Drug Shortages – Here Now

This mornings NY Times had a headline article U.S. Scrambling to Ease Shortage of Vital Medicine which came a bit out of the blue for this writer.

Federal officials and lawmakers, along with the drug industry and doctors’ groups, are rushing to find remedies for critical shortages of drugs to treat a number of life-threatening illnesses, including bacterial infection and several forms of cancer.

The facts in the article are quite frightening and could have immediate consequences for any of us. The suppositions of the reasons for these shortages are also alarming as they fall right in line with the Times’ usual suspects. A scan of 100+ comments on the Times article reveals loyal readers screaming for the heads of free enterprise. Times readers howl about the scourge of high prices while missing the point that this article’s discussion is about shortages, rather than about prices.  This is a knee jerk reaction to a misunderstood systemic problem.

The FDA posts these reasons on their website. There is likely at least some truth to their allegations about quality of imports. Many writers see the FDA as a major part of the solution to this problem.

Perversely, the only shortage that previously surfaced in the NY  Times was that of the drugs used for lethal injections.

With but a bit of poking around I found this op-ed by Ezekiel J. Emanuel who is an oncologist and former White House adviser, excerpt below.

The underlying reason for this is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.

Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

I think Emanuel is holding the smoking gun, the problem is regulation and consequences  - what do you think?