Drug Pricing, Reimbursement, and Drug Shortages

This study examines the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States. While shortages for injectable drugs have garnered more attention, shortages of other forms of prescription drugs have also been on the increase. In fact, they follow a strikingly similar trend with a number of important tablet drugs having recently been affected by shortage. This poses important questions about the root causes of these trends since most explanations found in the literature are specific to generic injectable drugs. Using a simple heuristic model, two contributing factors are explored: regulatory oversight, market failures in pricing/reimbursement, and competition. Empirical examination using FDA data on inspections and citations reveals that increasing FDA oversight does appear to have a statistically significant impact on shortage rates. However, FDA activity does not fully explain the shortage trends. Review of pricing and reimbursement data from CMS reveals a wide variety of patterns. While prices do rise as expected in some markets listed as being in shortage, others do not. This suggests the possibility of price stickiness in certain markets, it also suggests the need for a more refined definition of shortage.