Race to the Bottom: Hard Bargain

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode above!

Dan Gorenstein (DG): Hey, it’s Dan. Our team is hitting the ground running in 2026. 

We’ll have new stories on rural health, opioid addiction, court-ordered mental health care and more.

You’ll start hearing those stories on January 22. 

This week, we’re back with Race to the Bottom, our special series about the problems undermining the generic drugs we all rely on, and how we could fix those problems.

In the first episode we heard how the modern-day generic drug industry has saved patients and the U.S. health care system trillions of dollars.

In Part 2, we shine a light on key weaknesses in the system, shortages of cancer drugs, companies cutting dangerous corners. 

Stick around to the end for some updates since this episode first aired in 2024.

ORIGINAL STORY:

DG: Welcome to ‘Race to the Bottom,’ our special series on the problems undermining the generic drugs that we all rely on.

40 years ago this month, President Ronald Reagan signed a law, the Hatch Waxman Act, unleashing the potential of generic drugs to make medicine much cheaper for millions of people.

Reagan: So when you add it all up, this bill will provide regulatory relief, increased competition, and best of all, the American people will save money, and yet receive the best medicine that pharmaceutical science can provide. 

DG: These cheaper copies of brand drugs now fill 9 out of every 10 prescriptions in America. Collectively, Americans have saved trillions of dollars, paying less for these drugs, on average, than people in any other major country. But all these low prices have come with some hidden costs.

Marta Wosińska (MW): The way the market is structured is to cut, cut, cut — and something’s got to give at some point.

DG: Today, how all those cuts are coming back to bite consumers and hobble a once booming generic drug industry. From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

*****

DG: Part 2: Hard Bargain 

For nearly all of 2019, Laura Bray and her husband had marched their 9-year-old Abby through a grueling ordeal.

Laura Bray (LB): There are times where they’re so sick, they can’t walk and you’re carrying them into the hospital, and you have to endure this battle because without it, they won’t live.

DG: Their enemy: leukemia. The treatments for the disease sapped Abby of her once boundless energy. She lost hair, missed school and her friends. But those drugs also saved Abby’s life.

By that winter, she was entering a new, final phase of treatment known as the maintenance phase to help cure the cancer. 

LB: If done well, there’s a 92% chance your 9-year-old is going to continue to have all the moments you dream for her the day that you found out you were going to have her.

DG: Laura and her husband were beyond ready to end this trauma for their daughter, but when they arrived at the hospital for one of Abby’s first maintenance treatments, they were shocked. The medication — a decades-old generic called vincristine — was out.

LB: There was no alternative. There was no medicine.

DG: The drug was in short supply all across the country. Doctors told the family even if they managed to get more soon, Abby and any other kids in this final phase of treatment would be at the back of the line. The sickest kids would get priority.

LB: I understand that there are patients who are desperate and as sick as Abby was the day she was diagnosed and they do need it, but having to pick is real hard to swallow.

DG: Laura felt for those other kids but at the same time, Laura was angry. How could this cheap, almost 60-year-old drug be so scarce, be so hard to find?

LB: If we don’t have supply, we ration and we prioritize which, I mean, if it was shoestrings maybe. But in a life saving scenario, rationing and prioritizing means deciding if you or I deserve the medicine more. That is unacceptable.

DG: To put this dramatic and harrowing story into a bit more context, let’s bring in Tradeoffs senior producer Leslie Walker, who’s leading our reporting. 

Hey, Leslie.

Leslie Walker (LW): Hey Dan, good to see you again.

DG: So look, the question we set out to answer with this series is: What went wrong? How did this generic market go from booming in our first episode with everybody excited that competition will save the day to basically completely failing a family like the Brays? 

LW: Right, and after meeting Laura Bray I learned that’s actually the same question she was left asking, too. 

LB: I literally became obsessed with why did this happen? 

LW: And what happened with her family is kind of nuts, but first I do want to say that, today, Abby Bray’s a happy, healthy 14-year-old.

DG: That is great news. I’m really glad to hear that.

LW: I was too. Her treatment actually got back on track within a few days, thanks in part to her mom raising the alarm on behalf of patients across the country, and efforts by the FDA and a drugmaker to speed up extra shipments of the drug.

