Sen. Warren and Rep. Schakowsky have a plan to fix the generic drug market

Sen. Elizabeth Warren (D-Mass.) and Rep. Jan Schakowsky (D-Ill.) have introduced the Affordable Drug Manufacturing Act, a bold and transformative policy to address the skyrocketing price of prescription drugs by increasing competition in the generic pharmaceutical market.
In 2016, headlines hit the drug corporation Mylan hard about their decision to skyrocket the price of an EpiPen from around $57 to $317. This 461 percent price increase, paired with CEO Heather Bresch’s compensation increasing 671 percent to $19 million, was rightfully met with outrage around the country. This new price, for the exact same product, made it impossible for many families to afford EpiPens. Without an EpiPen, which was invented with taxpayer dollars, a child with a peanut allergy is one poorly labeled cookie away from possible death.

The good news, the public was told, was that Teva Pharmaceuticals was going to ride to the rescue and introduce a “generic” alternative to the EpiPen. This should have been good news for working and middle class families, but it wasn’t. Teva charges $300 for their version, the exact same price as the EpiPen! Why? Because they can.

{mosads}That isn’t how competition works. In a working market, many different companies would be making generics and competing against each other to charge the lowest prices, with consumers benefiting. But drug corporations have created a market failure by forming cartels and otherwise engaging in anti-competitive behavior. One cartel is currently under investigation in 47 states for driving up the prices of over 300 generic drugs and is described by Connecticut assistant attorney general Joseph Nielsen as “the largest cartel in the history of the United States.” The Washington Post reported that ”alleged collusion transformed a cutthroat, highly competitive business into one where sudden, coordinated price spikes on identical generic drugs became almost routine.”

Generic drug companies are critical to a functioning pharmaceutical market, and many of the companies in this space are doing great work producing drugs that people need and selling them at prices that people can afford. But, when Wall Street gets their greedy little hands on the reins of these companies, they mimic the “business model” practiced in the branded pharmaceutical space, price gouging the public for every last penny they can get. Twenty percent of the generic drugs investigated by the Government Accountability Office in 2016 had at least one “extraordinary price increase.”  This is market failure.

The Affordable Drug Manufacturing Act would smash generic drug cartels and otherwise fix the market failures in the generic market. Their legislation would establish a new Office of Drug Manufacturing within the Department of Health and Human Services. When drug corporations charge outrageous prices for generic drugs, this office would authorize the public manufacture of these drugs. They would be priced so that everyone who needed them can get the medicines they need.

Passing this legislation into law is critical for lowering the prices of prescription drugs. The generic drug market supplies nearly 90 percent of prescriptions in the U.S. A single company manufactures 40 percent of generic drugs. This is not a free market, it is a rigged market – designed to benefit pharma CEOs and shareholders at the expense of people who desperately need medication.

The Affordable Drug Manufacturing Act would bring down prescription drug costs for millions of Americans by unrigging the generic drug market, increasing competition and addressing shortages. The new Office of Drug Manufacturing would be authorized to manufacture generic drugs if:

• No company is manufacturing the drug
• Only one or two companies produce the drug, and the price has spiked or the drug is in shortage
• Only one or two companies produce the drug, the price is a barrier to patient access, and the drug is listed as an “essential medicine” by the World Health Organization
• Any drug that has been granted a competitive license by the federal government

The legislation specifically addresses the deadly high price of insulin. Insulin prices tripled between 2002 and 2013. Since 2013, they have doubled. The Affordable Drug Manufacturing Act would require the new Office of Drug Manufacturing to begin public production of insulin within one year. This would be life-changing for millions of Americans. In many cases, it would be life-saving.

It is simple economics: market failure creates the need for government action that improves economic efficiency. That is what The Affordable Drug Manufacturing Act would do by authorizing the public manufacture of generic drugs where drug corporations have broken the market.

Alex Lawson is Executive Director of Social Security Works.