Vital Medicine in Short Supply

A recent New York Times article illustrates the difficulty of regulating the economics of any industry, in this case the pharmaceutical companies.

The article, entitiled U.S. Scrambling to Ease Shortage of Vital Medicine, which does a fairly good job of describing the problem but dances around the root causes. The circus that is becoming our pharmaceutical market would be entertaining if it were not so vital.  For example, the author, Gardiner Harris, writes:

“A crucial problem is disconnection between the free market and required government regulation. Prices for many older medicines are low until the drugs are in short supply; then prices soar. But these higher prices do little to encourage more supply, because it can be difficult and expensive to overcome the technical and regulatory hurdles. And if supplies return to normal, prices plunge.”

In other words, supply cannot adjust because of the slow pace of Government Regulators.


“More than half the recent shortages have resulted because government or company inspectors found problems like microbial contamination that can be lethal on injection. Others have occurred because of capacity problems at drug plants or lack of interest because of low profits, according to the F.D.A”

Regardless how one feels about regulatory issues to begin with, I think we can all applaud the effort to keep the supply safe (which is separate and distinct from economic regulation).  Ironically, however, one of the causes of the lack of supply is insufficient capacity due to low profits, which likely means that much of the demagougery during the passage of Health Care legislation last year, during which pharmaceutical companies were demonized as greedy, was likely empty hyperbole.  Unfortunately, it was empty hyperbole that helped pass legislation requiring more government economic regulation of the industry.

The article also quoted Heather Bresch, President of Mylar which is described as a generic drug giant:

“The race to the bottom has led to an increase of products coming from plants in China and India that may have uncertain supply and may have never been inspected,” Ms. Bresch said. “If the F.D.A. was required to inspect foreign drug plants at the same rate it does domestic ones, we might not have so many of these shortages.”

Since one of the intentions of the Health Care law was to promote international competition to bring drug prices down in the US, it seems that this attempt to micromanage the economics of the industry is once again backfiring even prior to its implementation.  The regulatory issue is one of controlling the safety of the end product, and in that effort one should wonder why the FDA cannot do simple sampling of inbound product.  Again, there seems to be a disconnect between the regulators and the ability of the market.

Much of the problem described by Mr. Harris in the article can be attributed to a misguided effort to micro-manage the economics of drug makers resulting in a variety of economic disconnects while concurrently mismanaging a Governments’ primary mission, which is to enable the market through rapid reaction time in their objective to assure a safe supply. Of course, the Obama Administration is considering more economic micro-management of the industry..

“The Obama administration is considering creating a government stockpile of crucial cancer medicines. The Centers for Disease Control and Prevention already stockpile antibiotics, antidotes and other drugs needed in the event of a terrorist attack or earthquake.”

Since we are likely to witness more mismanagement of the economics of the industry from central government planners, I would venture a projection that we are likely to experience ongoing shortages of critical drugs until a change in approach to regulating the business occurs.

One Response to Vital Medicine in Short Supply

  1. Mark says:

    More from the Economist today:

      “The causes of the shortage remain tangled, but a few factors are probably to blame. First, manufacturing problems are increasingly common, as firms trim costs and import cheap ingredients of variable quality. Some companies say the FDA has become stricter, too. Second, generic drugmakers have merged, so a given drug is often made by just one or two companies. When one firm shuts a factory, the other cannot fill the void quickly. Third, these drugs may have a basic problem of pricing. After a drug loses its patent protection, its price plunges as generic drugmakers fight for market share. Even if demand rises, a drug’s price remains low thanks to the distorting rules of Medicare Part B, which pays for many injected drugs. Squeezed by slim margins, a firm may simply discontinue a drug. Dysfunction ensues. Grey-market vendors, health-care’s scalpers, hoard drugs and then sell them for many times their usual cost.”

    The full article can be read here, and simply illustrates the emerging crisis that Government increased government intervention is imoposing on our supply of medical services.

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