Patching the problem of EU drug shortages

Another common thread with the EU agenda is that Canada published a report in December 2023, aimed at drawing up long-term strategies to prevent medicine shortages. Credit: vepar5 via Shutterstock.

The EU’s “Union list of critical medicines” stole many pharma-related headlines recently. Its publication is undoubtedly significant, but the impact has been overblown in some quarters. 

The Union list of critical medicines registers a few hundred active substances essential to healthcare systems for which continuity of supply in the EU is termed a priority. Featuring on the list does not necessarily mean that a product will experience scarcity – the Union list simply describes serious disease medicine products that could cause patient harm or difficulties for national-level healthcare systems in the EU-27 if a shortage ever arose. The list should be understood to mean that the named active substances will be subject to pre-emptive shortage prevention strategies, including sets of actions to diversify supply sources, encourage extra stockpiling, enhance monitoring, and possibly establish investment incentives for EU-based manufacturers. Voluntary solidarity mechanisms, which may facilitate greater amounts of medicine sharing within the EU internal market, are also on the cards. At the same time, some of the policy actions that may emerge hinge on whatever finalised form EU general pharmaceutical legislation takes. 

Lists that address supply scarcity issues are commonplace across multiple jurisdictions globally, and indeed they have been prevalent at a national level in the EU for several years. What is a new development is that the Union list of critical medicines is EU-wide and another step by institutions to reach into areas that were previously largely national competency. 

Policymakers intend the list to improve supply continuity and address potential shortages. However, the short-term prospect of stemming the tide of drug shortages is limited due to the complexity of reorganising supply chains. The mechanisms represent a stop-gap measure that is unlikely to do much to alleviate the supply situation in 2024. The pharmaceutical industry is far more mindful of the EC’s longer-term ambition to establish a closer EU Health Union, underpinned by EU involvement in joint procurement activities and possibly even in pricing arrangements. Such policies will develop alongside “reshoring” and “friend-shoring” initiatives to relocate some essential medicines manufacturing to the EU and allied countries, and thereby shorten international supply chains. 

The US Committee on Oversight and Accountability is investigating growing numbers of critical drug shortages. An FDA database currently identifies 128 medicine shortages. The investigation aims to gain a better understanding of the FDA’s future response and mitigation strategies against shortages. According to committee members, there is a risk that US drug shortages could worsen under the Inflation Reduction Act (IRA) price controls for prescription medicines, potentially leading to less investment in domestic pharmaceutical production and exacerbating supply chain insecurity. In that context, we may see the US’s drug shortage list expand in 2024, as well as more imports of non-FDA-approved generic drugs manufactured in China. The drug shortage list also prompted the Biden administration to outline a plan in late 2023 to increase domestic production of essential pharmaceuticals, including potentially leveraging the Defense Production Act. These developments look familiar across the Atlantic to how the EU is attempting to guard against supply disruptions and “de-risk” critical medicine supply networks linked to China and India.

Another common thread with the EU agenda is that Canada published a report in December 2023, aimed at drawing up long-term strategies to prevent medicine shortages. 12 months after the establishment of Canada’s Drug Shortages Task Force, the report envisages creating a list of medicines critical to patients and vulnerable to shortages. This has all the features of the EU’s Union list of critical medicines. The similarities do not end there, since stakeholders also request additional requirements should be put in place for products on the list such as “safety stocks”. Rumoured figures suggest “safety stocks” could amount to a 20% extra margin for drugs in short supply.

Ultimately, the EU’s Union list of critical medicines may be one of the factors that prompts greater alignment between some groups of countries, culminating in the further modernisation of regulatory tools to improve supply chain visibility and enhance responses to supply chain vulnerabilities.

Unfortunately, the public may have come away with the mistaken impression that the Union list of critical medicines has the potential to immediately reduce shortages, which is not realistic. Any reductions in shortages are a long-term prospect: Some of the list’s limitations may be partially addressed from mid-2024 onwards when the list is expanded on a phased basis, but other enhancements may have to wait until the European Commission operationalises a Critical Medicines Alliance in 2024. This alliance aims to coordinate action at an EU level between member states, EU agencies and industry pillars, focusing on a specific number of critical medicines where the risk of shortages is expected to be highest and where the potential impact on EU-27 healthcare systems could be serious.

South Korea has been busy with a series of reforms that aim to accelerate the time it takes to introduce new innovative drugs into its national insurance system. The country has been known for its stringent reimbursement conditions, with manufacturers often needing to undergo several attempts to secure reimbursement approval for their products. GlobalData has therefore compared the average time (in days) it takes branded drugs to be reimbursed after receiving their approval in South Korea compared to other advanced countries, including Japan, Australia, the UK, and Spain. 

