Nationalizing drug manufacturing: A public necessity or a waste of money?
COVID-19 has ravaged our country, pummelled our economy, upended our daily lives and exposed cracks in our healthcare system.
One near disaster narrowly averted was a shortage of critical drugs. Yes, even the drugs needed for the most critical of patients very nearly ran short.
The National Emergency Strategic Stockpile was exhausted, already atrophied from funding cuts over the preceding decade. Health Canada urgently coordinated with partners such as the Canadian Medical Association to create a list of the most essential medications needed to fight COVID-19 that were at risk of running short or were already scarce. Plans were drawn up to ration these Tier 3 drugs or find suitable alternatives.
We are still seeing medications like ketamine, propofol and ventolin experience shortages to the extent that Health Canada is urgently importing these medications from other jurisdictions without changing their labels.
These shortages are likely to continue or get worse as the battle to control the pandemic continues. We will face increased production needs over the next year as our usual sources of generics, India and China, are limiting exports to prevent shortages in their own countries.
The causes of shortages are multi-faceted and have been explored by our group in previous HealthyDebate and Toronto Star pieces and range from a shortage of active pharmaceutical ingredients (API) that are the precursors needed to make drugs to the lack of transparency around the supply chain on the front lines. While there has been tremendous consolidation in the global generic drug manufacturing industry, our domestic manufacturing has been hollowed out after years of offshoring. Currently only Sandoz’s facilities in Quebec are capable of manufacturing generic injectables.
In fact, an internal powerpoint circulated by HealthPro, a group-purchasing organization, included API shortages and noted that the leading cause of shortages is quality-related manufacturing issues. These shortages have likely become more prominent with the increased needs during the pandemic. The end result is that manufacturers’ drive to cut costs has meant that quality is often compromised. Katherine Eban’s best-selling Bottle of Lies is a harrowing account of the corners cut and risks taken.
Drug shortages have somehow become a fact of life in Canada for more than a decade. Despite committees and position papers, little has materialized. Meanwhile, drug shortages have become more frequent (with 77 per cent of those being generic drugs) and COVID-19 has put added pressure on critical care and the injectable drugs that are used heavily in ERs, ICUs and palliative care wards.
A short while ago, I wrote a piece arguing for the nationalization of drug manufacturing to prevent drug shortages. I see this as the only rational means to take the profit motive out of generic drug manufacturing that causes many of the quality-related shutdowns and as a concrete step towards funding National Pharmacare. Proceeds from these drug sales could help fund pharmacare. Canada once led the world in this regard with its homegrown Connaught Labs that shipped insulin across the globe for minimal mark-ups.
Yet, I also recognize that it is worthwhile to have some epistemological humility on a topic as complex as drug manufacturing. To this end, I asked my good friend, Ahsan Irfan, a management consultant and conservative political activist, to debate the following proposal:
“Be it resolved that the government must take over the manufacture of critical care drugs to prevent shortages.”
FOR (Saad Ahmed)
We have come far in the past 100 years, yet in certain senses we have progressed little. We have made technological advances beyond the imaginations of science fiction writers of earlier eras, yet our moral imaginations have failed us. COVID-19 is the crisis to bracket the end of neoliberalism; to put to rest the idea that private is best. And while previous crises have been used to enforce more punitive austerity and privatisation, as Naomi Klein has warned us time and time again, I sense that something is shifting in the zeitgeist. This pandemic, like the Spanish flu at the height of the Progressive era, is a chance for a burst of creativity in policy-making and a commitment to building new institutions.
AGAINST (Ahsan Irfan):
The issue of drug shortages is a critical one and deserves a sober, evidence-based policy discussion by governments and experts. I argue that generic drug manufacturing should not be nationalized for three reasons.
The economic structure of the generic drug market:
The market for generic pharmaceuticals is arguably a captive market with consolidation bringing about a near-oligopoly. Canada’s domestic market for generics is highly concentrated as internal government documents as far back as 2010 show and Competition Bureau documents as recent as 2018 have noted that costs continue to be an issue.The bureau suggests lowering drug prices by encouraging competition through regulation and warns that doing so should be done in a way that “manufacturers cannot manipulate the regulatory process to deter price competition.”
I would instead argue that regulation is not enough. We should simply take the profit motive out of the matter, reduce the poor behaviours consequent to it, and treat generics as a public good. We already regulate prices partly through the Patented Medicine Prices Review board but solely for brand-name medications. We could extend this practice to generic drugs and perhaps even go further by creating a public utility commission, similar to those for electricity and water but repurposed for generic drugs and committed to ensuring an equitable, cost-effective distribution of essential drugs.
Nationalization projects are generally inefficient and wasteful:
Governments in Canada and around the world have proven many times that their operation of activities normally left to the private sector generally coincides with inefficiency, waste and delays – for which taxpayers pay the price. There is no shortage of Canadian examples of government-run institutions that have lagged behind private-sector peers in other countries: VIA Rail, Canada Post, Metrolinx – this list is long.
