most manufacturer representatives (5 of 8) did not provide 
comments on all underlying causes discussed, but all provided comments 
on at least one. 

[73] Gehrett, "Prescription for Drug Shortages," 154; and S. O. 
Schweitzer, "How the U.S. Food and Drug Administration Can Solve the 
Prescription Drug Shortage Problem," American Journal of Public 
Health, vol. 103, no. 5 (2013): e10-e14. 

[74] Woodcock and Wosinska, "Economic and Technological Drivers," 170. 
The authors point out that purchasers may be unable to discern 
differences in the quality of sterile injectables because the patients 
that receive them often have compromised immune systems and other 
health complications. Consequently, any adverse health outcomes, such 
as infection following the treatment, are likely attributed to 
patients' health status rather than possible quality problems 
associated with the drugs. 

[75] According to this study, the quality of brand-name products may 
be equally difficult to observe. However, the authors argue, brand-
name manufacturers' incentive to minimize investments in quality is 
counteracted by the incentive to avoid losing revenue on high-margin 
products due to an interruption in production. See Woodcock and 
Wosinska, "Economic and Technological Drivers," 175. 

[76] Not all of the manufacturer representatives we interviewed 
provided comments on this claim. Specifically, two of the eight 
manufacturers did not provide comments. 

[77] Through GPO-negotiated contracts, hospitals and other health care 
providers can purchase a variety of medical products, including drugs. 
According to a GPO association, pooling the purchasing power of 
multiple providers allows GPOs to negotiate lower prices on products 
from vendors. Sterile injectable drugs--where shortages have recently 
been concentrated--are primarily purchased by hospitals and 
physicians' offices rather than directly by consumers. In addition, 
most of these drugs are purchased through GPO-negotiated contracts. 
See Department of Health and Human Services, Economic Analysis, 5. 

[78] See Kweder and Dill, "Drug Shortages," 249; Schweitzer, "How the 
U.S. Food and Drug Administration," American Journal of Public Health, 
e11; Department of Health and Human Services, Food and Drug 
Administration, "Review of FDA's Approach," 26,30; and U.S. House of 
Representatives, "FDA's Contribution," 9-10. 

[79] Kweder and Dill, "Drug Shortages," 249. 

[80] In addition to the four articles in our literature review that 
cited a role for GPOs in causing shortages by contributing to low 
manufacturer profit margins through downward price pressure, other 
commentators have suggested that administrative and other fees that 
manufacturers typically pay GPOs have contributed to shortages by 
further reducing the profit margins associated with these drugs. 

[81] U.S. House of Representatives, "FDA's Contribution," 10, 20. 

[82] Not all of the manufacturer representatives we interviewed 
provided comments on this claim. Specifically, three of the eight 
manufacturers did not provide comments about GPOs and drug shortages. 

[83] Medicare Part B covers a limited number of prescription drugs, 
generally covering drugs and biologicals administered under a 
physician's direct supervision, including many injectable drugs 
administered in physician offices and in hospital outpatient 
departments. Part B also covers certain drugs administered through 
durable medical equipment, certain vaccines, osteoporosis drugs, 
erythropoiesis-stimulating agents, certain oral anti-cancer drugs, and 
immunosuppressive drugs for transplant patients. The Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 modified 
the reimbursement methodology for Part B drugs. Pub. L. No. 108-173, § 
303(c), 117 Stat. 2066, 2239 (2003). Beginning January 1, 2005, the 
Medicare reimbursement methodology for most Part B drugs that are not 
administered on a cost or prospective basis was changed to 106 percent 
of the drug's volume-weighted average sales price. Average sales price 
is the weighted average of all non-federal U.S. sales by manufacturers 
net of chargebacks, discounts, rebates, and other price concessions 
made by the manufacturer and tied to the purchase of the drug product, 
whether it is paid to the wholesale distributor or the entity that 
purchases the drug. Prior to the change, Medicare reimbursed for 95 
percent of the average wholesale price, which studies indicate for 
many drugs was significantly higher than the prices actually paid by 
physicians and suppliers who purchase the drugs. Certain Part B drugs 
continue to be paid at 95 percent of the average wholesale price. 
These include blood products, and certain vaccines. Infusion drugs 
used in conjunction with durable medical equipment are also paid at 95 
percent of the average wholesale price in effect on October 1, 2003. 

