Is There a Problem with Our Generic Drugs?
Everyone knows that drug costs are high, but can they also be too low? In a seeming paradox, concerned observers are saying yes. Despite growing evidence that patients face undue risk, changing the status quo remains difficult for politicians and healthcare leaders alike.
When a patient goes to the pharmacy to refill a prescription, he often gives little thought to the supply chain behind the drug. But every once in a while, he may notice that the color of the capsule has changed or that the packaging is different. In keeping with their training, medical providers will reliably tell him it is the same drug. Rather than focusing on who manufactures the medicine, the patient is told to rest assured that the active pharmaceutical ingredient (API), which gives the drug its therapeutic effect, remains the same.
That kind of indifference to who makes our medicine is a surprisingly recent phenomenon. The practice of swapping manufacturers is rooted in the concept of substitutability, which, according to the Food and Drug Administration (FDA), means that one “can take a generic medicine as an equal substitute for its brand-name counterpart.”
In the American healthcare system, the importance of generic drugs is difficult to overstate. Beyond easing pressure on ballooning government budgets, generic drugs have transformed medicine cabinets nationwide, accounting for more than nine out of ten prescriptions written today.
The FDA’s premise that all generic drugs work as well as their brand-name counterparts rests on two key assumptions. First, each prospective generic drugmaker must demonstrate that its product delivers the active ingredient, or API, into the bloodstream in essentially the same way as the original brand-name version. Second, the FDA must be confident that once the product enters mass production, it remains effective over time and free of dangerous impurities. To ensure those standards are met for millions of units, batch after batch, year after year, these drugs must be manufactured under the strictest of controls.
However, mounting evidence suggests that many facilities are failing to meet even the FDA’s minimum safety and quality standards.
Katherine Eban's 2019 book Bottle of Lies recounts the author's disturbing decade-long investigation into the generic drug supply chain and the authorities responsible for policing it. Eban retells the story of the industry executive Dinesh Thakur as he unmasked systemic data fraud at Ranbaxy Laboratories, India's largest generic drug manufacturer at the time. The veteran scientist felt compelled to blow the whistle out of concern that low-quality manufacturing practices were leading millions of patients in the United States and elsewhere to take dangerously compromised medicines, from common antibiotics to AIDS treatments.
Although the story culminated in an unprecedented whistleblower settlement, the largest of its kind to date—to the tune of $500 million—and one that helped bring about the downfall of the generic drug giant, the happy ending was tempered by the unsettling facts the investigation revealed. Eban's meticulously documented account provides an indicting perspective on a system which has, for several decades, enjoyed the public’s unquestioned confidence.
When the book was published, many readers expected swift corrective action at the federal level. Instead, little changed. More than six years later, there is still scant evidence of serious reform efforts in Washington. Meanwhile, the number of Americans taking generic drugs has continued to climb, especially those imported from India.
Even though the first signs of trouble emerged more than a quarter-century ago, why are patients still at risk today? In early 2025, we encountered a range of explanations from across the healthcare system, from allegations of corruption to claims that the chaos unleashed by COVID-19 had hindered reform.
After a year spent consulting public archives and speaking with industry and political insiders, academics, and physicians, we still do not have a clean explanation. Instead, we uncovered a complex picture with several layers. At its base lies a patchwork of interest groups motivated by self-preservation, both economic and political. Above it stands a powerful narrative, backed by scientific authority and political incentives alike, that has proven remarkably resistant to challenge.
- Why concerns about generic-drug quality are moving from the margins toward the mainstream
- Increasing evidence that the prevailing narrative may rest on a shakier foundation than most realize
- Even as warning signs have accumulated, why reform has remained elusive
After many years marked by indifference to flaws in the system, recent moves at the country’s top drug regulator suggest that reform may be on the way. The White House is aware of the seriousness of the risks facing patients, a person familiar with the thinking of the current administration told us in April of last year. The following month, the FDA under its new commissioner, Martin A. Makary, denounced what amounted to double standards in enforcement between United States-based and foreign manufacturers, promising that the latter would now "receive the same level of regulatory oversight and scrutiny as domestic companies." Although largely unnoticed by the mainstream press, the announcement was a stunning admission by the leader of the nation's top drug regulator: for years, the FDA had not been enforcing the rules even-handedly.
A Long Time Coming
The FDA is not unaware of concerns about generic drug quality, which first came to the agency’s attention before the turn of the century. In 1998, the nonpartisan General Accounting Office (now the Government Accountability Office, or GAO) issued a report that raised red flags about the FDA’s oversight of overseas drug-manufacturing facilities. As the government’s internal watchdog, GAO has a track record of identifying operational failures that later contribute to policy changes, such as shortcomings in federal oversight involving lead in school drinking water.
In a 1998 report to the chairman of a House oversight subcommittee, GAO investigators wrote that earlier FDA internal evaluations had concluded that, unless corrected, problems in the drug regulator's foreign inspection program,
“...could lead to the importation of adulterated low-quality drugs that pose serious health risks to Americans.”
Although drugs from foreign plants represented only a small fraction of the supply at the time, the warning appears prescient in hindsight.
This investigation was the first of many inquiries expressing concern about how the agency monitored foreign-produced drugs. At the time, however, an outside observer could have been forgiven for dismissing the issue as a mere bureaucratic matter. Despite corrective efforts by the agency, GAO spent the next two decades continuing to identify weaknesses in the FDA’s oversight of foreign drug manufacturers. Meanwhile, the country’s drug supply chain began a mass migration overseas.
Yet flawed oversight alone does not mean that patients are being harmed.
Reports involving foreign-made generic drugs have seen an uptick in recent years. In 2020, for example, Harry Lever at the Cleveland Clinic documented that heart-transplant patients experienced organ rejection after switching to a foreign-manufactured generic immunosuppressant that failed to dissolve properly. Consequently, the hospital pharmacy began testing certain generic drugs before dispensing them to patients.