In 2022, the average time to reimbursement in South Korea for branded drugs was 620 days, which is significantly longer than the average time to reimbursement for branded drugs in the markets mentioned above.

However, the country has made significant progress in improving drug accessibility, especially high-cost rare disease treatments and anti-cancer drugs, by easing reimbursement requirements. In fact, the average time to reimbursement for branded drugs in South Korea was more than 1,000 days a decade ago but has reduced to approximately half that figure in 2022 (620 days). The average time to reimbursement for branded drugs was even improved in South Korea during the Covid-19 pandemic, a period when most countries were facing serious delays in reimbursement. Notably, Japan took an average of 301 days to reimburse branded drugs during Covid-19, when previously it only took an average of 90 days.

GlobalData identified that the implementation of the risk-sharing agreement (RSA) and the cost-effectiveness analysis (CEA) waiver systems in South Korea have contributed to the improvement in shortening the time to reimbursement by lowering the insurance listing barriers for innovative drugs, which have limited evidence to prove their benefits.

The RSA system, implemented in South Korea in 2013, targets treatments for cancer, rare diseases, and other life-threatening diseases for which alternative treatments are not available in South Korea and is categorised into four types: expenditure cap, rebate, utilisation cap/fixed cost per patient, and conditional treatment continuation plus money-back guarantees. The majority of the signed RSAs were expenditure cap agreements, followed by rebate agreements. Until August 2023, a total of 68 innovative treatments were introduced into South Korean national health insurance under RSAs. According to an RSA report done by the Seoul National University R&DB Research Foundation, the insurance coverage of cancer drugs and rare disease treatments has increased. Between 2014 and 2019, 82.2% and 77.4% of the newly approved cancer drugs and orphan drugs, respectively, were listed for reimbursement, and previously the coverage rates were 77.5% for cancer drugs and 72.5% for orphan drugs between 2007 and 2013. 

Additionally, although the average time to reimbursement for drugs with RSAs was longer than drugs without RSAs, an increasing number of expensive drugs passed the reimbursement review in their first-time or second-time application. The report found that the average time for the Drug Reimbursement Evaluation Committee (DREC) to review a drug's reimbursement application to achieve a new listing decision decreased from 2.8 times before 2013 to 1.4 times in 2014–mid-2022. 

The CEA waiver system, implemented in South Korea in 2015, aims to accelerate the time to reimburse innovative drugs that cannot show evidence of their cost-effectiveness, which is the golden standard for reimbursement review, before listing in national health insurance. Under the CEA waiver system, drugs that meet certain requirements, including proof of their clinical usefulness and their patient needs, are eligible for the exemption of CEA submission. Additionally, manufacturers should reach the expenditure cap RSA with the Health Insurance Review and Assessment (HIRA) to secure positive reimbursement recommendations for their products with CEA waivers.

Senior official of the HIRA, Yoo Mi-young, confirmed that about 87.5% of cancer and rare disease treatments newly approved for reimbursement in 2022 were reviewed without CEAs. Although the CEA waivers have shortened the time for manufacturers to file for reimbursement applications, researchers and healthcare providers have expressed strong opposition to the expansion of CEA waiver eligibility, citing concerns about the high uncertainty of clinical benefits and the high uncertainty about financial impacts. So far, drugs introduced in national insurance without CEA are subjected to the international reference pricing (IRP) rules which prices should not exceed the lowest prices in the eight reference markets. 

Apart from the ease of reimbursement eligibility, the HIRA is working closely with the National Health Insurance Service (NHIS) and the Ministry of Food and Drug Safety (MFDS) to shorten the time spent during the reimbursement process. In H1 2023, South Korea rolled out the first accelerating price negotiation scheme. Under the scheme, the time spent on price negotiation was reduced from the previous 60 days to 30 days with prior price negotiation. 

The South Korean Government has been ambitious in expanding the prior negotiation process. A pilot programme for the approval-evaluation-negotiation linkage system is expected to be rolled out at the end of 2023. Under the linkage system, manufacturers will be able to submit a reimbursement application for a drug which is undergoing marketing authorisation review, allowing the South Korean authorities to evaluate the marketing application, reimbursement application, and price agreement for a drug at the same time. However, the HIRA and NHIS have shared diverse opinions on the linkage system that the NHIS urged for enhancing their involvement at an earlier stage. If the NHIS has been included as a participant in the reimbursement review meeting under HIRA, the barriers to a drug passing reimbursement review are likely to be advanced.