Put simply, our governments are not in, nor should be, in the business of operating a drug manufacturing facility, let alone knowing how to do it efficiently. In addition to the numerous anecdotal examples, several studies both in Canada and globally have concretely established that privately run organizations are more efficient, dynamic and, over time, contribute more to the nation’s social and economic welfare through taxes, jobs, etc. And while the example of CivicaRX in the U.S. is interesting and appears to be going well, it’s important to recall it is not a public, government-owned entity. Rather, it allows for-profit U.S. hospital systems to leverage economies of scale in pursuit of their profit motive: lower costs and increased reliability.
Public ownership can work:
We can afford and have the means to be even more radical. What would public ownership of drug manufacturing look like? It could mean a Crown corporation that acts as the producer that group purchasing organizations have to buy from. Or there could be provisions for “Buy Canadian” built into contracts in which a minimum percentage of drugs must come from the manufacturer. At the very least, a Crown corporation could act as a producer of last resort for the most essential of medications such as propofol and ketamine. We lack significant domestic production capacity for injectable medicines (the Sandoz facility is a notable exception), which explains why we are, as of recent estimates, paying seven times more for propofol than we used to pay. Domestic production would save costs, especially in times of crisis.
An alternative to a publicly run enterprise could be a non-profit consortium. Canada had something similar in the Connaught Labs that were later sold to Sanofi. Recently, a group of American hospitals have come together to create CivicaRx, their own non-profit drug manufacturer.
It would be very expensive:
COVID-19 has brought to the fore the topic of supply repatriation and flexibility across many industries – in many cases, rightly so. However, what is not as prominent in the discussion to date are the massive costs of doing so. Take generics drugs as an example. China and India are top exporters of generics globally, a position supported by their access to APIs and ability to produce cheaply. In India, drug prices are 70 per cent lower than the global median. Locating production in a high-cost country like Canada would undoubtedly be very costly – particularly given that a publicly owned producer would be starting from scratch, lacking the economies of scale present in other countries and available to large pharmaceutical companies. We need to be intelligent about how we approach the competing trade-off between complete supply-chain flexibility on one end and balancing costs to taxpayers on the other. The answer probably lies somewhere in the middle.
Centralized production is efficient:
The old fears of centralized production are overblown in the 21st century. Massive (and obviously predatory) corporations like Walmart and Amazon have almost complete internal transparency on their supply chains and effortlessly produce enough to meet the needs of their customers. The provocative book The People’s Republic of Walmart makes the case that these companies already engage in highly efficient central planning. We should seek to emulate their remarkable inventory management systems (while continuing to protest their exploitation of essential workers).
In fact, many of the problems in the drug supply chain are problems of communication. Many hospitals still use spreadsheets for inventory management, which are then submitted monthly to group purchasing organizations. They in turn determine how much to allocate to their partner hospitals from the supply they have coming in from their last tender. It is the twisted fate of late stage capitalism that it leads to rationing whereas centralized production could have fulfilled everyone’s needs.
There are alternatives to nationalization:
There are several market or quasi-market based alternatives for the government to pursue that would alleviate drug shortages without nationalizing manufacturing.
In the short term, there should be a concerted effort to modernize our hospital’s inventory management systems to avoid shortages as well as a concerted focus to implement industry-standard predictive inventory management. In the long term, some options our government could consider are:
- Joint ventures/PPPs with drug manufacturers: Use appropriate financial incentives to make Canadian-hosted generic manufacturing economically feasible for large pharma companies while leveraging the private sector’s expertise in efficient operation of these facilities. This would obviously come at a higher cost than the current import regime, however it would undoubtedly be more efficient than the government “going it alone.”
- Shift our import mix: A suspected root cause for drug shortages is quality control from countries like India and China. There are several other countries with significant drug manufacturing capabilities (e.g., Germany, Switzerland) and we could make a concerted effort to shift our imports away from India/China to these countries. While this would also likely be more costly than our current import mix, leveraging an existing manufacturing base and expertise in those countries may prove cheaper than setting up production in Canada.
One factor that has made our healthcare system an international benchmark is that the government has decided which aspects of the system it needs to be in and which should be left to the private sector. The direct provision of healthcare – which requires a risk pool to capture the largest number of citizens in a cost effective manner – is rightly public. However, many of our ancillary healthcare services (e.g., labs) are private as the private sector has proven it can operate these facilities more efficiently. This public-private division has worked for us to date and I would argue drug manufacturing falls squarely into the second category.
We both acknowledge that Canada must take action on drug shortages. The status quo is not tenable and the risks are very real as we brace for a second COVID-19 wave in the fall. There is certainly much work that still needs to be done and questions to be answered. For example, we do not know how much the government is spending to deal with current critical drug shortages. And although we have Tier 3 assignments, it is not clear which drugs would qualify as essential for hospitals and would benefit from domestic manufacturing. This all must be the subject of further research, much of which must be done in an evidence-based fashion.
While both of us have varied personal and professional experiences that influence how we approach this issue, we acknowledge that reasonable people can disagree. Whatever the right solution is, we must act. Before it’s too late.
Saad Ahmed is a rural physician, lecturer at the University of Toronto, and co-founder of the Critical Drugs Coalition. He has worked in remote and rural settings, in ERs and inpatient wards, which have informed and influenced his passion for action on the social determinants of health.