The Cleveland Clinic was not alone in its concern, even though such fears are widely seen as unwarranted by the nation’s medical establishment. By 2023, some healthcare providers had enlisted outside laboratory services to screen out subpar generic drugs because they could no longer rely on the FDA’s assurance of equivalence.
Until a few years ago, it would have sounded outlandish for American healthcare institutions to question the safety and efficacy of approved medicines. Yet such concerns gained credibility as reports of widespread contamination among FDA-approved products increased. Between 2019 and 2024, one independent laboratory found carcinogens in commonly prescribed drugs, prompting major recalls of medications used for conditions such as high blood pressure and diabetes. Even so, a pattern of recalls is insufficient to conclude that patients have been harmed.
A Referee on the Sidelines
Investigative journalists have helped establish clearer links between FDA oversight gaps and its impacts in the real world. In 2023, ProPublica reported that bacteria-tainted artificial tears made at a facility in Tamil Nadu, India, were linked to three deaths and eight cases of blindness in the United States, and that the FDA had never inspected the plant before the outbreak. Last year, this same publication found that a medication manufactured in Madhya Pradesh, India, had been linked to at least eight deaths. The facility had not been inspected since before the COVID-19 pandemic.
The agency’s uneven inspection record is part of a larger pattern of thin oversight. By 2022, the share of overseas manufacturers that either had not been inspected within five years (or had never been inspected at all) had risen to more than four out of every five, according to GAO data summarized by ProPublica. While domestic inspections are still typically unannounced, foreign facilities are often given advance notice.
Predictably, fewer inspections open the door to taking shortcuts by drug manufacturers, fueling the modern phenomenon of chronic drug shortages, which has increasingly drawn the attention of lawmakers concerned about drug quality and supply reliability.
A skeptical reader would be within his rights to dismiss these examples as anecdotes rather than evidence of systemic harm. Indeed, supply-chain complexity and regulatory pushback have historically stifled efforts to draw firm conclusions about cause and effect.
As many independent investigators have found, the opaque global drug supply chain makes it difficult to trace the origin of medicines in circulation. For its part, the FDA also stands in the way by enforcing a non-disclosure policy that declares drug manufacturing sites to be proprietary information. The FDA has at times withheld manufacturing-related information in response to Freedom of Information Act (FOIA) requests, citing confidential-information protections, which has made it difficult for outside researchers to trace drugs to specific manufacturing sites.
However, thanks to the persistent efforts of an international group of researchers, a more complete picture is beginning to take shape. Recently, a team of academics from the United States and South Korea employed an ingenious method to bypass the FDA’s data restrictions in a study of generic-drug safety. Published in a peer-reviewed journal last year, the results provided a novel form of empirical evidence that brought systemic patient risk into clearer view. Analyzing a large sample of generic drugs manufactured between 2009 and 2020 and controlling for confounding factors, the researchers found that medicines sourced from India were associated with 54% more hospitalizations, serious injury, disability, or death than the same generic drug produced in the United States.
“I think it’s quite groundbreaking,” the study’s co-author, John Gray, told us shortly after publication. The effect was most pronounced—167 percent—for the oldest and most commonly prescribed drugs, possibly because lower profit margins create stronger incentives to cut corners in the manufacturing process.
Similar findings are also emerging from private laboratories such as Valisure.
Although most of the drugs the company has tested display basic markers of quality, it estimates that roughly one-tenth of the drug supply in circulation exhibits significant deficiencies. David Light, the company’s chief executive, emphasized the broader implications during our conversation: “This isn’t a one-off problem,” he said. “Low-quality drugs are a systemic problem.”
When asked whether he believed low-quality drugs were having a real effect on public health, he answered plainly: “Absolutely.”
Private Enterprise Filling in the Gaps
Light founded the independent testing laboratory after a friend’s alarming experience with inconsistent generic medication for a seizure disorder. In addition to contributing to public health research, the company had gained commercial traction by 2025, counting Kaiser Permanente—the country’s largest integrated health system—among its clients.
The Connecticut-based laboratory has also drawn interest from the military health system. As one of the world’s largest purchasers of generic drugs, the Department of Defense entered into a contract with Valisure in 2023, due largely to the concerns of a now-retired Pentagon veteran.
Colonel Victor “Vic” Suarez is a military medical procurement expert whose service record includes major public-health initiatives, including Operation Warp Speed. During the COVID-19 pandemic, he was tasked with assessing risks to the military’s pharmaceutical supply chain. On our call, Suarez explained that his earlier work had exposed him to the fragility of the international drug-contracting system, including the sobering reality that the military often depended on geopolitical rivals for medicines.
When reading through the multibillion-dollar contracts with drug wholesalers, he looked for basic signs of quality control. He found none. "My first step was to look for the word 'quality'," he said, adding that the keyword search yielded zero matches. Disturbed by what he saw, he helped enlist Valisure to run a pilot study for the Military Health System that would independently test and quality-score a set of finished drugs used by service members and their families.
For his part, the colonel is especially concerned about the cumulative harm that can be inflicted on the nine-and-a-half million beneficiaries of the health plan by drugs that are considered safe but are nevertheless tainted. “For medicines one takes chronically—if ten to twenty percent are laced with small levels of lead, arsenic, carcinogens—that means they collect over time,” Suarez said, citing chemical findings from Valisure.
In a striking turn, the project was nearly derailed in 2023 by the nation’s top drug regulator. A Bloomberg investigation, citing multiple government officials, reported that the FDA sought to block the project. According to the report, the intervention also sidelined a broader White House initiative intended to introduce third-party testing more widely across government procurement channels. Defense officials, however, proceeded with a narrower pilot anyway.
