According to experts, the affordability of generic drugs in the US is not sustainable.
Affordable generic drugs are a defining aspect of the American healthcare system, but their low cost is causing certain manufacturers to go out of business entirely.
The cost of medications often incites criticism and anger among lawmakers in Washington, as seen with the recent inquiry launched by Senate Democrats and Bernie Sanders regarding the cost of albuterol inhalers.
Sanders stated that there is no logical explanation, except for greed, for GlaxoSmithKline’s decision to price Advair HFA at $319 in the US while only charging $26 for the same inhaler in the UK.
According to a recent report from the Rand Corporation, Americans typically spend 2.5 times more on prescription medications compared to other affluent and developed countries. However, these averages obscure significant differences, particularly between name-brand drugs and generic alternatives.
Patent-protected drugs drive most drug spending and cost $20 per day on average. But generic drugs are actually a little cheaper in the US than in other nations. And, in the opinion of many experts, they are too cheap to be sustainable.
According to Inmaculata Hernandez, a professor at the University of California San Diego Skaggs School of Pharmacology and an expert in pharmacy policy, reducing costs and premiums is beneficial. However, she points out that the current low prices do not provide enough incentive for drug manufacturers to produce necessary medications.
There have been recent reports of scarcity in the media, with a particular focus on cancer medications. Methotrexate, used for severe autoimmune diseases and cancers, is experiencing a shortage. The oncology community is also facing a lack of fludarabine, a key drug in CAR T-cell therapy, which trains the body’s immune system to combat cancer. Additionally, there is a shortage of Adderall, a commonly prescribed stimulant for treating ADHD.
Experts have stated that while the specific causes may differ, the root of each shortage lies in the fragility of the supply chain due to a limited number of manufacturers.
There is currently a shortage of Methotrexate due to higher demand and delays in manufacturing. The use of Fludarabine has also increased due to its effectiveness in new, potentially life-saving treatments that activate the immune system against cancer. The scarcity of Adderall is thought to be caused by a rise in individuals seeking and receiving treatment for ADHD during the pandemic.
It could be logically assumed that demand would attract more businesses to the supply market – this is the basic principle of a free market, correct? However, in the complex landscape of American healthcare, things are often reversed and an increase in demand does not always result in an increase in supply.
According to Erin Fox, an expert on drug shortages and associate chief pharmacy officer at the University of Utah, the primary focus of drug manufacturing is profit maximization. This can lead to a point where producing certain drugs is no longer financially viable, resulting in manufacturers discontinuing their production.
The decrease in profits and potential losses on certain medications has resulted in a growing number of manufacturers leaving the market, leading to a supply chain that is susceptible to manufacturing problems and unforeseen events. Furthermore, efforts by the FDA to ensure drug safety may also contribute to shortages.
The reason for the low prices is due to the competition among generic products solely based on cost. Other factors that could differentiate a manufacturer, like quality or reliability, are not taken into account. It’s like shopping at a grocery store with all the products being anonymous – no brands, no way to assess the condition or standard of an item, and no way to verify their origin. Only the price matters.
Fox stated that in the United States, the FDA is responsible for approving generic drugs and they claim that all generic drugs are identical.
The occurrence is a result of the Hatch-Waxman Act, also known as the Drug Price Competition and Patent Term Restoration Act of 1984. This legislation granted the FDA the authority to approve generic drugs that are identical in composition to brand-name drugs. As a concession to the pharmaceutical industry, it also extended patent protection for brand-name drugs, which tend to be more expensive for American consumers.
The Hatch-Waxman Act significantly increased the availability of generic products. However, it also led to a market with intense price competition if other measures are not taken into account.
Marta Wosinka, a senior fellow at the Brookings Institution’s Center on Health Policy, stated that the main problem lies in the fact that the market does not value quality and reliability. She also noted that manufacturers face immense price pressure, with certain drugs, such as generic sterile injectables, being especially at risk.
These rules led to a competition among generic pharmaceutical companies to offer the lowest prices for their products, disregarding quality as a factor.
According to Fox, companies often decrease their prices in an attempt to increase their market share, with the expectation of making up for any losses through higher sales volume.
As Hatch-Waxman decreased prices, the US drug purchasing market underwent significant consolidation and vertical integration. Three major wholesalers – AmerisourceBergen, Cardinal Health, and McKesson – now dominate over 90% of the market. This dominance is reinforced by partnerships with major retail pharmacy chains like CVS, RiteAid, and Walgreens, leading to further vertical integration.
Group purchasing organizations help lower prices by negotiating contracts for their clients, such as pharmacies, with wholesalers. They also require the lowest prices, which adds to the competitive pressure on generic drugs.
Pharmacy benefit managers ultimately determine which medications will be included in a patient’s insurance coverage, whether it is through government, private, or other means, and at what rate they will be reimbursed. This leads to increased downward pressure.
In addition to prioritizing price, strict regulations and complex production processes for certain medications, such as sterile injectables used for treating cancer, may cause some manufacturers to abandon less lucrative drugs.
Experts stated that these economic challenges will persist and potentially force generic drug manufacturers to leave the market if not addressed. Furthermore, these financial pressures do not account for geopolitical issues within the generic drug industry, specifically the dependency on India and China for producing generic drugs and active pharmaceutical ingredients.
“In 2016 and 2017, we experienced a period of kindness in a pleasant environment with less than 200 shortages. However, starting from then, the number of shortages began to increase,” stated Fox. She also mentioned that the most recent shortage was the most severe in the past ten years.
In 2011, during a shortage of chemotherapy drugs, Barack Obama instructed the FDA to mandate that manufacturers report any delays or discontinuations in drug production. This was later made into law through the FDASIA Act by Congress. However, according to Fox, this directive did not significantly change the economic landscape for drug companies.
Fox stated, “I feel like I’m reliving the same day over and over again.” She then went on to mention a time about 10 years ago when there were severe shortages of chemotherapy and doctors had to limit the amount of care they could provide. She concluded, “It seems like we’re back in that same situation.”