Pharmaceutical Supply Crisis and Its Costs Ultimately Reflect a Market Failure

As a healthcare executive long involved in supply-chain procurement for hospitals, I've been flooded with calls from hospital CEOs asking why so many of the pharmaceuticals they need to deliver care are so difficult to secure in sufficient quantities.

After all, we have a pharmaceutical market with no shortage of willing buyers and sellers, ample raw materials, researchers pursuing new breakthroughs, and scores of long-established, clinically effective drugs.

So what's the problem?

First, the U.S. is experiencing an alarming shortage of generic injectable drugs—from basic items such as Sodium Bicarbonate (baking soda) to narcotics such as MORPHINE. When several pharmaceutical plants were temporarily shut down over the past few years to ostensibly protect the public from possible safety violations, there was no real thought to the consequences of those shutdowns and the need to rapidly shift production capacity from closed plants to alternative supply sources.

And as we learned from the hurricanes last fall that ravaged Puerto Rico—where several drug and medical supply plants were significantly damaged and temporarily closed—natural disasters can disrupt the nation's pharmaceutical supply chain virtually overnight.

There are always vendors with the capacity to step into the market, but the regulatory barriers are formidable, and the Food and Drug Administration's Abbreviated New Drug Application approval process—even for critical generic drugs in acute short supply—isn't nearly abbreviated enough.

Second, the nation's opioid abuse epidemic is inadvertently worsening the shortage. The Drug Enforcement Administration has reduced the raw material allocations needed to make opioids, which—epidemic notwithstanding—every hospital in the country needs for basic pain relief.

Then there's the FDA's "unapproved drug initiative," which essentially grants monopoly pricing power to induce vendors to obtain evidence of safety and efficacy, and file applications for "old" drugs on the market—such as neostigmine, vasopressin and ephedrine—that predated the current approval process. A small number of suppliers control the drugs sought through this initiative because all non-approved manufacturers of the old drug must leave the market—a perfect recipe for shortages and higher prices. In wanting to ensure that all drugs are approved under the FDA's latest standards, the agency did not consider this well-intentioned policy's adverse impact on the pharmaceutical market.

Which brings us to the life and legacy of the late Dr. Florence Kelsey, the heroic FDA investigator who, in the 1960s, saved countless American children from widespread birth defects caused by Thalidomide, which was originally used as a sedative and then to alleviate morning sickness in pregnant women. To her enduring credit, Dr. Kelsey created the FDA's well-deserved "safety" brand that remains its moral underpinning to this day.

While the commitment to safety must never be compromised, the FDA has not kept pace with a pharmaceutical landscape that has changed dramatically. In 2018, with too many generic injectable drugs in scarce supply, the agency must also become a "market maker" by encouraging competition and innovation. Ironically, failure to do so comes at the expense of Americans' health and safety.

Fortunately, the FDA is well-positioned to address these market imperatives. Its commissioner, Dr. Scott Gottlieb, understands the importance of free markets and the innovation and value that true competition brings for both buyers and sellers of pharmaceuticals.

The pharmaceutical crisis is ultimately a market failure, because an over-regulated market cannot, by definition, be a free market.

Having spent most of my career in the healthcare group purchasing industry, where we use competition every day to create an effective marketplace, and where we negotiate pharmaceutical prices for hospitals and other providers, I am convinced that the FDA can preserve Dr. Kelsey's safety legacy while still recognizing, and acting on, market pressures that necessitate flexible, expedited actions.