Recently, the United States Department of Health and Human Services (HHS) issued a white paper, “Policy Considerations to Prevent Drug Shortages and Mitigate Supply Chain Vulnerabilities in the United States.” The white paper discusses the impact drug shortages have on patients, caregivers, pharmacies, hospitals, nursing homes, and other entities across the health system.
HHS states that drug shortages are often caused by a lack of transparency, concentration among middlemen, and prices for generic drugs that are so low that they create insufficient incentives for resilience-oriented manufacturing, distribution, and purchasing. To help solve the problem of drug shortages, HHS has established a new Supply Chain Resilience and Shortage Coordinator role to strengthen the agency’s coordination and implementation of strategies to enhance supply chain resilience for all medical products. In addition, the Food and Drug Administration (FDA) is working to develop a framework that would evaluate Quality Management Maturity (QMM) at drug manufacturing establishments, which would help to gauge adoption of management practices that support a more reliable drug supply chain by both reducing the occurrence of quality-related failures and improving the ability of drug manufacturers to maintain performance during expected and unexpected supply chain disruptions.
HHS notes that while the agency has made progress in shoring up the system’s ability to respond to shortages, additional solutions “require additional statutory authorities and funding to resolve underlying causes of shortages.” The paper, therefore, attempts to outline policy concepts for consideration, including collaboration with the private sector to develop and implement a Manufacturer Resiliency Assessment Program (MRAP) and a Hospital Resilient Supply Program (HRSP).
The HRSP is a system that would connect Medicare payments to hospitals’ drug supply actions related to inventory management and contracting practices. It could include both incentive payments and penalties based on a hospital’s adherence to best practices for preventing shortages. The MRAP would be a public-private partnership that would hold drug manufacturers to benchmarks and metrics for manufacturing resilience, such as redundancies and product quality management. Manufacturers that meet the standards would receive recognition from HHS.
According to the white paper, the MRAP and HRSP could be implemented in stages as a long-term approach, starting with hospitals that provide inpatient services for certain types of drugs. MRAP implementation could begin by developing manufacturer resilience assessment metrics for an initial set of drugs, such as the drugs in ASPR’s list of critical medicines. HRSP could develop and apply payment incentives and/or penalties in multiple ways, such as: (1) apply penalties and incentives simultaneously; (2) introduce penalties first and then incentives; or (3) introduce incentives first and then penalties. HHS estimates the cost of implementing MRAP and HRSP would be between $3.26 billion and $5.11 billion, though the exact amount would vary depending on policy choices.
HHS believes that the concepts outlined in the white paper would help to make the market more transparent, link purchasing and payment decisions to supply chain resilience practices, and incentivize investments in supply chain resilience and diversification in the supply chain—including domestic manufacturing—at a scale that would drive impactful change in the market.