The competition over generic drugs, in theory at least, leads to a lowering of the price and hence a better outcome for consumers and healthcare facilities (the direct purchasers of the product). However, research carried out by George Ball (Indiana University), Rachna Shah (University of Minnesota) and Kaitlin Wowak (University of Notre Dame) suggests that the intensification of generic drug competition is putting pharmaceuticals and medical devices on a trajectory where the number of manufacturing-related drug recalls is increasing.
Pharmaceutical drug recalls carry economic implications, such as corporate costs (not selling inventory and having to run replacement manufacture), stock price declines, plus the cost of additional regulatory oversight from bodies like the U.S. Food and Drug Administration (FDA). According to McKinsey, recalls, warning letters, and consent decrees, along with associated warranties and lawsuits costs the medical device industry alone between $2.5 billion and $5 billion per year on average.
The research from the academics reveals that generic drug competition triggers pharmaceutical companies to “cut corners in their manufacturing quality control practices in an effort to remain profitable, leading to an increase in life-threatening drug defects requiring a recall”, as Ball writes for The Conversation.
In a research paper, Ball and colleagues find that generic drug competition can lead to a relaxation of quality standards during the manufacturing process; they also find there is greater managerial discretion surrounding the recall decisions (that is when and how much to recall) as competition increases. The research is published in the Journal of Operations Management (“Product competition, managerial discretion, and manufacturing recalls in the U.S. pharmaceutical industry”).
