By Michael Stumo
January 27, 2021 at 5:00 am ET
Americans are familiar with the drug shortages that became a widespread concern at the start of the COVID-19 pandemic. But the COVID crisis only highlighted an already growing problem. In 2019, the American Medical Association reported 166 shortages of essential medicines in the United States. Similarly, the Food and Drug Administration has published a list of 179 current drug shortages.
This is an ongoing issue and the answer is obvious: Bring pharmaceutical supply chains back to the United States and ensure that safe, quality prescription drugs and their ingredients are made at home.
America’s dangerous dependence on imported drugs has become particularly acute when it comes to the generic pharmaceuticals on which Americans depend each day. These essential medicines make up 85 percent of the prescriptions written each year. Many of these are staple drugs used regularly by consumers, including antibiotics, painkillers, blood thinners and ulcer treatments. However, the prices for these essential medicines are much lower than branded drugs, which means that pharmaceutical suppliers often attempt to maximize profits by shifting production to under-regulated overseas facilities.
Moving drug production offshore has made America’s pharmaceutical supplies less secure. Only 28 percent of the facilities making active pharmaceutical ingredients for Americans are located in the United States. Instead, much of this drug manufacturing takes place in China and India. In fact, the number of Chinese factories producing APIs has doubled since 2010. And even drugmakers in India rely on APIs manufactured in China.
Such import dependence has led to growing safety concerns. In 2008, for example, contaminated batches of heparin blood thinner made in China led to 81 deaths in the United States. And an October 2016 explosion at a pharmaceutical plant in China resulted in global shortages of Piperacillin, a widely-used antibiotic.
This heavy dependence on China for key drugs and ingredients has become a national security issue. The obvious solution is to incentivize drugmakers to rebuild their U.S. production capability — particularly for generic drugs that have been offshored to China and India.
Drugmakers argue that they can’t afford to move manufacturing back to the United States because domestic costs are higher than in Asia. However, this posture obscures some real-world economics. In reality, pharmaceutical industry middlemen have shifted production to China in order to source cheaply — and then drastically mark up prices. These prices are boosted even further during final sales to consumers in pharmacies and hospitals.
An analysis by the Coalition for a Prosperous America found that, once a generic drug leaves the place of manufacture, its price rises by an average of 14 times before it reaches the consumer. This is the result of an entrenched, mostly invisible system of drug distribution in the United States.
In fact, only 7 percent of a drug’s sale price actually goes to the manufacturer. The other 93 percent goes to a profit-maximizing network of middlemen including drug wholesalers, pharmacy benefit managers and pharmacies that apply excessive price markups in every step along the way. This distribution process adds a huge amount of cost but relatively little value.
What this tells us is that “where” an essential drug, or its active ingredients, are made has little bearing on the final price charged to consumers. Americans should be deeply concerned about the hefty costs they’re paying for these drugs, particularly when they can be made safely and efficiently in the United States. Congress must investigate the nebulous arrangements that continue to allow such significant add-on costs.
Realistically, if the manufacturing of essential medicines were reshored to the United States — and even if the manufacturing costs were doubled — the price increase for consumers would be negligible. But the benefits of such reshoring would be enormous in terms of both ensuring safe supplies throughout the nation and creating hundreds of thousands of good-paying pharmaceutical manufacturing jobs.
Congress should act now to reshore production of the essential medicines that millions of Americans use each day. This would reduce excessive dependence on foreign suppliers, increase product safety and grow the economy. Rebuilding U.S. drug manufacturing is simply a necessary step forward for the nation’s future health, and can ensure more reliable, safe medications before another crisis occurs.
Michael Stumo is CEO of the Coalition for a Prosperous America.
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