Hospitals, Drug Shortages & Compounding

In the wake of the controversy over compounding pharmacies, a half dozen Democratic members of Congress have asked the US Government Accountability Office to investigate whether group purchasing organizations that represent hospitals are a major reason for the ongoing shortages of drugs and an increased reliance on compounded medications to fill the void.

“We need to look at the role GPOs play in the occurrence of drug shortages that could lead to increased reliance on compounding pharmacies,” says Congressman Ed Markey, who represents the district in Massachusetts where the compounding scandal erupted “Increased hospital reliance on compounded drugs should be a result of increased need not unfair pricing."

In their letter to the GAO, they point to concerns that "anticompetitive, exclusionary contracts" between GPOs and a select few generic drugmakers have rigged the process. And they complain that fees charged by GPOs amounted to kickbacks that have disuaded some drugmakers to continue to compete in various markets, helping to create the ongoing crisis over shortages (here is the letter).

Last week, the Community Oncology Alliance, a non-profit advocacy group, surveyed 200 member practices representing 525 US physicians and found that nearly 98 percent experienced a drug shortage in the last year, and cancer progressed more quickly in more than 60 percent of patients as a result of the shortages. The group, however, blames Medicare reimbursement.

"The root cause of the drug shortage is economic," says COA executive director Ted Okon in a statement. "The Medicare system for reimbursing for cancer drugs has created pricing instability. That has resulted in disincentives for manufacturers to produce these low-cost, but vital generic cancer drugs, as well as to invest in manufacturing facilities for these products."

The shortage, in fact, has also been blamed by House Republicans on the FDA for pursuing an overzealous enforcement stance against drugmakers whose manufacturing facilities have been found to lack sufficient quality control measures. The FDA has denied this (read here), while simultaneously contending that the agency lacks sufficient authority to oversee compounders.

Last week, FDA commmish Margaret Hamburg proposed during testimony before Congress that two classes of compounding pharmacies should be created so that higher-risk production can be more closely regulated (look here). Her suggestion came in the wake of the meningitis outbreak traced to the New England Compounding Center that has claimed 33 lives in nearly two dozen states (see this).

Unlike traditional compounders, which make specific medications prescribed for individual patients, the NECC functioned more like a regular drugmaker, making large quantities of medicines that were shipped in bulk to various destination. The six Congressional Democrats contend that such operations were able to succeed, in part, because hospitals were purchasing more from such sources as generic drugmakers exited some markets.

And so, the letter to the GAO asks, among other things, whether the rising fees charged by GPOs have eroded the finances at generic drugmakers, undermining their ability to properly maintain and invest in manufacturing facilities. We asked the Healthcare Supply Chain Association, a trade group for GPOs, for comment and will update you accordingly.