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Wednesday, November 6, 2019

Drug Shortages, Quality and Prices: Who is Responsible?

Recently US FDA (1, 2) presented its perspective on how to reduce drug shortages and potential solutions. Without a clear road map and a game plan, that is acceptable to all and could be followed to resolve the issues nothing will change and/or happen. In the coming time a very lively discussion/debate about who is responsible and will participate to alleviate shortages will happen. My conjecture is that good bit of finger pointing ‘who is responsible’ will result and not much will happen. All said and done someone has to take the responsibility and must be held responsible for less than agreed quality product, shortages and ever-increasing prices of generics. FDA, Drug producers and the distributors which includes PBMs (Pharmacy Benefit Managers) should be part of the discussion. There is no two ways about it. I have presented my thoughts about the roadmap. There is no financial or any other obligation with any educational/commercial or regulatory body. 

In the drug hemisphere there are two drug classifications (Brand and Generic) and they must be dealt separately. In the process of getting drugs from either classification to the patient there is a common element and its impact on discussion of quality, availability and prices is totally ignored. This element is distribution chain aka PBMs and also includes insurance companies, the whole distribution chain. 

Behavior of PBMs and allies is seldom discussed. They are treated as the savior in healthcare but a deeper analysis suggests that they are significant part of the problem for quality, availability and pricing especially for generic drugs. Their contribution is seldom acknowledged, but if discussed, is generally ignored (3,4,5, 6, 7, 8, 9) by most. Drug innovation is not compromised in this conversation.  

Brand vs. Generic Drugs: 

Brand drugs are produced by limited number of companies but generics are produced by many (6). It is easy to address manufacturing, distribution and quality issues for the brand drugs. Brand companies do everything possible to avoid poor quality and availability issues as the bad publicity can be lethal. They are very powerful companies, who invent and commercialize new drugs and make sure that there are no issues of any kind. 

Influencers in Drug Business: 

Concepts (1,2) to reduce shortage are proposed but, in my estimation, they will not resolve the issues at hand. FDA’s effort is lots of talk and no meaningful results. Alternates to latest recommendations, discussed later, should be considered. Some alternates have also been proposed (10, 11,12, 13, 14) and should be reviewed.

     FDA. ----> Drug Producer [API manufacturer + Formulator ----> PBM + Drug Distributor -----> Patient
                                   Figure 1: Parties involved in drug business

Figure 1 reiterates who all is involved in the drug business (no pun intended). In the current system FDA, for sales in the United States, makes sure brand and generic quality drugs are approved, manufactured and distributed. Drug producers must make sure that they produce and sell ONLY approved repeat quality drugs day in and day out and follow USFDA guidelines. Drug distributor is the intermediary who assures quality drugs are bought and sold to the patients.  
In the current business model “drug distributor, includes PBMs” buy and sell drugs and is a for profit intermediary. They presume they are selling quality drugs. This may or may not be true. In the current system PBMs are not held accountable for sale of less than quality drugs. They should be held accountable. Drug distributors, as discussed later, can be a major cause of the drug shortages and less than quality products. 

Every drug distributor, like any seller, is in the business to sell quality products and maximize their profits. Based on my experience, I would negotiate purchase prices with the manufacturer/supplier to maximize my profits. Sellers, in turn to stay in business, must improve their business practices to maintain their profit margins. Margin retention can come from economies of scale and/or improved processes/technologies or taking short cuts. 

Taking short cuts can result in less than quality product and if not caught by the buyer, is the easiest way to retain profits. These in Pharma’s API manufacturing and their formulations can come from less than efficient processes (3), lax process controls and management. These are known facts. In manufacturing, taking shortcuts can result in losing track of the process and if the quality suffers no one would know where the problem occurred and cannot be corrected. Financial losses can result. 

FDA’s inspections in pharma manufacturing are data capture based. If short cuts have been taken they are covered up by falsification of data. Companies, who can manage data, can get away with less than quality product being shipped. However, if caught the worst scenario would be a 483 citation or their continuance. Lack of FDA’s stern action and not being held accountable on a continuing basis leads to complacency. Examples of citations are available at FDA site. 

