Alleviating Drug Shortages: The Role of Mandated Reporting-Induced Operational Transparency

41 Pages Posted: 17 Apr 2020 Last revised: 17 Aug 2020

See all articles by Junghee Lee

Junghee Lee

Tulane University - A.B. Freeman School of Business

Hyun Seok Lee

Korea University Business School

Hyoduk Shin

University of California, San Diego (UCSD) - Rady School of Management

Vish Krishnan

University of California, San Diego (UCSD) - Rady School of Management

Date Written: August 14, 2020

Abstract

The ongoing shortage of pharmaceutical drugs critically threatens public health. With increasing industry consolidation, operational disruptions at a firm can lead to a nationwide shortage of life-saving drugs. In 2012, the U.S. Food and Drug Administration mandated all manufacturers to report any manufacturing interruption that can potentially cause shortages. The goal of the mandate was to mitigate drug shortages by enhancing operational transparency in the pharmaceutical industry. Subsequently, other countries such as Canada have also begun mandating reporting of interruptions to alleviate drug shortages. We leverage the policy changes in the U.S. and Canada to understand the impact of mandated reporting-induced operational transparency on alleviating the extent of drug shortages. Using the data on time-to-recovery for individual drug shortage incident and annual-days-of-shortage for each drug, we find that the new policy alleviates drug shortages, but its effectiveness is contingent upon the prevailing level of competition in the product category. While the intervention is not as impactful under a monopoly, the mandate is most effective under a duopoly and its impact wanes as competition intensifies. In the absence of the mandate-induced transparency, competition does not necessarily alleviate shortages, but with the regulation, competition can relieve drug shortages. Our results potentially offer healthcare providers and policymakers the impetus to alleviate drug shortages by mandating interruption reporting and improving operational transparency.

Keywords: Product recovery, Drug shortage, Mandated reporting, Operational transparency, Competition

Suggested Citation

Lee, Junghee and Lee, Hyun Seok and Shin, Hyoduk and Krishnan, Vish, Alleviating Drug Shortages: The Role of Mandated Reporting-Induced Operational Transparency (August 14, 2020). Available at SSRN: https://ssrn.com/abstract=3565467 or http://dx.doi.org/10.2139/ssrn.3565467

Junghee Lee (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Hyun Seok Lee

Korea University Business School ( email )

LG-POSCO 519, 145 Anam-ro
Seoul, 02841
Korea, Republic of (South Korea)
+82-2-3290-1915 (Phone)

Hyoduk Shin

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Vish Krishnan

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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