Why do hospitals keep running out of generic drugs?

Summary

Planet Money: Why Do Hospitals Keep Running Out of Generic Drugs?

Podcast Title: Planet Money
Host/Author: NPR
Episode: Why Do Hospitals Keep Running Out of Generic Drugs?

Introduction

In the latest episode of Planet Money, hosted by NPR, the persistent issue of generic drug shortages in hospitals is explored in-depth. These shortages pose not only logistical challenges for healthcare professionals but also serious risks to patient care across the United States.

The Personal Impact: Jared Sibit’s Story

The episode opens with Sally Helm introducing Jared Sibit, a nurse with 14 years of experience in emergency, ICU, and flight medicine. [00:24]

Jared Sibit:
"I've been working in emergency and ICU and flight medicine for about 14 years now."
[00:34]

Sibit recounts the frequent shortages of common, inexpensive drugs essential for treating conditions like nausea, anxiety, infections, and pain. He describes a whiteboard at his hospital perpetually marked with the names of out-of-stock medications, including ondansetron, epinephrine, lorazepam, and ceftriaxone. [01:53]

Sibit:
"It has been so constant. New ones don't even register unless the shortage lasts more than a few months."
[01:53]

The Scope of the Problem

These shortages are not isolated incidents but a widespread issue affecting hospitals nationwide. When a generic drug runs out, healthcare professionals like Sibit must devise improvised solutions, such as substituting IV dextrose with a solid form of sugar or diluting epinephrine concentrations, which introduces additional risks and complexities in critical situations. [02:10] - [03:10]

Helm:
"Trying to do that kind of math while someone is in cardiac arrest. It does not sound like a good situation."
[03:10]

Root Causes of Drug Shortages

Manufacturing Challenges

The episode delves into the complexities of producing generic sterile injectables, which are high-stakes, cost-sensitive medications requiring stringent sterile manufacturing environments to prevent contamination. [06:13] - [08:09]

Marta Vosinska, Senior Fellow at the Brookings Institution:
"These drugs are made in super sterile factories. It's expensive. There's really no room for error."
[08:24]

Issues such as factory closures, recalls due to contamination, and stringent FDA inspections often lead to supply disruptions. [08:44]

Economic Dynamics and Pricing Issues

A critical factor is the low profitability of generic sterile injectables. Ned McCoy, running the nonprofit Civica Rx, explains that these drugs are generally cheap, making the market unattractive for manufacturers.

Ned McCoy:
"They tend to be older, and they tend to be really cheap, and other people have quit making them. I don't recommend it."
[11:31]

The low prices result from intense competition, especially after generics enter the market post-patent expiration. However, as more manufacturers enter, prices drop, often to unsustainably low levels where maintaining production becomes economically unviable. [12:10] - [13:13]

McCoy:
"It's on the market. It's a proprietary drug. Novo owns all the patents. When the patent expires, several generic companies do the development to do their own generic injectable."
[12:21]

Group Purchasing Organizations (GPOs)

Hospitals often join Group Purchasing Organizations (GPOs) to leverage collective buying power, securing lower prices from manufacturers. While beneficial for cost-saving, this practice intensifies price competition, pressuring manufacturers to reduce prices further or exit the market. [20:03] - [21:03]

Marta Vosinska:
"They negotiate contracts on behalf of hospitals, not just for drugs, but for gloves and beds and just anything that a hospital buys."
[20:16]

Impact on Healthcare and Patients

The cyclical nature of these shortages means that hospitals frequently scramble to find alternatives, often resorting to suboptimal substitutes that can compromise patient care. Long-term shortages disrupt consistent treatment protocols and can lead to increased mortality rates. [06:50]

Sibit:
"This has been a part of healthcare as long as I've been there. We've had rolling drug shortages... it's been so constant."
[01:27]

Proposed Solutions

Enhancing Supply Chain Resilience

Marta Vosinska suggests redefining incentives for both manufacturers and hospitals to prioritize reliability over sheer cost.

