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In this exclusive Instagram Live clip, Jeremy Faust, MD, editor-in-chief of 名媛直播, and Marta Wosińska, PhD, senior fellow of economic studies at the USC-Brookings Schaeffer Initiative on Health Policy, discuss how drug shortages happen and why we need to fix our manufacturing system moving forward.

Click here to watch part 1 of this Instagram Live.

The following is a transcript of their remarks:

Faust: Dr. Wosińska, let's talk about [the shortage]. With all of your government experience -- and I imagine the conversations that you still have, you're obviously in a think tank environment now, but you're probably interacting with government actors all the time -- what's the federal government's posture on this right now?

Wosińska: I mean, there's great concern, obviously.

FDA has always been very concerned about drug shortages. They have a whole team that tries to help mitigate shortages. You might have heard that the White House is very interested in shortages and has people working on it. You saw that CMS just put out a proposed rule where they're trying to think about buffer inventories. There's a lot of interest in Congress; they're thinking about creating bills.

But before I go there, I just wanted to add one more thing back to the point about when this particular problem started -- what is making this current problem worse -- which has to do with the fact that the manufacturer that had the inspection, the inspection was at the end of November. In January, there were already stories when the [FDA Form] 483 came out. The 483 is the list of the deficiencies that the FDA issues to the manufacturer about what problems there were with good manufacturing practices. So the information out there about problems was actually back in January.

What ended up happening was that in the sales data for cisplatin and carboplatin, the sales in the first quarter of the year went through the roof. Basically, what started happening is that some players were really paying attention and they started buying way more than they were ever buying before. So what ended up happening was not only did you have a supply disruption, but suddenly you had this huge increase in demand [for] a lot more product.

In a sense, a lot of the product has shifted through the supply channels, and there were a lot of hospital systems that were probably in a pretty good position with a buffer inventory, but others that didn't realize what was happening -- and that is particularly true of community clinics -- they were at the end of the line trying to get that product and having a lot more problems.

What you actually frequently see in shortages is that there might be a supply disruption, but then there's this massive buildup in demand that only exacerbates the shortage. Even if other manufacturers start to try to make up the production, the demand is so high because everybody wants to create a buffer that they weren't holding before.

That actually complicates in some ways some of the policy responses, because this issue of panic buying is very real and it exacerbates existing shortages. So, as I mentioned, there is a lot going on right now.

It is a really complex problem that not just points to the FDA, but it points back ... in a sense, it's a self-inflicted wound, if I were to say so.

A lot of it has to do with how hospitals buy drugs and the fact that these are all therapeutically equivalent products. They're FDA approved, FDA is supposed to hold the line -- we might just as well buy the cheapest drug that we can. What ends up happening is that the hospitals, through how they buy, put so much pressure on manufacturers that it gives manufacturers an incentive to kind of skirt on their manufacturing quality systems.

And FDA can't hold the line, not only because they don't have infinite resources, but because when push comes to shove and there is a possibility for a shortage, everybody screams at the FDA, "Be flexible! Be flexible!" But being flexible means you're not an enforcer like you should be. So what ends up happening is that FDA ends up putting on a lot of Band-Aids. They try to nudge the manufacturers, they try to do this, but if they are medically necessary products and the manufacturer has enough of a market share and we're afraid of shortages, you end up basically coming into this bad equilibrium.

So, I completely agree. What's next? Because this is a really bad set of dynamics that we have in place. I think what's really for us to be thinking about is not putting on Band-Aids, but how do we deal and mitigate shortages? To prevent shortages, we would actually have to change how hospitals buy.

Faust: Well, what you're describing there is a little bit of what I've read about in other areas in terms of artificial price wars that go in the wrong direction. Which is almost like a stampede kind of mentality, which is that someone senses a panic, as you mentioned -- you used the word "panic" -- and then there's a big buy, and then everyone else says, "Uh oh, we better get in on that," and all of a sudden you do have an artificial supply problem based simply on the fact that people are hoarding in anticipation of a shortage. Is that basically what happened?

Wosińska: I mean, that's what happens when a shortage actually happens.

Think about the COVID toilet paper shortages, right? The change [in supply] wasn't so massive, but I think everybody got so nervous about being out of toilet paper that they ended up spending a lot more. What ends up happening is that once things calm down, once a shortage is resolved, what manufacturers expect is actually a dramatic drop in orders. This actually gives them an incentive to not necessarily expand their production that much, because they know once things calm down, everybody will want to draw from their inventory.

But that's not the cause of the shortage, is it? Those are factors that exacerbate a shortage. The cause is the manufacturing quality problems that trigger a lot of these shortages and the fact that manufacturers are not necessarily following good manufacturing practices; they're not investing in their systems.

