Evaluating quality reward and other interventions to mitigate US drug shortages

Drug shortages have been persistent in the United States for over a decade, posing serious threats to public health and the healthcare system. While previous research has investigated the causes and effects of drug shortages, there is a dearth of research exploring potential solutions to mitigate this problem. Using a system dynamics model of the US generic drug market, we evaluate the long-term effectiveness of two existing policy interventions (expediting drug approvals and nudging manufacturers to ramp up their production) and the “quality reward” initiative that is being actively explored by the FDA and industry. Our results indicate that while the existing interventions can be helpful in addressing shortages, their long-term effect seems limited. In contrast, quality reward can mitigate drug shortages in a sustainable way. However, a caveat of quality reward is the potential emergence of a monopolistic supply market with negative consequences. We suggest that a carefully designed quality disclosure mechanism can address this issue. To the best of our knowledge, this is the first study to quantitatively and comparatively evaluate the long-term effectiveness of quality reward and other interventions on drug shortages and provide structural explanations for their performance.