Vosinska:
"There is a gap, that hospitals could be doing more, paying attention to it more."
[23:38]

Her proposal includes:

1. Incentivizing Hospitals: Reward hospitals for purchasing from reliable manufacturers, allowing these manufacturers to charge higher prices that ensure sustainable production.
2. Government Intervention: The government could provide financial support to upgrade manufacturing facilities or maintain larger stockpiles of essential drugs.
3. Improved Information Systems: Hospitals need access to accurate information about manufacturer reliability to make informed purchasing decisions.

Nonprofit and Legislative Initiatives

Civica Rx represents a non-profit approach by committing to long-term contracts and focusing on stable, reliable drug production without prioritizing profit margins.

McCoy:
"They have built their own sterile factory to make these generic sterile injectable drugs."
[10:58]

Additionally, proposed legislation aims to modify market incentives to encourage manufacturers to maintain production of low-cost generics.

Conclusion

The episode concludes by highlighting the systemic issues within the drug supply chain, where economic incentives, regulatory frameworks, and purchasing practices collectively undermine the stability of essential generic drug supplies. Vosinska emphasizes the disparity between the value of supply resilience to patients and the collective willingness to invest in it.

Vosinska:
"There is a value to resilience. And I think the value of resilience to patients is much higher than the willingness to pay for resilience by all the other stakeholders."
[27:20]

Helm:
"It's just hard to get people to prioritize the long term health of the system. And as Marta is saying, the people who are really hurt by that are the patients, all of us."
[27:42]

Notable Quotes

• Jared Sibit:
  "This has been a part of healthcare as long as I've been there. We've had rolling drug shortages of different medications at different times and for seemingly different reasons."
  [01:17]

• Ned McCoy:
  "They tend to be older, and they tend to be really cheap, and other people have quit making them."
  [11:31]

• Marta Vosinska:
  "When you look at the actual financial implications for hospitals and you compare it to the life and death consequences that it could have for patients... There is a gap."
  [23:54]

Final Thoughts

The persistent shortages of generic sterile injectables in hospitals reveal a complex interplay of economic pressures, regulatory challenges, and systemic weaknesses in the healthcare supply chain. As Planet Money unpacks these layers, it becomes clear that resolving this issue requires coordinated efforts from government bodies, healthcare institutions, and the pharmaceutical industry to realign incentives towards ensuring reliable and affordable drug supplies for all patients.

Transcript

[Alexi Horowitz Ghazi]

This message comes from solidigm. Yesterday's approach to storage can't meet the demands of today's AI ambitions. Bigger, faster and more energy efficient Solidigm solid state storage solutions are optimized for AI. Learn more at storageforai.com this is Planet Money from NPR.

[Sally Helm]

I recently talked to a nurse who has been facing a medical economic mystery. His name is Jared Sibit. He lives in the Mountain West.

[Jared Sibit]

I've been working in emergency and ICU and flight medicine for about 14 years now.

[Sally Helm]

What's flight medicine?

[Jared Sibit]

Transport medicine. So some days I'm on a helicopter, some days I'm on a fixed wing aircraft. It's unpredictable. I guess you could get somebody who fell off a cliff and broke their leg. You could get a bear mauling. So it keeps me on my toes.

[Alexi Horowitz Ghazi]

Jared spoke to us unofficially, as in without clearance from his higher ups. So we're going to leave the name of his hospital out. But he works with a mid sized regional medical center. And Jared's problem, his medical economic mystery, it actually affects nurses all over the country. Drugs that they use to treat patients every single day are sometimes just not available.

[Jared Sibit]

This has been a part of healthcare as long as I've been there. We've had rolling drug shortages of different medications at different times and for seemingly different reasons.

[Sally Helm]

Often this is happening to the cheapest, oldest, most common drugs, things Jared is routinely using to treat nausea or anxiety or infections or pain. He said there's a whiteboard at his work where someone writes down the names of the drugs that have run out and there is always something on it. I asked him, over the course of his whole career, what drugs have been on the list.

[Jared Sibit]

Uh, ondansetron, epinephrine, lorazepam, ceftriaxone. It's hard to even keep track of a list just because it's, it's been so constant. New ones don't even register unless the shortage lasts more than a few months. Because we're so used to having shortages at this point.

