Low prices cause generic drug market collapse

When Americans think of drug prices, they usually think that they're too high. And for name brand drugs, that's often the case compared with the rest of the world.

But when it comes to, medicines that are workhorses in hospitals, the opposite problem is true. They can be too cheap.

"For off-patent generic drugs, especially those used in the hospital setting, Americans actually pay lower prices than Europe does," said , a professor at the Boston University Questrom School of Business.

Companies compete with each other to offer hospital purchasers the lowest price, driving the prices to rock bottom. Over time, prices can get so low that it doesn't always make good business sense for the companies to keep making some drugs. So they stop.

"It's the same issues that we've been dealing with for many years, especially with these older generic drugs that are having fewer and fewer manufacturers making them," , associate director for drug shortages at the Food and Drug Administration, told NPR. "There isn't a lot of buffer when something goes wrong on the manufacturing line."

With fewer suppliers of generic drugs, a weather event – like the tornado that ripped through a Pfizer facility earlier this year or Hurricane Maria in Puerto Rico in 2017 – can wreak havoc on an already fragile system.

On top of that, the bargain-basement prices don't encourage manufacturers to invest in new equipment and other things that would keep quality high and avert recalls and shutdowns.

"I would say, fundamentally, economics is causing this problem, and this problem is long-standing," Conti said. "We've been dealing with periodic and, more concerningly, persistent shortages in drugs ... for the better part of a decade or a little bit more. And fundamentally, the economics of this market has to change in order to get resilient supply."