Historic Drug Shortages Persist Through 2023

Bradley Intelligence Report

Client Alert


Since the spring, historic drug shortages have been straining hospital budgets, disrupting patient care, commanding the attention of the White House and Congress, and rising to the level of what some experts consider a public health emergency. New drug shortages increased nearly 30% from 2021 to 2022, affecting over 300 medications by fall of 2023. Generics of many of the most common oncology and chemotherapy drugs are in short supply, as well as medications for ADHD, popular new medicines for diabetes and weight loss, and a widely lauded new treatment for respiratory syncytial virus (RSV). As winter approaches and seasonal illnesses become more common, the impact of common generic drug shortages alongside longer-standing drug shortages will significantly strain the healthcare system with consequences for individuals and businesses.

Supply and Demand Issues

Supply-side issues have typically dictated drug shortages in the U.S., and experts say that the current market is an especially difficult one for domestic generic drugmakers. One of the key drivers of current drug shortages is fierce competition to cut costs by winning drug contracts with one of few intermediary generic drug purchasers, just three of which account for 90% of the country’s generic purchases. For drugmakers, the limited availability of contracts encourages producers to cut profit margins to their bare minimums, endangering long-term business viability and thus the overall strength of the domestic production sector. When generic drugmakers do not win a contract, they often simply cease to produce the drug in question, making the entire U.S. pharmaceutical supply chain shallower and less resilient. Continued cost-cutting can spell the end of individual drugmakers; for example, large U.S. generic producer Akorn Pharmaceuticals folded last spring and subsequently issued a recall for all of its remaining stock, as it did not have sufficient staffing to respond to quality concerns. Akorn’s closure decimated a significant chunk of the country’s generic drug supply, including half of the country’s albuterol, an essential medication that hospitals use to treat asthma and RSV in children, among other treatments. Additionally, race-to-the-bottom pricing incentivizes cost-cutting measures that can result in drugmakers cutting corners on quality issues, which, when discovered, cause huge disruptions. For example, FDA inspections of several India-based generic drugmakers in recent months have led to recalls and surprise shortages of drugs such as generic chemotherapies and eye drops.

While supply issues usually drive drug shortages, unpredictable spikes in consumer demand have contributed to the high-profile shortages this year. Some of these shortages have been because these drugs are novel in the pharmaceutical market, creating unprecedented demand despite efforts by producers to estimate demand. The headline instance of this is global shortages of blockbuster new diabetes and weight loss injectables, a result of these drugs being widely prescribed for diabetes, as well as for off-label weight loss purposes. Drugmakers and governments have tried several tactics to increase supply, such as imposing stricter prescription guidelines, suspending advertising and even considering export bans. Another example of a new drug entering shortage is the newly approved generic antibody treatment nirsevimab, which is designed to treat and prevent RSV in infants. The antibody treatment has proven so popular that hospitals have struggled to keep it in stock.

In addition to unexpected demand for new drugs, social media and increased awareness around existing health issues have driven up demand for previously ample pharmaceuticals. A shortage of medication for ADHD, for example, was initially caused by a manufacturing delay at one pharmaceutical company, but has persisted for a variety of reasons, including increased attention to behavioral health issues driving more people to seek diagnosis and treatment. Compounded by prescription restrictions related to the opioid crisis and controversy over the Drug Enforcement Agency’s power to set limits on industry-wide production of amphetamines, which some say have depressed ADHD medicine production, the shortage has continued for over a year. Meanwhile, minoxidil, the active ingredient in Rogaine, briefly went into shortage earlier this year following a viral New York Times story that spiked its popularity for people dealing with hair loss.

Potential Impacts and Solutions

The potential impacts of drug shortages are myriad – from the individual (like having to visit several pharmacies to find ADHD medication) to the national (like negatively impacting geopolitical relationships). Domestically, drug shortages are a significant drain on hospital budgets: An analysis in 2019 estimated that the annual labor cost of drug shortages to U.S. hospitals is about $360 million in overtime, as providers scramble to find medicines or substitutes, and in increased drug costs, as hospitals must pay a premium for short-notice, short-term contracts or formulate their own microbatches on-site.

On a broader scale, lawmakers and government officials are beginning to describe U.S. drug shortages as a legitimate national security threat. Domestic generic drug-making capabilities are increasingly being outsourced to foreign countries, leaving the U.S. more dependent on international producers, with as much as 90% of generic drugs produced overseas. China, for example, has essentially cornered the global market on antibiotics, controlling 90% of the world’s supply. By comparison, the U.S. has just one plant producing penicillin-derived antibiotics, and that was closed for several years before reopening in 2021. The largest player in producing other generic drugs is India, a country with which the U.S. has forged increasingly warm relations on all fronts. However, the concentration of drug-making capabilities in China, India, and Southeast Asian countries, where labor and materials are cheap, leaves the supply chain vulnerable to political unrest, natural disasters, and deteriorating bilateral relationships.

The generic drug-making industry is complex and highly regulated, limiting options for short-term fixes. While hospitals and individuals have made do with labor-intensive searches to locate doses on an individual basis, policymakers and industry experts say that more comprehensive solutions are necessary. Bipartisan members of Congress have drawn attention to the issue, and various experts have proposed solutions such as creating exchanges for providers to source and trade generics, reconsidering the powers of intermediary drug purchasers, creating federal incentives for hospitals to purchase supplies of generics at fixed prices for multiple years (stabilizing revenue for producers), and expanding government drug plans to encourage the use of new generics, which are currently not incentivized by market structures. In the meantime, businesses and individuals will continue to feel the bite of drug shortages, leading to compromised health outcomes, decreased productivity, and increased costs.