[84] A. Yurukoglu, "Medicare Reimbursements and Shortages of Sterile 
Injectable Pharmaceuticals," National Bureau of Economic Research 
Working Paper No.17987 (2012); M. L. Gatesman and T.J. Smith, "The 
Shortage of Essential Chemotherapy Drugs in the United States," The 
New England Journal of Medicine, vol. 365, no. 18 (2011); and U.S. 
House of Representatives, "FDA's Contribution," 4. 

[85] Because Part B drug reimbursement equals the average sales price 
plus a fixed percentage (6 percent for most drugs), some suggest that 
providers have an incentive to prescribe relatively higher-cost drugs, 
when they are available, as higher-cost drugs provide a larger markup. 
For example, if the average sales price for a given drug is $150, the 
Part B reimbursement would provide an additional $9 on top of the 
$150. If an alternative drug is available with the average sales price 
of $3,000, the Part B reimbursement would provide an additional $180 
on top of the $3000. (A given provider's actual purchase price may be 
more or less than the average sales price on which the Centers for 
Medicare & Medicaid Services bases the reimbursement.) While not a 
study about drug shortages, another study found that as a result of 
the Medicare Part B reimbursement change, physicians who were 
providing chemotherapy treatment to Medicare beneficiaries newly 
diagnosed with lung cancer switched to higher cost drugs and away from 
drugs that experienced large drops in payment rates after the 
reimbursement change. See M. Jacobsen, C.C. Earle, M. Price, and J.P. 
Newhouse, "How Medicare's Payment Cuts For Cancer Chemotherapy Drugs 
Changed Patterns of Treatment," Health Affairs, vol. 29, no. 7 (2010). 

[86] Another study we reviewed analyzed prices and volume in the 
sterile injectable oncology market from 2006 through 2011. This study 
found that, on average, drugs that subsequently experienced a shortage 
were those in which the volume of sales and prices were both declining 
in the period prior to the recent increase in shortages. However, this 
study did not directly attribute the declines in sales volume and 
prices to the reimbursement change. See Department of Health and Human 
Services, Economic Analysis, 7-8. 

[87] Another analysis reported that the trend in shortages has been 
similar both for drugs affected by the reimbursement change and for 
drugs that should not have been affected. See M. Jacobsen, A. Alpert, 
and F. Duarte, "Prescription Drug Shortages: Reconsidering the Role of 
Medicare Payment Policies," in Health Affairs Blog, (May 29, 2012), 
accessed November 26, 2013, [hyperlink, 
http://healthaffairs.org/blog/2012/05/29/prescription-drug-shortages-
reconsidering-the-role-of-medicare-payment-policies/]. 

[88] Representatives of one of the five manufacturers that responded 
agreed with the claim that the Part B reimbursement change was a cause 
of shortages. However, they did not provide any additional rationale 
to explain their statement. In total, we asked eight manufacturer 
representatives about this claim. However, three of them did not offer 
their view as to whether or not the change in Part B reimbursement was 
a cause of shortages. 

[89] This point was also noted in one of the studies that cited the 
reimbursement change as a cause, stating that although the 
reimbursement change increased concentration in the generic injectable 
market and reduced manufacturer incentives to invest in their 
facilities, most injectables that have been in shortage are typically 
administered in hospitals, and thus, would not be impacted a great 
deal by the change in Part B reimbursement. See U.S. House of 
Representatives, "FDA's Contribution," 14. 

[90] In order to set the reimbursement rate for Medicare Part B drugs, 
the Centers for Medicare & Medicaid Services collects average sales 
price data from manufacturers. Manufacturers submit sales data at the 
national drug code (NDC) level, which uniquely identifies a specific 
drug product for a given manufacturer. (One drug can have multiple 
NDCs associated with it. For example, a drug made by one manufacturer, 
in one strength, but in three package sizes, would have a different 
NDC for each of the three package sizes.) CMS sets reimbursement rates 
at the Healthcare Common Procedure Coding System (HCPCS) level, with 
multiple NDCs associated with a given HCPCS code. In reporting 
Medicare Part B reimbursement rates, the Centers for Medicare & 
Medicaid Services provides an NDC/HCPCS crosswalk. We reviewed whether 
NDCs for 12 drugs in the therapeutic classes of oncology, nutritive, 
and anesthesia and central nervous system, all of which were among the 
classes most frequently in shortage in recent years, were contained in 
the most recent NDC/HCPCS crosswalk, which at the time of our analysis 
was the October 2013 crosswalk. Specifically, we asked representatives 
of relevant health care professional associations for suggestions of 
the most significant recent shortages in each of these therapeutic 
classes and randomly selected four drugs in each therapeutic class 
from these suggestions. We then compared the NDCs associated with 
these shortages to the most recent NDC/HCPCS crosswalk posted on the 
Centers for Medicare & Medicaid Services' website. We found that the 
NDC/HCPCS crosswalk included: all NDCs for three of four oncology 
drugs (cytarabine, doxorubicin, and methotrexate) and nearly all NDCs 
for the fourth (paclitaxel); all NDCs for one of four nutritive drugs 
(calcium gluconate); and half of the NDCs for one of four anesthesia 
and central nervous system drugs (epinephrine). (For the oncology drug 
that had nearly all NDCs in the crosswalk, 3 of 22 NDCs were not found 
in the crosswalk. All of the missing NDCs were associated with the 
same manufacturer. For the anesthesia and central nervous system drug 
that had some NDCs in the crosswalk, 6 of 12 NDCs were not in the 
crosswalk.) However, the crosswalk did not include these data for 
three of the four nutritive drugs (calcium chloride, intravenous fat 
emulsion, and sodium phosphate) or three of the four anesthesia and 
central nervous system drugs (neostigmine, propofol, and 
succinylcholine). This suggests that nutritive drugs and anesthesia 
and central nervous system drugs may not all be reimbursed using the 
average sales price plus 6 percent methodology. 

