America’s drug bust

TWO FEDERAL AGENCIES on Feb. 14 launched a probe to find the root cause of a problem that Americans might seem least likely to face: a shortage of critical pharmaceutical drugs.

U.S. drug shortages reached a 10-year peak last year, mostly involving generic medications. More than 90 percent of the country’s hospital systems suffered shortages of 15 cancer drugs, including three of the most effective generics—cisplatin, carboplatin, and methotrexate—leading to rationing. Short supplies of hundreds more drugs, particularly generic sterile injectables, antibiotics, and ADHD medicines, often forced doctors to prescribe less effective, sometimes costlier alternatives.

In the notoriously complex pharmaceutical business, industry analysts have struggled to identify the main causes of shortages. The Biden administration’s new probe seeks information from the public about drug marketplace practices that may be contributing to the problem.

Specifically, the probe focuses on middlemen in the medicine supply chain. The Federal Trade Commission and the Department of Health and Human Services want to know if these groups have misused their power to influence the pricing and availability of generic drugs.

Millions of Americans have been affected by the shortages in recent years. Among them was Tampa, Fla., resident Laura Bray’s 9-year-old daughter, who was sitting on an exam table, bracing for her next round of chemotherapy, when the doctor walked in and announced treatment had been suspended. The drug that was needed to kick-start the next cycle of chemo was unavailable.

Bray was shocked: “That felt very preventable. And very cruel.”

The incident ultimately prompted Bray to found Angels for Change, an advocacy group working to connect patients, physicians, and pharmacists to drug supplies. Every day, her staff fields calls from worried people struggling to find the medicines they need.

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Bray said even non-life-threatening shortages can influence quality of life. “If you’re 6 or 7 and you have ADHD and you can’t get your medicine,” Bray said, “you’re not going to learn to read this year.”

Understanding market hang-ups may be key to stabilizing the supply chain, even if not everyone agrees on how to solve the problem. In the United States, six middleman companies—three group purchasing organizations (GPOs) and three wholesalers—dominate the profitable business of buying generic drugs from manufacturers through cut-rate contracts. They also negotiate contracts with pools of healthcare providers, such as hospitals, clinics, and nursing homes. These in turn purchase and supply the drugs to patients.

The middlemen, often labeled “gatekeepers,” exert immense control over drug supplies. Erik Peinert of the American Economic Liberties Project said gatekeepers use “strong-arm tactics to lock providers into contracts that favor [middlemen] and prevent other medical suppliers from even getting in the market.”

Peinert says patients may be used to paying exorbitant prices for branded drugs, but they typically don’t understand how different the generic market is. Unlike branded drugs, generics—which comprise 90 percent of U.S. prescriptions—have no patent protection and very low profit margins. Middlemen push manufacturers to drop prices more, driving off competitors and further squeezing manufacturer profits.

Cheaper generics help consumers—until manufacturers exit the market because they can’t afford to keep producing them.

Peinert says he’d like to see government regulators end financial kickbacks from manufacturers to middlemen, who sometimes pass the windfall through to hospital executives sitting on their boards.

Generic drug company Akorn, which reportedly paid huge middleman fees, went bankrupt last year. That created shortages of the hospital asthma drug albuterol and a lead poison treatment of which it was the sole producer.

Middlemen, meanwhile, cast blame for drug shortages elsewhere, pointing to issues like the unavailability of raw ingredients and quality control problems. In 2022, for example, Intas Pharmaceuticals stopped producing the generic cancer drug cisplatin for a year because of production-line contamination.

Other analysts cite insurance pricing schemes or inadequate Medicare reimbursements as reasons for dwindling drug supplies. Cato Institute’s Michael Cannon said the government should remove trade barriers that prevent U.S. firms and residents from ­buying drugs more readily available overseas.

Laura Bray’s daughter is now 14—a thriving and cancer-free middle schooler. She endured three drug shortages during her two-year leukemia battle, but each time she was eventually able to secure medicine and resume treatment. Bray hopes the same for each patient who calls Angels for Change.

Ironically, Bray said, that starts with consumers demanding higher prices for generic drugs: “We need to be paying more than a cup of coffee for medicine that saves my kid’s life.”