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August 8, 2011
More On Cancer Drug Shortages
I wrote here back in June about the growing problem of shortages of oncology drugs. The blog post I linked to then (at Marginal Revolution) blamed regulatory factors and price controls as two major contributors to the shortages, but pointed out that you can't point your finger at just one factor. A pile of them, taken together, can gum up the system enough to cause trouble.
Now Ezekiel Emanuel in the New York Times has weighed in with a good editorial on the situation, and it blames. . .price controls and regulatory factors. For those who thought I was engaging in dangerous FDA-bashing in my last post, here's another factor to consider:
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. . .You don’t have to be a cynical capitalist to see that the long-term solution is to make the production of generic cancer drugs more profitable.
What many people don't realize is that the US has some of the cheaper generic medicines in the world, on average. But a solution that involves allowing drug companies (even the generic ones) to make more money is going to be politically difficult to implement. . .
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