Shortage of Drugs, Abundance of Regulations
There is currently a shortage of more than 200 drugs in the United States. Among the drugs critically in short supply are anesthetics, blood pressure medications and a whole host of cancer-fighting treatments, the shortage of which has tragically left many patients with the grim prospect that they may not survive ailments that are treatable.
Many explanations have been put forth as to what is causing this drug shortage. The New York Times, for example, cites “contamination problems at some manufacturing plants, forcing unexpected production shutdowns, [and] difficulties in getting pharmaceutical ingredients from suppliers, especially those abroad,” as some of the factors that have played a role.
These factors might help explain why a particular manufacturer stopped producing a particular drug, but they are not sufficient in explaining why such a wide-scale and long-standing shortage of drugs continues to occur in this country.
This sort of lasting shortage is unusual in a free market economy because if the supply of a product falls, prices rise to signal producers to increase production.
So why didn’t we see these market mechanisms operate and resolve the shortages in the drug market? Because that market is anything but free.
It’s a complex task to trace all the effects of the myriad of government controls on a particular market. But to get started, here are a few examples of government interference in the drug market that are most certainly distorting the mechanisms that normally keep supply and demand in check:
- Drug manufactures are not allowed to ramp up production of a drug without undergoing a lengthy approval process from the FDA. John Goodman of the National Center for Policy Analysis explains how this affects the available supply of a drug:
“[A] drug manufacturer must get approval for how much of a drug it plans to produce, as well as the timeframe. If a shortage develops…, a drug manufacturer cannot increase its output of that drug without another round of approvals. Nor can it alter its timetable production (producing a shortage drug earlier than planned) without FDA approval.”
- New suppliers wanting to enter the market are also delayed by the FDA. A Wall Street Journal editorial on the issue notes:
“It takes as long as two and a half years to receive FDA manufacturing approval for a generic.”
- Many of the drugs in short supply, particularly the cancer-fighting ones, can only be administered by doctors, who purchase the drugs from manufacturers. If a patient has Medicare, the doctor is paid a fixed price by the government to cover the cost of the drug, even if purchasing the drug cost the doctor more than that amount. Scott Gottlieb of the American Enterprise Institute explains why this is a problem:
“A 2003 law fixes the price Medicare will pay for injected drugs to an ‘average sales price’ that is at least six months old at any given time. This flawed concept means even if a generic firm raises its price to reflect increased production costs, the new price won’t get paid by Medicare—meaning purchasers would be losing money for months at a time. The result is that generic prices can’t rise to reflect changing demand or the need for bigger investments in manufacturing.”
Why are certain drugs in drastically short supply? Any politician who’s serious about finding an answer to that question should first look at the regulatory road blocks and price controls that are standing in the way of drug producers.