[Sally Helm]

When a drug shortage happens, Jared and his colleagues will figure out a workaround. Like sometimes you can't get dextrose. That's basically just sugar water used to help people with low blood sugar. But if you don't have IV dextrose, there is a sign, solid form of sugar that you can squirt into someone's mouth. Jared said it's basically cake frosting. It isn't perfect, but it works.

[Alexi Horowitz Ghazi]

But sometimes the workarounds can be really difficult. Like with epinephrine used in EpiPens, but also on a crash cart to revive patients in cardiac arrest. You need a specific concentration of epinephrine to do that, and sometimes you can't get it. So then you try to dilute some other concentration to revive the patient.

[Jared Sibit]

We just have the one big bottle, and you've got numbers, you know, scribbled on the side of it reminding you how to do the right dilution depending on the size of your patient. And. And you're doing a lot of math. Is this one to 1000 or is this one to 10,000? Am I giving 1mg per kg or am I giving 0.01mg per kg?

[Sally Helm]

Trying to do that kind of math while someone is in cardiac arrest. It does not sound like a good situation. And I will say, like, to Jared, this is kind of a fact of life, but to me, this whole situation sounds truly insane. I did not know that this was going on behind the scenes at hospitals.

[Alexi Horowitz Ghazi]

Yeah, this is really scary. And for his part, Jared has gotten so fed up with this shortage situation that he wrote us an email here at Planet Money because all of this offends his sense of reason.

[Jared Sibit]

This is like week one of economics, right? This problem is a solvable problem in a free market. And the simpler the drug is, the more upsetting the feeling is salty water and sugary water that's, like, as old as time. So could we please just fix that already?

[Alexi Horowitz Ghazi]

Yeah. The recipe for salt water is not complicated. Right. And we need it in these life and death situations. It really feels like somebody should have solved this by now. Like, what is even happening?

[Sally Helm]

We told Jared we would try to figure it out. Hello, and welcome to Planet Money. I'm Sally Helm.

[Alexi Horowitz Ghazi]

I'm Alexi Horowitz. Ghazi. In a market economy like ours, shortages are a puzzle. Laws of supply and demand should basically solve them. But for some of the cheapest and most common drugs around, shortages have become a fact of life.

[Sally Helm]

So what is going on here? Why have the basic economic dynamics failed to solve this problem? And what can be done to fix it?

[Ira Glass]

This message comes from Apple Card. Apple Card is the perfect card for your holiday shopping. When you use Apple Card on your iPhone, you'll earn up to 3% daily cash back on every purchase, including products at Apple like a new iPhone 16 or Apple Watch Ultra. Apply now in the wallet app on your iPhone. Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City branch terms and [e-mail]. this message comes from Grammarly 88% of the work week is spent communicating, so it's important your team gets it right. Enter Grammarly Grammarly's AI helps teams communicate clearly the first time. It goes beyond basic grammar to help teams instantly create and revise drafts in just one click, all without leaving the page they're on. Join the 70,000 teams and 30 million people who use Grammarly to move work Forward. Go to Grammarly.com enterprise to learn more Grammarly Enterprise Ready AI all right, so.

[Alexi Horowitz Ghazi]

To recap, we got an email from a Planet Money listener, a nurse who told us that cheap common drugs that hospitals use every day are constantly running out. And he asked, why is that?

[Sally Helm]

Finding the answer to this question took us on a long, convoluted journey. Healthcare, as you may have heard, is complicated. The economics get kind of strange. Thankfully, early on, I found a very helpful guide. When I first started making calls about drug shortages, one name came up over and Marta Vosinska.

[Marta Vosinska]

Yeah, well, I have been looking at these issues since 2011 and at the time I was at the Food and Drug Administration and so I was pulled into the drug shortage crisis.

[Alexi Horowitz Ghazi]

Marta is a health care economist. She's now a senior fellow at the Brookings Institution, a think tank. In 2011, when she was at the FDA, the drug shortage cris really bad. And 13 years later, it still is. In some cases, chemotherapy drugs run low that can interrupt treatment. Studies have found that drug shortages hurt patient outcomes, that patients can even die.

[Sally Helm]

Marta has been studying all of this for more than a decade and she told us the majority of shortages are happening with one particular kind of drug. They are called generic sterile injectables, usually administered in hospitals. Almost all the drugs that Jared told us about are in this category, like IV fluids are generic sterile injectable. This kind of drug is super common.