These actions by the FDA fit a recurring pattern. Although lawmakers and consumer-rights advocates have credited the laboratory with providing a valuable public-health service by surfacing contamination concerns that were ultimately vindicated, Valisure’s relationship with the agency appears to have been marked by repeated friction. In 2021, for instance, Valisure reported detecting a carcinogen in common consumer health products, prompting a massive wave of FDA recalls. Shortly afterward, the regulator subjected Valisure itself to an unusually aggressive inspection, according to Consumer Reports (CR). The episode culminated in a letter faulting the company for compliance issues.
The inspection’s timing raised eyebrows among outside observers. “I fear, whether deliberate or not, the FDA is in the act of shooting the messenger,” Connecticut Congresswoman Rosa DeLauro said in a statement following the episode. Brian Ronholm, director of food policy at CR at the time, likewise questioned why the FDA would appear to undermine a mechanism that could help protect consumers from unsafe products:
“Independent testing like Valisure’s provides another avenue for protecting consumers from unsafe products, so it doesn’t make sense that the FDA would seemingly try to undermine it.”
Perception versus Reality
If the agency’s scale and commitment are any indication, the FDA spares no expense in safeguarding public health. With a staff of approximately 20,000, the drug regulator is a highly sophisticated institution staffed by scientific review teams, statisticians, and inspection corps based at its Silver Spring, Maryland headquarters and at satellite locations throughout the world. What, then, explains these lapses?
We heard many different explanations, some more charitable than others. One professor at Johns Hopkins University said that even well-meaning government officials, when pressed, are ultimately guided by self-interest and do not want to appear incompetent. Others suggested that the agency is less concerned with reputation management than with upholding its scientific authority to make binding determinations about drug safety and efficacy.
The latter view, for which there is arguably more circumstantial evidence, points to the importance of narrative control, a key pillar of the broader system as it exists today.
“That all generics are equivalent is a narrative that everybody has to follow,” explained Gray, who consulted with the regulator under the previous administration. “And when anything says something different from that, the higher-ups at the agency don’t want it discussed or entertained.”
Emma Yasinski, an investigative journalist who has covered patient complaints about generic quality, described a similar pattern of deflection. “We reached out to the FDA on a few occasions,” she told us, “and we’ve gotten pretty consistent boilerplate responses.”
Yasinski writes for the MedShadow Foundation, which is an independent nonprofit publication focused on medication safety and patient experience.
Based on our conversations across the healthcare system, it is evident that the official narrative Gray described remains unchallenged. All but one of the practicing physicians we spoke with endorsed the official premise that all generic drugs are, for their purposes, equivalent. Some practitioners acknowledged that patients report differences in efficacy or side effects, which they attributed to the well-known psychological phenomenon of the placebo effect. This should not be surprising, given that following agency guidelines forms a key part of medical education. One recent medical school graduate, who has trained in diverse hospital settings, recounted that the only part of his curriculum that dealt with generic drugs was to reinforce the idea that generic drugs were equal to the brand.
However, the consensus is beginning to show signs of strain. “For my own family’s care, I buy brand name only,” one psychiatrist told us. Given the relatively high cost of brand-name medicines, the Colorado-based practitioner sources his own medication from Canada when possible.
Yasinski told us that in her reporting on stimulant medications, some physicians treating ADHD patients were more willing to question that premise. “ADHD doctors said, ‘Yes, we are seeing this. We think this is a problem.’” She said those doctors described a recurring pattern: After a switch in manufacturers, some patients reported worsened symptoms or new side effects. Some physicians, she added, responded by raising the dose.
Beyond the doctor’s office, the narrative also shapes large swaths of the national healthcare economy, whose total spending, at over $5 trillion, exceeds the entire economic output of Japan. We spoke with current and former leaders of groups that form an important part of that broader system. Mike Tuffin, the president of AHIP, the trade organization for health plans whose member organizations insure over 200 million Americans, told us he had not heard of reports challenging the assumption of equivalence. When we shared new evidence of potential risks, he paused before responding, “Obviously, the health of the public comes first.”
But what accounts for the agency’s inability, or unwillingness, to take decisive action and strengthen oversight of problematic foreign producers? If its oversight functioned as intended, after all, there would be no need to safeguard public perceptions.
We asked public policy experts how to explain the persistence of problems first highlighted more than a generation ago. While some suggested that senior bureaucrats tend to prioritize job security over rocking the boat, others offered a more accommodating explanation for the agency’s shortcomings. In their view, leadership fears sparking unwarranted panic about drugs already in circulation.
Yet the theory that emerged as the most plausible is also among the least obvious: If the FDA were to ramp up enforcement, the thinking goes, a separate crisis would inevitably ensue. More robust inspections at manufacturing facilities located abroad would inevitably lead the agency to find numerous cases of critical rule violations, which would effectively force the FDA to halt all production into the United States. Since many essential medicines originate from just one or two manufacturers, such closures would spawn widespread shortages.
The relationship between manufacturing quality and supply-chain disruption was highlighted in a 2019 FDA report, which found that over six out of ten drugs that went into shortage between 2013 and 2017 did so after supply disruptions associated with manufacturing or product-quality problems.
“And then a cancer patient doesn’t get their cancer drug,” explained a former congressional policy adviser who has participated in closed-door discussions between lawmakers and drug manufacturing industry representatives. Behind closed doors, he said with a chuckle, the higher-ups speak more candidly about the conundrum in which they find themselves. “The FDA is stuck between a rock and a hard place,” he said.
- How generic drugs became one of the healthcare system’s–and the country's–most celebrated cost-saving tools
- Why the rise of substitution depended on building public confidence in equivalence
- How the economic logic behind generics helped reshape the modern drug market
While it would be convenient to treat this as a bureaucratic problem that could be solved by instituting a series of corrective actions inside the FDA, the issue is deeply rooted in the broader healthcare ecosystem.
Far from operating in isolation, the FDA is only one part of a larger network shaped by political and market forces that should, in theory, provide additional safeguards for patient safety. In sports terms, one might imagine a soccer player committing obvious fouls without ever being shown a red card. If the boos of the crowd were not enough to pressure the referee to do his job properly, then the other stakeholders who keep the league afloat—broadcasters, sponsors, ticketing partners, and team owners—would have strong incentives to force reform in order to protect the fan experience.