But the system’s failures left a mark on Laura, who decided five years ago to start this nonprofit, Angels for Change, with a mission to end drug shortages through patient advocacy.

And get this, she was actually already a business school professor. 

LB: I was very comfortable just kind of explaining: how do markets work? How should they work? 

LW: Now, she didn’t know much about drug markets, and specifically the generic drug market, so she starts researching, talking to economists, industry leaders, all the same folks I talked to basically for our story. And she told me she was horrified by what she found.

LB: And every single time I found something, I found that it was more market failure.

LW: Now market failure. Right? Dan? That’s like a classic Econ 101 term. It sounds very abstract. How is this market actually failing? And so I thought it’d be helpful to kind of actually follow the story of this chemo drug that, you know, failed Laura and her family back in 2019, because it’s pretty typical of the kind of problems that we’re seeing today.

So basically for a while, there were two big drug companies making generic versions of this drug vincristine. There was Teva and there was Pfizer.But then in 2019, a few months before Abby hits this shortage, Teva, one of the two companies, decides to stop making the drug. And they say it was a business decision. If you look at their financial reports around that time, it’s pretty clear they’re really struggling with their generics business. Check out industry-wide data from that time and lots of generic drug prices were falling fast.

DG: And Leslie, I’m guessing that prices are falling because the market is working the way it was designed. Basically, you’ve got a bunch more companies entering what is widely considered an attractive business. That means competition gets fiercer and prices drop.

LW: That’s definitely true, and that market also evolved in some tough ways during the 2010s. For example, Teva in those financial reports calls out consolidation among the middlemen who buy all these drugs on behalf of hospitals and pharmacies as this key problem.

DG: Problem because they’re driving an even harder bargain on these already cheap drugs? 

LW: Right, here’s how Christine Baeder, a generic drug executive who worked at Teva during this shortage, put it for me.

Christine Baeder: It was never a big industry of buyers. It was sort of like that big Thanksgiving table. But what happened is it went to the breakfast table in your kitchen. 

LW: And, if you want a seat at that tiny table you’ve got basically take whatever price these big buyers give you.

DG: Got it. So these 500-pound mammoth buyers are driving prices even further down, which is of course great for consumers, but bad news for generic drugmakers like Christine. And that is a little more context for the pressure that Teva felt when they had to decide whether to keep making that chemo drug that Abby and other kids fighting leukemia needed. And as you said, Leslie, Teva decided to jump ship.

LW: That’s right, and Christine told me that’s a pretty common business decision for companies like Teva to make.

CB: So in general, generic manufacturers need to be able to cover their production costs and have a minimum market share to justify continuing to stay in markets. Otherwise, they typically exit.

LW: Dan, I want to zoom out here to give you a sense just how much the industry is shifting. Christine’s talking there about “exits” — generic companies ditching products just like Teva did — well, the number of exits has soared by 40% since just 2022.

DG: That sounds like a serious red flag.

LW: It is. All these exits are kind of like if you’re playing that game Jenga and you pull a block out here and there, that tower starts to get super shaky. And that’s exactly what happened with that cancer drug. 

So Teva, one of the two makers of the drug at the time, they only had 3% of the market. They leave. No one really bats an eye. Then suddenly Pfizer, the only maker left, has this manufacturing hiccup. And bam, you’ve got a nationwide shortage.

News montage: There is a major cancer drug shortage in the U.S. right now // The FDA has declared a shortage of vincristine essential for thousands of children with cancer across the country. // Reports are circulating some doctors have had to ration the drug.

DG: Okay, Leslie so that’s the story with this one drug, vincristine, but what about the other drugs? If companies are making less and less money, I can’t imagine this problem is only for vincristine. 

LW: Yeah, I mean according to the most recent FDA data, there were 125 drugs in shortage in 2023, most of them generics. That’s up about 50% from just a decade ago.

MW: And what’s really disconcerting is that these shortages last longer and longer. The markets don’t really recover.

LW: Brookings economist Marta Wosinska, who’s one of the nation’s experts on shortages, told me they last three years on average now. 

And just to tie this all together for you, Dan, there is a very clear link between the shortages we’re seeing and the prices of the drugs that are in shortage. 