[91] For information on incentives that have been proposed to prevent 
shortages, see appendix IV. 

[92] As we did in analyzing data for our 2011 report, we grouped 
together shortages of multiple versions of the same drug to identify 
the total number of potential shortages prevented. While FDA had 
reported preventing 195 potential shortages in 2011, 282 potential 
shortages in 2012, and 80 potential shortages through June 2013, we 
found that these data represented the number of individual drug 
products for which a shortage had been averted. FDA officials said 
they count different package sizes and concentrations of a given drug 
as separate prevented potential shortages because additional effort 
may be required by FDA to prevent the potential shortage of individual 
versions of the drug. For example, FDA would count the prevention of a 
potential shortage of a 250 ml package size and the 500 ml package 
size of the same drug as two potential shortages prevented. FDA 
officials said they count a potential shortage as prevented if they 
are made aware of a pending shortage and take one or more actions that 
prevent the potential shortage from occurring at that time. Officials 
noted that while a pending shortage may be prevented at one time, the 
drug could still go into shortage later. Thus, in a given year, a drug 
could be counted both as a potential shortage prevented and as an 
actual shortage. FDA officials also said there could be a second 
pending shortage of a drug in a given year. If FDA takes another 
action that prevented the shortage, it would count as two potential 
shortages prevented of the same drug for the year. For our analysis, 
this would count as one potential shortage prevented. 

[93] Consistent with the matter for Congressional consideration 
contained in our 2011 report, FDASIA required manufacturers to notify 
FDA at least 6 months prior to the date of a discontinuance or 
interruption (or as soon as possible if 6 months notice is not 
feasible) in the manufacture of a drug that is life supporting, life 
sustaining, or used to treat debilitating health issues. FDASIA 
required FDA to issue a final rule implementing this requirement by 
January 9, 2014. § 1001(a), 126 Stat. at 1099 (to be codified at 21 
U.S.C. § 356c). FDA issued a proposed rule on November 4, 2013, with a 
60-day comment period. 78 Fed. Reg. 65904 (Nov. 4, 2013) (to be 
codified at 21 C.F.R. pts. 20, 310, 314, and 600). 

[94] According to FDA, between January 1, 2011, and June 30, 2013, the 
agency expedited 161 ANDAs, 97 ANDA supplements, and 38 NDA 
supplements in response to drug shortages; the number of expedited 
reviews may exceed the number of shortages reported because multiple 
applications or supplements may be expedited to alleviate a shortage. 
FDA reported to us that expedited review helped to prevent 211 
potential shortages and helped to resolve 27 shortages. 

[95] FDASIA defines a life-saving drug as one that is life-supporting, 
life-sustaining, or intended for use in the prevention or treatment of 
a debilitating disease or condition. § 1001(a), 126 Stat. at 1099 (to 
be codified at 21 U.S.C. § 356c(a)). 

