Possible Causes of the Drug Shortage

The causes are unknown to most people –patients, pharmacists, and physicians–who are dealing with this problem.

Those who do know the causes are reluctant to publicize them.

Several causes usually operate at once, in various combinations depending on time and place.

The following is a list of 14 robust possibilities:

    1. Big pharmaceutical companies discontinuing or actively combatting generics in order to enhance sales of newer, more expensive, brand-name drugs. Sometimes companies discourage sales of their own cheaper brands or arrange “deals” in marketing. For an example, click here. For another example, in 2013 a lawsuit has ensued between two American pharmaceuticals Hospira and ICU over marketing practices to Canada. Pharmaceutical companies in various countries are also lobbying for longer patent protection before generic drugs can be released; this concern is part of Canada-European Union free trade discussions. For a discussion, see here. Sometimes pharmaceuticals “tweak” their drugs slightly to apply for a renewed patent in a process called “evergreening.” A landmark case in India, rejected evergreening of an important cancer drug. For an April 2013 discussion of pay-for-delay, click here. In September 2014, New York launched a lawsuit against manufacturers for anti-trust manipulation of Alzheimer market, by deliberately stopping production of a cheaper form to favour a newer more expensive form in advance of patent expiration; the company reluctantly agreed to keep making the drug for 60 more days. In June 2016, the US Senate heard about a bill designed to prevent the brand-name industry from blocking the manufacture of generics. But in Canada, the rare companies that do supply generics seem to be harassed rather than supported (see example of Biolyse here).
    2. Prices of generic drugs. Are their prices too low to cover manufacturing costs (e.g., in US Medicare)? In June 2012, this cause was endorsed by a report of the US Committee on Oversight and Government Reform and by pharmaceutical lobby groups in Europe (for example, see here). In August 2013, it was said to be behind a shortage of essential drugs in India. In March 2016, it was cited in Egypt, and later in 2016, the question was raised again for EuropeIndia (twice), Australia, and Pakistan. See also this May 2016 article in the New York Times and another from August 2017. In early 2017, the rise in costs provoked by the shortage have resulted in several politically inspired arguments to increase competition in the generic industry. See also these reports here and here about why companies are abandoning generics from August 2017. One of these reports suggests that companies may collude illegaly in constructing shortages to permit a hike. Or are the prices too high? The “too low cause” has little traction in Canada where many provinces claim that we pay inflated prices for generics when compared with other countries. See Council of Federation report of July 2012 and Supreme Court ruling on Ontario’s ban on in-house generics in November 2013. See also 2014 article, this 2015 blog, and this 2016 subpoena. One twist in this argument is the plight of developing nations and the relatively higher costs — see for example Nigeria in 2016. Conversely some decry spiralling rise in generic prices triggered by the shortage itself, by hostile takeovers, and by changed regulations (for example herehereherehere, and here). Outrageous price hikes that have attracted media attention threaten access as well as supply (see here). Shortages are predicted for the UK following the Brexit vote, owing to rising prices due to a falling pound and fewer imports (see here and here). In 2017 Ireland, a shortage of generic drugs was attributed to overspending on very expensive, new brand-name, high-tech drugs.
    3. Pharmacists choosing not to stock cheaper drugs because profit margin is too narrow.
    4. Shortage of substrate (materials to make drugs). This cause is frequently invoked by pharmaceutical companies, but it is insufficient on its own. The same materials are used in making expensive brand name drugs, which are not in short supply. Therefore, somewhere along the line, someone decides where to place scant resources. See also cause #6.
    5. Growing demand for medicines in developing world making it hard to keep up with demand. Normally this would be an incentive to make more drugs. Shortages from growing demand also occur with refugee crises, and / or unforeseen outbreaks, as with inhalers during flu season in early 2017. An early 2017 marketing report suggested increasing demand for tb drugs in Asia was provoking shortages in USA.
    6. Manufacturing or quality control breakdowns within production lines owing to lack of investment to improve or maintain standards. Closing two of four plants for base ingredients over pollution concerns is said to be the cause of the early 2017 shortage of penicillin G. For example, see here and here.