What, then, explains the apparent absence of checks from either the healthcare system itself—the institutions that partner with the generic-drug industry—or from elected officials, who ultimately have the final say? As many discover in their own dealings with the nation’s byzantine healthcare system, straightforward answers are rare.
Basic Economics
The federal government, the single largest buyer of prescription drugs in the world, likes a good deal. And generic drugs present a rare bargain in the notoriously profligate healthcare system.
Unlike the brand-name pharmaceutical industry, which generally rewards companies for creating new and better medicines that can command high prices for a contained period of time, generic drug makers face far greater competition and are typically rewarded only for producing drugs more cheaply than their rivals. It is a basic principle of economics that when buyers cannot distinguish between high-quality and low-quality products, as with commodities, they will choose the cheapest option. But that principle works only if the products are truly equivalent.
Although drugs are treated that way both legally and in practice, pharmaceutical products are not commodities. When one buys wheat or crude oil, its relative simplicity helps ensure basic interchangeability: a bushel of wheat from Kansas is essentially the same as one from Germany. Pharmaceutical drugs, by contrast, are chemical formulations whose quality depends on precise molecular structures, bioavailability, dissolution rates, and complex manufacturing processes.
Because the healthcare system treats generic drugs as equivalent, they are subjected to the same market forces as commodities. Gray describes the logical endpoint of that idea:
“If you can’t look at a drug and tell whether it’s high quality or not, and you’re told it doesn’t matter, then there’s no way for manufacturers to compete on quality. That leaves only one option—compete on price. And that’s what drives the race to the bottom. Basic economics.”
This phenomenon is what makes the defining feature of today’s generic-drug system, paradoxically, both its greatest achievement and a source of its gravest problems.
Because generic drugs are meant to deliver the same therapeutic benefits at a fraction of the cost of the brand-name alternative, they have understandably won strong support from lawmakers in the Capitol, who oversee the world’s largest budget deficit. For its part, the FDA is well aware of this. In 2022, Patrizia Cavazzoni, then director of the FDA’s Center for Drug Evaluation and Research, reminded lawmakers of generics’ importance to Washington’s fiscal goals:
“Patient confidence that generic drugs will work the same as brand products, and can be freely substituted, is the foundation for trillions of dollars in savings that generics have produced for the healthcare system."
Since the FDA allows free substitution between brand-name drugs and generics, institutions in the healthcare market have embraced generics with open arms. Historically, ordinary Americans themselves have been far more skeptical.
The Origins
Generic drugs are now so commonplace that when most Americans pick up a prescription at the pharmacy, they do not know or care who actually produced the pill, capsule, or injectable. Earlier generations had more reason to be skeptical of marketed remedies, even for routine ailments, thanks to memories of snake-oil salesmen and other medical scandals from the early twentieth century. In 1937, for example, an innocuous-sounding, raspberry-flavored liquid antibiotic was dissolved in a poisonous solvent and killed more than 100 people.
Despite the beginnings of federal regulation with the 1906 Pure Food and Drugs Act, patients remained wary of drugs from unfamiliar companies. If given a choice between Bayer Aspirin and an unlabeled pain medicine, patients would reliably choose the former.
But when price was an important consideration, plain aspirin may have earned a second look.
Although brand-name drugs benefited from the all-important aura of trust, some competitors used lower prices to carve out a sizable share of the market. By the late 1940s, pharmacies had begun substituting generic versions. In the zero-sum world of prescription drugs, however, that meant one fewer customer for the brand-name manufacturer. The practice quickly met opposition from the trade group representing brand-name pharmaceutical companies, which argued that substitution would harm innovation and reduce the quality of patient care, as well as from healthcare groups representing clinicians and pharmacists. The lobbying paid off, and, by 1959, nearly all states had passed laws against substitution.
Those effects proved short-lived, however, as prescription medicine was swept up in a larger and more durable development. In the ensuing decades, healthcare costs as a share of total economic output nearly quadrupled, rising from less than five percent in the 1950s to nearly one-fifth by the late aughts. The growth of employer-sponsored insurance and the creation of Medicare and Medicaid meant that someone else, whether the government, employers, insurers, or some combination of the three, was picking up the tab. Over time, reducing medical expenses became an imperative for both Washington and Corporate America.
To curb ballooning medical costs, one obvious option was for the government to institute price controls. But unlike leaders in peer nations facing similar pressures, American policymakers worried that a more socialized system would deter the risky private investment needed for future medical breakthroughs. Instead, politicians and healthcare leaders turned to a more market-friendly solution: replacing expensive brand-name drugs with more affordable generic counterparts. That approach, however, could work only if the public was willing to trust generic drugs with its health.
Before long, what had once been a patchwork of state-specific rules gave way to a uniform federal framework for prospective drugmakers. By requiring new generic versions to undergo the same rigorous safety and efficacy testing as their brand-name counterparts before receiving FDA approval, Congress hoped to alleviate concerns about poor-quality drugs entering circulation. Yet this arrangement, which remained in place from 1962 to 1984, ultimately proved impractical.
These stringent requirements proved too costly for would-be manufacturers seeking to produce cheaper alternatives, and two decades later generic medicines still accounted for only a small fraction of prescription volume. The promise of a generics-filled future faced an obvious problem: How could prospective generic drugmakers be expected to conduct the same lengthy and expensive studies as brand-name manufacturers while selling the same drug for a fraction of the price?
An ingenious resolution would arrive many years later from the halls of the Capitol.
“We’re all for lowering government costs,” declared President Ronald Reagan during a Rose Garden ceremony on the afternoon of September 24, 1984. He went on to extol the Hatch-Waxman Act, as the law came to be known.
