What About A ‘Country of Origin’ Label for Pharmaceuticals?

By Kenneth Rapoza, CPA Industry Analyst

The FDA hasn’t inspected nearly 1,000 overseas labs making drugs for the US market due to the pandemic. But that my be the least of its problems. 

We know where our sneakers and cars are made, but not the ibuprofen from the local drug store. Why not use country of origin labeling on pharmaceutical importers, two congressmen asked during an FDA hearing on their drug inspections program – on hold for nearly a year because of Covid.

“I’d be amenable to a grading system or at least a country-of-origin labeling for pharmaceuticals,” Wisconsin congressman Mark Pocan said in the House Committee on Appropriations hearing with Mary Denigan-Macauley, the director of healthcare and private markets at the Government Accountability Office (GAO). 

Pocan cited a New York Times article about medical shortages as a result of our over-dependence on foreign supply chains.

Pharmaceuticals are now the biggest, single product trade gap we have between what we ship to the world, and what we import.

Committee Chairman Sanford Bishop from Georgia started the hearing off by noting that 75 percent of our pharmaceutical inputs (API) and 54 percent of finished doses come from outside our borders. He was basing those numbers off a GAO report released this month. The FDA is responsible for inspecting those facilities, but due to both a lack of inspectors and the pandemic, they have not inspected more than a handful over the last 12 months.

Macauley was on hand on Tuesday to discuss the FDA’s inspection program following a report by the GAO that noted numerous failings in their overseas inspection program. Included were long-known problems such as giving foreign labs as long as 12 weeks to get ready for inspectors, and nearly no punishment – like import bans – for labs that have received warning letters by the FDA inspectors.

GAO has had long-standing concerns about FDA’s ability to oversee the increasingly global pharmaceutical supply chain, an issue highlighted in GAO’s High-Risk Series since 2009.

Jeff Fortenberry, the ranking Republican on the Committee, and a congressman representing Nebraska said the inspection program gave American labs an uneven playing field.

“The 12-week period is enough time to for labs to clean up their act,” he said. “This is an uneven playing field for those trying to manufacturer in the US.  Why has so much moved overseas? To capitalize on low wages and lackluster labor standards in part, but I wonder if US law is encouraging it,” he asked her. “This takes on an extra urgency because of the pandemic.  Made in America should apply more to just our military,” he said. “We are inordinately dependent on API and final products from overseas, and I’d like to see Made in America on our prescription drug products.”

Fortenberry asked her if she could give the FDA a grade, what would it be? She hesitantly gave them a C.

“Over the last 20 years, they have improved,” Macauley said, citing findings in the GAO report. 

Foreign inspections surpassed domestic in 2014-15 for the first time, many of those occurring in India and China now. But since 2016, inspections have declined due to staffing issues. Then in 2020, only inspections deemed “mission critical” took place.

Beginning in March 2020 to the end of the year, the FDA conducted only three foreign mission critical inspections—one each in Canada, Germany, and India. None in China. And none in Ireland and Switzerland, though it is India and China labs that generally get warning letters.

In contrast, during the same time frame in each of the prior two years, the FDA conducted more than 600 foreign inspections.

From the hearing, it seems like the FDA doesn’t even know what the full extent of the labs they should be inspecting, or what companies are subject to inspection because of their contract work with US pharmaceutical importers.

“Some plants have never been inspected, or haven’t been for the last five years,” Macauley said. “They need to clear a backlog so they can go after the riskiest plants.”

None of this sounded positive to a single Committee member on the call.

Fortenberry asked about creating a grading system, whereas companies would be incentivized to be top of the class in order to signal to doctors and consumers that there is no better, safer drug on the market.

“I don’t know if the FDA has done that, but it would certainly help to enforce compliance,” she said.  When asked about a country of origin labeling, she had no comment because she said she had not done any research on whether that word work.

Maryland congressman and medical doctor, Andy Harris, also said the inspection system was disadvantageous to American labs. He wondered how the government could level the playing field and bring back more of the supply chain.

“Giving three months advanced notice on inspections is not acceptable,” she responded. “It’s non-equivalent to what labs are faced with here. Why would you want to build a lab in the US where it is more expensive, you face more scrutiny by the FDA and more environmental oversight than you do overseas?”

Harris asked if the only answer is to admit it “is not going to be a level playing field” and just move on.

Macauley said that new Advanced Manufacturing in the US will reduce the environmental footprint of chemical labs and that reduces EPA regulations. She said that could stabilize existing manufacturing here and could bring some supply back home.

Dan Newhouse, a Washington congressman, asked her where the hypothetical ibuprofen he took this morning came from. “And have they been inspected?” he posed to her.

“I’m a consumer as well and when I go and take a pill I don’t look at where it is manufactured. I just assume that it is safe whether it is a generic or a brand-named drug,” she said. “The FDA has a very important responsibility to make sure they are safe. Drugs, like food, because of the volume, are not always inspected because of the increase of globalization.”

Fortenberry came back at Macauley about origin labeling and a grading system.

“I want to highlight the importance of giving grades to companies,” he said. “Rather than the government solely trying to ensure that companies are conducting safe and clean operations, why wouldn’t a company be so disposed, especially if they are getting a top grade, to ask the FDA to come to them, giving the public an added level of confidence that they are the best in the business? Can that happen in the private sector?”

Macauley said, “It makes sense to offer them a carrot to chase…but I have no specific examples for you.”

As of February 2021, FDA had begun conducting some foreign inspections, but had not set a date for resuming routine foreign surveillance inspections in all countries.

That same month, President Biden signed an Executive Order to research supply chain resiliency, including in critical medication. Trump had done a similar action months ago. The fact we are still focusing on this issue shows its importance to the new administration, but it is time for an action plan.

The federal government should get creative to incentivize domestic manufacturing and reward those who have made a commitment to manufacture product in the US. CPA Healthcare Committee Chairwoman, Rosemary Gibson, penned an op-ed last month suggesting Medicare and Medicaid participation should require the procurement of domestically made essential generics when available; a creative approach to addressing the manufacturing flight of our generics industry.

The answer to address these quality control problems in countries like China and India is to bring home manufacturing. Lets hope a bipartisan consensus in Congress can find ways to achieve this outcome beyond Executive Orders.