Senate Committee: Why Can’t We Label Where Pharmaceuticals Come From?

John Gray, an Ohio State University professor who was one of four witnesses at the hearing, said labeling could stop the “race to the bottom” on pricing that has affected the generic drugs market for years.

“Research and investigative reporting shows that intense cost pressure can affect product quality,” said Gray. Gray worked on a study released last year that looked at drugs from Western labs and Indian labs and found that Indian made drugs had more side effects than drugs made in the U.S.

“From my experience, FDA compliance is difficult enough, so when labs are under pressure to compete on price they can be tempted to overlook relatively small compliance issues and so compliance erodes over time,” Gray said. “I think transparency can change that.”

If the Special Committee on Aging had any legislative authority to advance bills directly to the Senate floor, the Scott bill would easily pass. Instead, this is likely to be handed off to the Senate Committee on Health, Education, Labor and Pensions (HELP), the committee which handles FDA drug regulations and labeling standards. Sen. Bill Cassidy (R-LA) chairs that committee, with Bernie Sanders (I-VT) serving as Ranking Member.

Cassidy has previously supported policies around strengthening domestic drug manufacturing and stockpiles, such as bipartisan legislation in 2021 aimed at improving the Strategic National Stockpile and reducing reliance on foreign supplies – but those bills never became law.

Sanders could be considered CLEAR LABELS-adjacent. Since 2017, Sanders has tried to pass legislation allowing for the easy import of drugs from Canada and Europe, arguing the strategy would directly lower prices and help American consumers.

Back to the new Scott bill, the American Society of Health-System Pharmacists (ASHP) said in the hearing that they support it. Michael Ganio, Senior Director for Pharmacy Quality at ASHP said low prices for generic drugs “make it less likely a company will invest in quality due to price competition. This results in more offshoring to countries with cheaper labor and less rigorous oversight,” he said, adding: “I would be less concerned about quality and more concerned about national security associated with these drugs. The vulnerabilities we have with generic drugs is what is important.”

Senator Ron Johnson (R-WI) raised the question of country of origin labeling being an added cost to the manufacturer, and would that drive up price. He answered his own question.

“Our healthcare is not expensive because of drugs,” he said. “I think consumers would pay more for quality medication so they are not dying from some drug contamination. I do think it will cost more, but not much more, and you get better quality. I wouldn’t believe any manufacturer that says it’s going to increase our costs dramatically.”

One witness brought up New Zealand as a model for labeling and said that it did not increase drug prices in any meaningful way.

The concept of leveling is basically two-fold: it assumes consumers will want to purchase drugs made in an American, or some other Western lab, especially over an unknown company in India or China. And that labeling would also have a quality indicator on the label, meaning doctors will then recommend a higher quality drug.

Most American drugs that have been the source of import restrictions and FDA “warning letters,” which often accompany import restrictions, are made in Asia.

Sen. Ashley Moody (R-FL) blamed shortages of critical drugs on poor foreign inspections in China and India which lead to recalls and import bans. China and India together account for 60% of the supply of active pharmaceutical ingredients globally, she said.

“A study found that 80% of all generic drugs consumed in the U.S. have no domestic source for any of its ingredients,” she added, but did not cite the study.

It could be data found from a recent CPA study.

Last May, CPA economist Andrew Rechenberg published his report on generic drug supply problems in the U.S. – noting that it was China and India that supply between 70-80% of the U.S.’s generic drugs market.

China controls at least 80% of global production for antibiotics. India supplies about half of all finished generic drugs, but relies on China for most of the key starting materials (KSM) to make the API. “America’s drug supply is balanced on a razor’s edge – one break anywhere in the vulnerable foreign supply chain and the entire system buckles,” Rechenberg said.

The U.S. Department of Commerce launched a Section 232 national security investigation into generic drug dependence. The Senate Aging Committee is convinced – and they are correct – that the U.S. is dangerously exposed to foreign chokepoints for essential medicines, with an extremely limited domestic fallback for many critical drugs.

CPA has proposed a Tariff Rate Quota (TRQ) system for generic drugs that would be designed to guarantee supply reliability and signal to corporate investors that they can invest in domestic production without being inundated with imports. There’s also the PILLS Act, a CHIPS Act-like bill sponsored by Sen. Tom Cotton (R-AK) in the Senate and originally by Rep. Claudia Tenney (R-NY-24) in the House.  Democrats and Republicans alike agree on supply chain woes and drug prices and making more critical drugs in the U.S. The next step is to get these bills out of committee and have leadership schedule them for a floor vote.

On the campaign trail, then-candidate Trump said the generic-drug crisis was “not just a public health crisis, it’s a national security crisis.” Trump would likely sign legislation that lowers the cost of generic drugs, and promote domestic labs, including through Sen. Scott’s labeling bill.