How adding competition through expedited approvals has impacted supply, and thereby drug shortages
About the Study
In the United States (US), the number of drug shortages of life-supporting or life-sustaining injectables has been increasing. The major reasons for drug shortages remain to be quality problems in manufacturing and the temporary closure of production facilities due to supply disruptions. Although manufacturing quality issues are a common reason for drug shortages, there is a gap in understanding of how competition in the pharmaceutical industry impacts the supply of drugs (and thereby drug shortages). In the US, the Food and Drug Administration (FDA) regulates prescription drugs, non-prescription drugs, and biologics, including vaccines for humans. To increase the supply of drugs under shortage, since December 2016, the FDA accelerated the approvals of new suppliers through the 21st Century Cures Act (a.k.a. Cures Act). A key objective of this research statement is to investigate how adding competition through expedited approvals has impacted supply, and thereby shortages.
Materials and Methods
We provide an outline of our data collection process. First, we collect data on drug shortages from 2000 to 2020 using web archives from the FDA website (found on www.archive.org). In addition to the drug shortage database, we also use Drug Reimbursement Database from data.gov. We use this data to gather market parameters like quantities consumed, the total amount reimbursed, etc. As the reimbursement dataset is quarterly, we aggregated drug shortage data into quarterly data and then merged the two datasets. While merging the two datasets we use ‘National Drug Code (NDC)’ as the unique identifier. Using the NDC format, we are also able to identify the labeler (supplier) and product code and do panel data analyses using these fields.
Conclusion
With simple empirical analysis, we show the evidence that expediting approvals leads to a shorter duration of shortages but increases the shortage frequency significantly. We use a game-theoretic model to explain the strategic interplay of quantity and quality investment as the competition increases due to expedited approvals through the Cures Act. The policymakers need to choose between two evils: longer but few shortages OR shorter but frequent shortages. The Cures Act seems to lead to the latter. By appropriately choosing an entry barrier (i.e. fixed fee to enter), the social planner may be able to balance the two.
The future direction of this research will estimate the impact of the policy for different categories of drugs, representing a different barrier to entry (e.g. higher for injectables), and different costs for quality and quantity decisions. This will act as a guide to a directed policy where only certain sets of drug approvals are expedited and where the overall supply increases due to increased competition.