American Drug Shortages

Prices get the lion's share of attention, but availability is the other jinx of pharmaceuticals:

https://www.realclearhealth.com/articles/2025/05/30/a_bitter_pill_to_swallow_american_drug_shortages_1113601.html

A Bitter Pill to Swallow: American Drug Shortages
By Kirsten Axelsen - May 30, 2025

While drug pricing has been a consistent focus for policymakers concerned about access to medicine, another significant barrier to care has grown: drug shortages. Drug shortages have become more prevalent, with causes ranging from problems at manufacturing facilities, compliance with regulation to unpredictable demand. An insufficiently profitable market, particularly for complex generic medicines, discourages investment in capacity and entry into the market. For health and long-term cost containment, averting drug shortages and restoring robust generic competition should be a focus for policymakers. This includes careful consideration about the impact of tariffs and evaluating practices of government pricing rules in Medicaid and private group purchasing organizations (GPOs) that are making generics markets unsustainable.

Between 2015 and 2024, the amount of annual drug shortages nearly doubled. 84 percent of all shortages from 2017-2023 involved generics, ranging from IV fluid to oncology treatments.

Having a reliable supply of medicines depends on a network of manufacturers willing to invest in the sterile infrastructure and to comply with regulations. Generic medicines are a low-margin and volatile business. Policy that affects the narrow window of profitability, including low reimbursement or tariffs, discourages investment in generic manufacturing. Complex, harder to make, medicines such as those for serious infections, cancer and for use in surgeries are at a particular risk of being discontinued when profitability declines.

Drug shortages are caused by many things: manufacturing complexity, reimbursement, rebate policies, and purchasing practices among intermediaries such as GPOs and pharmacy benefit managers (PBMs). Drug shortages are not inconveniences – they impede the delivery of medically necessary care. Shortages force hospitals to ration medical supplies and delay care, intensifying disease progression and worsening quality of life. One analysis found 71 percent of providers could not provide “drugs of choice” to patients because of shortages, and were forced to provide alternative treatment or delay treatment altogether. These types of delays are costly to health, and are a particular tragedy when considering many medicines in shortage cost only a few dollars. Prices for generics have been pushed low by market competition, and purchasing practices by private GPOs and the government. This is good for saving money in the short term, but not good for attracting investment in the sector.

A significant portion of the U.S. market has regulations that don’t allow prices to fluctuate back up if they are driven down, even if demand significantly outstrips supply and companies are exiting the market. This includes in Medicaid where a manufacturer is required to pay a rebate back to the federal government for prices above a previously established level, even if the drug is a low cost generic and other companies are exiting the market. This interferes with the typical market mechanism where prices tend to go up in a shortage to attract new suppliers, suppliers enter and prices come back down; with inflation penalties prices stay low and shortages persist.

Other pressures on the supply of generic drugs lie outside of federal price regulation. GPOs have the important responsibility of purchasing medical products in bulk for hospitals, clinics, and other providers. Combined, GPOs and PBMs were responsible for over 90 percent of all generic drug purchases in 2018. GPOs often prefer large suppliers with cost efficiency and low prices, and can establish contracts that lock in prices. This can save costs and increase efficiency for the purchasers, but can also block out competition from smaller providers.

In the 118th Congress, the Senate Finance Committee (SFC) and House Committee on Energy and Commerce introduced proposals aimed at reducing shortages. These and other approaches to strengthen manufacturing capacity for complex medicines should be considered as a priority for national safety and health. Although there have been fewer annual drug shortages in the past year, potential tariffs on biopharmaceuticals or other products needed to develop and manufacture medicines are another risk to the supply of critical treatments, including generics.

The U.S. healthcare supply chain is highly interconnected, and globally integrated. Ingredients are manufactured around the world, imported and exported to and from the U.S. The FDA, wholesalers, pharmacies, drug companies, hospitals and doctors all rely on each other to ensure there is a reliable amount of safe and approved drugs. By encouraging resiliency measures through targeted policy solutions and incentives that ensure the market remains profitable for the manufacturers willing to invest in facilities that comply with FDA regulations, the U.S. can establish a robust and more resilient drug market that is good for health and for the economy.

Kirsten Axelsen is a Senior Policy Advisor at Charles River Associates, a visiting scholar with the American Enterprise Institute, and an Aspen Institute Health Innovator Fellow. Axelsen also consults for biopharmaceutical companies.