[Marta Vosinska]

I recently did an analysis looking at basically what share of patients that go to a hospital get a generic sterile injectable of some sort. And the answer was in the upper 90s.

[Sally Helm]

Upper 90s, almost everyone who ever goes to a hospital gets one of these drugs.

[Marta Vosinska]

That's right.

[Alexi Horowitz Ghazi]

So we are focusing on those drugs today and there are three words here, all of them important to understanding this story. Number one, generic. That means these are older drugs that are not protected by patents. Anyone can make them. Number two, injectable. These drugs are liquids that are administered through a syringe or an IV bag, not pills. And that brings us to word number three. Because these drugs get injected straight into our veins, they have to be sterile, don't Want any bacteria or viruses sneaking in there.

[Marta Vosinska]

There have been problems where there were metal shavings or glass particles.

[Sally Helm]

Oh, my God.

[Marta Vosinska]

You do not want to have these contaminants in these products. Right.

[Sally Helm]

You absolutely do not. No, we do not want to be injecting metal shavings right into our veins. So these drugs are made in super sterile factories. It's expensive. You know, there's like bazillions of miles of piping involved. There's really no room for error.

[Alexi Horowitz Ghazi]

And that brings us to kind of the first explanation for these shortages. A lot of times the immediate cause is a factory closure or a recall or a manufacturing problem, because, like, if you find some bugs in your clean room, you gotta stop and figure out where they're coming from. And a lot of the violations the FDA has found over the years, they are a lot worse than that.

[Marta Vosinska]

I don't even want to tell you what FDA inspectors found in some of these facilities because.

[Sally Helm]

Oh, I almost don't want to ask, but will you tell me one like that gives you nightmares?

[Marta Vosinska]

A bucket of urine in the corner?

[Sally Helm]

No.

[Marta Vosinska]

Why they didn't want to go to another. I don't know. Don't ask me. But that was. That was.

[Alexi Horowitz Ghazi]

Okay. So a lot of times these shortages are coming after the FDA does an inspection and finds a bucket of urine or whatever. And of course, like, we could say the FDA won't do inspections. People can just run their factories however they want. That could mean fewer shortages.

[Sally Helm]

Right. That is an argument. But like, of course, we can also see the other argument here. Like, it's good that the FDA does inspections. We don't want metal shavings in our veins. And also, there is still a mystery here, because this kind of shortage should be temporary. When a drug runs low, other manufacturers should see an opportunity to make money and they should swoop in and start making this drug themselves. And sometimes that does happen. You know, there'll be a problem at a factory, a couple of drugs start to run low, other people make them, then the factory gets back online, things get back to normal. But Marta says that doesn't seem to be the full story. For one thing, some of these shortages are lasting a long time.

[Marta Vosinska]

And if you look at some of the more recent data on how long shortages last, it's three years. The markets don't adjust very easily.

[Alexi Horowitz Ghazi]

And also, like, we know from Jared that these shortages have been happening over and over for years with all different kinds of sterile injectables.

[Ira Glass]

Yeah.

[Sally Helm]

So why does this keep happening time and time again? Why isn't supply bouncing back, as we would hope. Hope it would? Why aren't manufacturers stepping up, making more of these drugs?

[Alexi Horowitz Ghazi]

One part of the explanation is just it is hard to build one of these factories. It's also not totally easy to switch from making one drug to making another. But there's a bigger answer here. To understand it, you gotta focus on something that so far, we haven't talked about a lot, and that is the word generic. These drugs that we're talking about are generic sterile injectables, meaning they are not under patent. Any manufacturer can make them if they want to.

[Sally Helm]

And yet, oddly, for a lot of the drugs that have had shortages, there are not a ton of manufacturers. There are like, one or two. And to understand why, I talked to Ned McCoy. These days, he runs a nonprofit called Civica Rx that wants to combat drug shortages. That nonprofit has actually done this difficult, expensive thing. They have built their own sterile factory to make these generic sterile injectable drugs. And Ned told me, look, generic sterile injectables, they are generally not great business.

[Ned McCoy]

They tend to be older, and they tend to be really cheap, and other people have quit making them.

