Providers can't plan for a drug shortage if they don't know about it. Once they do know about it, they won't know how severe the shortage is unless they know something about why it's happening and how long it will drag on. Lack of early notification prompts reactions based on surprise, uncertainty and worst-case scenarios.

For a variety of reasons — bureaucratic, competitive and more — alerts that drugs are sliding into shortage for a particular reason do not happen early or often enough to prevent such reactions. But over the past few years, the Food and Drug Administration and leadership in the private-sector supply chain have redoubled efforts to develop an early-warning system to identify alternatives quicker and shorten the duration of supply interruptions using a range of remedies.

In the long term, however, this does little to address a more fundamental undercapacity in the drug industry that leaves it poorly positioned to step up production when a manufacturer has to shut down a line or decides to stop making a product. Fed up with this ongoing capacity problem, health care leaders have started putting their heads together to think of ways to improve incentives to make needed drugs.

For the time being, new laws and rules are aimed at better management of drug shortages as they unfold. "Allowing some advance notice gives the FDA an opportunity to resolve whatever problems are holding it up," says Roslyn Schulman, policy director for the American Hospital Association. Full and early reporting by manufacturers allows the FDA to expedite quality inspections that may be contributing to a product shortage, ask other firms to increase production, and pounce on new applications by companies that want to make that drug.

Enactment of the federal Prescription Drug User Fee Act in July gave the FDA additional authority to require early notification of shortages, and it authorized the levy of extra fees on the pharmaceutical industry to finance FDA activity related to generic drug shortages.

The FDA previously had the right to impose early-reporting requirements for shortages of drugs considered life-sustaining or life-supporting, but the act now expands the authority to a much wider range of drugs and lays out a process to report supply interruptions. The benefits of early notice were amply demonstrated after President Barack Obama issued an executive order in October 2011 requesting but not requiring that manufacturers be diligent in giving such notice. The FDA reported that it had prevented 128 shortages in the first six months following that order, fueled by a sixfold increase in early notifications.

Early Warning

Besides giving the government a heads-up to take action, "The early notification is really a communication piece in the sense that we want to get the best information out there so people can make strong decisions and not just get caught up in the fear and emotions of [a shortage]," says Joseph Hill, legislative affairs director for the American Society of Health-System Pharmacists.

More information on what's holding up the supply can put the severity and extent of a shortage into perspective, Hill says. Problems with contaminated ingredients at a plant, for example, are serious quality issues to resolve, but information about when the problem likely will be resolved, and the response of manufacturers to increase supply once they know about the market need, can give buyers a better sense of the cause and duration, experts say.

Among other reactions, the inclination to hoard supplies is natural but something to resist, says Michael Alkire, chief operating officer of health care alliance Premier. During previous shortages, "I do know that folks were adding inventory, which actually hurts — it almost creates a run on the market, and ... that continues to exacerbate the issue," he says.

Premier convened a group about a year ago comprising representatives from the generic drug industry and a contingent of hospitals to address the shortage crisis, and one outgrowth was a communication portal created to post notice that interruptions were about to occur, says Alkire. Once manufacturers sounded the alert, hospitals could then notify the appropriate clinicians and buyers.

Other services have rushed in to fill the information void over the past few years. For example, the buying organization in which King's Daughters Medical Center participates, HealthTrust Purchasing Group, has started a service called HealthTrust Pharmacy Response, which issues mission-critical alerts to members, says Clyde Sbravati, the Brookhaven, Miss., hospital's pharmacy director.

One alert in July gave notice that vitamin K was short, the next delivery was not expected for about three weeks, and wholesale supplies would be tight throughout the month. That alert was "the first notice I've gotten of this," says Sbravati, whose message to trustees is, "Allowing us to participate in these types of groups is great."

Kadlec Regional Medical Center is a subscriber to an Internet service called RASMAS, which originally specialized in notifying hospitals about drug and medical-product recalls and since has expanded to include information on shortages, says Dave Pearson, the Richmond, Wash., hospital's pharmacy director. Follow-up reports give release dates of drugs coming back onto the market. "It gives us usable and more concrete data on when something is likely to get better or when one of the primary manufacturers releases a large lot of a replacement product," he says.

Long-Term Strategies

Whatever the particulars about a shortage, the fundamental shortcoming still not addressed is the fact that too few companies are making generic drugs and other low-margin medical products.

The price they get depends on their willingness to continue production and for others to enter the market. Any longer-term response has to assess the capacity of the pharmaceutical industry to meet demand, discuss what makes economic sense, and "understand the ability to provide supply," says Alkire.

To a GPO whose historical role has been to negotiate discounts for member health care organizations to the greatest possible extent, striking the right balance between stimulating supply and wringing out savings offers a challenge. One strategy involves not so much allowing higher prices but rather contractual incentives, he says.

"We're willing to put the long-term agreements in place with the appropriate kinds of expectations on driving efficiency and the appropriate monitors on indices to ensure that we're getting the best value," Alkire says. "But for that, we want to make sure that we could cover the cost of capital for folks to actually get into the market." Member hospitals don't want to keep going through the shortage roller coaster, so the alliance is talking with potential producers about partnerships with "longer-term committed contracts" to provide an incentive to increase capacity, he says.

While it wades into the intricacies of financial incentives, the information amassed by its communication portal on the nature and causes of shortages has enabled Premier to have conversations with the FDA to make sure that it's aware of underlying forces and "put a little bit of pressure on them to speed up the pace to allow others to enter into a constricted market," Alkire adds.

For more on this issue, read "The Drug Shortage," in the September issue of Trustee.

John Morrissey is a freelance writer in Mount Prospect, Ill.