An ‘America first’ pharma supply chain sounds good. But it won’t work

With a stroke of the president’s Executive Order pen, the Trump administration awarded a $354 million, four-year contract to a new company called Phlow located inside the Beltway in late May. Its charge is to manufacture pharmaceutical ingredients and generic medicines used in treating patients hospitalized for Covid-19, ingredients that for years have been produced overseas supply chains, mainly in China and India.

On its surface, the move seems to make sense: secure domestic production capabilities for these medications to prevent shortages or disruptions in the supply chain, which may be subject to geopolitical shifts in the wind.

The problem is that it won’t work and will only exacerbate America’s bigger underlying problem — access to affordable prescription drugs today.

The administration and some legislators on both sides of the aisle are talking about making it illegal for U.S. drug makers to source important ingredients from China, and mandating that government agencies purchase only American-made pharmaceuticals. Such moves may sound clever to some, but they would require overhauling the supply chain at enormous time and expense — and decrease 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 largest awards in BARDA’s history. The ingredients Phlow is tabbed to produce comprise a tiny subset of global manufacturing — and that alone could take the full 10 years and $812 million.

As Thomas Cosgrove, a former senior FDA official who spent a decade enforcing quality regulations in overseas facilities that serve U.S. markets, told STAT, “What would it take the supply chain to come all the way back to the U.S.? It’s simple: It will take decades and billions.”

We don’t have decades.

Keep in mind that drug prices in America have trended steadily upward even as drug makers cut their costs dramatically by moving ingredient manufacturing offshore. We can guess which direction prices would go with even incremental shifts back to domestic production.

There is no doubt the current economic and political uncertainties wrought by Covid-19 will change the pharmaceutical landscape in some way. However, if this pandemic has taught us anything, it’s that affordability is just as important as availability.

The risk of becoming severely ill or dying if infected with SARS-CoV-2 is much higher for America’s uninsured or underinsured individuals, mainly due to their underlying health conditions like hypertension and diabetes having been poorly treated or not treated at all. There are plenty of effective treatments readily available; too many people can’t afford them. And now there may be 27 million more Americans who will struggle to do so.

Much as three years of hollow rhetoric and public scolding of big pharmaceutical companies have done nothing to reduce drug prices in America, talk of shifting production of active pharmaceutical ingredients and finished drugs back to a U.S.-based supply chain will do nothing to make medications more affordable or available. Only a pure, fully functioning market driven by informed consumers can do that.

Take flatscreen televisions as an example. As consumers, we have abundant options at every price point and no shortage of information with which to guide our decisions. Each of us chooses how much value we place on picture size, resolution, sound quality, and brand reputation. Whether we opt for a $100, $500, or $5,000 model, it’s our choice. Every option will show us the Super Bowl.

Compare this to prescription drugs in America. All 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’s no transparency into clinical alternatives and costs. To compound matters, the same medicine can cost one person $5,000, another person $500, and another $100. The price any individual pays depends largely on a complex system with multiple players negotiating a share of a list price that can be raised at will.

If global stock or commodities markets operated in this fashion, there would be widespread dysfunction, complete mistrust, and utter inefficiency. Market forces work when they are allowed to work and when consumers (or traders or payers) have a free flow of information on which to base their buying decisions. Shifting — or disrupting — America’s pharmaceutical market toward 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 a product’s real value.

The U.S. isn’t checking out of the global economy anytime soon. There will always be regions that can produce certain things faster, better, and cheaper than we can. The pharmaceutical supply chain does not have a production problem. Global market forces keep it functioning at a high level, largely independent of political whims, because business follows the money.

Stroke-of-a-pen solutions may sound appealing or comforting, especially in a crisis. But complex systems with trillions of dollars at stake typically don’t respond well to rash and irrational decisions. The result is always higher costs for everyone. Americans certainly can’t afford 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 onto America’s shores, let’s empower Americans to drive a free market that truly 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.