Senate committee examines ways to strengthen the supply chain for hospital drugs

Vulnerabilities in the supply chain for pharmaceuticals are putting patients at risk and hampering healthcare providers, according to testimony at a recent Senate hearing.

The flaws manifest in shortages of vital drugs and in issues of quality and transparency, experts said during the Oct. 8 hearing of the Senate Special Committee on Aging.

In Q1 2024, shortages affected the availability of 323 essential medicines, according to data cited from the American Society of Health-System Pharmacists. The situation had improved as of September 2025, but there still were 199 ongoing shortages.

The recent shortages have affected the supply of antibiotics, emergency sedatives, oncology drugs and cardiac medications — “staples of care in hospitals,” Andrew Rechenberg, economist with the Coalition for a Prosperous America, which advocates for strengthening domestic production across industries, stated in his testimony for the hearing.

Rechenberg cited analyses indicating hospitals often have to pay markups of between 300% and 500% to obtain critical drugs during a shortage. Such costs can more than cancel out the savings from using lower-priced imports, he added.

A matter of safety

With more than 80% of the 100 most commonly used generic drugs lacking a U.S.-based source of active pharmaceutical ingredients (APIs), concern also involves the safety of drugs manufactured overseas, said Rechenberg and Tony Paquin, CEO of iRemedy Healthcare Companies, Inc., a Florida-based medical supply and technology firm.

The U.S. Food and Drug Administration (FDA) frequently cannot verify the safety of imported drugs and their ingredients, due to a lack of international requirements around transparency, panelists said.

“Hospitals, physicians and patients have no way to know whether their base medicine ingredients were produced in a world-class facility or a high-risk plant on the other side of the world,” Rechenberg stated.

Congress should require full disclosure via API country-of-origin labeling, site information for finished drugs, and a public FDA database tracking supply chains.

Without ready access to such information, “the hospitals themselves often don’t know what the supply chain risks are,” Rechenberg said.

While broad transparency is vital for the federal government, giving hospitals better advance notice of shortages may lead to stockpiling, testified Marta Wosińska, PhD, senior fellow at the Brookings Institution’s Center on Health Policy.

“Then FDA actually has much less time to try to fix the problem,” she said.

Promoting stakeholder accountability

Policymaking also needs to focus on aligning incentives in the supply chain, including for hospitals, experts said during the hearing. Numbers concerning the higher costs generated by shortages may seem significant system-wide yet come out to only about $60,000 per hospital annually, Wosińska noted. That doesn’t provide much incentive to shift purchasing strategies.

“If we want to have reliability, if we want to have resilience, if we want to have quality, we will have to pay for it,” she said.

A preliminary proposal issued by the Senate Finance Committee in 2024 would be a step in the right direction, she said. One provision would boost Medicare payment for providers if they sign long-term contracts to buy qualifying generic sterile injectables that have more reliable supply chains.

When the early draft of the bill was released, a potential concern for providers was that participants in the incentive program would be ineligible to receive 340B Drug Pricing Program discounts on included drugs. Wosińska argued there is a rationale for such a clause.

Passing the full cost of quality improvements to non-340B hospitals risks “loss of participation by those buyers if the potentially doubly higher prices would not be worth the add-on [payment],” she said.

Modifying contractual obligations

Panelists also urged reform to the established system of group purchasing organizations (GPOs), which they said promote affordability at the expense of flexibility.

“To win access to those [GPO] contracts, manufacturers must access rock-bottom prices,” Rechenberg stated. “Subsidized imports from China and India can sustain those margins, but U.S. producers cannot, and are driven out of the market … leaving hospitals dependent on single overseas sources.”

One policy recommendation at the hearing was for Congress to waive penalties for hospitals that go outside their supply contracts to buy domestically manufactured drugs.

Specifically, Congress can make safe-harbor protections for GPOs under the Anti-Kickback Statute conditional on the availability of exceptions for hospitals that buy domestically, Paquin argued.

Contracts also should be required to account for a drug’s FDA compliance history, redundancy of supply and domestic sourcing, along with price, Rechenberg said.

The tariff question

The Trump administration is seeking to improve the domestic pharmaceutical supply through several measures, one of which is a proposed 100% tariff on imported brand-name or patented drugs. Manufacturers would qualify for an exemption if they have a U.S. manufacturing plant or are in the process of building one. Also, the tariff would be lower based on rates in existing trade deals.

Participants in the Senate hearing had different takes on the efficacy of tariff policy. Sen. Rick Scott (R-Fla.), chair of the special committee, said tariffs should be expanded to include generic drugs as well.

Tariffs will not significantly increase costs, Rechenberg argued, in part because GPO contracts allow for modest price adjustments in such scenarios.

“Drugs are so inexpensive that even doubling manufacturing costs often adds only cents to a pill,” he said.

“Patients and hospitals are shielded [from price increases] by reimbursement systems, middlemen margins and contract structures,” he added.

But Wosińska said tariffs would be counterproductive in the absence of payment reform, especially if the goal is to address shortages.

“With margins low, the inability to recover now-higher costs means manufacturers affected by tariffs will face a choice: either further cut costs or exit the market,” she said. “The potential for further cutting costs is concerning because it can adversely affect product quality.”

Diversity is key

In comments submitted to the Senate committee ahead of the hearing, the American Hospital Association (AHA) wrote that drastic shortages of IV solution after a North Carolina plant was hit by Hurricane Helene in 2024 exemplify the risks of betting everything on a robust domestic supply.

“The AHA recognizes the value of reducing reliance on international sources,” according to the statement. “Achieving this goal will require significant time and resources, given the complexity of medical and pharmaceutical supply chains. Additionally, the importance of supply chain diversity as a means of protecting patient safety should not be underestimated.”

Viable 2025 congressional proposals, according to the association, would require HHS to perform a comprehensive risk assessment of the U.S. pharmaceutical supply chain and would mandate that producers of generic drugs maintain a six-month reserve of essential generics and APIs.