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Volume XI, Number 24

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President Trump’s Executive Order Mandating the Purchase of U.S. Drugs Evokes Criticism

On Thursday, August 6, 2020 President Trump signed an Executive Order, mandating that certain drugs and medical supplies purchased by federal agencies, including the Department of Health and Human Services, Department of Defense, and Department of Veteran’s Affairs must be US-manufactured (the “Buy American Order” or the “Order”). The list of “essential medicines, medical countermeasures and critical input” that fall under this Order will be determined by the Food and Drug Administration (“FDA”). The Order also calls on the FDA to conduct a greater amount of unannounced inspections of overseas drug plants to ensure that production of drugs is compliant with safety standards and to encourage more advanced drug manufacturing techniques.

The Trump Administration’s rationale for the Order is to promote drug-manufacturing capabilities in America (also known as “reshoring”) in order to reduce foreign drug dependency and thereby prevent shortages of essential medicines and supplies in the event of a breakdown of the global pharmaceutical supply chain during a public health emergency, an obvious concern highlighted by the scramble for medicines during the COVID-19 crisis. As U.S. companies currently import approximately eighty percent (80%) of active pharmaceutical ingredients from abroad, this Order has the potential to make a huge impact on the current status quo.

While past healthcare-related executive orders issued by the Administration have at times been met with significant criticism from certain industry players, criticisms of the Order have been particularly wide-ranging, spanning from pharmaceutical industry research groups to a generic drug lobby to policy analysts. Below we examine some of the critical issues raised by analysts and stakeholders:

Low-Quality Drugs

The Order allows the FDA and the United States Environmental Protection Agency (“EPA”) to work on removing certain existing regulations that are barriers to production in the United States. While such regulations sometimes present a regulatory or administrative hurdle to overcome in domestically producing drugs, they also serve to ensure that the drugs that are produced are safe both for the consumers and the environment.  In an August 10, 2020 Time article, “Trump’s Executive Order About U.S.-Made Drugs May Not Enhance Public Safety the Way It Should,” [1] the author, Katherine Eban, called out the Order as missing an essential point, “we shouldn’t trade low-quality drugs made at a distance for low-quality drugs made at home.” More specifically, Ms. Eban writes:

In trying to ramp up domestic manufacturing, the order appears to open the door to a dangerous decline in quality. It allows the FDA to examine whether any existing regulations are a barrier to domestic production, and it also allows the Environmental Protection Agency to streamline regulations that might currently deter manufacturing but also serve to ensure public health safety and safeguard the environment.

The quality concern described by Ms. Eban is amplified by Mark Rosenberg, the CEO of the Just Medicine Inc., a nonprofit advocacy organization dedicated to increasing the supply of ethically made low-cost generics currently in short supply, who is quoted by Ms. Eban as saying that, “It is a bad idea to say that it is more important to have drugs made domestically than it is to have drugs made with high quality….The way to level the playing field is not to just lower standards for domestic manufacturing.”

Price

While the Trump Administration has touted that the Order will have the effect of decreasing drug costs, many stakeholders fear the opposite may result. The Order allows federal agencies to purchase domestically produced drugs that are up to twenty-five percent (25%) more expensive that the current foreign produced drugs. Dr. Amesh Adalja, a Senior Scholar from the Johns Hopkins University Center for Health Security, has argued that such changes may have the unwanted effect of increasing the price of drugs and medical supplies in the U.S., stressing that there are transition costs that will need to be accounted for as the supply chain moves from overseas to U.S. shores. Moreover, overall manufacturing of medical supplies and ingredients domestically can “run the bill up,” so to speak, to five times as high as manufacturing in the typical foreign locations associated with drug manufacturing, such as India or China. The conservative-leaning US Chamber of Commerce has also argued that different solutions are needed for different products rather than a one size fits all approach that will lead to far more disruption. The Association for Accessible Medicine (“AAM”), the primary lobby for generic drug manufacturers, which may be supportive of certain aspects of the Order, has notably requested that the government address the additional costs of producing drugs in the United States with future drug manufacturer contracts.[2]

Disruptions in the Supply Chain

Some have expressed concern that the impact of this Order will go beyond the short term crisis associated with the COVID-19 pandemic and could lead to reverberations throughout the global pharmaceutical supply chain as a whole.  Stephen J. Ubl, President and CEO of the Pharmaceutical Research and Manufacturers of America (“PhRMA”), the trade group representing many of the leading pharmaceutical manufacturers in the U.S., stated that such a disruption could jeopardize the pharmaceutical industry’s “ability to respond to the current crisis and potentially lead to major long-term supply chain disruptions, including shortages.” Instead of such an Order, Ubl stated “we should look for policies that enable more domestic manufacturing without putting the stability of pharmaceutical supply chains at risk.” The interim CEO of the AAM also noted that without addressing the undervaluation of generic and biosimilar medicine in the U.S., the U.S. will be unable to secure the domestic market and supply chain with scale and sustainability.[3]

A related concern is that concentrating the supply chain within the United States will be a detriment in the case of other emergencies. While the Trump Administration has pointed to the pandemic as an example of our reliance on manufacturing abroad, others have pointed out that sourcing drugs from manufacturing plans abroad allows the United States to limit drug shortages in the case of emergencies shutting down domestic production. Speaking about foreign manufacturing plants in connection with a previous domestic emergency, former FDA commissioner and Trump-appointee Scott Gottlieb has stated, “they had redundant generators, they had months and months of fuel on hand, they had no disruptions in their manufacturing because their facilities were so well equipped.” Such experience and production is unlikely to be matched in the short term.

