{"id":183,"date":"2026-05-04T10:33:05","date_gmt":"2026-05-04T14:33:05","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=183"},"modified":"2026-05-04T10:33:05","modified_gmt":"2026-05-04T14:33:05","slug":"the-paradox-of-drug-pricing-innovation-vs-shortages-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2026\/05\/04\/the-paradox-of-drug-pricing-innovation-vs-shortages-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"The Paradox of Drug Pricing: Innovation vs. Shortages\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><span data-contrast=\"auto\">Established by the U.S. Constitution in 1789, the patent system grants inventors a temporary monopoly in exchange for publicly disclosing their inventions. Once a patent expires, others are free to replicate the innovation.\u00a0This system balances private incentives with public benefits, rewarding inventors while promoting the spread of knowledge and long-term competition.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Pharmaceutical patents\u00a0for name-brand drugs\u00a0typically last 20 years.\u00a0High U.S. prescription drug prices provide strong incentives for innovation,\u00a0a widely\u00a0recognized\u00a0success of the patent system. But\u00a0higher\u00a0prices also\u00a0drive up\u00a0healthcare costs,\u00a0and\u00a0Americans pay more for\u00a0name-brand\u00a0prescriptions than people in other countries. In response,\u00a0<\/span><a href=\"https:\/\/www.triagehealthlawblog.com\/pharmaceutical\/trump-signs-executive-order-to-reduce-u-s-drug-prices-with-most-favored-nation-policy-and-cms-establishes-pricing-targets\/#:~:text=Lastly%2C%20the%20Order%20instructs%20the,challenged%20by%20the%20pharmaceutical%20industry.\"><span data-contrast=\"none\">President Trump signed an executive order aimed at lowering drug prices<\/span><\/a><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However,\u00a0<\/span><a href=\"https:\/\/pubs.aeaweb.org\/doi\/pdfplus\/10.1257\/jep.20241420\"><span data-contrast=\"none\">92% of prescriptions in the U.S. are filled with generics,\u00a0which account\u00a0for less than 13%<\/span><\/a><span data-contrast=\"auto\">\u00a0of total drug spending.\u00a0The authors of &#8220;<\/span><a href=\"https:\/\/pubs.aeaweb.org\/doi\/pdfplus\/10.1257\/jep.20241420\"><span data-contrast=\"none\">The Economics of Generic Drug Shortages<\/span><\/a><span data-contrast=\"auto\">&#8221; note that\u00a0while generic\u00a0drugs\u00a0have dramatically reduced healthcare costs, many have\u00a0been in short supply\u00a0in the past decade, including antibiotics such as\u00a0amoxicillin and chemotherapy agents.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Economically, a shortage occurs when demand exceeds supply at current prices.\u00a0Typically, higher prices resolve shortages. However, in the generic drug market, price competition can\u00a0actually\u00a0exacerbate\u00a0shortages. Hospitals, insurers, and wholesalers often lock in low prices through long-term contracts. To stay competitive, manufacturers cut costs by concentrating production in\u00a0one or two\u00a0facilities,\u00a0often overseas\u00a0in India and China,\u00a0and avoid investing\u00a0in\u00a0spare\u00a0capacity.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The lack of spare capacity,\u00a0combined with just-in-time inventory systems, limits flexibility and the ability to increase production rapidly. When demand\u00a0increases, such as during disease outbreaks or\u00a0the introduction of new uses (like GLP-1 inhibitors for weight loss), manufacturers struggle to\u00a0increase production quickly. Cost-cutting can also compromise quality control,\u00a0resulting in recalls and additional\u00a0shortages.\u00a0Natural disasters\u00a0that cause plant shutdowns\u00a0and geopolitical tensions that disrupt imports from India and China\u00a0further exacerbate\u00a0the risk\u00a0of shortages.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">How can shortages\u00a0be reduced? Pay more for quality,\u00a0such as sourcing from vetted manufacturers. Speeding up FDA approvals for new producers and improving oversight of manufacturing\u00a0quality\u00a0may\u00a0decrease supply\u00a0disruptions.\u00a0Reducing dependence on countries with geopolitical risks is also an option.\u00a0<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.maxor.com\/drug-shortage-update-q3-2025\/\"><span data-contrast=\"none\">Drug shortages disproportionately affect chemotherapy, antimicrobials, ADHD medications, and IV fluids<\/span><\/a><span data-contrast=\"auto\">.\u00a0Shortages create real consequences for patient care and public health. Paying for high-quality additional production is a form of insurance, much like paying firefighters to be available in case of a fire.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Established by the U.S. Constitution in 1789, the patent system grants inventors a temporary monopoly in exchange for publicly disclosing their inventions. Once a patent expires, others are free to replicate the innovation.\u00a0This system balances private incentives with public benefits, rewarding inventors while promoting the spread of knowledge and long-term competition.\u00a0 Pharmaceutical patents\u00a0for name-brand drugs\u00a0typically [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[120],"tags":[1649,1650,1602,1603,1068,1648,452,1652,1653,1651],"class_list":["post-183","post","type-post","status-publish","format-standard","hentry","category-health-economics","tag-drug-shortages","tag-fda-regulation","tag-generic-drugs","tag-healthcare-costs","tag-innovation","tag-pharmaceutical-patents","tag-pharmaceuticals","tag-price-competition","tag-public-health","tag-supply-chain"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Paradox of Drug Pricing: Innovation vs. Shortages\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2026\/05\/04\/the-paradox-of-drug-pricing-innovation-vs-shortages-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Paradox of Drug Pricing: Innovation vs. Shortages\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Established by the U.S. Constitution in 1789, the patent system grants inventors a temporary monopoly in exchange for publicly disclosing their inventions. 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