These shortages have increased the already escalating costs of cancer care. Brand-name substitutes for generic drugs can add substantial cost. For instance, Abraxane, a protein-bound version of paclitaxel, costs 19 times as much as equally effective generic paclitaxel (see tableAverage Wholesale Prices (AWPs) of Selected Oncology Drugs in Short Supply and Their Potential Alternatives.). Since 2010, health care labor costs in the United States have increased by about $216 million because of the increased time and work required to manage drug shortages.2 A gray market for essential drugs — an unofficial alternative market of drugs obtained by vendors outside the usual distribution networks — has grown rapidly, with unregulated vendors charging markups of up to 3000% for cancer drugs.

The main cause of drug shortages is economic. If manufacturers don't make enough profit, they won't make generic drugs.* There have been some manufacturing problems, but manufacturers are not required to report any reasons or timetable for discontinuing a product. Contamination and shortages of raw materials probably account for less than 10% of the shortages. In addition, if a brand-name drug with a higher profit margin is available, a manufacturer may stop producing its generic. For instance, leucovorin has been available from several manufacturers since 1952. In 2008, levoleucovorin, the active l-isomer of leucovorin, was approved by the Food and Drug Administration. It was reportedly no more effective than leucovorin and 58 times as expensive, but its use grew rapidly. Eight months later, a widespread shortage of leucovorin was reported.

The second economic cause of shortages is that oncologists have less incentive to administer generics than brand-name drugs. Unlike other drugs, chemotherapeutics are bought and sold in the doctor's office — a practice that originated 40 years ago, when only oncologists would handle such toxic substances and the drugs were relatively cheap. A business model evolved in which oncologists bought low and sold high to support their practice and maximize financial margins. Oncologists buy drugs from wholesalers, mark them up, and sell them to patients (or insurers) in the office. Since medical oncology is a cognitive specialty lacking associated procedures, without drug sales, oncologists' salaries would be lower than geriatricians'. In recent decades, oncology-drug prices have skyrocketed, and today more than half the revenue of an oncology office may come from chemotherapy sales, which boost oncologists' salaries and support expanding hospital cancer centers.

Before 2003, Medicare reimbursed 95% of the average wholesale price — an unregulated price set by manufacturers — whereas oncologists paid 66 to 88% of that price and thus received $1.6 billion annually in overpayments.3 To blunt unsustainable cost increases, the Medicare Modernization Act mandated that the Centers for Medicare and Medicaid Services (CMS) set reimbursement at the average sales price plus a 6% markup to cover practice costs. This policy has reduced not only drug payments but also demand for generics. In some cases, the reimbursement is less than the cost of administration. For instance, the price of a vial of carboplatin has fallen from $125 to $3.50, making the 6% payment trivial. So some oncologists switched to higher-margin brand-name drugs.4 Why use paclitaxel (and receive 6% of $312) when you can use Abraxane (for 6% of $5,824)?

Now practices are struggling to treat their patients because of the unavailability of drugs. Short-term solutions include gray-market purchases, which more than half of surveyed hospitals say they've made, but that option introduces safety and quality-control issues. Pharmacists are intensively managing inventories and alerting prescribers to developing shortages and potential alternatives. Some centers now have a red–yellow–green system for quickly recognizing developing shortages and determining which patients get priority (usually those with curable cancers) when supply is limited.

Long-term, non–market-based solutions have been elusive. Proposed legislation would require manufacturers to give 3 to 6 months' notice before discontinuing a drug in order to allow others to pick up production. However, it is likely that gray-market vendors would buy the remaining inventory of such drugs and charge huge markups. Creating a national stockpile is impractical: Do we stockpile the drugs and then waste whatever is not used or stockpile the ingredients and make new batches as needed? A national health care plan with a single formulary and a central pharmacy stockpile is possible for Medicare or Veterans Affairs but unrealistic given oncologists' dependence on drug income and difficulties with timely, safe distribution.

Market solutions take one of two approaches: let the market work and accept short-term uncertainties or regulate the market more tightly. For instance, the CMS could reimburse at the average sales price plus 30%, but that wouldn't help if the drug price has fallen from $125 to $3.50 per vial. The government could set a floor for average sales prices to encourage the production of generic drugs, but that would increase the total cost of cancer drugs unless brand-name prices were reduced. Europe has fewer shortages for that reason: prices are set higher for generics so that companies will make them, but prices of brand-name drugs are often much lower than U.S. prices.

More far-reaching reforms of oncology practices and reimbursement are necessary if there is no national intervention or federal market regulation. One solution is adopting clinical pathways for which practices are paid disease-management fees that are not based on chemotherapy sales. For instance, one large oncology group has developed care pathways specifying preferred drug combinations and sequences — for example, allowing only a few first-line, mostly generic regimens for patients with non–small-cell lung cancer, as compared with the 16 possible drugs and many more combinations included in National Comprehensive Cancer Network pathways. This approach has been shown to result in equal or better survival, less use of chemotherapy near the end of life, and 35% lower costs than usual care.5 Another solution is to pay physicians salaries, as Kaiser Permanente, Veterans Affairs, and most academic centers do, but that would reduce oncologists' earnings at a time when a 40% workforce shortage is predicted, so the effect must be monitored.

To ensure a predictable supply of generic cancer drugs, manufacturers need reasonable markets and profits, and oncologists need incentives to use generics. Standardized clinical pathways with drug choices based only on effectiveness will enable the prediction of drug needs, practices for effective management of inventory, and planning by manufacturers for adequate production. Such pathways, disease-management fees, and physician salaries would dramatically change oncologic practice, but since drug costs will increase by 4 to 6% this year alone, they are necessary. The current system not only is unsustainable but also puts oncologists in potential ethical conflict with patients, since it hides revenue information that might influence drug choices and thus affects costs and patients' copayments.

The only good news is that the drug shortages may catalyze a shift from a mostly market-based system to one that rewards the provision of high-quality cancer care at an affordable cost.

Link for table  http://www.nejm.org/action/showImage?doi=10.1056%2FNEJMp1109772&iid=t01

*   Bull shit excuse, for the shortages mostly occur with generic drugs that are competing with patented drugs of very high prices, such as cancer treatments.  Other generics are not experiencing shortages.  If the NEJM reasons was right, shortages would occur across the board, for all generic drugs because of lack of profit.