Production Issues   

One of the major condemnations levied at the Order is its potential to adversely impact the United States’ ability to properly combat both the pandemic and general American medical needs. The Trump administration is relying on regulatory relief to spur the development of domestic manufacturing. However, this could take more time, money and resources than are realistically available in the time frame given – with estimates reaching up to 10 years and $2 billion. Part and parcel with the censure of mandating the purchase drugs domestically in the midst of a pandemic, certain critics are skeptical of the ability of manufacturing plants and production chains to be properly developed without unmet demand and delays in treatment. As Michael Rea, the founder and CEO of Rx Savings Solutions, a company assisting plan members work through the pharmacy system at lower costs, states, “[t]here will always be regions that can produce certain things faster, better, and cheaper than we can…. complex systems with trillions of dollars at stake typically don’t respond well to rash and irrational decisions.”[4] An overhaul of the pharmaceutical chain will require the ability for the new plants to locally source all inputs of the chain it previously relied on the global markets for – such as raw materials and active ingredients, as well as the labor used to develop these drugs. Meanwhile, other regions have already spent the time and money developing an efficient process that would, as Rea underscores, “wast[e] an enormous amount of time and money” to move “entirely onto America’s shores.”[5]

Impact on the Current Pandemic

Meanwhile, delays in developing efficient production capabilities may also affect the current response to the pandemic. Time usually spent working on drug development may instead be spent on determining where to locally obtain the resources required to produce the massive amounts of drugs and equipment the current situation requires. Moreover, the domestic companies currently focusing their time and money on developing COVID-19 vaccines may have to scale back on production of both those treatments as well as others in order to comply with the mandates of the Order. Stephen Ubl, PhRMA President and CEO, stated that the Order is “forcing biopharmaceutical companies to shift their critical attention and resources away from COVID-19 work to focus on making substantial changes to their business models necessary to comply with this and other recent executive orders.” Getting to a point where biopharmaceutical companies are available to meet the current domestic demand while complying with new rules and regulations will take a significant amount of time and resources and, in the meantime, may cause massive shortages and delays in providing medical supplies and drugs. [6]

PhRMA claims that the Order threatens crisis-preparedness in the United States since, according to PhRMA, a diverse supply chain is critical for ensuring the development of new treatments and cures and access to such treatments and cures by American patients.  Peter Navarro, a leading trade advisor for the Trump Administration, has countered this claim by indicating that the Order explicitly exempts “Buy American” provisions during the current COVID-19 crisis and any period of national emergency.[7]

Along with the supply chain impact on COVID-19, there is concern that destabilization in the pharmaceutical industry would make it increasingly difficult to discover and distribute treatments, including vaccines, to patients. Americans are already combating shortages in diagnostic tests and personal protective equipment.

With widespread disapproval and a global pandemic still at large it remains to be seen how far reaching the impact of this stakeholder-unpopular Order has. We will continue to provide updates as developments occur.

FOOTNOTES

[1] https://time.com/5878064/essential-drugs-executive-order/

[2] https://www.washingtonpost.com/business/2020/08/06/buy-american-trump-executive-order-drugs/

[3] https://www.politico.com/news/2020/08/06/trump-sign-buy-american-drugs-order-392247

[4] https://www.statnews.com/2020/06/17/an-america-first-pharma-supply-chain-sounds-good-but-it-wont-work/

[5] Id.

[6] https://dallasexaminer.com/editorial/perspectives/trumps-buy-american-executive-Order-is-the-wrong-prescription/

[7] https://www.cnbc.com/2020/03/19/coronavirus-trump-aide-peter-navarro-slams-big-pharma.html

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Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 232
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Kenneth Yood Healthcare Attorney SheppardMullin
Partner

Ken is a partner in the Corporate practice group in the firm's Los Angeles office. Chambers USAranks him highly for Healthcare, where he was commended for his "broad-based ability in the regulatory area." Clients appreciate that "his explanations are clear, and he understands the business side of things," notes Chambers 2016.

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Ken represents a wide range of healthcare providers and healthcare companies, including specialty and general acute hospitals (including local district, nonprofit and...

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Melissa Gertler, Sheppard Mullin Law Firm, Corporate Law Attorney, Century City
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Melissa Gertler is an associate in the Corporate Practice Group in the firm's Century City office.

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Dhara B. Waghela Associate Corporate Healthcare
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Dhara Waghela is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm’s Healthcare team.

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