    7. Manufacturing slowdowns or lack of competition owing to greater vigilance by FDA or Health Canada. This cause was characterized as “meaningless red tape” by a report of the US Committee on Oversight and Government Reform in June 2012. The FDA strongly disputes these charges in a letter of 23 July 2012. In May 2014, the same cause was invoked to explain a shortage of paclitaxel in Canada, attributed to Health Canada’s overzealous interpretation of guidelines (see here). Also here. In early 2016, it was dismissed as a significant factor in the emergency room drug shortage; however in August 2016, the FDA was considered partly to blame for slowing down approval of generic competitors that created the conditions for the outrageous EpiPen price hike.
    8. Canada has almost no drug manufacturing industry of its own and is vulnerable to changes elsewhere, while many essential medications have only one or two manufacturers. Massive layoffs and closures at pharma companies in 2010-12 are said to be owing to the expiration of patents on blockbuster drugs. The 2014 shutdown of Biolyse, which produced 80% of the paclitaxel used in Canada, putting 60 people out of work and resulting in an 80-fold increase in price for the replacement product supplied by an American firm (see here). These changes further distance sites of manufacturing from Canada and favour countries where it costs less to file for generics. See here.
    9. Legislative changes to financing arrangements for generic drugs, for example in Ontario and Alberta, resulting in declining profitability for pharmacists and manufacturers. These changes provoke cause #3 above. Pharmacists decide not to stock the drugs, and manufacturing further declines in response to lower demand.
    10. No Canadian controls require the pharmaceutical industry to warn of shortages in advance, let alone provide the reasons, notwithstanding the Canadian government’s announcement promising to require advanced mandatory reporting on 10 February 2015. Despite the change in government in 2015, there is still no evidence of its effects by May 2017. Notification is voluntary and arbitrary, and so far, incomplete. Go to Tracking page for sites that maintain current lists.
    11. Political sanctions against countries, such as Iran (e.g. see here and here), or economic,  political and military crises in countries, such as Greece or Nepal or Kenya or Zimbabwe (e.g., see hereherehere, and here.)
    12. Moral objections to use of drugs for executions in some US states results in refusal to supply lethal drugs. This has caused some states (e.g. Nevada in 2016) to reconsider the death penalty, just as the embargo was intended to do. But other states have retrenched their positions on the death penalty using other drug combinations or bringing back firing squads or the electric chair or suggesting nitrogen inhalation instead or introducing legislation (Nebraska) to protect providers. In early 2017, Texas decided to sue the FDA over withholding execution drug sent by an unapproved foreign supplier. In April 2017, Arkansas decided to execute 8 men over the course of 11 days because the drug that the state planned to use would expire and none other could be found. The executions were stayed at the last minute. Read more here.
    13. Failure to communicate regulatory goals within government agencies. According to the GAO in early 2015, the US Drug Enforcement Administration (DEA) has not effectively coordinated with FDA for administration of quotas on controlled substances needed for making drugs. Similarly tightened regulations designed to prevent drug abuse are said to limit legitimate access. See here and here.
    14. Effect of large Hospital Group Purchasing Organizations in USA–creating a “monopsony” (single buyer, many sellers) [also “monopsomy”]. Their unethical and anti-trust business practices, such as vendor kickbacks or “pay for delay” schemes, have placed profit above manufacturing standards and patient supplies. For a shocking example from July 2012, click here. For an April 2013 discussion of pay-for-delay, click here. This cause figured in a report of the US Committee on Oversight and Government Reform, 15 June 2012. In April 2013, the US Supreme Court refused to hear an appeal from a company convicted by jury for using these anti-trust practices. But a US GAO report released in November 2014 tended to absolve the GPOs from wrongdoing by emphasizing how they save money within Medicare. Canada has at least three GPO’s one Medbuy is based in London Ontario. Another HealthPro is in the Toronto area, and a third Sigma Santé is in Montreal. In 2013, clients of the GPO Medbuy in southwestern Ontario experienced an under-dosing error of chemotherapy drugs, which Medbuy blamed on the compounding pharmacy that supplied the drug. In May 2013, it emerged that the Canadian GPO, Health Pro, is a client of the American pharmaceutical Hospira and that 25 of the 136 drugs that Hospira has contracted to supply to HealthPro are on back order. HealthPro broke its contract with Biolyse when the Canadian manufacturer was temporarily shut down owing to a government inspection. No evidence suggests that Canadian GPOs violate anti-trust laws. For more on this idea of GPO as a cause of drug shortages, see references below.*

