Don’t let Elizabeth Warren ruin the generic drug market

On Dec. 18, Sen. Elizabeth Warren, D-Mass., introduced the Affordable Drug Manufacturing Act. The bill would create an Office of Drug Manufacturing to produce and sell generic medications. Warren hopes this government entity would solve “market failures” — her term for generic drug shortages and steep price hikes on off-patent medicines.

The plan is absurd.

The federal government has no business operating a drug manufacturer. If federal officials want to expand access to generic drugs (a worthy goal) they should harness the power of free markets.

Within one year of the bill‘s passage, the Office of Drug Manufacturing would start producing 15 generic drugs selected on three criteria: no firm currently produces a generic version of an off-patent drug; fewer than three companies produce the generic version and there is either a shortage or price hike; or fewer than three companies manufacture a drug on the World Health Organization’s essential medicine list yet its price prevents some patients from accessing it.

Certainly, there are shortages of some generic drugs, and some companies have raised prices.

But Warren is blowing the problem out of proportion. Generic drugs account for 90 percent of all prescriptions sold, yet comprise less than a quarter of total drug spending. The average co-pay for a generic prescription is just $6 — less than a Chipotle burrito. More than nine in 10 generic prescriptions cost $20 or less.

A federally owned manufacturer could result in private companies abandoning the market, which would, ironically, exacerbate shortages. Encouraging private-sector competition is a smarter and more efficient way to drive down prices.

Fortunately, FDA Commissioner Scott Gottlieb is working to promote such competition. In January 2018, he introduced reforms to speed up the generic drug approval process. A faster, less expensive approval process incentivizes more manufacturers to produce more low-margin generics, thereby preventing shortages and price gouging.

Thanks to these changes, the FDA approved a record number of generic drugs in fiscal year 2018.

We don’t need to establish a government drug manufacturer. We just need government to remove the red tape that causes market failures and support true competition in the marketplace.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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