Thanks to recent advances in scientific techniques developed at the FDA, it was now possible to do what only a few years earlier had seemed like wishful thinking. The keystone innovation in the bill was a new biomedical concept that would replace lengthy clinical trials as the basis for showing that a generic drug was as safe and effective as the brand-name version. If a manufacturer seeking approval for a generic drug could demonstrate that the candidate’s behavior in the human body mirrored that of the already approved brand-name medicine, then the regulator could presume that it would work just as well therapeutically.
Dubbed "bioequivalence," the concept was scientifically robust enough to silence most skeptics without imposing undue burdens on aspiring generic-drug manufacturers.
In addition to making it easier for newcomers to enter drug manufacturing, the law addressed fears of hampering innovation by including provisions that incentivized further investment in new pharmaceuticals and biotechnologies. “Everybody wins,” the president concluded, moments before signing the bill into law and ushering the country’s drug system into a new era.
Public indifference about the difference between generic and brand-name drugs is far from a given, as leaders in other countries have learned. Despite the best efforts of their governments to promote public acceptance, generic drugs represent only a small fraction of prescriptions in countries such as Italy and Switzerland today.
Contrary to the triumphant version often told by industry insiders and political leaders, the Hatch-Waxman framework was far from an immediate success. Its early years were marred by scandal that galvanized the public and threatened to undo decades of work.
An investigation found that several aspiring generic drug manufacturers had falsified data and bribed FDA officials to speed the approval of their drugs. Although the agency attributed the problem to a few bad apples, the public was alarmed. A 1989 Gallup survey found that most Americans feared generic drugs were not manufactured to the same standards as their brand-name counterparts.
For the nation’s public health authorities, the “Generic Drug Scandal,” as The New York Times described it in 1989, revived memories of infamous mid-century medical crises that had only recently begun to fade from public consciousness. In a story for the Deseret News at the time, C. Neil Jensen, executive director, Utah Pharmaceutical Association, reiterated the establishment consensus that there was no evidence generics were inferior. To his frustration, his customers felt differently. “They are asking for brand names again,” he told the paper.
With decades of effort now at risk of unraveling, lawmakers sprang into action. In 1992, Congress sought to address lingering quality concerns by empowering the FDA to punish manufacturers that failed to maintain compliant production processes over time. The agency also conducted surveys of drugs in circulation in 1989 and 1991 to assess the scale of the risk to the public. Those surveys proved valuable because they uncovered evidence of quality lapses. Public health authorities then went further still and took a step that might seem unusual today: They released the findings and let the public judge for itself.
Instead of damaging the agency’s reputation, this display of transparency may have reassured the public that the regulator was willing to confront quality problems openly.
By the 1990s, American attitudes had shifted from fear to indifference. In the years that followed, capsules and tablets from unknown drugmakers slowly took up more shelf space in medicine cabinets across the country, and, by the early 2000s, generic drugs accounted for roughly half of all prescription volume.
More than four decades later, the Hatch-Waxman Act is widely regarded as a roaring policy success. The mainstreaming of generic drugs has worked remarkably well. Contrary to popular narratives about spiraling drug costs burdening American patients, the average cost of generic medicines to the American healthcare system is lower than in most peer nations. And fears that low-cost generic drugs would discourage investment in novel treatments proved unwarranted: Since the law’s passage, annual spending on pharmaceutical research and development has grown tenfold.
OECD Countries Comparison
- How the commoditization of medicine helped turn generic drugs into a race-to-the-bottom
- Why foreign manufacturing, weak oversight, and middlemen made the system harder to police
- As the country's drug supply chain transformed, the FDA struggled to evolve its oversight protocol and is increasingly under fire by lawmakers
- How the same structures that lower costs also contribute to shortages and patient powerlessness
Although the business of creating new drugs frequently conjures images of sleek laboratories and pills moving along a conveyor belt, the real value in the brand-name drug industry lies in something more abstract: patents and other forms of intellectual property. Because pharmaceutical innovators in advanced economies have a legal right to monetize patents linked to new medicines, it can be prohibitively expensive for poorer countries to build their own drug industries.
In the 1970s and 1980s–while the United States was still grappling with ways to usher generic drugs into the mainstream–a country on the far side of the world was beginning a generic-drug revolution of its own by, in effect, telling the developed world: too bad.
By passing India’s Patents Act of 1970 and effectively opting out of the international rules that protected brand-name drugs abroad, India gave its scientists and entrepreneurs room to reverse engineer medicines to meet urgent domestic needs. The gamble worked: The policy not only expanded medical access at home, but also planted the seeds that eventually turned India into a generic powerhouse and helped earn it the nickname “the world’s medicine cabinet.”
The timing proved fortuitous. Just as Indian chemists and manufacturers had acquired the intricate skills needed to mass-produce small-molecule drugs, the Hatch-Waxman Act made it possible for Indian manufacturers to capture a share of the world’s most valuable market: the United States. Buoyed by low labor costs, state support, and growing technical skill, the fledgling Indian drug-manufacturing sector was particularly well suited to capitalize on the opportunity. Because the FDA treated approved generics as therapeutically equivalent, buyers had little reason to prioritize anything but cost. As Colonel Suarez told us in describing procurement for the nearly ten million-member Military Health System, "...the main criterion was [to attain] the lowest possible price."
Unsurprisingly, over the following decades, India became the leading source for American drug buyers seeking lower prices. That shift mattered because once the supply chain came to depend on factories half a world away, the question was no longer whether India could manufacture at scale but, rather, whether the system could reliably police quality across borders.
Today, there are approximately 670 facilities in India that are permitted by the FDA to produce drugs headed for American pharmacies.
One of the winners of the Indian generics boom is multibillionaire Pankaj Patel, whose company, Zydus, recently celebrated record earnings thanks to higher-than-expected sales in the United States. Yet the celebration obscured a troubling corporate history. Only nine months earlier, for example, the FDA had cited the firm after inspectors found glass shards in injectable vitamins and cross-contamination in batches of heart medication. Nevertheless, industry analysts expect demand for Zydus and other Indian generics to continue growing in the United States, their most valuable market.