* To understand the large American hospital Group Purchasing Organizations, see any of the following

Physicians against Drug Shortages & Philip Zweig (PADS) urges Senate HELP to STOP the artificial shortages and skyrocketing prices of prescription drugs by repealing the misguided 1987 Medicare anti-kickback “safe harbor” provision for healthcare group purchasing organizations (GPOs) and pharmacy benefit managers (PBMs), 13 June 2017.

Todd Ebert, Purchasing supply groups help hospital with cost, supply, The Bulletin Oregon, 26 March 2017. (PR from a GPO CEO who describes how GPOs should work). See also his letter in NYT, 25 May 2017.

Phillip Zweig, Time to free a controlled marketplace for generic drugs, Barron’s, 15 October 2016. (an analysis of how GPOs harm drug supply)

Josh Bloom, Escalating drug prices not all what it seems, American Council on Science and Health, 4 October 2016.

Amy Faith Ho, Iron curtain of drug pricing will topple the healthcare system [GPOs and secrecy], The Hill, 2 September 2016.

Valerie Lapointe, Hospital drug shortages: What is really causing them? [about GPO’s], Medill Reports, 26 May 2016.

Wes Duplantier, Blumenthal seeks answers on whether health purchasing groups [GPOs] are costing consumers [and causing shortages], New Haven Register, 28 March 2016

Adam Rubenfire, Surviving the drug shortage by eliminating the middleman, 9 March 2016.

Phillip L. Zweig and Robert A. Campbell, Blumenthal’s silence defeaning on root cause of surging generic drug prices, Register Citizen, 10 January 2016.

Phillip Zweig, Robert Campbell, How to stop generic drug shortages? End hospital group purchasing kickbacks, Fortune, 30 January 2015.

Margaret Dempsey Clapp, Speech on Drug Shortages, GPOs and supply chain, given at 44th Critical Care Conference, Jan 17-21 2015, Society for Critical Care, Phoenix [NB scroll  down to Clapp on the scroll bar on the right]

U.S. Government Accountability Office, Group Purchasing Organizations: Funding structure has potential implications for Medicare costs. 24 November 2014

Hagop Kantarjian, Chemotherapy Drug Shortages in the United States Revisited. Journal of Oncology Practice JOP, September 2014: 329-31.

Phillip Zweig and Robert A. Campbell, Letter: Response to McKeever et al below [on GPO cause of the drug shortage] Clinical J of Oncology Nursing, 18.2: 143-145, April 2014.

Christian DeRoo, Pay to Play: The impact of Group Purchasing Organizations on the drug shortage, American University Business Law Review 3.1, 227-248, 18 March 2014.

Mollyann March and Philip Zweig, GPO’s fuel drug shortages, Baltimore Sun, 7 February 2014

Elizabeth Rosenthal, The soaring cost of a simple breath, New York Times, 12 October 2013. [GPO’s are mentioned toward the end of this long article]

Margaret Clapp, Michael A. Rie, Philip L. Zweig, How a cabal keeps generics scare, New York Times, 2 September 2013.

Anon. Some MDS blame GPOs for chronic drug shortages. Pharmacy Practice News, June 2013.

Roxanne Nelson, GPOs to Blame for Drug Shortages, says Physicians Group, Medscape Medical News, 24 January, 2013 [free account; password will be needed].

J. Woodcock and M. Wosinska State of the Art: Economic and Technical Drivers of Generic Sterile Injectable Drug Shortages, Clinical Pharmacology and Therapeutics 93.2 (Feb 2013): 171-76 online 23 January 2013

Physicians Against Drug Shortages, founded 10 December 2012. Sign their petition, launched 25 December, 2013.

Dr. Joel Zivot quoted in article by Kristina Fiore, 18 October 2012.

North Coast Medical, GPO’s Business Practices Questioned, 6 September 2012.

GPO Drug Shortage diagram, designed by P.L. Zweig, 2012.

Diana L. MossHealthcare Intermediaries: Competition and Healthcare Policy at Loggerheads? American Antitrust Institute, White Paper, 7 May 2012.

US Government Accountability Office (GAO), Group Purchasing Organizations: Federal Oversights and Self Regulation, 30 March 2012.

Michael F. Cannon, What is causing drug shortages? Cato@Liberty, 16 March 2012.

Patricia Earl and Philip L. Zweig, Connecting the Dots: How Anticompetitive Contracting Practices, Kickbacks, and Self-Dealing by Hospital Group Purchasing Organizations (GPOs) caused the U.S. Drug Shortage, White Paper, 10 January 2012.

John Wilkerson, HHS rejected ASP Hike after weighing GPO, drug distribution issues,, 9 November 2011

Robert E. Liton,  Hal J. Singer, Anna Birkenbach, ‘An Empirical Analysis of Aftermarket Transaction by Hospitals,’ Journal of Contemporary Health Law and Policy, vol. 28, no. 1, Fall 2011

Prakash S. Sethi, Group Purchasing Organizations: An Undisclosed Scandal in the U.S. Healthcare Industry. Palgrave/Macmillan, 2009

GPOs are the “bad guy” in the film Puncture, based on a true lawsuit, and released January 2012. For a review, read here.
For a list of some GPO’s click here. In this report the purchasing volume of the five largest US GPO’s was $154.7 billion.
In 2013, GPO’s launched a website to discredit as “fringe” the people and claims of Physicians against Drug Shortages.