Where’s my prescription? Drug shortages drive up consumer prices

A new study by released by the Department of Health and Human Services (HHS) found that drug shortages lead to higher prices—not only for drugs in short supply, but for alternative drugs as well.

The new report, released by HHS’ Office of the Assistant Secretary for Planning and Evaluation (ASPE) and based in part on research by the RAND Corporation, underscores the complexity of drug pricing and supply chains, but also provides some possible solutions, as well as noting that recent legislation could ease the burden for U.S. consumers in the future.

The report, “Impact of Drug Shortages on Consumer Costs,” outlined recent problems with drug shortages in the U.S., including the fact that not enough is known about how these shortages affect consumer costs. It is assumed that such shortages create higher consumer costs, higher premiums, and adverse health incomes, the study noted, but there is a lack of data on how many Americans face drug shortages, or how the problem may increase overall health care costs.

An impact across the board

One of the more important findings of the report is that when a drug is in short supply, not only does that drug often increase in price, but alterative drugs also see an increase in cost.

“An analysis of the data showed a 16.6% increase in the price of drugs in shortage, driven mostly by an increase in the price of generics (14.6%),” the report said. “In some cases, the increase in the price of substitute drugs was at least three times higher than the price increase of the drug in shortage.”

HHS is not the only government group sounding the alarm about drug shortages. A recent U.S. Senate report found that the number of active drug shortages in the U.S. reached a peak of 295 at the end of 2022.

The average drug shortage affects at least a half a million consumers (652,100) filling monthly prescriptions; more than two thirds of those impacted were consumers ages 65 to 85 (32%), 55 to 64 (24%) and 45 to 54 (17%).

“These shortages have cascading effects on patient care, causing delays in treatment, increasing the risk of medication errors, and requiring the use of less effective alternative treatments,” the senate report said. “Hospitals have also experienced increased costs, medication waste, and limited staffing capacity to address and remedy shortages.”

Related: Pfizer plant damaged in tornado, potentially worsening U.S. drug shortage

Direct costs to consumers were substantial. The ASPE report noted that one study reported an increase in annual out-of-pocket costs of between $167 and $716 when a drug to

treat anemia went into shortage, and consequently 6.6% of patients had to switch to an alternative treatment.

“Another study found that drug list prices increased by 20% in the 11 months after the shortage began, compared with 9% when there was no shortage. Other studies found that payments by insurers increased between 4.3% and 14.2% on average from drug shortages,” the ASPE report said.

Not a new problem

Drug shortages became more visible in the aftermath of the COVID-19 pandemic, but the industry has been struggling with the issue for some time, experts say. In 2019, a survey from Vizient found that on average, hospitals dedicated more than 8.6 million hours of additional labor hours annually to managing drug shortages.

A story that year in Healthcare Finance, based on the Vizient report, noted that drug shortages had a financial impact that added up to just under $360 million annually in labor costs for time spent seeking supply and implementing mitigation strategies that enable continuity of patient care. The Vizient survey found that nearly two-thirds of surveyed health care facilities said they had managed at least 20 drug shortages in a six-month period.

“Controlled substances, local anesthetics, antibiotics, electrolytes, and emergency injectables such as ‘crash cart’ drugs continue to be the most common drug categories where shortages have had the most impact on hospitals,” the 2019 story said. “Additionally, the survey showed that 38% of respondents reported one or more medication errors directly related to a drug shortage in that same time period.”

Possible regulatory or legislative solutions

The ASPE report noted that legislators and regulators have begun to take steps to address drug shortages. For example, the Inflation Reduction Act of 2022 (IRA), allows HHS to negotiate drug prices for certain drugs for Medicare patients, lower the cost of insulin, and cap out-of-pocket costs for Medicare Part D prescription drug coverage. Such a cap could save nearly 19 million seniors about $400 per year, according to HHS estimates.

“[Capping out-of-pocket costs] could reduce the economic impact of drug shortages on patients with Medicare,” the ASPE report said. “A study that examined the implementation of caps on out-of-pocket payments for specialty drugs (drugs used to treat complex or life-threatening conditions) in three states showed that caps reduced out-of-pocket costs by 32%, without a notable increase in health plan spending.”

Other possible steps to address the drug shortage problem include expediting market entry for certain generic drugs, lengthening drug expiration dates, and improving the Food and Drug Administration’s ability to collect data on supply chains.