In the global race to push generic-drug prices ever lower, Indian manufacturers have surged ahead by coupling low-cost labor with deep vertical integration and state support unavailable to most foreign rivals. The Zydus episode is hardly unique, and some experts fear it reflects a broader pattern in which low-cost manufacturers cut corners by releasing batches that barely meet minimum standards for potency or dissolution.
Given the inherent complexity of drug manufacturing, regulation has always depended to some degree on good faith between regulator and manufacturer, a reasonable assumption in unusually high-trust settings such as Japan and Finland. Dinesh Thakur, the hero of Katherine Eban's book whose whistleblower testimony led to the downfall of India's largest drug maker, summarized the problem bluntly: “The honor system does not work in India.”
Even so, demand for Indian-made generic drugs has shown no signs of abating. In 2024, Indian generic manufacturers reported record exports of roughly $28 billion.
Playing by Different Rules
Although they operate outside of the legal jurisdiction of the United States, foreign manufacturers are expected to maintain the same high standards of compliance as domestic drugmakers. To help ensure that medicines arriving from overseas plants meet those standards, the FDA operates a special enforcement unit known as the Foreign Inspection Program (FPI).
The record suggests that the FPI has fallen woefully short of that goal, and, in practice, facilities outside of American jurisdiction are effectively held to a different standard.
For example, in the United States, the FDA conducts its facility inspections without warning, and any refusal to comply would trigger an immediate halt to all production activities and subject the offending employees to federal prosecution. In contrast, for foreign facilities the agency often announces its inspections months in advance. Certainly, having time to get the house in order can make passing inspections easier: When the FDA piloted short-notice and unannounced inspections in India in 2014 and 2015, inspectors found serious violations at a much higher rate—up almost 60 percent.
Moreover, the threat of legal recourse is weak in foreign jurisdictions, where any enforcement action depends on the cooperation of the host government. According to Thakur, India’s own regulator cannot be relied upon to enforce proper compliance either. If the FDA were to abandon the country altogether, he said, “there will not be any reason for the Indian [manufacturers] to continue to comply with [quality] standards.”
The FDA's lighter touch in distant jurisdictions gives foreign manufacturers yet another advantage in an industry where following the agency's rules levies a substantial financial cost. Beyond the troubling health implications, some critics argue that the current arrangement amounts to a kind of reverse tariff, or, put differently, a tax on American companies. “They think it’s fundamentally unfair to American manufacturers,” a recently retired congressional aide told us, referring to lawmakers who have been briefed on the disparities.
Although mentioned less frequently, language barriers are another source of risk. Oregon Congressman Greg Walden highlighted the problem in a rhetorical question during a congressional hearing in 2019:
“In about 80 percent of inspections, FDA sends only one inspector, who is often reliant on the drug firm’s employees or agents to do the translation. What could go wrong there?”
The Agency's Blind Spot
When we asked Suarez to explain the agency’s apparent inability to police foreign facilities, the drug procurement expert offered a sobering diagnosis. “The FDA was focused on process, not results,” he said, referring to the last two decades, when the drug supply chain underwent a global transformation.
While the details of the agency’s process are largely hidden from public view, the last quarter century has produced a troubling record. Since the first GAO report was published in the late 1990s, when American reliance on Indian generics was still negligible, the FDA has faced mounting criticism not only for its opacity but also for what that opacity appears to conceal: chronic under-inspection and long stretches during which many foreign plants supplying the American market go years without an FDA visit. An investigation found that in 2022, only six out of every 100 foreign manufacturing sites were inspected. The inspection rate was even lower for India, at three per 100 facilities.
The FDA has long argued that limited resources constrain how many foreign plants it can inspect. Congress tried to close that gap between 2012 and 2022 by repeatedly renewing the Generic Drug User Fee Amendments, which allow the agency to fund parts of its generic-drug program, including inspection capacity, through industry user fees (with higher fees for foreign facilities), and by adding appropriations aimed specifically at foreign inspections. As of the time of writing, it is unclear whether that additional funding has translated into more frequent inspections or more rigorous ones.
Either way, the FDA's attempts at course correction have not satisfied the House Committee on Energy and Commerce, which oversees the agency. In 2023, that frustration prompted the Oversight and Investigations subcommittee to open its own probe, digging into roughly a decade of inspection records and outcomes. In addition to faulting the FDA for a lack of transparency, a 2024 letter to then-Commissioner Robert Califf cited what it called, "example[s] of institutional weaknesses and dysfunction." Disturbingly, the committee said it saw suspicious patterns in inspection outcomes, raising the possibility of “bribery or fraud.”
Even with ample reason for caution about certain imported generics, American demand has continued unabated. The explanation is not a conspiracy or a single failure but, instead, a set of structural and economic forces that together keep the system running on autopilot.
While there are many different issues at play, the lack of consumer agency rises near the top.
"Even if you knew about a quality failure, you would not be able to do anything about it," healthcare policy researcher Catherine Ishitani explained to us. At the time of our conversation, Ishitani was a doctoral student at the Wharton School of the University of Pennsylvania; she is now completing a postdoctoral fellowship at Yale University.
While the FDA does maintain formal channels for the public, including MedWatch reporting for product quality problems, these channels are slow and technically demanding. In other words, there is no Yelp or Better Business Bureau for generic drug manufacturing.
Furthermore, the healthcare marketplace removes consumers from the equation almost entirely, and rewards middlemen for focusing on low-cost drugs without bearing any of the associated risks.
“Consumers can’t do much. When you show up at the CVS and have a problem with the medicine, you don’t know what to do with it,” Ishitani said. If a patient is concerned about quality, there is usually no reliable way to ensure that the next refill comes from a manufacturer with a strong compliance record, nor is there any way to pay for that assurance, even if the patient is willing to pay a premium. In effect, the consumer is cut off from the ordinary market mechanisms that signal preference.