If we can prevent that from happening, we would not have to be dealing with a lot of these mitigation efforts. So, there are just really fundamental market dynamics that I think have not been addressed and are not getting better at all. They just flare up every so often, and they flared up in cancer. But we had them for a lot of ... drugs in the past.

There are many drugs that go into shortage, and fundamentally there's something broken in how the market works. That's why it just keeps on popping up.

Faust: Now when a shortage happens, and the one I can think of that's the most recent in everyone's memory was the infant formula shortage that certainly caught a lot of headlines, for obvious reasons. Can you explain to us what is -- I mean, it is a Band-Aid -- but what's the fastest thing that the "system," whether it's the FDA or CMS or other agencies or stakeholders, can do just to plug the hole while we hopefully lean back and answer the question that you're talking about, which is how did we get here and how do we prevent that? But if you're Dr. Teplinsky and you need to give a drug tomorrow, what's the fastest thing that can happen to just fill in the gap in the short term? What levers are there?

Wosińska: I think in the short term, and this might actually not be necessarily a policy issue, but an issue that the stakeholders can agree on, is basically better allocation mechanisms: not allowing some to rush out of the gate and stockpile. Having automatic allocation come into place and being really thoughtful about what those allocation mechanisms are. So I think that would be the very first thing that I would think could help deal with shortages.

Obviously buffering inventories can be helpful, but you need to do it before there's a shortage, right? That is not a mitigation strategy.

When it comes to thinking about the longer term, it's actually shifting the weight from what hospitals pay to place it on manufacturing reliability and the history of reliability of the supply and pay more attention to that.

Faust: These are really life and death situations that we can't even measure, which is so frightening. When those are the stakes, Dr. Wosińska, do you think that we're coming to a point where this sort of Wild West where everyone can do whatever they want is not sufficient?

I think sometimes about organ transplants and how weird our system is for that and how it's regulated but it's not centralized. Do you think that given how frequently this is happening and the stakes that there needs to be a fundamental reboot in how the market works? Or is it more like we have to anticipate and plug some holes?

Wosińska: No, I really think that we need to address directly some of the fundamental failures in this market. Otherwise, we'll continue to see these flare-ups; we'll be trying to plug up the holes.

The silver lining in all of this is that right now the policy window is open and Congress is interested in this, but as soon as this shortage sort of wanes -- and it will at some point -- everybody will go back to what they were doing. That's actually my fear, because we have an opportunity to do something about this, because this is a problem that's been going on for well over a decade and it keeps on flaring up here or there.

We have an opportunity to right now address it, to say, "This is not acceptable," and not just focus on the short term of how we address this shortage, but think about how to prevent future ones.

Faust: Do you think COVID taught us anything about this? You mentioned toilet paper, but there were also drug shortages and there was some talking point of reliance on China, for example, and other foreign bodies who we can't necessarily rely upon. Do you think that in a sense we need to diversify our supply lines? Is that a big piece of this, or is that more of a fancier way of plugging a hole?

Wosińska: Well, it doesn't plug the right hole. The exposure to geopolitical risks is a separate hole that right now is not really open. It's a theoretical hole.

Right now, that's not where we have had shortages. So we need to be worried about that hole, but that will not solve the manufacturing quality problem that we have. So we have to be addressing that head on if we want to make progress.

Faust: Does it really matter in terms of how old some of the drugs are? Because I know there's an issue of whether something's on patent or whether something is generic. How does that affect this?

Wosińska: Brand manufacturers tend to have much more resilient supply chains; their margins are [higher]. For them to stop producing for a month is a lot of profits going down the tube and potentially having these patients switch permanently to some other brand.

For a generic, it's not like that. They have very, very low margins and they'll have one API supplier, they will have very little spare capacity, they will only carry so much of the various ingredients in the different stages. It's very, very thin, so they're much more vulnerable to all sorts of disruptions. So it really is, to a large extent, a generics issue.

Just really quickly, going back to COVID -- COVID-related shortages were driven by demand increases. These [chemotherapy shortages] are related largely to manufacturing quality disruptions. So, the causes are a little bit different and the solution is a little bit different.

What we can learn from COVID is that coordination is really important, and also thinking about allocation and thinking about it from the upstream perspective. There was a lot of planning that went into the fact that if we had a shortage, what were we going to do versus for a lot of these shortages, we just get kind of caught off [guard].

We knew that we were going to face shortages initially of vaccines, right? So there was a lot of thinking about how can we do this and the government stepping in -- a lot of coordination on that front -- thinking about allocation mechanisms.

Until we start really seriously addressing the root causes of what triggers these shortages, we need to be spending a lot of time thinking about how to allocate the product, knowing that we're going to have shortages -- and we're not even doing that.

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