Why Cancer Drugs Are Being Rationed The government squeeze on generic profits is leading to shortages.
Politicians like to grouse about high drug prices. Well, now we’re seeing what happens when drug prices are too low: Shortages of essential medicines, which are a portent of what’s to come with the Inflation Reduction Act’s price controls.
Drug shortages aren’t new, but the number in short supply has grown as generic prices have fallen. The American Society of Health-System Pharmacists lists 301 drugs in short supply, up from 202 five years ago. These include many local anesthetics, basic hospital drugs, chemotherapy drugs and liquid albuterol for lung ailments.
The American Cancer Society warned this month that “first-line treatments for a number of cancers, including triple-negative breast cancer, ovarian cancer and leukemia often experienced by pediatric cancer patients,” are facing shortages that “could lead to delays in treatment that could result in worse outcomes.” Healthcare providers say they’re having to limit access to some drugs to the sickest patients. They can substitute therapeutic alternatives when possible, but this increases risk of medication errors and inferior results. What’s going on?
Headlines have focused on shortages of the ADHD drug Adderall and new weight-loss treatments, which owe to increased demand. But most drugs in short supply are older generics that are off-patent and complicated to make. Manufacturers have stopped producing them because profit margins are too thin, resulting in one or two suppliers.
Generic manufacturers typically operate at full capacity and often use one production line to produce multiple drugs. If a plant experiences a quality or cross-contamination problem, an entire production line must shut down, which can affect multiple drugs for months. Other generic manufacturers can’t easily ramp up production.
Fewer branded drugs are in short supply because their manufacturers build more slack and resilience into supply chains. Higher profits give them more capital and a financial incentive to do so. And therein lies the underlying problem: Generic profits have shriveled owing to government efforts to reduce drug spending.
Progressives blame “group purchasing organizations,” which negotiate drug discounts for healthcare providers. As these middle-men have consolidated, they’ve gained more leverage over manufacturers. But they’ve grown in large part because low Medicare and Medicaid reimbursement rates have increased pressure on providers to lower costs.
Mandatory Medicaid rebates have also squeezed generic drug margins. Medicaid is the top payer for many generic drugs. But low reimbursements by government health systems are a global problem, and manufacturers with plants in Europe cut production amid last year’s energy price spike.
The Food and Drug Administration recently flagged problems at a major Indian plant and halted exports. Politicians criticize generic companies for shifting production to India and China to reduce costs, but the alternative for many would be to go out of business, as Illinois-based Akorn Pharmaceuticals did this winter.
Many U.S. and Canadian plants have also closed after quality-control problems, which is contributing to shortages for a bladder cancer treatment, chemotherapy drugs and albuterol, among others. Injectable generics are particularly complicated to make since they involve numerous production steps and ingredients.
The White House is mulling tax breaks for manufacturers to produce drugs domestically, an idea backed by some Republicans such as Florida Sen. Marco Rubio. But this won’t alleviate the immediate drug shortages. And as we saw with baby formula last year, relying too heavily on domestic production can also cause shortages.
It would be impossible to “on-shore” entire supply chains, including production of raw chemicals, key starting materials, active pharmaceutical ingredients, as well as quality testing, formulation, and product packaging and labeling. Manufacturers already perform some finished production domestically, but the U.S. lacks skilled workers to do the rest.
The solution is for government to pay more for drugs, which politicians oppose because it will increase healthcare spending. Instead, they want to squeeze more money out of the pharmaceutical industry, which will exacerbate shortages.
The Inflation Reduction Act requires manufacturers of single-source generics and branded drugs to pay Medicare rebates if prices rise faster than inflation. This limits manufacturers’ ability to pass on rising costs and invest in supply resilience and quality control. Medicare “negotiations”—i.e., price controls—will also shrink brand drug margins.
The unfortunate economic reality is that low drug prices have a cost, and one is that you can’t get cancer treatment when you need it.
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