It is expected that every manufacturer of API and their formulations has absolute command of their processes and produces quality products using cGMP practices. Lack of data integrity is a clear suggestion that processes are out of control. Inspections by walking around can tell an experienced inspector general management philosophy of companies. They can see signs of management’s practices with respect to quality. 

PBMs putting pressure, as discussed above, on API manufacturer and formulators to lower their selling price can result in selling less than quality product. If companies cannot achieve their margins they can stop production and it can lead to shortages. Irony is that no PBM is held accountable for product quality or the shortages. Blame is put squarely on the manufacturers. Under the current scenario PBMs reap huge profits (12, 13, 14) with no expense or blame. Unless PBMs and drug manufacturing companies are not collectively held responsible for quality, affordability and shortages, world would be still discussing these issues in 2030. 

Excellence comes from within. However, in the current scenario, due to PBM pressures to lower selling prices, pharma manufacturing companies are also forced to be minimalistic in innovation and excellence. Sometimes excellence can be forced by external threat as discussed later. It may be just the incentive manufacturing companies need.

FDA’s New Proposal for Drug Quality and Shortages (1, 2):

FDA’s ANDA/NDA drug approval is considered getting the toughest “seal of approval”. If companies have this approval then why is FDA suggesting purchasers (PBMs and others) do not recognize its “seal of approval”. If FDA is suggesting that the approved sites do not have mature quality system then “is FDA suggesting that the current cGMP practices and the ANDA/NDA approval processes are a failure as they do not weed out marginal producers?” These remarks raise a question “why do we need FDA?” 

If FDA is suggesting that patients should abandon proven drugs that work in favor of higher priced marginally better drugs, question needs to asked who is paying for the drugs. what have the companies done to improve their processes to improve their profits. Disparity between sales prices between illustrated drugs (4, 8) suggest that many drugs can be imported. It seems that no one has benchmarked sales prices of drugs in different countries.  

It seems that PBMs role in drug shortages, quality and prices is not recognize or understood. They, as explained above, are BIG part of the quality and shortage problem. 

My conjecture is that FDA’s recommendation to incentivize and rate manufacturers is not going to solve quality or shortage issues. Companies, as explained above, will still be under PBM price negotiation pressures and even after incentives, quality and shortage issues would still be there. If external incentives to manufacturing companies is considered, it will be essentially subsidizing profit-making companies. It would be interesting to see how and why patients and tax payers will participate in such an adventure. Legislators, who, in our legalized corrupt system (lobbying) could care less about shortages and prices, will have an issue to talk about with their constituents.  

With respect to ranking or rating manufacturers (1, 2), it is an audacious and ambitious task which could take more than five years to fully implement. Does FDA have the finances, resources and expertise to create such a system? If legislative help is going to be needed, my speculation is that various vested interests will do everything possible to mute such a system if their profits are impacted. 

If the ranking system idea comes to pass and if FDA is designated to develop such a system many questions need to be addressed. For such a rating system to be created, question would be, who would be rating the companies. If it is FDA, it would have to develop rating criterion for the sites. Many at FDA would have to be very familiar with manufacturing of API and their formulations. System would have to address every possible scenario to assure quality. For the ranking to be applicable across the board every “t” will have to be crossed and every “I” will have to be dotted. I am not sure FDA has staff with experience in process design, development and hands on manufacturing to establish and pinpoint the road map for ranking of manufacturing companies. 

FDA’s proposed ranking system would be similar to developing a manufacturing process. Development of ranking system would require testing as the system as it is developed. I am not sure FDA is capable of developing a Quality by Design (QbD) process as it has not been practicing it for the ANDA approval process. 
While the ranking system is being developed, shortage and quality issues will continue. We cannot afford them.  

In our mutually subsidized healthcare system prices at different levels are extremely well camouflaged. Most of this report is difficult to understand as there is no explanation of what is being analyzed. Figures in this report are just numbers gymnastics. Basically, reality is being not addressed but an impression is given that the authors know how they can solve drug shortage issues. I hate to say it but it is very obvious that authors have no understanding of the role PBMs and what happens to prices between the drug manufacturer and patient (8). It would have been nice if they had given a real case explanation to illustrate issues. 

