The last thing a sick person wants to hear is that ample supplies of a life-saving medicine have been replaced by a surplus of red tape. That's precisely what's happening nationwide, with 82 percent of hospitals reporting shortages so severe that treatment must be put on hold, according to the American Hospital Association. Since 2010, 210 drugs, many of them critical components of cancer treatment and anesthesia, have been at dangerously low stock levels.
On June 15, the House Oversight committee issued a report implicating the Food and Drug Administration (FDA) and a badly drafted law for the current state of affairs. Many of the hard-to-find drugs are now off-patent, produced as generics with very narrow profit margins. The Medicare Modernization Act changed the way manufacturers were reimbursed for older generic drugs, particularly when administered in a nonhospital setting. The price of three chemotherapy drugs, as the report details, fell 90 percent in the first year they went off-patent.
The price drops were steep enough that manufacturers began to give up. In a free market, the price for the drugs would rise until supply could meet demand. It didn't happen here because the government plays such a major role in Medicare that the law effectively imposed price controls. Only a few big manufacturers who could exploit economies of scale and turn a modest profit on the low-margin generics continued making these medicines.
Even this would not be a problem under normal circumstances, but the FDA began getting more involved. In 2009, the FDA sent out 474 warning letters to manufacturers, 673 in 2010 and an astounding 1,720 in 2011. As the congressional report noted, there's no evidence anyone has been injured from medication manufactured in the United States, but the federal busybodies forced four out of the five largest American injectable drug manufacturers to undertake remediation efforts. As a result, there was a 30 percent drop in drug-production capacity.
The FDA's ham-fisted approach suspended entire facilities or major plant renovations instead of using targeted inspections. The agency didn't consider the impact of its actions on the nation's drug supply or on cancer patients. For the last two years, hospitals and doctors have been forced to make decisions about which patients get the drugs that are available, and which ones go without, or whether to substitute a drug that might not work as well.
In true bureaucratic fashion, the FDA is tackling the crisis it created by expanding its Office of Drug Shortage. The idea is to get information ahead of time about which drugs will be in short supply. This leaves in place the root cause of the problem: government intervention in the market. The supply of generics will not grow, and the concentration of the market will not decrease unless the production of these drugs becomes more profitable. That requires lifting the government-imposed cap on prices. There are enough big players on the other side, in the form of the group purchasing organization, to keep prices in check. The FDA needs to step back and try to do no further harm.
The Washington Times
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