The law of supply and demand is a basic economic principle. The law posits that the greater the supply, the lower the prices. If the supply is limited and the demand remains strong, prices will increase.

The law of supply and demand is demonstrated in the marketplace. Look what happens whenever a disaster strikes the source of a product or its supply chain. The prices of products soar following crops destroyed by a drought, flood or freezing temperatures. During COVID, disruptions in the supply chain created repercussions still evident today.

Shortages and delays in delivery for any product are frustrating, but what happens if the product is a life-saving drug? The demand is constant, but how dependable are the suppliers?

Andrew Heritage on Jan. 1, 2023, writing for the Coalition for a Prosperous America, said the U.S. pharmaceutical imports have skyrocketed in the last ten years with imports from China, India and Mexico leading the surge.

He noted India and China are increasingly the leading U.S. source for generic pharmaceuticals, which account for 90 percent of all prescriptions written in the U.S. China now accounts for 95 percent of imports of ibuprofen, 91 percent of imports of hydrocortisone, 70 percent of imports of acetaminophen, and 40 to 45 percent of imports of penicillin.

Despite leading the world in biomedical research and drug development, the U.S. is no longer the leading manufacturer of pharmaceuticals.

The Food and Drug Administration addressed this fact in a 2019 article titled “Safeguarding Pharmaceutical Supply Chains in a Global Economy.” China has lower electricity, coal and water costs. Chinese firms are embedded in a network of raw materials and intermediary suppliers, and so it has lower shipping and transaction costs for raw materials. It also faces fewer environmental regulations regarding buying, handling and disposing of toxic chemicals, leading to lower direct costs for these firms.

“We Must Break Our Dangerous Dependency on Medication from China,” written by Dr. Brad Wenstrup on July 31, 2023, said millions of Americans rely every day on name brand and generic medications, from antibiotics, blood pressure medicines, cancer drugs and blood thinners originating in China.

He said over a period of decades, China has been able to push competitors out of the global market through a system of exploiting China’s cheap labor and selling pharmaceuticals below market cost due to subsidies provided by the Chinese government. As soon as China effectively eliminated its competitors, the price increased for those medications.

The growing dependence on foreign countries for pharmaceuticals poses a risk to patient safety and national security. After a decade of losing the pharmaceutical manufacturing capability in the U.S., it will be a challenge and require a concerted effort to revive it.

Dan Liljenquist submitted a report on April 25, 2024, titled “A Proven Model to Combat U.S. Drug Shortages,” to the Harvard Business Review. Acknowledging drug shortages have been a chronic problem in the U.S. for more than a decade, Liljenquist said more than 300 essential medications are in short supply.

The good news is the Civica Model is proving this problem has solutions. Its elements include bypassing intermediaries that may contribute to price and supply instability by creating a supplier whose mission is to serve health systems, having hospitals enter into long-term purchase and supply contracts with that entity, and pricing drugs on a cost-plus model.

Liljenquist said Civica Rx is a nonprofit, non stock organization based in Utah and now includes 55 health systems, which account for one-third of licensed hospital beds in the U.S. Civica Rx was founded to provide older but frequently used generic drugs in short supply. Its member health systems have taken steps to mitigate the risk of shortages by changing the way they purchase essential drugs.

This model, Liljenquist said, offers other hospitals or health systems a guide to how they, too, could create and implement a strategy to prevent shortages.

The Civica model has already demonstrated benefits, according to Liljenquist. Twenty of the top 25 drugs Civica manufactures or distributes are currently in shortage nationally, but Civica is able to provide supply without interruption.

There may be other business models available to improve the reliability of our nation’s drug supply. Finding a way to address manufacturing and the supply chain is an important effort. The U.S. demand for pharmaceuticals will remain constant or grow. Securing the supply is the challenge.