[Sally Helm]

So if I'm a person who wants to make money, you actually don't recommend this business?

[Ned McCoy]

No, I don't recommend it.

[Alexi Horowitz Ghazi]

And Ned knows what he's talking about here. He hasn't been a nonprofit dreamer forever. Before he joined Civica, he spent more than 30 years at the big drug company Abbott in the big bad world of capitalism. And he said, look, step back and look at the whole life cycle of a drug. Like, think of the world's most famous sterile injectable right now. Ozempic. It's proprietary. It's under patent, actually multiple patents. And it's expensive. It can sell for like seven or eight hundred dollars a dose.

[Ned McCoy]

It's on the market. It's a proprietary drug. Novo owns all the patents. When the patent expires, several generic companies do the development to do their own generic injectable.

[Alexi Horowitz Ghazi]

At first, they will be able to charge relatively high prices.

[Ned McCoy]

That's when those generic companies make money. They make money as the price is coming down, and the price will come down as more players come to market.

[Sally Helm]

All right, so manufacturers will see that there's money to be made selling generic Ozempic. So they will get into the generic Ozempic game, and that will lead to competition. Producers will start undercutting each other on price to get customers. And so the price will go down.

[Alexi Horowitz Ghazi]

And that is kind of the promise of generic Drugs. There was a big law in the 1980s that helped stimulate this competition by making it easier to get into the generics game, and that helped bring down prices. Today in the United States, the manufacturer price of generic drugs is actually less on average than it is in other similar countries. Branded drugs are a very different story. But in general, generics are cheap.

[Sally Helm]

Okay, so then think about what will happen in this market over time.

[Ned McCoy]

Someday when there's 10 suppliers, when the price gets down somewhere between 2 and $4 per unit. Some of the US players, they say, let's make a $10 product. Let's not make the $2 product anymore, because we have a responsibility to our shareholders to maximize profit. They stop making the product.

[Sally Helm]

Manufacturers drop out. The number of exits, aka drug companies, dropping a product, it is surging. Between 2022 and 2023, it went up by 40%.

[Alexi Horowitz Ghazi]

You also might not totally drop out, but you might have an incentive to cut your own costs because you know you're charging a low price. Cutting costs can increase your margins. So maybe you run your machinery really hard or you don't invest as much to clean your lines. All that makes manufacturing problems more likely.

[Sally Helm]

There's also offshoring that happens moving factories to India, for example, where labor costs are lower. Or you might buy your ingredients from companies overseas, try to get them for cheap.

[Alexi Horowitz Ghazi]

Now, say for a given drug, you've gotten down to just one or two manufacturers. If one of them finds some bacteria in one of their vials and has to shut down or a hurricane hits a factory, suddenly you got a shortage.

[Ned McCoy]

But that medication may be essential. That medication might be ephedrine that's on a crash card that's been around since 1905. You know, it may be essential medication, but the problem is it sells for $2. And that's kind of the situation.

[Sally Helm]

That's kind of the situation. We don't have enough manufacturers of these important generic drugs. The few that we do have are incentivized to keep their costs as low as possible, which can make shortages more likely. But, Alexi, even still, we have an economic mystery on our hands.

[Alexi Horowitz Ghazi]

Yes, because we are essentially saying that, weirdly, the price of these generic sterile injectables might be too low, too low for manufacturers to stay in the game, too low for them to upgrade their factories and equipment to the point that they wouldn't have all these manufacturing problems.

[Sally Helm]

And if you look to classical economics, you will see an obvious solution here.

[Alexi Horowitz Ghazi]

Why don't these manufacturers simply raise the price?

[Sally Helm]

Why indeed. That is after the break.

[Ira Glass]

This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts. What's in your wallet? Terms apply. See capital1.combank for details. Capital1NA member FDIC.

[Alexi Horowitz Ghazi]

This is Ira Glass of this American Life. Each week on our show, we choose a theme, tell different stories on that theme. All right. I'm just going to stop right there. You're listening to an NPR podcast. Chances are you know our show. So instead, I'm going to tell you we've just been on a run of really good shows lately, some big, epic, emotional stories and some weird, funny stuff, too. Download us. This AMERICAN Life. Alexi Horowitz, Ghazi here. Sure, subscriptions offer convenience, but are they bad for competition? When you're not canceling because you forget about it or it's difficult to cancel, those forces of consumers taking their business to another product are blunted. That's from our recent Planet Money bonus episode, my extended interview with Stanford economist Neal Mahoney. Listen with NPR at plus.NPR.org Joe Biden's.