[96] Federal law directs FDA to review samples of drugs being imported 
into the United States from facilities that are not registered with 
the agency, and, if it identifies any such drugs as unapproved, to 
refuse entry of the drug into the country. 21 U.S.C. § 381(a). By not 
objecting to the entry of certain unapproved drugs to address a 
shortage, FDA effectively allows the importation and distribution of 
such drugs, but only under specified, controlled circumstances, and 
only after review of the manufacturer. FDA officials told us it is 
evaluating the potential impact of a recent decision issued by the 
U.S. Court of Appeals for the District of Columbia enjoining FDA from 
effectively allowing importation of an unapproved drug used by some 
states to administer a lethal injection on its management of drug 
shortages. In deference to law enforcement agencies, FDA had not 
objected to the drug being imported for use in lethal injections. See 
Cook v. FDA, 733 F.3d 1 (D.C. Cir. 2013). 

[97] According to FDA, the agency attempted to use this strategy in 
seven other instances, but could not do so. In four instances, FDA 
could not find a manufacturer willing and able to import the product 
into the United States to address the shortage. In the other three 
instances, FDA identified a manufacturer, but the shortage was already 
being resolved and importation was no longer necessary. 

[98] Total parenteral nutrition products--including protein, minerals, 
and vitamins--are administered intravenously to patients who cannot 
eat or absorb nutrients through other methods. 

[99] The Drug Shortages Task Force includes staff from the Office of 
Regulatory Affairs, the Center for Biologics Evaluation and Research, 
and a number of CDER offices, including the Office of the Center 
Director, the Office of Compliance, DSS, and the Office of Generic 
Drugs. 

[100] As required by FDASIA, FDA officials also noted that they have 
continued to work with DEA on shortages related to controlled 
substances. 

[101] FDA defines a medically necessary drug as any drug that is used 
to treat or prevent a serious disease or medical condition for which 
there is no other adequately available drug that is judged by medical 
staff to be an appropriate substitute. For more on this determination, 
see [hyperlink, http://www.gao.gov/products/GAO-12-116]; 27 and 47. 

[102] We previously found that FDA posted all shortages of medically 
necessary drugs, but only posted some shortages of non-medically 
necessary drugs, generally those for which FDA received multiple 
requests for information. FDA officials told us that they recently 
changed their approach when they began receiving more notifications 
about drug shortages as a result of the Executive Order and, later, 
FDASIA. Officials said that for the past 2 years, FDA has posted all 
shortages that the agency verifies, regardless of whether the drug is 
medically necessary. 

[103] The reasons included in FDASIA are: requirements related to 
complying with good manufacturing practices, regulatory delay, 
shortage of an active ingredient, shortage of an inactive ingredient 
component, discontinuation of the manufacture of the drug, delay in 
shipping, and increased demand. 

[104] [hyperlink, http://www.gao.gov/products/GAO-12-116], 44. See 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], 19. 

[105] FDA officials said the database will also be used to prepare the 
annual drug shortages report to Congress, as required by FDASIA. The 
first annual report was due by the end of calendar year 2013. 

[106] In 2009, we found that FDA faced challenges fulfilling and 
managing its growing medical product oversight responsibilities, which 
agency officials said was due to resource constraints, and we 
recommended that FDA conduct a comprehensive assessment of the 
agency's staffing resources. See GAO, Food and Drug Administration: 
FDA Faces Challenges Meeting Its Growing Medical Product 
Responsibilities and Should Develop Complete Estimates of Its Resource 
Needs, [hyperlink, http://www.gao.gov/products/GAO-09-581] 
(Washington, D.C.: June 19, 2009). Consistent with the 2009 
recommendation, in 2011 we recommended that FDA assess the resources 
allocated to the Drug Shortage Staff to determine whether reallocation 
is needed to improve the agency's response to drug shortages. See 
[hyperlink, http://www.gao.gov/products/GAO-12-116], 43. 

[107] Food and Drug Administration, Product Shortage Communication, 
Field Management Directive No. 15, (July 31, 2012). 

[108] Currently FDA documents the responsibilities and procedures of 
the various offices in relation to drug shortages in its Manual on 
Policies and Procedures, section 6003.1. FDA officials told us that 
they are currently working on updating these policies and procedures 
(last revised in February 2012) but do not have an estimated timeframe 
for the completion of the revisions. 

[109] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[110] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[111] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[112] See [hyperlink, http://www.gao.gov/products/GAO-12-116]. 