I don’t believe if the involved do understand what all it would take to translate their suggestions into reality. Practicality of the suggestions made have not been considered. 

Alternate process:

Since FDA’s “Drug Shortage: Root Causes and Potential Solutions” (1, 2) will take time (as much as 5-10 years or more) to come to fruition, there are alternates that can be implemented very quickly. Pieces parts exist. Some will have to be added. Reconfiguration and tweaking of the existing landscape will be needed.  

Alternate plan would involve management of influence of suppliers (PBMs and associates) and manufacturers of drugs. Since drug distributors and manufacturers due to reasons mentioned above influence quality, cGMP, prices and shortages, it would be best if all the parties involved are held accountable for quality and shortages. 

Alternate plan is a two-step approach. For the first step, involving manufacturers, most of the methods and practices are in place. Implementation of such a plan would be quick, easy and effective. Second step will involve PBMs and distributors. We can expect challenges and resistance. They can be overcome if everyone lives up to their responsibilities. 

My hypothesis is that drug manufacturers have not taken FDA’s 483 issuance seriously. They have taken 483 issuances as “medal of honor (9)” and considered them as part of the process with minimal or no financial consequences. It is time that issuance of 483s be treated differently. 

Going forward drug manufacturing companies have to deposit refundable $200,000.00 per 483 per site as soon as they receive a citation. If corrective actions are not completed in a verified time and sustained, company would not only loose the deposit but would also be forbidden to supply products to the US market for the following four years. Financial loss would be incentive enough for the companies to be on top of their manufacturing and quality game. No variances would be entertained.

It is expected that if drug manufacturer is barred from supplying to the US market, PBMs and associates will suffer loose source of drug supply and it would mean financial loss. To prevent such incidents to happen they would be forced to get involved with manufacturers about quality of products. PBMs and associates so far have been unscathed by quality, price and shortage issues. Drug distribution has been a cash cow of all involved. 

An attempt to demystify PBMs and their associates “profit black box” has been made (8). It is time they should also be held responsible for having a relationship with questionable drug manufacturers in the form of distributing tainted/adulterated less than quality medicines and shortages. There would be tremendous political pressure to exclude PBMs and associates being corralled in with less than quality manufacturers but it is time and necessary. 

If PBMs and manufacturers shrug the responsibility for less than quality on products that are recalled or found out of compliance on random checking by FDA, they should be held financially responsible through a refundable deposit of up to $500,000.00 per incident. Refund would be issued after quality is guaranteed. This will assure that products being sold meet FDA’s quality expectations. 

Drug manufacturers, PBMs and their associates might consider suggested proposals to be cumbersome and financially strict but the current system is designed for the benefit of manufacturers and suppliers and has no regulatory accountability. Patients are the sacrifice for the financial gain of suppliers and manufacturers. Accountability is necessary as we are dealing with human life. If profits are important but so is human life. Thinking outlined above will be questioned and challenged. Anyone questioning this should think about lack of quality drugs and shortages. A plausible compromise can be achieved if we put our thoughts to it. 

It is possible that drug prices might temporarily go up but my conjecture is that if a 90-day ANDA approval time/process (15,16,17,18) is implemented additional companies would step in to fill shortages in minimal time. Competition through economies of scale, technology, quality and cost would be good for the total landscape. Competition should level or bring down the prices.  

As discussed earlier, no one would admit but price reduction pressures are significant for the manufacturers and result in drug shortages and quality issues. 

I believe that Drug Formulary is discrimination of drugs and another way to keep competition away. Why is a formulary necessary when only FDA approved drugs can be sold in the United States? If it is for price and drug efficacy then shouldn’t the patient and their physicians decide which drug and price level suits patient’s needs. 

Success of a plan proposed by Amazon, Berkshire Hathaway and JPMorgan (19) could have a significant impact on the drug pricing, shortage and quality landscape, if successful. Another plan, Generic Alliance (20) a generic drug distribution conglomerate, could market directly by mail to patients. Safeguards would be necessary. Since it would by-pass PBMs, they could present a challenge to the 76% monopoly of the three largest PBMs (21). They are not hurting for profits as they are ranked in the top 10 Fortune 500 companies (22) in the United States. Success at startup internet pharmacy, Truepill (23), would be a needed “creative destruction” event. 

