Wednesday, April 20, 2011

A First Step on the Road to Declining Life Expectancy in the United States

There have been a number of reports lately about shortages of various drugs. Anyone who has taken an Econ 101 class should know that shortages come about because of price controls, you can't have shortages any other way. Without price controls supply and demand will simply move prices so that markets clear. So whenever you hear about shortages, you know some kind of government meddling is going on to prevent markets from clearing.

Those who have gone beyond Econ 101, and read a little bit on their own, also know that throughout history governments have ignored their role in creating shortages and have made it a crime for those who ignore price controls and attempt to bring product to market at clearing prices. In some cases, people have been sentenced to death for trying to work around price controls.

Thus, it is with alarm that I read a report at LaTi :
The number of medications in short supply has been rising, including some needed daily in hospitals, and regulators lack the tools to address the problem. One Senate bill in the works could help.

LaTi goes on:
One promising approach is a bill still being drafted by Sens. Amy Klobuchar (D.-Minn.) and Bob Casey, (D.-Pa.). Their measure would require that drug makers notify the FDA of any event that might affect supply — a manufacturing glitch, a merger, a simple business decision — and impose a penalty for silence.

That would be a good start, because the FDA has shown it can sometimes avert shortages by authorizing alternative drug sources or expediting approvals for new manufacturers — if it has time.
One does have to wonder why the FDA is sitting on alternative drug sources in the first place. And, secondly, a "penalty for silence" sounds like one more step on the slippery interventionist slope.

The next step intervetionist step may look something like this:
The problem might be alleviated if the FDA could require a manufacturer to commit to a minimum period of manufacturing as a condition of its license, or if merger regulators could consider the effect on drug supply of allowing one drug company to buy out a rival. Don't expect to see anything like that in upcoming legislation. "We're trying to get to something that's doable in Congress right now." Klobuchar told me.

Can you imagine a drug maker having to not only apply for a license, develop a marketing plan, but also before going to market having to commit to a minimum period of production? Why would a manufacturer attempt to develop any product that might be new and creative, if it wasn't clear whether the product would take off? Yet under this concept the FDA would require the manufacturer to produce the product anyway. How insane is that? If there is anything that is going to damper innovation in the medical field, it is going to be regulations like this.

But, getting back to the current problem, the shortage appears quite severe and spreading, according to LaTi:
In 2004, the authoritative drug information service of the University of Utah recorded critical shortages for 58 drugs. Last year the number of new shortages reached 211, and this year reports of new shortages are arriving at a pace of more than one a day. So stand by for a record-breaking year, the service's director, Erin Fox, told me.

We're not talking about obscure medications or "orphan drugs," which are those used to treat rare conditions. These are drugs used every day in operating rooms, by emergency crews and in cancer centers.

They include such widely used medications as leucovorin, a component of the gold standard for the treatment of colorectal cancer. Since about 2008, leucovorin has been in a "chronic, lingering, malignant, festering shortage" despite its importance, says Dwight Kloth, director of pharmacy at Fox Chase Cancer Center in Philadelphia.
The reporter of this story doesn't seem schooled enough in economics to realize that there must be a price control component to the shortage, but clearly there has to be. That the number of drugs in short supply is increasing indicates that price controls are having an broader impact. I suspect it is probably medicare, medicaid and possibly some government collusion with "private" health insurers that all together are refusing to pay above a certain price for the drugs that are in short supply. In other words it is the healthcare industry in cahoots with government that are forcing price limits, i.e. controls. Patients may not even be aware in all cases that they are not being prescribed a drug by a physician because it is in short supply. It is a secret vicious way to keep healthcare costs "under control". As I have forecast before, the life expectancy of Americans will drop as more and more healthcare comes under the control of government. The drug shortage is a serious first sign.


  1. The other side of the coin is suppression of demand. The government, health insurance agencies, and certain hospitals can use a claim of shortage to deny care to their constituents, their customers, or their patients. These people are either paying customers due care or citizens promised care.

    For the private insurance agencies, it's the suppression of moral hazard created by insurance mandates. Doctors and patients must wait for their drugs to make sure they are serious about the need. For public programs, it is price controls that makes sure the government programs don't go so much over-budget.

    I'm not so sure about life expectancy though. Some of those drugs are double-edged swords and very dangerous. Others are overpriced and can only sell to patients based on mandated co-insurance rates. It's unsettling to see the system breakdown. On the other hand, the system is terrible.

  2. Anyone else have a hard time posting comments recently? Just wondering because I had to sign in multiple times to typepad to get it to go through.

  3. They want to give the FDA MORE control of the drug supply? That's insane. It's already bad enough, going down that road will make it worse.

  4. Aside from the pitfalls of price controls, shortages of pharma drugs might not be a negative. Some of those chemical cocktails the FDA approves actually kills people. I avoid all pharma (and invasive medical procedures) until last resort. A lot of people don't question a protocol, research alternatives or bother to read the drug labels. They just put their bodies in the hands of drug companies and medical practitioners, giving up control of their fate.