To address the nation’s drug shortages, the Department of Health and Human Services (HHS) is floating a plan that would attach new Medicare payments and penalties to hospitals’ supply chain practices.
This program, which was described in a white paper released yesterday alongside another focused on drug manufacturers, would require new authorities from Congress and would be phased in over the course of several years.
The so-called Hospital Resilient Supply Program (HRSP) would see hospitals graded on a “scorecard that would be a combination of attestations and ratings reflecting the hospitals’ achievement and progress in adopting practices that promote supply chain resilience or prevent shortages,” HHS wrote in the white paper.
Hospitals, HHS wrote, could potentially be rewarded for managing their inventories with buffer stocks or for securing contracts with group purchasing organizations that have specific minimum purchasing volume requirements to promote supply chain resiliency, HHS wrote. The grades could also consider whether hospitals are “supporting redundancy in the market” by purchasing from diverse sources, including domestic manufacturers.
Though the white paper focused on generic sterile injectable medications, HHS noted that the hospital scorecard could begin with an initial set of drugs and then expand to other priority products.
HRSP could offer both incentives and penalties within the first five years before turning to penalties exclusively in subsequent years, HHS wrote, while noting the success of a similar rollout for the Electronic Health Records Incentive Program. HHS also acknowledged that any monetary incentives or penalties could be scaled based on the size of a hospital or health system.
“HRSP payment and/or penalty amounts would have to be large enough to incentivize change and cover the cost and benefits of engaging in practices that promote supply chain resilience, while being fiscally responsible to the program,” HHS wrote. “If successful, the HRSP could be expanded to the outpatient setting or to include medical devices.”
Operating costs for HRSP would likely run the government somewhere between $2.5 billion and $4.4 billion over a decade, HHS estimated in the white paper.
The concurrent proposal targeting drug manufacturers outlined in the white paper, the Manufacturer Resiliency Assessment Program (MRAP), would likely require $750 million over the same period, HHS wrote.
That public-private partnership would oversee the accreditation of a private entity that would assign resilience scores to generic drug manufacturers. Those specific resilience metrics, which would be developed in collaboration with external organizations, could include redundancies and sourcing diversity.
The ratings and assessments generated through MRAP would then be used in HRSP, HHS wrote, as “manufacturers would be incentivized to participate based on the expectations that hospitals would use this information in their purchasing decisions and would be willing to pay higher prices for drugs from more resilient manufacturers and supply chain systems.”
Drug shortages are a “decades-long public health issue” that was exacerbated by the COVID-19 pandemic, HHS wrote. Last year, health system pharmacists near-unanimously reported drug shortages affecting their organizations and patient care.
In February, HHS joined the Federal Trade Commission to issue a request for information on how the business practices of “middlemen” like group purchasing organizations and drug wholesalers could be impacting drug supply. HHS has recently established a coordinator to help implement supply chain resiliency strategies and has historically invested hundreds of millions to support active pharmaceutical ingredient manufacturing.
“All across our Department, we are working to ensure that millions of Americans will have access to medication, treatment and services that save lives and improve health outcomes,” HHS Secretary Xavier Becerra said in a Tuesday release. “That’s why advancing and implementing solutions to the nation’s drug shortages are so important, and why we want members of Congress and all actors in the supply chain to consider and act on the policy options presented in today’s white paper.”