Vested interests will prevent consideration of any alternate option. In our mutually subsidized healthcare system profits are more important than patients. This latent consideration is based on patients will die sooner or later. With such thinking imbedded our thoughts, proposed changes may be difficult and a long-drawn-out process, if it happens. FDA’s drug shortage plans, if enacted, will amount to delays of several years. We need alternates and NOW. 

Girish Malhotra, PE
EPCOT International 


  1. Woodcock, Dr. Janet: To Help Reduce Drug Shortages, We Need Manufacturers to Sell Quality — Not Just Medicine, FDA, October 24, 2019
  2. Report | Drug Shortages: Root Causes and Potential SolutionsOctober 29, 2019
  3. Malhotra, Girish: May Day May Day: Can Someone Help and Lower Drug Prices?, Profitability through Simplicity, May 1, 2015
  4. Malhotra, Girish: Opportunities to Lower Drug Prices and Improve Affordability: From Creation (Manufacturing) to Consumption(Patient), Profitability through Simplicity, March 9, 2018
  5. Malhotra, Girish: Impact of Regulations, Drug Manufacturing and Pharma Supply Chain (PBMs and Allies) in Drug Shortages and Affordability Part 1, Profitability through Simplicity, March 9, 2019
  6. Malhotra, Girish: Impact of Regulations, Drug Manufacturing and Pharma Supply Chain (PBMs and Allies) in Drug Shortages and Affordability Part 2, Profitability through Simplicity, April 3, 2019
  7. Malhotra, Girish: Opportunities for Generic Pharma to Clear the Quality Stigma, Profitability through Simplicity, May 23, 2019
  8. Malhotra, Girish: Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction, Profitability through Simplicity, October 2, 2019 
  9. Malhotra, Girish: Are USFDA 483 Citations a "Medal of Honor" or “Rite of Passage” to Disgrace for the Pharma companies? Profitability through Simplicity, October 16, 2019
  10. Malhotra, Girish: Identifying the Root Causes of Drug Shortages and Finding An Enduring Solution, Profitability through Simplicity, December 7, 2018 
  11. Malhotra, Girish: Pharmaceutical Quality: Concepts, Misconceptions, Realities and Remedies, Profitability through SimplicityCPhI 2019 Annual ReportNovember 4, 2019
  12. Malhotra, Girish: Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction, Profitability through Simplicity, October 2, 2019
  13. Herman, Bob: The data showing drug pricing games, Axios, August 1, 2018 Accessed October 30, 2019
  14. Pitts, Peter, J. PBMs are hogging our Drug Discounts, Fortune, August 28, 2018 Accessed October 30, 2019 
  15.  Malhotra, Girish: What Is Needed for a Regulatory Approval of NDA/ANDA Filings in 90 Days? Profitability through Simplicity, October 24, 2018
  16.  Malhotra, Girish: ANDA (Abbreviated New Drug Application) / NDA (New Drug Applications) Filing Simplification: Road Maps are a Must, Profitability through Simplicity, Amy 11, 2017
  17. Malhotra, Girish: Simplified Roadmap for ANDA/NDA Submission and Approval will change Pharma Landscape, Profitability through Simplicity, November 25, 2018
  18. Malhotra, Girish: Can the Review and Approval Process for ANDA at USFDA be Reduced from Ten Months to Three Months? Profitability through Simplicity, March 25, 2017
  19. Malhotra, Girish: Could Amazon (A), Berkshire Hathaway (B) and J.P. Morgan Chase (M) be the Anti Ballistic Missile (ABM) needed to Control/Curb Rising Healthcare Costs? Profitability through Simplicity, February 9, 2018
  20. Malhotra, Girish: Improving Drug Affordability for the United States Populous through Alternate Business Models, Profitability through Simplicity, May 4, 2018
  21. CVS, Express Scripts, and the Evolution of the PBM Business Model, May 29, 2019, Accessed November 5, 2019
  22. Fortune 500
  23. Feldman, Amy: Dose Of Digital Disruption To The $400 Billion Pharmacy Industry, Forbes, November 1, 2019, Accessed November 6, 2019

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