[113] UUDIS broadly defines a shortage as a supply issue that affects 
how pharmacies prepare and dispense a product or that influences 
patient care when prescribers must choose an alternative therapy 
because of supply issues. Once UUDIS identifies a shortage, it 
generally does not consider a shortage to be resolved until the drug 
is available again in all strengths and package sizes from all 
manufacturers that currently produce the drug. For example, UUDIS 
could be notified of a shortage involving three manufacturers: 
Manufacturer A has no product available; Manufacturers B and C still 
do, but have limited supply of certain package sizes. According to a 
UUDIS official, UUDIS would consider the shortage to be resolved: 1) 
when Manufacturers A, B, and C all have all strengths and package 
sizes back in stock; 2) if Manufacturer A decides to discontinue its 
product, when Manufacturers B and Manufacturer C both have all 
strengths and package sizes back in stock; or 3) when UUDIS obtains 
other information indicating that a shortage has been resolved, such 
as the Food and Drug Administration (FDA) telling UUDIS that 
Manufacturers B and C have increased supply and all market need has 
been met. 

[114] GAO, Drug Shortages: FDA's Ability to Respond Should be 
Strengthened, [hyperlink, http://www.gao.gov/products/GAO-12-116] 
(Washington, D.C.: Nov. 21, 2011), 2. At the time of our previous 
report, FDA did not have a database containing information on drug 
shortages for the time period we reviewed. Since the publication of 
that report, FDA has developed a database that it uses to track 
shortages. For the purposes of this report, we used the drug shortage 
data maintained by UUDIS because the time period reviewed included 
data from years that predate FDA's development of its database and to 
provide comparable information on the trends and characteristics of 
drug shortages to that which we presented in our 2011 report. In that 
report, we analyzed UUDIS data from January 2001 through June 2011. 

[115] Shortages of over-the-counter drugs, biologics (including 
vaccines), medical devices, and orally-administered vitamins, which 
UUDIS also tracks, were excluded from our analysis. 

[116] For example, a shortage reported in July 2010 and resolved in 
March 2012 would have been counted in the total for reported shortages 
in 2010, but not in either 2011 or 2012. 

[117] For example, a shortage reported in July 2010 and resolved in 
March 2012 would have been counted in the active shortage total in 
three different years, 2010--the year in which it was reported--and 
2011 and 2012--years in which it was still ongoing. 

[118] In our previous report, we examined the characteristics of 269 
critical drug shortages that were reported from January, 1, 2009, 
through June 20, 2011. See [hyperlink, 
http://www.gao.gov/products/GAO-12-116], 2. 

[119] UUDIS creates a drug shortage bulletin for all shortages that it 
identifies as critical. Each bulletin is publicly posted on the 
American Society of Health-System Pharmacists' website and describes 
the reason for the shortage; any estimated resupply dates; any related 
shortages; and the NDCs associated with the shortage. A NDC is a 
unique identifier, though one drug can have multiple NDCs associated 
with it. For example, a drug made by one manufacturer, in one 
strength, but in three package sizes would have a different NDC for 
each of the three package sizes. UUDIS does not consistently track the 
NDCs associated with shortages that it has determined are not critical. 

[120] Red Book is a compendium published by Truven Health Analytics 
that includes information about the characteristics of drug products. 

[121] We searched multiple bibliographic databases, including 
ProQuest, MEDLINE, Embase and SciSearch among others. 

[122] For the purposes of this report, we did not independently 
validate the findings regarding the causes of drug shortages reported 
in literature included in our review. 

[123] GPOs negotiate purchasing contracts with drug manufacturers and 
distributors, among other suppliers, on behalf of hospitals and other 
health care providers. 

[124] IMS Institute for Healthcare Informatics, Drug Shortages: A 
Closer Look at Products, Suppliers, and Volume Volatility. 
(Parsippany, NJ.: November 2011). 

[125] For the purposes of this report, we did not request 
documentation to independently validate the testimonial information 
regarding the causes of drug shortages that was reported by 
representatives from manufacturers and GPOs. In subsequent work, we 
intend to further explore the causes of drug shortages. 

[126] A pharmaceutical equivalent is a drug product that is identical 
in dosage form, active pharmaceutical ingredient (API), and strength, 
and delivers an identical amount of API over an identical dosing 
period. See 21 C.F.R. § 320.1(c) (2013). 

[127] Specific wholesale distributors may serve as an "authorized 
distributor of record" for a given manufacturer. Authorized 
distributor of record agreements may obligate a wholesale distributor 
to only purchase a manufacturer's products directly from the 
manufacturer and to only sell those products to hospitals and 
pharmacies. 