[Marta Vosinska]

On his way out and Donald Trump's on his way back. Want to know what's happening as the presidential transition is underway? The NPR Politics podcast has you covered with the latest news and analysis. Listen to the NPR Politics Podcast podcast.

[Sally Helm]

Okay, Alexi, we have been talking about these persistent rolling shortages of generic sterile injectables, drugs that we are all extremely likely to need should we ever end up in a hospital. And we are beginning to get to the heart of the matter. It seems like the question we really need to ask is why is the price of these drugs so low? Why isn't it going up?

[Alexi Horowitz Ghazi]

It feels like a kind of a counterintuitive question, like, don't we want drug prices to be low? So it is worth stepping back for a moment to remind ourselves about the basic laws of supply and demand and how price fits into that picture.

[Sally Helm]

Right in a free market, over time, supply and demand are supposed to come into this perfect balance, and that happens through the beautiful and gorgeous mechanism of price.

[Alexi Horowitz Ghazi]

Amen.

[Sally Helm]

Thank you. Price is a signal that determines how much of something people are willing to buy and how much producers are willing to make to meet that demand.

[Alexi Horowitz Ghazi]

So when a shortage comes, if all is working as it should, the price of these drugs should rise. Then more manufacturers will want to make the drug, more supply comes online, and the shortage goes away.

[Sally Helm]

And to some extent, during these shortages that does happen, the price might go up a little. But as we have discussed something is still clearly messed up because these shortages are happening over and over. So why doesn't the price settle at, like, a sustainable level that prevents them from happening in the first place? The price mechanism seems to be broken here, so let's take a look at what's going on.

[Alexi Horowitz Ghazi]

Okay, idea number one. Healthcare is not an entirely free market. There are some rules in place that make it hard for manufacturers to raise prices too much. The reason for that is simple. Politicians want to find ways to keep healthcare costs down. We asked Marta Vosinska about this.

[Sally Helm]

What are the good reasons to set things up, to bring costs down?

[Marta Vosinska]

What are the good reasons? You know, we spend a lot of money on healthcare, and I don't even know how sort of how to talk about this.

[Sally Helm]

Marta struggled to even answer this question because, like, duh, people want lower health care costs. And so the government does have some rules that try to keep drug prices low. Like one that she thinks is important is a rule meant to prevent manufacturers from raising their prices more than inflation. Marta says if the government got rid of this kind of rule, it might help, but that alone would not solve the problem, in part because there is another major factor here that is keeping prices down, and it has to do the people who are buying these drugs, the hospitals.

[Alexi Horowitz Ghazi]

Yeah. This is idea number two about how the price mechanism is getting messed up here. Hospitals have combined their purchasing power. The vast majority of them have banded together into these things called group purchasing organizations, or GPOs. The top three GPOs in the country represent more than 80% of hospital beds.

[Marta Vosinska]

They negotiate contracts on behalf of hospitals, not just for drugs, but for gloves and beds and just anything that a hospital buys.

[Sally Helm]

Okay. Kind of makes sense. I mean, hospitals need like a lot of socks and sheets and like.

[Marta Vosinska]

That's right. I mean, just imagine the number of things that they buy. They basically outsource it to group purchasing organizations, who then use the combined buying power to negotiate with vendors, including drug vendors.

[Alexi Horowitz Ghazi]

By combining their power like this, hospitals can get really good terms with these drug manufacturers.

[Marta Vosinska]

A lot of these contracts have provisions that basically say, if somebody else offers me a better price, unless you match it, basically this contract ends.

[Sally Helm]

Okay. So I can see how in that situation, you, I mean, you could raise your price, but you just like, lose all your business if you did.

[Marta Vosinska]

That's right.

[Alexi Horowitz Ghazi]

This is tough for manufacturers. They don't have long term commitments from hospitals on how much they'll buy.