Instead, a cadre of middlemen exerts substantial, if often unnoticed, influence over virtually every person with prescription-drug coverage. That influence appears in routine moments such as when a patient being treated for hypothyroidism is prescribed brand-name Synthroid but receives generic levothyroxine at the pharmacy—or when a patient learns at the counter that the brand-name drug a physician chose is “nonpreferred,” carrying a steep copay, while a therapeutically similar alternative is far more affordable under the plan’s rules.
Because the marketplace is dominated by third parties, the person who takes the medication is rarely the one weighing options, negotiating, and paying. Instead, those choices are made upstream by intermediaries who bargain with manufacturers and decide which drugs are “preferred” for a given condition on a plan’s drug list, or formulary, typically organized into tiers that determine what a patient pays. Lower tiers generally cost less and, more often than not, are dominated by generic drugs.
These drug lists are typically administered by pharmacy benefit managers (PBMs), entities at the heart of the prescription-drug system. In recent years, PBMs have drawn unusually intense scrutiny from both Washington and the private sector. A House Oversight investigation, for example, said PBMs “play an oversized role” and use “deliberate pricing tactics to line their own pockets.” Meanwhile, entrepreneur Mark Cuban, a cofounder of a direct-to-consumer online pharmacy built around transparent, cost-plus pricing, has been even more blunt, arguing that “the dominant three PBMs put stock price over health.”
Given their central role in the system, we spoke with PBM veterans to better understand whether concerns about generic-drug quality play any meaningful role in how they evaluate drugs.
The responses were less than reassuring. “I was unaware of quality concerns during my tenure,” said Amy Bricker, the former president of Express Scripts, the pharmacy benefit manager serving over 100 million members. Bricker’s response reflected a broader pattern among industry executives, many of whom said they were previously unaware of the risks posed by generic drugs. The pattern extended into public policy as well: Matthew Fiedler, a distinguished healthcare economist with deep expertise in PBMs, was similarly unfamiliar with the concerns we raised. Instead, the former chief economist at the White House Council of Economic Advisers, argued that PBMs play a valuable role in lowering drug prices by negotiating between manufacturers and payers.
Fiedler, who worked on health policy for the Obama administration, including the implementation of the Affordable Care Act’s coverage expansions, is now a senior fellow at the Brookings Institution.
Whatever role these intermediaries may or may not play in contributing to dysfunction within the system, they cannot be accused of rule breaking. After all, the very structure of the market, with the FDA's blessing, gives institutions a convenient rationale for treating all approved generics drugs as if they are commodities. As MedShadow reporter Yasinski put it, the system operates with a kind of plausible deniability: Because quality is largely opaque, healthcare companies can continue rewarding the lowest price. "It’s a race to the bottom on price because you can’t compare quality."
Payers
Insurers
Health Systems
Shortages
Competition is supposed to make markets work better. But what happens when the race to the bottom becomes so relentless that only one or two manufacturers are left standing?
The demand for rock-bottom prices is closely linked to chronic drug shortages. Once relatively uncommon in American healthcare, shortages came fully into view during the pandemic, when supply-chain disruptions exposed how little slack remained in the system. Many of the most persistent shortages have involved sterile injectables used in hospitals, including essential medicines used in intensive care, cancer treatment, and emergency procedures. When those drugs run short, the consequences are immediate: treatments are delayed, hospitals ration supply, and clinicians are forced to use less familiar substitutes. In the first quarter of 2024, one group tracked over 300 active shortages, the highest level since it began keeping records in 2001.
The combination of razor-thin margins and commodity-like price pressure has helped create a genuine market failure. Competition, in itself, is welcome. The real problem arises when price pressure becomes so extreme that manufacturers have little room to maintain backup capacity, invest in reliability, or remain in the market at all. As former FDA economist Marta Wosińska said in an NPR Planet Money segment in 2024, “There is this tremendous price pressure,” and some life-saving drugs now cost “less than a cup of coffee.” In a normal market, higher prices would attract new supply and reward manufacturers that invest in resilience, but when essential generic drugs are treated as interchangeable commodities, purchasers instead drive prices toward the floor.
A healthy market would have a broader base of manufacturers, so that one plant failure would not threaten the national supply of an essential medicine. In the current system, however, a single disruption can quickly become a nationwide shortage. If one manufacturer is forced offline, whether because of quality failures, regulatory action, or operational breakdown, there is often no backup supplier ready to pick up the slack. Even if prices eventually rise enough to attract new entrants, it can take years before additional finished medicines reliably reach patients.
A fair objection is that low costs are, after all, a social good, and that the alternative sounds like simply paying more for drugs. But reliability has a price of its own, and but does not necessarily have to be dramatic. Several experts we spoke with said the supply chain could be made significantly more resilient if the largest purchasers paid a modest premium for reliability and quality. Even a few more pennies per pill can be enough to make the financial math work to bring in more manufacturers.
That point also connects to a broader dysfunction in the system. When only one or two manufacturers remain for an essential drug, regulators face a perverse disincentive: enforcing the rules too aggressively can itself trigger a shortage.
There is some good news. Although we have seen little evidence that the largest buyers systematically pay more in exchange for stronger quality assurances, some market discipline does appear to resurface after the fact. Ishitani’s research, for instance, found that after a major FDA recall at a manufacturer, buyers become willing to pay more for suppliers with better track records. But she cautioned that the motivation is not necessarily patient safety as such, but rather avoiding costly stock-outs and shortages.
There are also encouraging signs that innovative approaches from independent organizations are tackling the root cause of the problem. Some of these groups were highlighted in a recent GAO report as potential models for others to follow. “The root cause is the low cost of generic medicines,” Ned McCoy, the head of one such organization, CivicaRx, told us. To counter the dysfunction associated with low prices, his nonprofit helps hospitals secure a dependable supply through multiyear agreements that offer manufacturers stable volumes and margins in exchange for reliable production. With support from several state health systems and philanthropies, CivicaRx also partnered with the Department of Health and Human Services during the pandemic to spur domestic production of essential generic medicines and their ingredients.