So, just to give you a little pop quiz here, do you want to guess how much a dose of vincristine — that critical drug for childhood leukemia — went for around the time of that outage? 

DG: $15?

LW: Close — it’s actually even lower, though: often under $10. Again, this is for a drug to treat the most common childhood cancer. There’s no alternative for it. 

And you know, the majority of all the products in shortage in 2023 cost less than five bucks a pop. 

Those low prices are, like we talked about, pushing some players out of the game and Marta told me the ones left are on really shaky ground.

MW: If you as a manufacturer have to give the lowest possible price, you’re going to try to cut your costs in whatever way you can. What training do you do? How much maintenance do you do? What kind of manufacturing quality oversight you do.

LW: Marta’s point, Dan, is that something’s got to give under this pressure — and in some ways it already has. Lots of companies have moved their plants to India, where it’s cheaper to produce drugs, many also rely on China for raw ingredients.

Those two moves alone have made the supply chain a lot more fragile. It’s harder for the FDA to inspect, which raises some real quality concerns, and it’s also a lot more vulnerable to all kinds of global problems. 

MW: If we get into a trade war with China, we’re going to be in deep trouble.

DG: It seems like what you are saying, Leslie, is that we’ve got this generic market that’s on hyperdrive and that’s awesome for consumers, insurance companies, the federal government, anybody who pays the bills. I mean who doesn’t love $10 bucks a dose for a childhood cancer drug? But if you can’t get your hands on it, who cares how cheap it is?

LW: Exactly. And that’s why the Brays’ story is helpful in the sense that it helps us understand the stakes here. If the supply chain fails, there are real harms that can be done.

DG: I want to push you on this for a second, Leslie. You and I both know there are classic health care problems that sound terrible, but are not that big of a deal — at least not having that big of an impact on people’s health. Is that the case with shortages on generics? I mean, Abby Bray is 14, she’s doing fine. Like, it all worked out.

LW: It’s a good question. It really depends on the drug. How critical is it? Are there substitutes for it? And how long does the outage last?

At least one study, though, did find these shortages can kill patients. It was this 2011 shortage of a critical drug for treating this really dangerous kind of infection. Patients treated in hospitals that lacked that drug were almost 4% more likely to die.

DG: That’s really scary, Leslie. 

LW: And you know, Dan, I was talking with Iilun Murphy, who heads up the FDA’s Office of Generic Drugs, and she told me of course the agency does everything they can to limit the harms here.

Iilun Murphy (IM): When drug shortages occur, we do jump on them. The staff are incredibly dedicated and really do whatever possible to help mitigate the shortage,

LW: And that’s what they did when vincristine went short to help Abby and those other kids with leukemia. But even with their all hands on deck approach, Iilun made it clear, the FDA still can’t make a company stay in a market. They can’t force pharmacies to pay more.

IM: It is concerning that there’s less and less incentive for generic drug companies to keep producing some of these older products, but how healthy the generic drug industry is, is oftentimes not under our direct control.

LW: And that worry hits home for Iilun, who has a son with special needs.

IM: He was born with a severe congenital heart defect. And so every day he takes six medications and most of them are generic drugs, so I do have very much an appreciation for the availability of generic drugs.

LW: Have you ever experienced a shortage with any of the drugs that he needs?

IM: Fortunately, I have not. But you know, that could happen at any time.

LW: I mean, whether you’re a parent or an FDA director, feeling that kind of at the mercy of these market forces is scary, especially when that market has the potential to save or take a life. 

DG: That goes to show how limited the FDA’s role is. So the natural next question is: If not them, then who?

And just to review here, it sounds like this is one of a few canaries in the coal mine — the doubling of the number of drugs on shortage over the last decade, that shortages are lasting longer than ever before and that these shortages can sometimes increase mortality. And so, you know Leslie, this is one of my favorite questions: Who is doing what about all these canaries singing in the coal mine?

LW: I knew you’d ask that and the good news, Dan, which is quite a few folks in Washington are hearing those canaries loud and clear and they’re taking this problem seriously.

DG: Let’s get into all of that, Leslie, after the break.

