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April 11, 2024 – A few weeks ago, Regs & Eggs focused on nine health-related issues that were not included in the Fiscal Year (FY) 2025 President’s Budget. Another policy absent from the budget was the Administration’s plan to address drug shortages. Usually, all major budget and policy priorities that the Administration wants Congress to consider are included in the budget request – and if it’s not included, then it’s not a priority. However, this past week, the US Department of Health and Human Services (HHS) Office of the Secretary laid out a significant proposal to address drug shortages in a white paper produced with input from across HHS.
To help describe the white paper, I’m bringing in my colleague Leigh Feldman.
The HHS white paper provides background on drug shortages and possible factors that cause them. The paper describes the complex supply chain for drugs, stating that there can be an over-reliance on a few suppliers or manufacturers, and that historically, most shortages occur after quality-related breakdowns in manufacturing processes. In HHS’s view, concentration among pharmaceutical purchasing and distribution gives most, if not all, negotiating power to intermediaries such as group purchasing organizations (GPOs), pharmacy benefit managers (PBMs) and wholesalers. This power, HHS says, allows these intermediaries to engage in what it terms “harmful contracting practices” that may be “undermining price competition and limiting hospital access to medical products.” HHS concludes that “these intermediaries create a complex and opaque layer between the health care organizations that must deliver these low-cost generic drugs to patients and the manufacturers that produce them.” HHS states that hospitals also play a role in drug shortages since they may look for the cheapest option when attaining drugs, even if it means relying on a single-source producer. HHS believes many market forces have “created a generic drug supply chain that is shortage-prone and too slow to respond to shortages that do occur.”
After providing this background, the white paper reviews the initiatives that HHS has already taken to curb drug shortages. HHS believes that to truly address this issue, however, it needs additional authorities and funding. While HHS doesn’t explicitly outline the authorities it needs, it does describe a brand-new proposal with a price tag between $3.26 billion and $5.11 billion over 10 years.
The new HHS proposal would establish two programs: a Manufacturer Resiliency Assessment Program (MRAP) and a Hospital Resilient Supply Program (HRSP). Under the MRAP, manufacturers would pay to be assessed by a non-governmental accrediting body based on metrics of resilience to shortages. The metrics themselves would be developed by a private entity in partnership with HHS and could include things like quality management maturity, manufacturing redundancy and materials sourcing diversity. HHS’s theory seems to be that manufacturers with an accreditors’ seal of approval will be more attractive to hospital purchasers.
Under the HRSP, inpatient hospitals would be incentivized or penalized based on their performance on practices that HHS says promote supply chain resilience, such as inventory management (i.e., maintaining a buffer stock) and contracting. A hospital’s performance would be based on attestations and ratings for its practices around an initial set of drugs, which could later be expanded. HHS says a hospital’s score could also be based on MRAP information about the manufacturer of the drug the hospital purchases, although HHS declines to detail how this would work when the drug is purchased through a group purchasing organization. Incentive payments and penalties would be assessed in years one through five of the program, and in year six and onward, only penalties would be assessed. HHS says HRSP would incentivize hospitals to prioritize supply chain resilience, rather than just cost, in their purchasing decisions.
Several features of the proposal jumped out at us. HHS’s proposal is notable in its attempt to present a comprehensive, whole-of-HHS supply-side and demand-side plan to address drug shortages. The proposal doubles down on hospitals’ maintenance of a buffer stock of drugs in shortage as a potential part of the solution, a concept presented in a 2023 request for comments from the Centers for Medicare & Medicaid Services that stakeholders largely rejected as potentially exacerbating shortages. In addition, while the proposal names concentration in pharmaceutical purchasing and distribution as a factor in exacerbating drug shortages, it doesn’t directly address GPOs, PBMs, wholesalers or other such organizations’ role in hospitals’ acquisition of drugs. Similarly, while the proposal notes price competition among generic drug manufacturers as contributing to drug shortages, it doesn’t directly address the cost of these drugs and in fact contemplates accreditation as an additional cost that drug manufacturers would shoulder. In contrast, the Senate Finance Committee white paper on this topic (yes, another white paper!) calls for the establishment of payment benchmarks for certain shortage drugs.
Where does HHS’s proposal leave us in terms of federal policy to address drug shortages? The outlook is murky. While the ideas in HHS’s white paper offer insight into their current thinking around drug shortages, the paper’s conceptual framework raises more questions than it answers. And the fact that HHS presented the proposal outside of both the typical process for requesting new authorities and outlays (the President’s Budget) and the notice-and-comment rulemaking process may be an indication that HHS views tangible solutions as a ways off.
Before concluding, we have some late breaking news. The Fiscal Year 2025 Inpatient Prospective Payment System (IPPS) proposed reg was just released yesterday. CMS includes a proposal in the reg that aims to mitigate future drug shortages by providing a new IPPS payment for small, independent hospitals to establish and maintain a buffer stock of essential medicines.
As always, we’ll continue to monitor this space and keep you posted on any developments. Until next week, this is Jeffrey (and Leigh) saying, enjoy reading regs with your eggs.
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