New CPA Report Documents How Hatch-Waxman Act Loophole Led to Offshoring of Generics Production, Price Gouging, and Shortages

WASHINGTON — The Coalition for a Prosperous America (CPA) today released a new academic report that details how a loophole in the Hatch-Waxman Act has led to generic drug shortages in the U.S., offshoring of America’s domestic production of generic pharmaceuticals to China and India, and price gouging by foreign companies in the U.S. The report, titled “Generic Drug Shortages and How a Race to the Bottom in Price has Upended 30 years of Hatch-Waxman,” documents specific generic medicines and foreign companies that have slashed prices or acquired their American competitors to gain a monopoly over the production of one drug, only to gouge U.S. patients by raising prices as much as 2,000 percent once they eliminate their competition.

“For decades, opponents of manufacturing essential generic medicines in the U.S. have falsely claimed that generic competition from foreign manufacturers lowers prices for Americans,” said Rosemary Gibson, author of China Rx and Chairwoman of the CPA Healthcare Committee. “This groundbreaking new report from CPA provides clear evidence that purported competition from some foreign manufacturers can increase the price Americans pay for their generic medicines.”

The new CPA report outlines how reliance on foreign manufacturers, particularly those in China and India where manufacturing quality and oversight standards are poor, has proven to be a major factor in causing shortages, offshoring of U.S. production, and price gouging by foreign producers.

“Authors of the Hatch-Waxman Act intended to create competition, increase innovation, and lower prices for U.S. patients,” continued Gibson. “Instead, a race to the bottom in price triggered offshoring of America’s domestic production of essential generic medicines, widespread illegal price manipulation, shortages of life-saving medicines, and poor quality, unsafe generic drugs. The COVID-19 pandemic revealed that America’s dependence on Chinese and other foreign drug manufacturers is a serious national health security risk that must be addressed. Congress and the Biden administration should implement the policies outlined in this new report to bring generic drug manufacturing back to America.”

“Washington must be laser focused upon achieving a quantitatively defined minimum domestic production capacity for each essential medicine,” said Michael Stumo, CEO of CPA. “This will eliminate the price and supply variability, protect us in times of crisis, and achieve the homegrown manufacturing innovation and capacity that is necessary to ensure American patients get the drugs they need at a reasonable cost.”

Read “Generic Drug Shortages and How a Race to the Bottom in Price has Upended 30 years of Hatch-Waxman.”

Key Findings:

1. The unfortunate reality is that the hollowing out of America’s public health industrial base is largely a result of a loophole in the Hatch-Waxman Act, a 1984 law designed specifically to create more competition in the generic drug market. While the law rolled back some regulatory barriers in order to make it easier for new companies to enter the market, the law’s original intent was never to create a race to the bottom that forced companies to cut corners in order to manufacture drugs for less than the price of a cup of coffee in order to remain competitive. This loophole has been exacerbated and actually eliminated competition in certain cases – leading to these problems. 
2. The U.S. is reliant on imports for at least two-thirds of its generic medicines, and nearly 90 percent of generic Active Pharmaceutical Ingredient (API) facilities are overseas. The majority of those supply chains run through China and, to a lesser extent, India, leaving Americans in a vulnerable position.
3. Nearly half of all generic pharmaceuticals on the Food and Drug Administration’s (FDA) newly created essential medicines list appear in some form on the FDA’s drug shortage list.
4. Reliance on foreign manufacturers, particularly those in China and India where manufacturing quality and oversight standards are poor, has proven to be a major factor in causing shortages.
5. The FDA itself notes that two-thirds of drug shortages are caused by quality issues, and China and India have established themselves as world leaders when it comes to evading FDA regulations and getting deadly, ineffective drugs to American patients.
6. Restricting imports from these manufacturers will likely lead to a drug shortage; failing to do so will embolden the manufacturers to continue selling substandard, unsafe products that can potentially kill American patients.
7. Foreign manufacturers have a long history of slashing prices or acquiring their American competitors to gain a monopoly over the production of one drug, only to gouge customers by raising prices as much as 2,000 percent once they eliminate their competition

Policy Recommendations:

1. The U.S. government must create a reliable source of demand for domestic manufacturers.
2. The U.S. government must use trade remedies to defend domestic manufacturers from predatory policies by foreign governments and manufacturers.
3. Because America’s pharmaceutical industrial base has been so thoroughly depleted, there needs to be some direct financial support to re-establish America as a global pharmaceutical manufacturing leader. 

Read “Generic Drug Shortages and How a Race to the Bottom in Price has Upended 30 years of Hatch-Waxman.”