BREAK

DG: Welcome back. Before the break, senior reporter Leslie Walker told us about some of the ways the free market for generic drugs is failing, leaving patients like Abby Bray without medications they need to fight cancer, cure life-threatening infections and more.

But Leslie, you also told us that there is good news — that at least some policymakers are taking a serious look at this issue. So, what’s up in Washington?

LW: Quite a bit, actually: five Congressional hearings on drug shortages in just the last year alone. But there is a big asterisk I’ve got to give you, Dan, before you get too excited.

2011 news clip: Hospitals across the country are grappling with a dangerous and growing shortage of critical drugs.

LW: We’ve been here before.

2011 news clip: The shortage of pharmaceutical medicine is now so bad it is a national health care crisis.

LW: And Washington has responded before.

2011 House hearing: This subcommittee will come to order 

2011 Senate hearing: I can only imagine what it is like to tell patients that these life saving treatments are no longer available. It’s a disgrace…

DG: That sounds like right now!

LW: I know! But it’s actually from almost 15 years ago, back in 2011. And Washington spent a lot of energy back then too wrestling with this problem. In the end, their biggest fix was to give the FDA more power to oversee companies’ manufacturing issues and more staff to regulate those companies.

Brookings economist Marta Wosinksa told me, though, that those moves really just nibbled at the edges of the problem.

MW: There was a feeling that this is temporary, that if FDA works with the manufacturers that had these manufacturing quality problems that somehow it will go away. But Congress never really addressed the underlying economic issues.

DG: And Leslie, by economic issues, I’m assuming Marta’s talking about the issues you outlined before the break — the plummeting prices, many products with just one or two manufacturers left.

LW: That’s right.

DG: Obviously, we’ve still got similar problems right now. Has anything changed from the perspective of lawmakers as Washington gears up to take another crack at this 15 years later?

LW: Actually, believe it or not, it has. 

Craig Burton: I would say there’s a lot of promising energy in Washington. I think there’s a bipartisan recognition that something is broken and that they need to address it.

LW: Craig Burton heads up policy for the leading generics industry group known as the Association for Accessible Medicines. Both he and Marta pointed to a draft bipartisan bill coming out of the Senate Finance committee as the most promising sign that lawmakers are really ready to tackle some of the root issues.

And just to give you a sense of how far Congress has come since those 2011 hearings, that Senate committee recently put out a report concluding that “race to the bottom pricing for generic drugs” is “the primary underlying driver of many drug shortages.”

DG: Wait, so do we owe some Senate staffer royalties for our series name? 

LW: No, I mean I’ve lost count of how many different sources used that same phrase with me. But the report’s conclusion is this signal to the generics industry and experts like Marta that lawmakers have a better understanding of the actual problem — that if we want some reliability here, we’ve got to pay for that.

Now, generics executive Christine Baeder knows this may sound self-serving, but she points to what’s happening in the industry. Cutting every cost to the bone comes with real consequences.

Baeder: Ideally, in a perfect supply chain there is redundancy for everything that you manufacture. Redundancy is inefficiency. Redundancy costs money. So unless we make our drugs more than a cup of coffee for a life-saving drug, the redundancy is the first thing that goes so that you can continue to supply at all.

DG: Okay, so what’s this draft bill coming out of the Senate do to pump the brakes on this race to the bottom?

LW: No surprise here: It’s a little complicated, but the biggest thing to know that it does is change how providers purchase generic drugs — at least the ones most prone to shortages. You know, get them focused on more than the lowest price. 

So for example, hospitals would get bonuses from the feds for signing longer-term contracts that lock in prices rather than switching drugmakers as soon as one drops their price, literally Dan, by a few pennies. Here’s Marta again.

MW: If a manufacturer has a long-term contract you really will have an incentive to invest in your supply chain more, to vet your suppliers differently, to make sure that your machinery is properly maintained so you don’t have disruptions.

DG: Basically invest in the kinds of things that could prevent the manufacturing hiccups that cause most of the shortages that we see today while also hopefully convincing the Christines of the world to stay in these shaky markets.

LW: Exactly. 

DG: Okay, and I guess I’m wondering comparing this to what Washington did back in 2011, how much bigger of a swing is this bill?

