Washington, D.C. — Shortages of prescription generic drugs, which account for nearly 90 percent of prescriptions, are frequent and can last for several months and at times for years. A new Center for American Progress report examines economic conditions affecting generic drug supply and identifies policy interventions—including a coordinated set of public-private actions—to reduce shortages and avert patient harm.
The structures of generic drug supply and demand both contribute to shortages. The supply of individual generic drugs is characterized by a small number of firms selling products that are very close substitutes, competing on price, and often earning little profit. On the demand side, a small number of group purchasing organizations are dominant wholesale buyers of generics, and their bargaining power exerts additional downward pressure on wholesale prices and manufacturer profits. Together, these economic conditions make supply unreliable and limit normal market self-correction after supply shocks. This increases the risk of harm to patients whose health depends on stable supplies of prescription generic drugs.
The report outlines five key public-private actions to address these market failures in order to protect patients from this risk:
- Identifying a set of priority generic drugs
- Building national inventories of these drugs
- Establishing large-scale nonprofit public-private partnerships to contract for reliable supply of these drugs
- Supporting domestic nonprofit public-private partnerships to manufacture priority generics when needed
- Limiting geographic risks to the supply of active pharmaceutical ingredients and final form drugs
“Policy action, including support for large-scale public-private partnerships to direct demand to reliable low-cost suppliers, or for the creation of reliable nonprofit production, can reduce shortages and help avoid patient harm,” said Marc Jarsulic, senior fellow and chief economist at CAP and author of the report.
Read the report: “Industrial Policy To Reduce Prescription Generic Drug Shortages” by Marc Jarsulic
For more information on this topic or to speak with an expert, please contact Sarah Nadeau at [email protected].