With a stroke of the pen of the presidential decree, the Trump administration has awarded a $ 354 million, four-year contract to a new company called Phlow located inside the ring road at the end of May. Its mission is to manufacture pharmaceutical ingredients and generic drugs used in the treatment of hospital patients for Covid-19, ingredients that for years have been produced in overseas supply chains, mainly in China and India.
At first glance, the decision seems logical: to secure the national production capacities of these drugs in order to avoid shortages or disruptions in the supply chain, which can be subject to geopolitical changes.
The problem is, it won’t work and will only exacerbate America’s biggest underlying problem – access to affordable prescription drugs today.
The administration and some lawmakers on both sides of the aisle are talking about make it illegal for US drugmakers to source important ingredients from China and force government agencies to purchase only pharmaceuticals made in the United States. Such steps might seem smart to some, but they would require a supply chain overhaul at considerable cost and time – and lessen competition along the way.
The contract awarded to Phlow Corp. by the Biomedical Advanced Research and Development Authority could be extended by six years for a total of $ 812 million, making it one of the biggest prizes in BARDA history. The ingredients Phlow is to produce include a small subset of global manufacturing – and that alone could take 10 years and $ 812 million.
Like Thomas Cosgrove, a former senior FDA official who spent a decade enforcing quality regulations at overseas facilities serving U.S. markets, says STAT, “What would it take for the supply chain to get back to the United States?” It’s simple: it will take decades and billions.
We don’t have decades.
Keep in mind that drug prices in America have been on a steady upward trend, even though drug makers have drastically cut costs by moving ingredient manufacturing overseas. We can guess in which direction prices would go even with a gradual return to domestic production.
There is no doubt that the current economic and political uncertainties brought about by Covid-19 will change the pharmaceutical landscape in one way or another. However, if this pandemic has taught us anything, it’s that affordability is just as important as availability.
The risk of becoming seriously ill or dying from SARS-CoV-2 infection is much higher for uninsured or underinsured U.S. individuals, mainly because of their underlying health issues such as high blood pressure and diabetes which were either poorly treated or not treated at all. There are many effective treatments readily available; too many people cannot afford it. And now there can be 27 million more Americans who will have a hard time doing it.
As much as three years of empty rhetoric and public reprimand large pharmaceutical companies have done nothing to reduce drug prices in America, talking about a shift in production of active pharmaceutical ingredients and finished drugs to a supply chain based in the United States will do nothing to make drugs more affordable or available. Only a pure and fully functioning market, led by informed consumers, can do this.
Take the example of flat screen televisions. As consumers, we have many options at all costs and we have no shortage of information to guide our decisions. Each of us chooses how much we value image size, resolution, sound quality and brand reputation. Whether we choose a $ 100, $ 500 or $ 5,000 model, it’s our choice. Each option will show us the Super Bowl.
Compare that to prescription drugs in America. Too often, people are prescribed a $ 5,000 option when a $ 500 or $ 100 product can effectively treat their condition. For a number of reasons, patients simply have no way of knowing what their options are – there is no transparency about clinical alternatives and costs. To complicate matters, the same drug can cost one person $ 5,000, another $ 500, and another $ 100. The price an individual pays depends largely on a complex system with multiple players negotiate a share of a list price which can be increased at will.
If the world stock or commodity markets functioned in this way, there would be widespread dysfunction, complete mistrust and total inefficiency. Market forces work when they are allowed to operate and when consumers (or traders or payers) have a free flow of information on which to base their purchasing decisions. Shifting – or disrupting – the US pharmaceutical market towards free market principles is the only way to ensure availability and affordability. We need to make drug pricing information transparent and public, and let consumers and payers determine the true value of a product.
The United States is not going out of the global economy anytime soon. There will always be regions that can produce certain things faster, better and cheaper than us. The pharmaceutical supply chain has no production problem. Global market forces keep it high, largely independent of political whims, because business follows money.
Solutions at the stroke of a pen can seem inviting or comforting, especially in a crisis. But complex systems with billions of dollars at stake generally don’t respond well to thoughtless and irrational decisions. The result is always higher costs for everyone. Americans certainly can’t afford the higher prescription costs no matter what the post-pandemic world looks like.
Instead of wasting an enormous amount of time and money moving our pharmaceutical supply chain entirely to American shores, let’s empower Americans to run a free market that really works for them today.
Michael Rea is the founder and CEO of Rx Savings Solutions, a Kansas City-based company that helps employer groups, health plans and their 7 million members navigate the pharmacy system for the best therapies at the lowest costs.