A report on the economic and public health returns on investment (ROI) in quality management initiatives

The report, published by the FDA's Centre for Drug Evaluation and Research and Office of Pharmaceutical Quality, dated July 2025, explores the economic and public health returns on investment (ROI) in quality management initiatives within the pharmaceutical industry. It argues that strategic investments in quality management not only improve efficiency and reduce costs for pharmaceutical manufacturers but also contribute significantly to public health by ensuring a reliable supply of medications and mitigating the impact of drug shortages. Introduction The report emphasises the importance of robust quality management as a key factor for business success, drawing from historical precedents in the electronic and automotive industries. It highlights the growing adoption of mature quality management practices in pharmaceutical manufacturing, driven by both business and patient-centric objectives. Economic Return on Investment (Part I) This section delves into the potential economic benefits of investing in quality management initiatives.

• Cost Reduction: Investments can lead to increased efficiency and reduced costs of poor quality, such as product defects, waste, recalls, and lost revenue.
• Microeconomic Model: The report presents a microeconomic model to illustrate how incremental investments in quality management initiatives can yield returns. The model demonstrates the relationship between total costs and the level of investment in quality management.
• Investment Scenarios: Four investment scenarios are described:
• Minimal Investment: Results in inconsistent product quality, inefficient workflows, high error rates, rework, delayed lead times, and increased costs.
• Suboptimal Investment: Leads to some improvements in efficiency and a shift away from unnecessary costs, but still has room for further optimisation.
• Optimal Investment: Achieves the lowest total costs and highest profits through changes such as Lean Six Sigma process optimization and advanced manufacturing technologies.
• Overinvestment: Investments no longer generate sufficient increases in efficiency and savings, leading to stagnating output and revenue, increased costs, and decreased profits.
• Key Terms and Equations: The report defines key economic terms and presents equations to explain the cost curve and the relationship between investments, costs, revenue, profit, and optimal output.
• Illustrative Examples: The report draws on case studies to show how companies that invest in quality management initiatives realise lower costs associated with product recalls, warranties, waste, and rework.

Public Health Return on Investment (Part II) This part of the report focuses on the public health benefits of quality management initiatives.

• Patient-Centric Goals: Investments in quality management align with patient-centric goals, as the vision and mission statements of the top 50 health and pharmaceutical companies emphasise public health.
• Supply Chain Reliability: Mature quality management practices increase companies' stability and reliability, contributing to a reliable supply of medications that improve patients' lives and strengthen the health care system.
• Mitigating Drug Shortages: The report underscores that poor quality management practices can lead to drug shortages and other supply chain disruptions. It uses pharmacoeconomic terms (direct, indirect, and intangible costs) to describe the far-reaching costs of drug shortages.
• Cost Breakdown: The costs of poor quality management are broken down into categories:
• Costs for Manufacturers: Direct costs include recalls, lost revenue, and legal/regulatory costs. Indirect costs include high scrap rates and cycle time delays. Intangible costs include reputational damage.
• Costs for Patients: Direct costs include cancellations or delays of treatment, medication errors, and increased side effects. Indirect costs include the need to transfer to other institutions or travel farther for treatment. Intangible costs include decreased quality of life and stress for patients and caregivers.
• Costs for Health Care Systems: Direct costs include the time and resources spent formulating alternative treatment plans. Indirect costs include updating IT systems, managing budgets, and training staff. Intangible costs include increased stress for clinicians.
• Costs for Society: Intangible medical costs include the impact on patient outcomes when less-than-optimal alternative treatments are used. Intangible ethical costs include dilemmas in allocating scarce medical resources. Intangible environmental costs include environmental hazards and greenhouse gas emissions from inefficient processes.

Conclusion The report concludes that investing in quality management initiatives is an opportunity that pharmaceutical companies cannot afford to lose. These investments offer significant economic and societal benefits, contributing to a stable supply of critical medicines, mitigating public health risks, fostering innovation, and supporting economic growth. In summary, the report strongly advocates for strategic investments in quality management within the pharmaceutical industry. It presents a detailed analysis of the economic and public health benefits, supported by financial models, case studies, and a breakdown of the various costs associated with poor quality management practices. The ultimate message is that prioritising quality management is not only a sound business strategy but also a critical component of ensuring public health and patient well-being.

The report can be accessed here.