Have you ever had difficulty getting your drugs at your local pharmacy? Ever wonder why that is? Drug shortages began to spike in 2006 and in a later press release, the White House noted that reported shortages of prescription medicines nearly tripled between 2005 and 2010. According to the Food and Drug Administration (FDA), in 2011 there were 250 medicines in short supply, up from 56 in 2006. There are currently about 120 drugs regarded as being in short supply.
However, this is not solely an American problem. Greece, Canada, Great Britain, Turkey, Saudi Arabia, and Uganda, just to name a few, are also suffering from this. According to the PanHellenic Association of Pharmacists, 500 commonly used drugs are in short supply all over the world. Among them are drugs for hypertension, gastroenterological disorders, cancer, kidney diseases, and painkillers. So what is going on?
After investigating this epidemic, I found that the one common denominator among all of the countries involved is government meddling in drug prices. Plainly speaking, artificially low prices cause drug shortages. Look at the drug Methotrexate, which was created in the 1950s. It has been around a very long time, yet has only recently been added to those drugs short in supply. A handful of drugs being short in supply is one thing, but when the numbers skyrocket into the hundreds, then something else is afoot. That something else could best be summed up with the words of Milton Friedman who said, “The government solution to a problem is usually as bad as the problem.”
In a pure free market driven system there is no way this should happen. The law of supply and demand is simple: as drug supply drops, drug price should increase, thus increasing manufacturer incentive to make more drugs. When drug manufacturers face free market forces or increased production costs, and the government tells them they cannot adjust their pricing for the drugs, then they cease production.
Businesses are in business to make profit; that is what they do. When central planners start meddling with things they lack experience in or have any knowledge of…like business, then what are drug makers to do, give drugs away for free? Governments all around the world are distorting their markets and thus removing incentives for drug production. The main cause of drug shortages is, in fact, economic.
Now there are other reasons for the drug shortage epidemic such as lack of raw materials, FDA over-regulation, recalls, etc., but things such as Medicare price fixing for outpatient drugs covered under Part B, and other government intervention accounts for the vast majority of the drug shortages. As cost of production and demand for certain drugs rise, manufacturers must either raise prices to keep their products available to patients, or stop making them to avoid growing financial losses. Medicare’s payment policy, which is chronically six months behind current rates, is much the reason why the latter is the case.
Thomas J. Smith, M.D., who is the director of Palliative Care for Johns Hopkins Medicine and the Hopkins’ Sidney Kimmel Comprehensive Cancer Center in Baltimore, Maryland said, “If manufacturers don’t make enough profit, they won’t make generic drugs.” If prices could be increased, which is necessary to keep drugs on the market once demand or production costs increase, then the shortages could be mitigated. Said more simply, governments need to butt out.