[Sally Helm]

So hospitals have combined forces, pooled their buying power, and that has been driving prices down, maybe to Unsustainable levels. We did reach out to the Healthcare Supply Chain Association, a group that represents GPOs. They said, of course they don't want shortages. And they pointed to that price competition we've talked about among drug manufacturers. They said that's a big part of driving the price down.

[Alexi Horowitz Ghazi]

Now, of course, hospitals do have a lot of incentives to keep their costs low. And one important factor here is that once these generics are approved by. By the fda, the idea is that they all treat disease equally well. In econ terms, that makes them basically perfect substitutes.

[Marta Vosinska]

You can use any of them. Right. And the payers, Medicare, Medicaid, commercial payers, are incentivizing me to really choose the cheapest.

[Alexi Horowitz Ghazi]

Yeah, hospitals get paid by insurance. And for these generic sterile injectables in particular, there are a lot of ways that insurance is pushing them to choose the cheapest option. For example, sometimes they'll reimburse hospitals based on the average price of that drug across everyone who makes it. So hospitals don't want to choose one that costs more than average.

[Sally Helm]

So in general, hospitals are trying to get these drugs just as cheap as they can. Meanwhile, manufacturers are slashing costs left and right, maybe making their factories worse in the process, or maybe they're just dropping out of these markets altogether. And all of that makes the entire system more vulnerable to shortage.

[Alexi Horowitz Ghazi]

Which brings us to a third idea about how the price mechanism might be broken. And this is really Marta's big theory. It is all about incentives. There's just not enough incentive for either manufacturers or hospitals to pay to make these drug supply chains more resilient.

[Marta Vosinska]

So basically, again, this is a system that tries to drive prices down. And again, we're doing this for good reasons. But the whole idea of reliability of supply is not at all built into these systems.

[Sally Helm]

Right. Like in a dream world, we would have tons of redundancy in the system. We would have, like, whole backup factories we could tap if we needed them. We would have tons of smart people doing quality control, catching problems before they happen. But all of that is expensive, and it is somehow not getting baked into the price of these drugs.

[Alexi Horowitz Ghazi]

Which is a little weird because you would think that hospitals have an incentive to pay for this after all these shortages hurt patients and hospitals are taking care of patients. But Marta says, like, of course, hospitals are full of nice people who want to help, but it's actually not that simple.

[Marta Vosinska]

When you look at the actual financial implications for hospitals and you compare it to the life and death consequences that it could have for patients. You know, I Would argue that there is a gap, that hospitals could be doing more, paying attention to it more.

[Sally Helm]

Now, shortages do cost hospitals money, Cold, hard cash, but by some measures, not a ton. Shortages hurt patients, but it's not like the hospital fully stops functioning, in part because nurses like Jared Sibbett are scrambling for an alternate solution, like using cake frosting instead of IV sugar water or doing that complicated math to dilute the big bottle of epinephrine.

[Alexi Horowitz Ghazi]

And Marta says patients don't really seem to fault hospitals for shortages. Like, you can imagine if this was a car company or something, and they were constantly running out of some important part, Customers would stop buying those cars. The company would get punished. But that doesn't seem to happen here. Maybe because these shortages affect basically all hospitals, maybe because patients don't really choose hospitals based on whether they have the right medicine in stock, and maybe because it's really easy for everyone in this situation to just point the finger somewhere else. So what is to be done?

[Sally Helm]

Well, remember Ned, our nonprofit dreamer?

[Alexi Horowitz Ghazi]

Nonprofit, Ned.

[Sally Helm]

His company's solution is basically, obviously, ditch profit and try to get hospitals to sign onto a new system meant to prevent shortages. They do things like sign longer contracts where they commit to buying a certain volume of these drugs to try and make all this more sustainable. There's also been some proposed legislation on this which has some similar solutions.

[Alexi Horowitz Ghazi]

Yeah, and you can imagine that the government could intervene here, help the manufacturers upgrade their facilities, or the government itself could maintain a bigger stockpile of important drugs.

[Sally Helm]

Marta's solution has to do with government, too, but it would focus on hospitals and changing their incentives. Because right now, you know, hospitals do think about shortages to some degree when they're buying these drugs. But Marta says the balance is off.