[128] A survey by Premier, Inc., a group purchasing organization, 
found that prices being offered for shortage drugs during a 2-week 
period at the beginning of 2011 were on average 650 percent greater 
than Premier's contract price, and ranged up to 4,533 percent greater 
than their contract price. See Premier, Inc., Buyer Beware: Drug 
Shortages and the Gray Market (Charlotte, N.C., 2011). This is 
consistent with the results of a Congressional investigation, which 
found that gray market suppliers often charge exorbitant prices to 
health care providers for drugs facing critical shortages. See 
"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 Prepared for Senator John D. Rockefeller IV, 
Chairman, Senate Committee on Commerce, Science and Transportation; 
Senator Tom Harkin, Chairman, Senate Committee on Health, Education, 
Labor, and Pensions; and Representative Elijah E. Cummings, Ranking 
Member, House Committee on Oversight and Government Reform. 
(Washington, D.C.: July 25, 2012). 

[129] A drug pedigree is a statement of origin that identifies each 
prior sale, purchase, or trade of a drug, including the date of those 
transactions and the names and addresses of all parties to them. 

[130] Exec. Order No. 13,588, reprinted at 3 C.F.R. 281 (2012). 

[131] 21 U.S.C. § 355e. Counterfeit drugs, which are defined in law at 
21 U.S.C. § 321(g)(2), include, for example, those sold under a 
product name without proper authorization--where the drug is 
mislabeled in a way that suggests that it is the authentic and 
approved product--as well as unauthorized generic versions of FDA-
approved drugs that mimic trademarked elements of such drugs. Diverted 
drugs are legitimate drugs that are illegally bought, sold, or 
otherwise circulated outside of the legal distribution system that has 
been established to ensure safety and quality. Diversion can involve 
such activities as illegal sales of prescription drugs by physicians, 
patients, or pharmacists; prescription forgery; or pharmacy theft. 

[132] 21 U.S.C. § 353(e). 

[133] Legislation enacted in November 2013 mandates the establishment 
over the next 10 years of a national interoperable, electronic system 
to track certain prescription drugs through the supply chain that is 
intended, among other things, to protect against counterfeit and 
diverted drugs. Drug Quality and Security Act, Pub. L. No. 113-54, 
tit. II, 127 Stat. 587, 599 (2013). The law also requires 
manufacturers and repackagers to package certain prescription drug 
products with a product identifier within 4 or 5 years, respectively. 
It also requires wholesale distributors and dispensers to accept and 
dispense only prescription drug products with such product 
identifiers, within 6 or 7 years, respectively. In addition, the law 
requires manufacturers, wholesale distributors, repackagers, and 
dispensers to implement a system, by January 1, 2015, to help ensure 
products are not counterfeit, diverted, stolen, the subject of a 
fraudulent transaction, or otherwise unfit for distribution, and 
restricts all such entities from purchasing or selling a drug to 
entities that meet certain federal and state requirements. Violations 
of these provisions may result in criminal penalties or, in some 
cases, civil remedies, such as seizure, under the FDCA. 

[134] FTC only has the authority to investigate civil antitrust cases. 
If the case is criminal in nature, FTC refers it to DOJ. 

[135] See 15 U.S.C. §§ 1-7. 

[136] See 15 U.S.C. §§ 41-58. 

[137] See 15 U.S.C. §§ 12-27. 

[138] See 18 U.S.C. § 1341. 

[139] Exec. Order No. 13,588, reprinted at 3 C.F.R. 281 (2012). 
Although FTC was not specifically identified in the Executive Order, 
the agency is responsible for enforcing federal antitrust laws and has 
undertaken activities to respond to the order. 

[140] Although the origin of gray market drugs is unclear, some 
commentators suggest that gray market vendors hoard or stockpile a 
drug if the vendor suspects an impending shortage and later sell the 
drug at an inflated price. 

[141] FDA officials told us that the agency does not track gray market 
investigations in a manner that would allow them to identify the total 
number of investigations with any certainty, but in response to our 
request, identified four such investigations that took place between 
January 2010 and January 2013. 

[142] FDA may apply regulatory discretion to enhance the availability 
of drugs in shortage. In certain circumstances, FDA may not object to 
the temporary importation of drugs not approved by FDA for marketing 
in the United States, subject to appropriate controls. FDA officials 
explained that the agency's exercise of regulatory discretion does not 
mean that these products meet regulatory standards for approval, or 
that a manufacturer has a legal right to distribute them. Rather, FDA 
may decide not to object to the distribution of the drug for a limited 
time for public health reasons. 

