The U.S. Drug Supply Chain in Crisis: Solutions to Shortages

One of the biggest challenges facing the U.S. healthcare system is drug shortages. In the last several years, shortages of critical drugs — morphine, lidocaine, epinephrine, immune globulin, vincristine and even normal saline for injection — have caused significant problems for patients, physicians and pharmacists.

When Hurricane Maria devastated the island of Puerto Rico in September 2017, many Americans may have been left wondering what would become of their holiday travel plans. Clinicians across the U.S., on the other hand, were left wondering how they would provide basic medical care to millions of sick patients in the middle of an influenza epidemic. Incredibly, 10% of all drugs consumed by Americans are manufactured on Puerto Rico, including most small volume saline intravenous infusion bags. Unfortunately, Maria’s disruption of the pharmaceutical supply network caused an already-low supply of intravenous bags to become even scarcer through late 2017 and into mid-2018. The actions required prompt efforts to address the critical nature of this event, and in some cases forced health systems to go to extreme measures to meet the needs of the patients being served.

Maria’s devastation of the IV fluid supply chain was certainly not the first drug shortage to impact care in the U.S., and it won’t be the last. In early October of 2018, pharmacy leaders across the country received a letter from a major pharmaceutical manufacturer stating that it had decided to cancel intravenous immunoglobulin and albumin pricing agreements with select contracted organizations, leaving providers only a few weeks to seek alternative products. It was a most unenviable situation for a category of pharmaceuticals, which not only are life-saving, but which only a handful of vendors are able to produce and distribute.

We’re not likely to know all the decision points that went into causing such an abrupt discontinuation in the normal procurement processes, especially in a product line which routinely had been faced with various reasons for supply disruptions. Some have speculated that better financial opportunities elsewhere might have been at the center of the decision-making process. It would be an understatement that this issue continues to plague an already challenged supply-chain environment, where local, national and international shortages continue to be the routine rather than the exception. Most of us are grateful when the end of the month arrives, and our product needs have largely been met. 

These are two very extreme examples of pharmaceutical supply-chain disruptions, which continue to affect our industry. Some might dismiss the alarm and instead focus on the reduction in drug shortages reported from a high of 251 annually in 2009 to a most recent low of 54 during 2018. However, it is still an issue that requires maximal attention, due to significant costs and the potential detriment to patient outcomes.

How Did We Get Here?

The U.S. Food and Drug Administration’s Drug Shortages Task Force published “Drug Shortages: Root Causes and Potential Solutions” in October of 2019. The report identified several factors that often converge to create a shortage situation, including:

  • The lack of incentives for manufacturers to produce low-margin drugs,
  • The market failing to recognize and reward manufacturers with robust quality control, and
  • Regulatory and logistic issues that impede the market’s recovery after a shortage.

The convergence of these factors has, unfortunately, become increasingly common. The contracting environment for drugs, particularly from a group purchasing organization (GPO) perspective, rewards the lowest-priced product. There is typically no contractual obligation for a GPO to stay with a vendor if the market gets undercut by a competitor. A constant race to the bottom, precipitated by hospitals and health systems quest to cut costs, drives prices down to a point where investing in remediation of issues such as manufacturing challenges or raw material shortages isn’t financially viable for the manufacturer. This is where low margins intersect with the lack of market incentives for robust quality control.

Peter Adamson, chair of the Children’s Oncology Group (COG), published a letter to the childhood cancer community to raise awareness for the vincristine crisis. Adamson points out that drug shortages in the free-market U.S. have been of greater impact than those seen in other markets around the world. He argues that diminished profitability of the available generic products, especially generic oncolytics such as vincristine, create reduced incentives for manufacturers in the acquisition cost-centric capitalistic US model. Unlike brand drug manufacturers that generate substantial revenue from a few key products, generic manufacturers capture minimal revenue from many smaller products that often reach peak profitability soon after patent expiration of the innovator. Growing price competition from multiple entrants vying for market share erodes revenues, leading to discontinuation of products that are unable to contribute to the manufacturer’s bottom line.

Once a shortage has occurred, FDA regulatory hurdles for market entry slow recovery or stop it altogether. It can take between three and five years to get an abbreviated new drug application (ANDA) through the FDA, if manufacturers feel there is sufficient margin to be gained and there are enough active pharmaceutical ingredients (API) or raw chemicals available to support production.