[Marta Vosinska]

We need to incentivize hospitals to pay attention to which manufacturers are reliable and put much more weight on that rather than just price. You know, they can differentiate themselves on that. Those manufacturers can carry a higher price point and also the fact that they're going to be getting larger market share. So when one of those less reliable manufacturers has a problem, by that time, they actually have a smaller market share, not the largest one. Right.

[Alexi Horowitz Ghazi]

To summarize, the government would give hospitals some money if they showed that they were taking steps to prevent shortages, like by working with a good quality, highly rated manufacturer, Then hospitals would have more incentive to buy from those higher quality manufacturers. So those manufacturers could charge a higher.

[Sally Helm]

Price, and maybe the other manufacturers would even want to clean up their act.

[Alexi Horowitz Ghazi]

Cut it out with the urine bucket.

[Sally Helm]

Exactly. In an ideal world. This could lead to like a cascade of positive effects because we have changed hospital incentives.

[Alexi Horowitz Ghazi]

A key ingredient of this whole plan is good information. Hospitals need to know which manufacturers are reliable and they need to be able to trust that.

[Sally Helm]

Another key ingredient is money. The government would have to be willing to spend some money here. And this supply chain resilience could get expensive.

[Marta Vosinska]

I guess the way I would put it is that there is a value to resilience. And I think the value of resilience to patients is much higher than the willingness to pay for resilience by all the other stakeholders that make decisions on behalf of patients.

[Alexi Horowitz Ghazi]

So that is our long and complicated answer to Jared Sibbet's question about why these shortages are happening. Somehow no one seems to be ponying up the money to make this whole drug supply chain better. It's just hard to get people to prioritize the long term health of the system. And as Marta is saying, the people who are really hurt by that are the patients, all of us.

[Sally Helm]

But Alexei, since my interview with Marta, I have been wondering, if it were up to us, the patients, would we actually pay more for the promise of fewer shortages in the future? I'm not totally sure that we would.

[Alexi Horowitz Ghazi]

Yeah. I mean, in general, it does feel pretty easy to ignore the supply chain behind whatever it is you're buying.

[Sally Helm]

Totally. We're all susceptible to that. Just get it cheap while you can and hope that it will be there the next time you need it.

[Alexi Horowitz Ghazi]

Today's episode was produced by Willa Rubin with help from James Sneed and Sam Yellow Horse Kessler. It was edited by Martina Castro, fact checking by Dania Suleiman, engineering by Valentino Rodriguez Sanchez. Planet Money's executive producer is Alex Goldmark.

[Sally Helm]

Special thanks to the many experts who spoke to me for this story. There was a lot to understand here. I also listened to a great recent series on this topic from the healthcare podcast Trade Offs. Check them out. The series is called Race to the Bottom. I'm Sally Helm.

[Alexi Horowitz Ghazi]

And I'm Alexi Horowitz Ghazi. This is npr. Thanks for listening.

[Sally Helm]

The Code Switch team spent election Day talking to folks about how the outcome might impact them. It's a time capsule of people's hopes.

[Alexi Horowitz Ghazi]

And fears before they knew the results. One way or another, there's a change coming.

[Jared Sibit]

I wanted to vote for Trump, but.

[Alexi Horowitz Ghazi]

I voted for her.

[Sally Helm]

Gays for Trump.

[Alexi Horowitz Ghazi]

I cried this morning.

[Sally Helm]

I've been crying on and off.

[Marta Vosinska]

I'm terrified.

[Sally Helm]

Listen to Code Switch, the podcast about.

[Alexi Horowitz Ghazi]

Race and identity from npr.

[Ira Glass]

This message comes from Wondery. Some of the craziest conspiracy theories are actually classified government operations. To hear more about these hidden truths, listen to Declassified Mysteries with Luke lamanna on the Wondery app or wherever you get your podcasts.

[Sally Helm]

NPR brings you the updates you need on the day's biggest headlines.

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The Senate narrowly passed the debt ceiling bill that will prevent the country from defaulting on its loans.

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With the land is integral to anise culture and down your block from CPR news, this is Colorado Matters, and you can find all of that and more in your pocket. Download the NPR app today.