Many hospital finance executives have had that sudden and unpleasant expense pop up on their monthly expense spreadsheet as of late: The normally cheap generic injectable or oral medication suddenly costing 20 or 50 times the normal price--if it can be had at all.
There is a nationwide drug shortage that's impacting hospitals both in terms of patient safety and the bottom line. As the Associated Press reported last month, those shortages have been linked to 15 patient deaths. It could cost the nation's acute care facilities more than $400 million this year.
I have a healthy (or unhealthy) intellectual curiosity, depending on whom you ask. So I decided to take a closer look at the drug shortage bulletins issued by the University of Utah and the American Society of Health-System Pharmacists to get a better idea of the causations for this shortage.
One of the biggest reasons was the shutdown of the American Regent factory in upstate New York for about a month last spring due to contamination on its production lines. There were various reasons cited for the contamination, including the possible presence of rust (presumably in the local water supply) and laminate particles from the vials used to hold the drugs (presumably the fault of the vial manufacturer). However, the language issued by American Regent is so vague that such issues may exist--or they may not.
Having been a business journalist for nearly 20 years, I'm quite aware of the catastrophic effect a factory shutdown can have on a company's bottom line. Usually the write-offs last for at least a couple of quarters. So I wasn't surprised to learn in July that American Regent's parent company, Daiichi Sankyo, revised its quarterly operating income upward by 20 percent and its net income upward by 44 percent.
It was more or less the same story for every drug manufacturer or subsidiary reporting a shortage. Hospira's operating income was up 64 percent for the quarter ending June 30. It stopped manufacturing a variety of injectables over the past year and claimed shortages for others. Boehringer Ingelheim's earnings were up 4 percent. Subsidiary Bedford Laboratories reported shortages of medications and discontinued others "to focus on the manufacture of other products," according to one bulletin. Bristol-Myers Squibb's first-half sales were up 14 percent. Its supply of injectable drugs for patients with serious mental illnesses were way down--a situation for which the company has no explanation.
In fact, many of the drug firms give no reasons as to why shortages exist. However, many of them have plastered their website with press releases about the progress of their latest blockbuster--and proprietary--products. One drug manufacturer closing down a large chunk of its operations for a month and posting a huge gain in profit is suspicious. What do you call it when everyone seems to be following suit? "Fad" seems too cute a term.
The drug industry has introduced a lot of innovative medicines over the past couple of decades that have fought AIDS, cancer, and a variety of other maladies that were once a death sentence. But so much money may be made off of those products that the off-patent, low-margin bread-and-butter medications that keep a hospital running are falling by the wayside. There's a passel of taverns and Starbucks within walking distance of my house in pedestrian unfriendly Los Angeles. Yet there's a nationwide shortage of injectable alcohol and caffeine. Why would that be unless there's a profit in tweaking the laws of supply and demand?
Before the pharmaceutical industry leaps to its own defense, I'd like to remind everyone it has engaged in one of the most aggressive price-fixing campaigns in this nation since the railroads ruled the land. It lobbied to ensure the federal government couldn't negotiate bulk prices, making Medicare Part D a fiscal boondoggle that's helped spiral budget deficits ever upward. It lobbied to ban import of the pharmaceuticals it sells outside of the United States for a fraction of the price--in complete defiance of how the global economy operates.
It's also the same industry whose relentless marketing compels my wife and I to hover over the television mute button even in broad daylight, lest we suddenly have to explain to our 10-year-old daughter about erections and why they might last for longer than four hours. No shortage there, apparently.
Meanwhile, on the radio, as I am writing this column, NPR is reporting that some hospitals are not only rationing medications but may actually have to make choices between patients who should die and those who should not. The reporter referred to drug shortages as the "new normal."
Before this kind of death panel becomes commonplace, there is something hospital finance executives can do that would be even more heroic than mastering their balance sheets. It would be the skeptical, aggressive, and highly visible questioning of their drug suppliers and manufacturers as to what's causing the shortages--and a demand for explicit causation as to why their revenues and profits are continuing to skyrocket. Send out press releases to your local television stations and newspapers. Ask the American Hospital Association and the Federation of American Hospitals to issue some statements of their own.
If that doesn't compel straight answers, there is a perfect resource for pressuring the manufacturers--your staffs of unionized nurses and line workers. Since they're all loudly concerned about patient safety every time their contracts come up for negotiation, focusing such energy on the drug manufacturers and this shortage--a clear patient safety issue--could bear fruit. Not only might it create a little more transparency in this arena, but it could actually ally the unions and hospitals a bit closer, making the next contract negotiations a little easier.
This all may sound extreme, but lives have already been lost, and more seem to be at stake. In such an environment, drug manufacturers should be forced to live in a perpetual "show me" state. - Ron (@FierceHealth)