Asked how CivicaRx guarantees both quality and supply-chain stability for hospitals, he pointed to a careful sourcing strategy that prioritizes materials from the United States, followed by other dependable jurisdictions such as Canada and the European Union. “We also source from carefully selected partners in India,” he added.
- Why there may be an opening for reform in Washington
- Which reforms could improve transparency, oversight, and quality
- Why any serious fix would require confronting the deeper structural issues
Whether the status quo will endure remains an open question, but, according to a person close to the White House, senior leadership, including the president, is open-minded about the possibility of reform. What might reform look like in practice? To explore that question, we consulted several experts about the paths Washington could take in partnership with industry and innovators.
No intervention is without challenges, but the risk of inaction is becoming greater each year as the nation's reliance on foreign drugs continues to expand. Since the system and its dysfunction trace their origins to an act of Congress (i.e., the Hatch-Waxman Act), durable reform can only come from the government itself.
The key to fixing a problem is to first acknowledge that one exists at all. Thanks to a growing body of evidence, reality is increasingly hard to ignore–even for the FDA and the lawmakers expected to oversee it. This is where we find our first reason for optimism.
Breaking with a pattern set by prior administrations, the Trump administration has acknowledged that a problem does, in fact, exist, a source told us during the early months of the president’s second term. Soon afterward, Makary, as was mentioned, announced that the agency would expand the use of unannounced inspections at foreign manufacturing facilities producing essential medicines for American patients. Without further updates from the agency, however, the practical effects remain unclear.
The administration can carry that same transparency into the supply chain by ending the practice of blocking or discouraging independent efforts to map, test, and publicly characterize where the country's medicines are made. Then, patients and researchers can see which manufacturers sit behind a given refill. And in the spirit of patient empowerment, the White House can take inspiration from its own Military Health System that has already developed, with support from Valisure, an objective drug quality rating system using simple color-coding of green, yellow, and red to signal manufacturer quality.
Other low-hanging fruit involves reversing the agency’s stance toward solutions provided by independent testing companies. To go even further—though such a move would likely provoke fierce industry opposition because it would disrupt existing business models—the FDA could narrow the threshold for bioequivalence, which it has the authority to set.
According to experts we spoke with, truly meaningful reform can be achieved only by upending the supply chain. Thanks to the massive purchasing power of the federal government, it may not be as difficult as it would seem. In fact, this approach has been explicitly advocated in the government’s own resilience assessment as a way to boost domestic manufacturing. Proactive government involvement in private industry may have been unthinkable a decade ago, but as evidenced by the CHIPS Act in 2022, targeted industrial policy is able to muster bipartisan support.
“Thankfully, it has so far been a very bipartisan issue,” said Nick Iacovella, the head of public affairs at the Coalition for a Prosperous America, a lobbying and research firm that represents domestic manufacturers. On the prospect of reshoring drug manufacturing from India and China, he is optimistic, citing the current president's views on global trade and economic policy. “The opportunity is there under Trump,” Iacovella said.
Yasinski, the investigative journalist, cautioned, however, against treating onshoring as a complete answer. In the drug categories she examined most closely, including stimulants and opioids, much of the manufacturing was already domestic. Bringing plants back to the United States may reduce some risks, but it does not eliminate the need for stronger controls.
Our reporting offered a preview of the uphill battle that any attempt to change the current paradigm is likely to face, including skepticism toward reform proposals even from those broadly sympathetic to them. Pointing to the in-and-out nature of the FDA’s site visits, Thakur threw cold water on the seemingly straightforward idea of adding more manpower in India. “This problem will not be solved by a more rigorous inspection program,” he admitted.
Other drug manufacturing experts noted the practical difficulty of policing every aspect of the complex production process, emphasizing the importance of trust between regulator and manufacturer. David Igo, an industry professional with decades of experience in the development of pharmaceutical agents, captured the challenge faced by any reform efforts that attempt to enforce compliance through regulatory enforcement, saying to us, "It's fundamentally a system based on trust."
When we asked a distinguished expert in the generics industry about the shortcomings of the Hatch-Waxman Act, he suggested that the law had not gone far enough in privileging generic over brand-name drugs. When presented with findings linking foreign-produced generics to higher rates of serious adverse events, the veteran industry lawyer dismissed them as “good old PhRMA propaganda,” referring to the brand-name pharmaceutical lobby. “There’s a long history of trying to create insecurity and instability around generics,” he said.
We encountered a similar sentiment in many conversations with professionals from the generics industry and related fields. More often than not, the discussion shifted instead toward the pricing practices of the brand-name pharmaceutical industry.
Given the longstanding rivalry between generic and brand-name drug makers, some skepticism toward the latter was to be expected. But we were surprised to find that questions about the FDA touched a deeper nerve, perhaps foreshadowing even greater challenges ahead. Grappling with evidence that contradicts a longstanding narrative can unsettle more than professional loyalties; it can also shake one’s faith in scientific authority itself.
“Let’s just say I am skeptical,” said one industry professional in response to the claims made in Eban’s book and the findings discussed in this article. The seasoned manufacturing professional added, in a sterner tone, that the problems in India were not as severe as such accounts suggested, though he had no direct experience in foreign operations. “If the FDA is aware of any problems, I have trouble believing it would fail to act,” he said.
By one reading, the current generic drug paradigm represents the best of America. Seeking to improve the healthcare system, lawmakers from both parties came together to craft a solution that ushered in an era of affordable medicines without extinguishing the incentive to innovate. Because the nation now relies on more low-cost generic drugs from abroad than ever before, many assume the story has ended happily. But unless the tensions within this paradigm are properly acknowledged, it may yet become a cautionary tale.
