2012-02-03

The Cause Of - And Solution To - All Life's Problems

Medscape reports (gated article - requires free registration) that drug shortages have finally reached the point in the oncology markets that they are going to start costing people lives.

I have discussed time and time again the international drug shortage and the fact that it is a natural and unavoidable consequence of market intervention. Now we are finally at a point where our intervention is killing people for sure, but that is apparently not good enough for the policy wonks. They want to see even more intervention, namely, price controls:
"There are numerous causes for the escalating drug shortage crisis, but in our view, none are as powerful as simple economics," write Dr. Link and 2 coauthors in an essay published online January 30 in the Journal of Clinical Oncology.
"The most straightforward solution is to change the way generic sterile injectables are reimbursed," they say.
Dr. Link and coauthors explain that "if the generic drug price is kept at 5% to 10% of the brand drug price, and/or the ASP [average sales price] plus 6% reimbursement is modified to an ASP plus 10% to 20%, the profit margin will remain reasonable, and generic drug companies will have adequate incentive to continue to supply the drug."
 Let me take this as an opportunity to demonstrate to my readers that I am not simply a corporate stooge. There is no question that increasing reimbursement expenditures would handsomely reward drug producers. This, of course, would come at the expense of insurance companies.

Before you go cheering on the added insurance company costs, though, bear in mind that they will simply pass this cost increase along to you and I, and our employers. This is bad for consumers, and bad for the health care system, and will inevitably lead to greater drug shortages as the risk pool shrinks under the weight of insurance premiums. (Fewer people who can afford drugs = fewer drugs produced and higher prices for those fewer drugs. Yes, it is a vicious circle.)

So let's take a brief look back at what the government has managed to do:
  • First, they have created a drug market in which it is virtually impossible for producers of brand-name medications to sell their drugs without first going through 12 years of hoop-jumping.
  • Second, they have forcibly prevented generic manufacturers from selling low-cost drug replicas for years and years, until the patent protection finally runs out.
  • Third, they have enabled both brand and generic manufacturers to manipulate the legal system such that the rules governing patent enforcement are completely unintelligible and for the most part arbitrary.
  • Fourth, they have created special back-room deals with generic manufacturers to ensure that the single largest buyer of medicine (the government) pays an artificially inflated price and passes the deadweight loss on to the taxpayer.
I am leaving out a few steps, but you get the picture.

Now, on top of all of that, when the policies reach their inevitable conclusions, the policy wonks call for government-mandated price increases to incentivize manufacturers. But naturally, such incentives would be superfluous in an unfettered free-market because the profit motive and consumer demand would be sufficient to guarantee the manufacture of all the necessary medications.

All the evidence continues to reinforce my position - the only tenable economic position - as the only viable interpretation of these events. But as I said before, people don't care about evidence.