Answer to the US Generic Drug Shortage Problem - Economics
Interesting article from the WSJ - 11/2/11 This IS the solution - allow companies to make money on products in demand.
The Bush-Obama Rx Shortages
Critical cancer drugs are in short supply thanks to price controls.
This week President Obama finally confronted a major U.S. health-care disgrace—the growing shortages of lifesaving drugs, especially anticancer therapies. For some reason the White House lumped its executive order with its "we can't wait" campaign against House Republicans, but the pity is that we will have to wait, because the only genuine fix is a liberal anathema: market prices.
Shortages have more than tripled since 2005, according to the University of Utah's Drug Information Service, and by the end of the year more than 300 products are likely to be back-ordered, in short supply or totally unavailable. Some are anesthetics and pain therapies, others emergency room "crash cart" drugs. But most—about 70% in 2010—belong to the class of drugs known as "sterile injectables" that are mainstays of the chemotherapy arsenal, such as paclitaxel or cytarabine.
The result is that more and more patients are receiving substandard care—relying on less effective or more expensive substitutes or else forced to postpone treatment. In oncology, delays of weeks or even days can be fatal.
Most sterile injectables have been off-patent for decades, but unlike other cheap generic drugs with low profit margins, production is complex and requires special facilities. Nonetheless, George W. Bush and the Republican majority decided that Medicare was "overpaying" for these cancer drugs and included a 6% cap on price increases every six months in the 2003 prescription drug bill. These new price controls (which apply to the providers that purchase the drugs) took effect in 2005, when the shortages began.
In a rational market, sterile injectable prices would now be rising to encourage more supply, since the demand for cancer drugs is inelastic. The old reimbursement system, called "buy and bill," was imperfect, but at least it allowed prices to float and wasn't producing the scarcity that central planning always does. The sterile injectables that are in short supply currently sell for $37.88 a dose on average, and modest price increases could make the market economic.
The problem is compounded because Food and Drug Administration rules cause pointless delays. It takes as long as two and a half years to receive FDA manufacturing approval for a generic, so other drug makers can't ramp up production if a company cancels a product line due to these disincentives or even if the fragile supply chain for sterile injectables is contaminated and manufacture is delayed.
Mr. Obama's executive order will do little if any good since it doesn't address or even mention this underlying distortion that Medicare has created. Instead, it merely expands the FDA reporting requirements about production interruptions or terminations. This is supposed to be an early warning system, but the scandal is that the availability of basic medicines could be allowed to become an emergency.
The order also tells the Justice Department to crack down on the "grey markets" that have sprung up to deliver supplies to doctors and hospitals, albeit with the inevitable markups. So rather than allow price signals to govern supply and demand, Mr. Obama wants to suppress them further.
The larger danger apart from the risks to the patients forced to receive compromised treatment is to the future of cancer progress. The common chemotherapy drugs are critical in clinical trials as the standard regimen or in combination with new options, and the Coalition of Cancer Cooperative Groups reports that as many as half of all ongoing trials require the drugs that are vanishing. This is a delay that really is killing people.
WSJ - November 2nd, 2011