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Obama Calls on FDA to Reduce Drug Shortages, Stop ‘Gouging’ by Resellers

President Barack Obama directed U.S. regulators to gather information from drugmakers about potential shortages so the government can respond before patients’ lives are threatened and help prosecutors head off “price gouging.”

More than half of hospitals and medical centers said last year that shortages compromised patient care, according to a survey from the American Society of Health-System Pharmacists, a Bethesda, Maryland-based trade group. About 97 percent said the shortages drove up costs through purchases from resellers.

The administration said early notice will allow it to work with manufacturers to find alternate sources for medicines, increase production or bring new plants online. The Food and Drug Administration plans to more than double the size of its office dealing with shortages, from five people to 11, said FDA Commissioner Margaret Hamburg.

“This is one of those slow-rolling problems that could end up resulting in disaster for patients and health-care facilities all across the country,” Obama said, signing an executive order from the Oval Office at the White House with a cancer patient and a pharmacy manager at his side.

His administration is calling on Congress to pass legislation that would make it mandatory for drugmakers to report the shortages.

“We don’t have a whole lot of teeth,” Hamburg said. Without mandatory reporting, “we’re really asking for our partners in industry to work more closely with us,” she said.

In the order signed today, Obama also asked the Justice Department to look into potentially illegal mark-ups by resellers.

Shortages Nearly Triple

Drug shortages almost tripled to 178 in 2010 from 61 in 2005, according to an FDA report released today. Sterile injectables account for 80 percent of the 127 shortages the FDA studied, 28 percent of which were cancer drugs.

Manufacturing issues, at 43 percent, was the main reason reported to the FDA for a drug shorts, the agency said. Delays in production or shipping accounted for 15 percent of the shortages while active ingredient scarcity caused 10 percent.

Most sterile injectables have one manufacturer that produces at least 90 percent of the drug. FDA helped prevent 38 shortages in 2010 and 99 to date this year, the agency said.

During a shortage, hospital pharmacies sometimes turn to third-party resellers who obtain the drugs from pharmacies or other resellers and offer them to hospitals in need.

While these so-called gray-market resellers can provide life-saving drugs that are in low supply, they charge on average sevenfold the typical contract price, with some surgical and other medically critical treatments increasing 20-fold, according to a survey by the Premier Healthcare Alliance.

Gray Market Activities

A 2011 report by the Institute for Safe Medication Practices examined gray market activities associated with drug shortages. Fifty-six percent of 549 hospital purchasing agents and pharmacists reported receiving daily solicitations from vendors and 52 percent said they bought drugs from gray market suppliers in the past two years. Respondents gave examples markups, including a 1,500 percent increase for the anesthetic propofol, according to the institute, a nonprofit group based in Horsham, Pennsylvania that aims to prevent medication errors.

The administration’s plan won’t ease shortages because drugmakers have little incentive to raise output when Medicare and Medicaid, the two big U.S. public health programs, limit how fast the price of a drug can rise, said Devon Herrick, senior fellow at the national Center for Policy Analysis, a policy research organization in Dallas.

“Firms have little incentive to ramp up production,” Herrick said.

Hospitals and purchasing organizations recommended that reports of price gouging be monitored and investigated by appropriate federal agencies. The FDA accepts reports of price gouging on its website.

Obama directed the FDA to work with the Justice Department to “examine whether potential shortages have led to illegal price gouging or stockpiling of life-saving medications,” the administration said in a statement.

To contact the reporters on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net; Anna Edney in Washington at aedney@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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