The FDA Task Force rightly identifies that the overall solution to the drug shortage problem will need to come from a variety of fronts — public sector (government), private-sector (GPOs and providers) and manufacturers. Of interest are the private-sector solutions that have been proposed and are currently active in the market.

What Does This Mean for Me?

New drug shortages are continuing to rise, with the potential for year over year growth to exceed 27%. The FDA Drug Shortages Task Force Report entreats healthcare stakeholders to begin to understand the contributing factors of drug shortages, and characterize their impact to “support private- and public-sector strategies to prevent or mitigate them in the future.” Identifying the impact of drug shortages from the clinical, financial and humanistic perspectives is critical to supporting a greater understanding of potential solutions.

Oncology drug shortages have generated substantial attention throughout media publications and among policymakers, due to the potential for life-threatening results when disruptions occur in the availability of common treatment regimens that have no viable alternatives (e.g. vincristine). A study by Hedlund et. al. evaluated the disruption of the generic oncolytic agent cytarabine on patient receipt and timeliness of induction treatment for Acute Myeloid Leukemia (AML). Using a retrospective cohort design, a total of 1,568 patients were profiled for timing of receipt of inpatient induction chemotherapy and time to first dose. Patients diagnosed during a major drug shortage of cytarabine were 47% less likely to receive inpatient chemotherapy within 14 days of diagnosis.

In a study carried out by Vail and Associates, which evaluated mortality rates among patients with septic shock due to a norepinephrine shortage, in-hospital deaths increased by 3.7% in hospitals experiencing norepinephrine shortages. Concluding remarks from the authors provided trending results which suggested that those patients with septic shock affected by the norepinephrine shortage were most commonly prescribed phenylephrine, resulting in higher in-hospital mortality.

Fox and colleagues shared a clinical perspective by describing the harm created by a lack of drugs or the use of inferior alternatives, resulting in more than 15 documented deaths.

Public controversy has also grown over the pattern of outrageous spikes in generic drug prices, often as a result of drug shortages. As market competition is reduced during a shortage, so too is the need for competitive pricing, leading to rapid price increases and market outcry. It has been documented that drug shortages may contribute an additional $230 million in annual drug costs, more than $400 million in vendor price gouging, and an estimated $216 million in labor costs nationwide.

Though the literature is rife with examples describing the clinical and financial burden of drug shortages, few studies explore the humanistic impact on providers and patients. Alpert and Jacobson recently published an examination of outpatient chemotherapy use during periods of drug shortage, compared to the months before and after a shortage resolves. Their findings revealed that drug shortages created fewer clinical or financial costs compared to the personnel and psychological costs which were not adequately or fully measured in the study.

There is overwhelming evidence that drug shortages cause significant clinical and financial harm to patients. It is imperative that viable solutions are fully vetted to begin the process of eliminating or lessening the devastating impact to society.

Is the Government Really Here to Help?

The federal government has become more engaged in activities designed to prevent and mitigate drug shortages. FDA’s Drug Shortages Task Force, in collaboration with the Duke Margolis Center for Health Policy, hosted a public forum titled “Identifying the Root Causes of Drug Shortages and Finding Enduring Solutions” in November 2018. Dialogue from this forum, combined with themes uncovered during listening sessions conducted throughout the fall of 2018 and an open public docket, led to the creation of the Agency’s ultimate deliverable, the aforementioned “Drug Shortages: Root Causes and Potential Solutions,” culminating a year-long endeavor to categorize the drug shortage epidemic in the United States.

Legislators have also begun to address the need to prevent or mitigate the devastating consequences of drug shortages. Senators Susan Collins of Maine and Tina Smith of Minnesota have introduced the Mitigating Emergency Drug Shortages (MEDS) Act. It would focus Congress on:

  • Expanding approval pathways and incentives for manufacture of shortage impacted products;
  • Improving data collection by the FDA regarding manufacturing practices, locations, and manufacturing contingency plans;
  • Increasing the burden on drug manufacturers to submit background information in the event of a drug shortage;
  • Expanding the criteria for inclusion on the FDA shortage list (important for gaining access to compounded medications in times of shortage), and
  • Improving interagency collaboration regarding government activity and potential impacts on drug shortages.

