From NCPA

American hospitals and physicians are facing an unprecedented shortage of commonly used drugs. President Obama announced his support for legislation to address this problem by requiring drug makers to notify the Food and Drug Administration (FDA) of possible shortages six months in advance. He also signed an executive order directing the FDA to streamline the process of approving changes to production lines and giving the Justice Department authority to investigate alleged price gouging. However, these steps will not fix the drug shortage problem and could even make it worse, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

The number of newly reported drug shortages has been growing:

• There were 74 newly reported drug shortages in 2005.
• The number dipped slightly to 70 in 2006, then rose to 129 in 2007, 149 in 2008, 166 in 2009, and 211 in 2010.
• In mid-2011 there were about 246 shortages.

Hospitals have responded in a variety of ways, including delaying treatment, giving patients less effective drugs and providing a different course of treatment than the one recommended.

About half of the shortages of injectable drugs are due to production problems. The FDA has stepped up its efforts to ensure that drug manufacturing processes and facilities meet its quality standards by instituting a "zero tolerance" policy. As a result, if a shortage develops because the FDA shuts down a competitor's plant, a manufacturer must seek FDA approval to increase output and alter its production timetable, slowing down production.

Medicare Part B price controls and the little known federal 340B drug rebate program also contribute to shortages.

Attempts to solve drug shortages with more regulations could actually worsen the problem. Indeed, expanding the number and type of companies required to provide advance notice of impending shortages would exacerbate shortages by encouraging hospitals to hoard drugs.

Ultimately, the only way to alleviate the drug shortage is to make generic drugs more profitable. In addition, Congress should reward new investments in the manufacturing process. Finally, regulation of production processes should be more flexible.

Source: Devon Herrick, "What to Do about Drug Shortages," National Center for Policy Analysis, December 13, 2011.