LW: It’s definitely bigger in the sense that it’s getting at the root cause of these shortages: the money, the incentives. But it’s also got some limits. That bonus payment program, for example, is voluntary. Hospitals don’t have to change their buying behavior. Some industry folks also told me they worry that hospitals will just pocket those payment bumps without actually passing a whole lot onto manufacturers in the form of higher prices.   

DG: Okay, and you said this bill is bipartisan. Does this bigger swing actually have a chance of — not sure how to finish out our baseball metaphor here — reaching base? 

LW: Let’s roll with that. So my sources on the Hill said the Senate Finance Committee is still collecting feedback on this bill and revising it. Plus, given the end-of-year crunch, it’s unlikely to get a vote before 2025. And when it does, Marta and others told me the political optics here could be pretty tough.

MW: There’s so much discussion about drugs being too expensive, and I think what people don’t appreciate is that we really have two different markets. We have branded products on which we’re spending a lot of money and then we have generic drugs for some of which we’re spending too little. And that’s something that I think can be really hard for people to wrap around, because the narrative is all about drugs being too expensive.

LW: There’s a real risk that a politician could be seen, even indirectly, as bailing out an industry that the public doesn’t exactly take pity on. 

But bottom line, Marta said, these drugs are just too important for Washington to ignore and this Senate bill is just the start of a lot more work we need to do to protect our entire generic drug supply. 

MW: Are we prepared for supply chain disruptions from natural disasters? What could happen if there’s a conflict with China? We have not really truly grappled with these kinds of vulnerabilities. 

DG: Last question, Leslie. What does Laura Bray, as a mom, as a patient advocate, make of what’s going on in Washington? 

LW: She’s pleased. She’s glad to see people in Washington taking this more seriously. That said, she knows Washington’s not going to solve all these problems. That’s why she’s running this nonprofit, Angels for Change, that I mentioned at the top of the show.

It’s really, Dan, the country’s only crisis line for patients experiencing drug shortages to help them locate the drugs they need fast. So she really gets it. She sees how big this problem is and knows we’ve got to act. 

LB: We have a moment, but what are we going to do with it now? Are we going to let that moment pass or worse, are we going to pass something that makes us feel good because we did something, but doesn’t actually fix anything, like happened in 2011?

LW: She sees no excuse here. The business professor in her says we made this market and we can fix it.

Bray: This is market forces. There’s no one in the middle like Mr. Burns from The Simpsons saying, “Ha ha ha ha! Abby Bray doesn’t deserve her medicine today.”

LW: Ultimately, Laura is looking at this like a lot of most members of Congress: This is about tweaking the market that we have, not tearing it down. 

DG: Thanks for all that, Leslie. Before you go, can give you the listeners a peek at what’s on tap for our third and final installment of Race to the Bottom? 

LW: Sure. So we’ve talked a lot about the low prices — sometimes too low — that we pay for many generic drugs in the U.S. But we also all know there are a bunch of brand-name drugs that Americans pay far higher prices for than anyone else in the world — million-dollar gene therapies and cancer treatments that top $100,000 bucks a year. And many of these new drugs  are proving tougher for generic companies to copy on the cheap.

Jeremy Greene: This is a fundamental problem of drug affordability in the 21st century. We are not getting the price reduction through generic competition that we need for the most expensive drugs ever produced in the history of mankind. 

LW: We’ll explain why that is and what could be done to bring those prices down further, faster. 

DG: Big problems for big ticket drugs. Leslie, thanks so much for your reporting on this.

LW: You’re welcome, Dan.

UPDATE:

Over the last year or so, Congress has held more hearings about America’s vulnerable supply of generic drugs.

But lawmakers have taken little action.

That promising bipartisan bill in the Senate stalled out. 

The FDA has lost key inspection staff, raising new concerns about drugs made abroad.

As for Laura Bray, her group Angels for Change is still plugging holes in the supply chain.

Just weeks after this story first ran, a hurricane knocked out America’s biggest producer of IV fluids.

Laura got busy helping hospitals find supplies.

She’s still waiting, she says, on a lasting fix from Washington, one that “addresses the economic forces that helped create this crisis, head on.”

I’m Dan Gorenstein. This is Tradeoffs.