This comprehensive legislation has received support from many industry groups, including the American Hospital Association, American Society of Anesthesiologists, American Society of Clinical Oncology, American Society of Health-System Pharmacists, and Institute for Safe Medication Practices. It also echoes many of the themes found in the FDA Drug Shortages Task Force report, including an expanded focus on data sharing, risk planning and improving incentives for manufacturers with high-quality production of shortage impacted items.

Various models to address drug shortages have been proposed. At the time of this writing, there are a select few models that have emerged as viable solutions.

Paid Access Model

The Paid Access Model is characterized by a core group of facilities or health systems that pay a premium to be afforded the right to purchase select drugs that are either commercially available, or are developed and manufactured by the membership as a coalition. The core membership group would generally have a voice in determining which drugs are targeted for purchase or manufacture. The members of this purchasing organization would carry a level of commitment to buy though the channels designated by the organization. Beyond these fundamental features, there is room for much variability in terms of member fees, member equality, criteria for targeting drugs, commitment levels and manufacturing versus partnering with manufacturers.

Executives at Intermountain Healthcare in Salt Lake City Utah created Project Rx in January of 2018 as an introductory framework for a provider-owned drug manufacturer, specifically designed to combat drug shortages and rising pharmaceutical costs/ September of 2018 saw the transformation of the early concept of Project Rx into the highly publicized, not-for-profit, generic drug manufacturer Civica Rx. Participation and funding from seven key health systems and three major philanthropies allowed Civica Rx to explore the lofty goal of producing more than 14 hospital-administered generic drugs by the end of 2019. Civica Rx proposed to engage in either the direct manufacture of generic drugs, or sub-contracting the manufacture of generic drugs to other FDA approved organizations.

Civica Rx has seen growth in health system membership and industry partnerships since the initial launch in 2018. Twelve additional health systems joined the ranks of Civica Rx as founding members in January of 2019. By the end of that month, Civica Rx had raised more than $160 million in funding from its members.

Civica Rx has announced partnerships with Xellia Pharmaceuticals, Exela Pharma Sciences and Hikma to produce vancomycin, daptomycin, sodium bicarbonate, heparin, naloxone, dexamethasone, glycopyrrolate, prochlorperazine, ondansetron, morphine, metoprolol and six other injectable products. While Civica Rx has committed to ship 11 named products, actual shipment status cannot be confirmed at this time. The remaining six injectable products promised were not announced, leaving Civica Rx short of its 2019 product-launch projections.

January 2020 saw a slew of announcements from Civica Rx, including a partnership with Thermo Fisher to explore drug manufacture, a plea to other manufacturers to donate unused ANDAs, and a $55 million partnership with BCBS plans seeking low-cost generic alternatives for their health plan patients. With expected product launches to begin in 2022, Civica Rx is focused on building an investment-heavy long game to address drug shortages and price increases that might be dependent on the generosity of manufacturers, in a market that has not previously demonstrated overt munificence.

Civica Rx has launched current marketed products under a Civica Rx private label and private National Drug Code (NDC), with the stated intent to sell the products at a single price point to all members. Without a unique 340B price point and with concerns over GPO-like private labeled products, the Civica Rx products might not be eligible for inclusion in the federal 340B drug discount program. As Civica Rx continues to produce private label versions of commercially available products, they may begin to be classified as a not-for-profit, provider-owned GPO.

Civica Rx has changed the narrative in the U.S. regarding drug shortages. Clinicians and health systems no longer feel helpless, and have hope for a better solution. What remains to be seen is whether the promise of a not-for-profit, provider-owned drug company can produce the lofty vision that has been presented. A key concern for this type of model is the cost to reinvent infrastructure and the economic efficiency of the model that demonstrates the true value of investment in the organization.

Shared Commitment Model

The shared commitment model leverages an existing organization, such as a GPO or any other group of aligned organizations, to establish infrastructure for the benefit of the membership. It requires participants to be highly committed to purchasing selected products through its designated channels. The organization could limit or eliminate membership fees or investment by leveraging existing infrastructure and administrative expertise from the parent organization, adding only incremental staff as needed. Finally, this model seeks to partner with existing manufacturers to help them enter, or remain in, a particular therapeutic market rather than become a manufacturer itself. As with the paid access model, the operational and strategic nuances can vary beyond these core characteristics.