[143] In addition, prior to issuance of the Executive Order, FDA 
contracted for an analysis of online sales of shortage drugs. The 
contractor's analysis found evidence that, as of November 2011, 106 
different websites were offering 67 drugs from FDA's shortage list for 
sale, with evidence of price gouging in 38 cases. FDA shared this 
analysis with DOJ. DOJ officials told us that they reviewed this 
report and have discussed the online sales of drugs by illicit 
pharmacy websites with FDA. Officials noted that DOJ has prosecuted 
the operators of such websites in recent years, regardless of whether 
they have sold drugs in shortage. For more on prosecutions of 
operators of rogue Internet pharmacies, see GAO, Internet Pharmacies: 
Federal Agencies and States Face Challenges Combating Rogue Sites, 
Particularly Those Abroad, [hyperlink, 
http://www.gao.gov/products/GAO-13-560] (Washington, D.C.: July 8, 
2013). 

[144] In addition to their own review of gray market solicitations 
from FDA, DOJ officials told us that, at the request of FTC, DOJ could 
review complaints that suggest evidence of two or more actors engaged 
in criminal antitrust activity in violation of the Sherman Act. 
However, as of November 2013 DOJ had received no such referrals from 
FTC. 

[145] Telephone complaints are received through 1-877-FTC-HELP. Email 
complaints are received through antitrust@ftc.gov. 

[146] "Track-and-trace" refers to a system that involves 
electronically tagging each package with a unique identifier, noting 
each transfer of a drug package, and maintaining a database of all 
such transactions. During the course of our work, Congress enacted, 
and the President signed into law, the Drug Quality and Security Act, 
Pub. L. No. 113-54, 127 Stat. 587 (2013). Among other things, the law 
requires wholesale distributors to report to FDA the states in which 
they are licensed and the status of those licenses. While not a 
registration requirement, FDA officials told us that this reporting 
requirement would provide the agency with the ability to identify the 
wholesale distributors in the marketplace. The law also requires 
manufacturers, wholesalers, and other drug supply chain participants 
to provide certain information and representations about 
pharmaceutical transactions when there is a change of ownership or 
possession of a drug product and requires the establishment of a 
national interoperable, electronic system to track certain 
prescription drugs through the supply chain. 

[147] While this appendix focuses on incentives that could be offered 
by federal agencies, in its drug shortages strategic plan, FDA notes 
that the agency's ability to offer financial or other economic 
incentives is limited. FDA suggests that other stakeholders might 
explore economic, financial, or other means to incentivize innovation 
and new investments in manufacturing quality drugs to reduce the 
occurrence and severity of shortages. 

[148] In February 2013, FDA published a notice in the Federal Register 
with a request for comment about its drug shortages task force and 
strategic plan. Two of FDA's questions related to incentives: 1c. Are 
there incentives that FDA can provide to encourage manufacturers to 
establish and maintain high-quality manufacturing practices, to 
develop redundancy in manufacturing operations, to expand capacity, 
and/or to create other conditions to prevent or mitigate shortages? 
and 2. In our work to prevent shortages of drugs and biological 
products, FDA regularly engages with other U.S. Government Agencies. 
Are there incentives these Agencies can provide, separately or in 
partnership with FDA, to prevent shortages? 78 Fed. Reg. 9928 (Feb. 
12, 2013). 

[149] The 112TH Congress was in session from January 2011 to January 
2013. The 113TH Congress began in January 2013. 

[150] The Patient Access to Drugs in Shortage Act of 2012 (H.R. 6611), 
introduced in the 112TH Congress, was not enacted. 

[151] Manufacturers who want to have their drugs covered by Medicaid 
on an outpatient basis must provide rebates to state Medicaid 
programs. These rebates offset the amount of the federal government's 
contribution to state Medicaid programs for expenditures for such 
outpatient drugs. Such manufacturers must also provide discounts to 
certain types of providers within the safety net through the 340B Drug 
Pricing Program. 

[152] To receive approval to market a prescription drug in the United 
States, a manufacturer must submit an application to FDA demonstrating 
the drug's safety and effectiveness, describing the drug's 
manufacture, and providing information on the drug's labeling. FDA 
officials review such applications--including NDAs and ANDAs--and, 
where appropriate, inspect the establishments where the product will 
be manufactured. Once an application is approved, a manufacturer must 
notify FDA--through a supplement to said application or other 
regulatory submission--of any changes to that application, some of 
which require FDA's approval before the drug manufactured using the 
changed process can be distributed. 

[153] Current good manufacturing practice regulations provide a 
framework for a manufacturer to follow to produce safe, pure, and high-
quality drugs. See 21 C.F.R. pts. 210, 211. 

