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Teva Pharmaceutical Industries Ltd
The outbreak of fungal meningitis has exposed more than one dangerous weakness in the U.S. drug supply network. Inadequate oversight of large-scale compounding pharmacies might be the most glaring; it was such a facility that produced the moldy steroid injections that have caused, at last count, 24 deaths and 317 illnesses.
Yet the outbreak also calls attention to the growing problem of drug shortages. From 2005 to 2011 the number of drug shortages in the U.S. rose from 61 to 251, according to the Food and Drug Administration. Until federal regulators can bolster the supply chain without compromising quality, we can’t be assured of reliable access to safe medicines.
Methylprednisolone, the drug that has caused the meningitis outbreak, was not technically in short supply. A brand-name form made by Pfizer (PFE) is on the market. The cheaper generic kind ran out, however, because the two companies that make it, Teva Pharmaceuticals Industries (TEVA) and Sandoz (NVS), stopped doing so, at least temporarily. Some hospitals and clinics may have turned to compounding pharmacies for the drug to keep their costs down.
To get a sense of what might have happened, consider the forces that cause drug shortages. In most cases the medicines in tight supply are, like the steroid involved in the meningitis outbreak, older generic injectables, typically administered by a nurse, doctor, or other health professional. They also include antibiotics and cancer and nutrition drugs.
In an ordinary market, when one company’s production lines shut down, competitors step in to meet demand. The generic injectable drug business is different in that it is greatly influenced by the practices of Medicare, the largest U.S. purchaser of health care. As a Bloomberg Government study points out, Medicare rules from 2005 prevent reimbursement to providers for injectables and other drugs health-care workers administer from rising more than 6 percent above the average sales price, effectively limiting what drugmakers can charge. The cap has reduced suppliers’ incentive to expand capacity when shortages happen.
A federal law signed by President Barack Obama in July requires drug companies to notify the FDA six months in advance of anticipated problems that might lead them to shut down production of a drug. Still more helpful would be a change in the Medicare price controls—to either raise the cap above 6 percent or, as Ezekiel Emanuel, a former adviser to the Obama administration on health-care policy, recommends, at least do so when a shortage develops.
Strict adherence to Medicare’s price caps on injectable drugs may be penny-wise and pound-foolish. And it stands in the way of ensuring Americans’ constant access to safe drugs of every kind.
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