Premier Inc., a national GPO, recognized the growing need for member hospitals to address drug shortages. The ProvideGx Program was created to expand innovative strategic relationships with select pharmaceutical manufacturers, to increase market competition, create a stable pharmaceutical supply chain, help alleviate drug shortages and mitigate irrational pricing for its member institutions.

Participation in the ProvideGx program is free to all Premier members. The program includes a 21-member committee representing a variety of Premier member health systems, who evaluate drug shortages and help guide the selection of targeted drugs. Since its inception, ProvideGx has grown to represent more than 1,000 hospitals and has targeted an initial list of 60 shortage drugs that represent more than 100 individual presentations currently listed as national shortage targets. Shared commitments between its members, pharmaceutical suppliers, targeted distributor and the Premier staff have created a collaborative environment where all who contribute will share in the ultimate success of the program.

Members commit to a minimum of 65% of historic purchase volume for drugs they choose to order through the program. Suppliers work directly with the Premier pharmacy contracting team to evaluate targets, identify inventory needs, develop “safety stock,” and obligate failure-to-supply remedies for participating hospitals. FFF, the primary distributor for all targeted drugs, then commits to provide ready access to all ProvideGx products to participating members at relevant prices, including 340B and wholesale acquisition cost (WAC).

Premier has received more than 46 letters of participation for the program to date, and has released 18 products, including cysteine, sodium bicarbonate, metoprolol, lidocaine, diphenhydramine, thiamine and various pre-filled syringes. An emergency syringe line — which includes calcium chloride, epinephrine, phytonadione, sodium bicarbonate, atropine, dextrose and lidocaine — is currently being issued to participating members.

What’s Next?

Drug shortages have increased in recent years, threatening patient safety. Public outcry has generated significant interest in finding workable solutions to limit and mitigate critical shortages. Notwithstanding improved government reporting and benchmarking efforts, premium membership models, or shared commitment models, the problem of drug shortages will not be quickly or easily overcome. Each solution demonstrates strengths and weaknesses:


Factor contributing to Shortage

Shared Commitment Model

(eg. ProvideGx)

Paid Access Model

(eg. CivicaRx)


Low Margin Drugs

Create contracts with existing manufacturers for shortage drugs at a “Sustainable Price Point”

Become a “not-for-profit” drug manufacturer where positive margins are not the focus


Market does not reward manufacturers for investing in quality

The Sustainable Price Point would have enough margin to allow manufacturer to reinvest in quality processes


By owning the manufacturing Civica would, presumably, be able to put the appropriate emphasis on quality without concern for margin.

FDA needs a better awareness of the market impact of manufacturing shut-downs and/or batch quarantines. Are they causing more harm than good?

Lack of knowledge on production locations of key pharmaceuticals

Thru the due diligence process of vetting potential partners for shortage drugs, ProvideGx would have this information

Prior to deciding to manufacture a given drug, Civica would research existing market players

FDA working on data base that would include not only which companies are producing a drug, but at which plants

Logistical and regulatory challenges to recovery from market disruptions

Contracting process includes the manufacturers agreeing to a certain level of reserve “safety stock” to insulate against market disruptions

Would produce excess volume to maintain safety stock for members to insulate against market disruptions

Legislative proposals exist that would expedite the FDA’s approval process for additional manufacturers to enter the market for a critical shortage drug

While some market solutions are more adept at using media and marketing channels to expand the reach of their message, an objective evaluation of the alternatives is critical to develop an understanding of which solution is best situated to provide near and long-term relief against drug shortages in the U.S.

As more and more Americans wake up each day faced with the reality that their life-sustaining or life-saving drugs might not be available, it becomes a shared responsibility to challenge the status quo, and discover new strategies that will work to protect the health of the country.

Jessica Daley is vice president of HC Pharmacy and Supply Chain Commercial Services at University of Pittsburgh Medical Center. Gregory Strohs is corporate director of pharmacy at AdventHealth in Altamonte Springs, Florida. Alan Mutnick is director of strategic sourcing for pharmacy at Memorial Healthcare System in Hollywood, Florida.

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