[154] FDA guidance outlines reporting categories that govern the type 
of notification and FDA review required for various changes made after 
an application is approved, based on the potential of the change to 
adversely affect the safety or effectiveness of the drug. A change 
that has a substantial potential to adversely affect factors such as 
the identity, strength, quality, purity, or potency of a drug product 
require FDA review and approval of a "prior approval" supplement 
before a drug manufactured using this change can be distributed. For 
certain changes that may have a moderate potential to affect such 
factors, FDA may allow distribution of the drug 30 days after receipt 
of a "changes being effected" supplement, regardless of whether FDA 
has reviewed the changes. In some cases, FDA may allow distribution of 
the drug upon receipt of such supplement. 

[155] To ensure that drugs are produced in conformance with federal 
statutes and regulations, including good manufacturing practice 
regulations, FDA may inspect the establishments where drugs are 
manufactured. We previously reported that FDA inspected domestic drug 
manufacturing establishments about once every 2.5 years and generally 
inspected foreign manufacturing establishments much less frequently. 
In part, this difference in frequency of inspection was due to the 
fact that, at the time, FDA was required to inspect every 2 years 
those domestic establishments that manufacture drugs in the United 
States, but there was no comparable requirement for inspecting foreign 
establishments. GAO, Drug Safety: FDA Has Conducted More Foreign 
Inspections and Begun to Improve Its Information on Foreign 
Establishments, but More Progress is Needed, [hyperlink, 
http://www.gao.gov/products/GAO-10-961] (Washington, D.C.: Sept. 30, 
2010). 

[156] FDASIA removed the every-2-year domestic inspection requirement 
and instead requires FDA to determine the frequency of inspection for 
both domestic and foreign establishments on a risk-based schedule. 
Pub. L. No. 112-144 § 705, 126 Stat. 993, 1066 (2012). 

[157] [hyperlink, 
http://www.fda.gov/iceci/enforcementactions/ucm222557.htm]. Accessed 
December 3, 2013. 

[158] The annual fee is assessed according to each manufacturer's 
share of branded prescription drug sales to certain government 
programs, including Medicare and Medicaid. Pub. L. No. 111-148, § 
9008, 124 Stat. 199, 859 (2010), as amended by Pub. L. No. 111-152, § 
1404, 124 Stat. 1029, 1064 (2010). H.R. 6611--as introduced in the 
112th Congress, but not enacted--would exclude the sales of any 
branded prescription drug, if in shortage, from the annual branded 
prescription drug fee. 

[159] Federal law requires FDA to collect various fees, known as "user 
fees," from brand-name human drug and biological product manufacturers 
to supplement the cost of reviewing new drug applications and 
inspecting establishments. 21 U.S.C. § 379h. One manufacturer comment 
proposed reducing or waiving the establishment fee for manufacturers 
that built in redundant manufacturing capacity. For fiscal year 2013, 
the establishment fee for new drugs was $526,500 per establishment. 
Federal law also directs FDA to collect similar user fees from generic 
manufacturers. 21 U.S.C. § 379j-42. Two manufacturer comments proposed 
offsetting filing fees for manufacturers that built redundancy into 
their manufacturing plan. For fiscal year 2013, the application fee 
for a generic drug application is $51,520. 

[160] Average sales price is the weighted average of all non-federal 
U.S. sales by manufacturers net of chargebacks, discounts, rebates, 
and other price concessions tied to the purchase of the drug product, 
whether it is paid to the wholesale distributor or the entity that 
purchases the drug. Wholesale acquisition cost is the manufacturer's 
list price for the drug product to wholesalers or direct purchasers 
not including any discounts, rebates, or reductions in price. 

[161] To calculate the average sales price, manufacturers submit sales 
data to the Centers for Medicare & Medicaid Services within 30 days of 
the end of each quarter. The agency then uses that data to set 
reimbursement rates for the following quarter. For example, 
manufacturers submitted sales data for the quarter covering October to 
December 2012 to the Centers for Medicare & Medicaid Services in 
January 2013 and the agency used those data to set reimbursement rates 
effective in April 2013. Therefore, some commentators have claimed 
that this two quarter lag limits manufacturers' ability to adjust 
prices. For example, if a manufacturer changes the price of a drug in 
October 2012, the reimbursement to providers will not change until 
April 2013 (two quarters later), potentially creating a disincentive 
to purchase these drugs if the reimbursement is less than the purchase 
price for this period. Others note that manufacturers can and do 
adjust their prices and note that under the current reimbursement 
system, when the price of a drug drops, such as when a drug goes off 
patent, providers are reimbursed for more than the purchase price for 
the period until the reimbursement catches up. 

[End of section] 

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