How Reshoring Will Restore the Drug Supply Chain

Drug shortages are a persistent problem, but they don’t have to be, according to Penn’s Ezekiel (Zeke) Emanuel. He believes reshoring drug manufacturing will make America less dependent on fragile foreign supply chains.

Drug shortages are rampant across much of Europe and the United States, where more than 100 medications, from antibiotics to inhalers to surgical sedatives, are currently unavailable. It’s a critical problem that Wharton health care management professor Dr. Ezekiel (Zeke) Emanuel believes can be solved with enough political will. Emanuel, who is vice provost for Global Initiatives and chair of the Department of Medical Ethics and Health Policy at Penn, recently wrote an opinion piece for The Washington Post, advocating for the end of offshoring. He contends that dependence on foreign drug manufacturing has created fragile supply chains that imperil patients. Emanuel, an oncologist, spoke to Wharton Business Daily on SiriusXM about why he believes reshoring isn’t just important for America’s health care, it’s also a matter of national security.

Listen to the podcast above or keep reading for highlights from the interview.

A Pharma Supply Chain Failure

Emanuel blames medication shortages on the outsourcing of drug manufacturing, particularly to China and India, which together produce about a third of the active ingredients in U.S. medications. The number of registered pharmaceutical manufacturing plants in China more than doubled from 2010 to 2019, according to the professor.

Emanuel said foreign manufacturers rely on just-in-time production that doesn’t allow for stockpiling, and they are often forced to shut down because of contamination. He noted a factory near Delhi that was ordered to close last year after the World Health Organization linked the deaths of 70 children in West Africa to a cough syrup found to contain chemicals intended for industrial use.

“Any time a production facility gets contaminated by bacteria or something else that shouldn’t be in the drugs and gets shut down, suddenly we have a shortage,” he said. “That’s a very pernicious cycle. We’re running very close to the edge all the time. Contamination is probably happening too frequently, and we don’t have sufficient capacity.”

How Reshoring Manufacturing Can Help the Drug Supply Chain

Bringing domestic drug manufacturing back home is in the best economic and security interests of the country, Emanuel said. The federal government last year approved billions to boost American production of computer chips for that reason, and the same should be done for pharmaceuticals, he said.

“You can’t have a key component of your economy being manufactured almost exclusively by your chief global antagonist. That’s just dumb, and it’s a real threat to national security. If we’re going to spend hundreds of billions of dollars on defense, we have to think how do we keep the economic engine running,” Emanuel said, adding that production in “like-minded democracies” would be beneficial.

“If we spent billions of dollars building highways for national security during Eisenhower, we should spend billions of dollars, if not more, investing in manufacturing for these pivotal items like basic drugs.”

Emanuel thinks the federal government should offer subsidies or tax breaks to incentivize domestic manufacturing, much like it did for decades when it exempted U.S. territories from corporate income tax. Until that exemption ended in 2006, Puerto Rico was a low-cost production site for many drugs and medical devices, he said.

The cost of reshoring would likely raise drug prices, but he believes those increases would be nominal because they would affect mainly generic medications.

“Most of these generics are literally pennies. The bigger expense is not the actual pill. The bigger expense is what’s called the filling — what you pay to Walgreens or CVS or Rite Aid to actually put those pills in a container, which always struck me as the stupidest thing we could do. Why do we have pharmacists doing that? We should do what most of the world does [and] have these prepackaged and push containers that, by the way, reduce the chance of overdoses.”

Is There Political Will to Fix Drug Supply Chain Issues?

Emanuel believes politicians and the public can galvanize around the issue of reshoring if it’s explained in the proper context.

“Say we need $3 billion a year in tax subsidies. That’s less than 1% of what we spend on drugs in the United States. We’re north of $500 billion a year, so is that too much to spend? No, it’s just not,” he said. “One of the big problems in politics is we don’t communicate clearly what the actual expenditure is. If you’re going to buy no drug shortages, pretty much guarantee you’re not going to have any contamination, and have domestic production both for national security but also to rev up the economy in places that need it like Puerto Rico, that seems like a win-win-win-win-win.”

Emanuel doesn’t fault the drug companies. “They’re mercenaries. This is a transaction. It’s about what’s the cheap place to produce.”

But he’s not sure whether lawmakers can set aside ideological differences for the sake of health care. He said Democrats will worry that giving financial concessions to pharmaceutical companies looks like helping “people who are already robbing you,” while Republicans would be “reluctant to give the Democrats a win” by approving such measures during a Democratic presidency.

“I think it’s mostly politics. I do think we need to reframe this [from a drug cost issue] to a national security issue. Honestly, it’s an anti-China issue. I do think in that frame, you can get some political support.”