Unsophisticated Government Regulation of Generic Drug Manufacturing: Shortages Are Surprising?

Contrary to what readers may think, the Disease Management Care Blog is not an inflexible nutcase ideologue that is 100% opposed to the government financing or regulation of health care.  It knows that it can make eminent sense for the Feds to step in when markets fail. The DMCB also understands that stepping in not only means additional spending, but laws, regulations and oversight to make sure patients as well as taxpayers get their money's worth.

And so it goes with overseas drug manufacturing.  Recall back in 2010, the widely used blood thinner heparin was tainted with look-alike chondroitin.  The source appears to have been China and in typical fashion, the plaintiff attorneys have begun to swarm. Given that recent fiasco, who could argue about the stepping up the FDA's role?

Well, since then, a generic drug shortage has emerged and no one is getting their money's worth. 

Readers can the depressing explanations here and here.  As the DMCB understands it, only a few overseas manufacturers are willing to put up with the United States' quality oversight and average-cost-plus-6%-margin price controls.  As inevitable manufacturing problems arise or as upgrading of production makes them go offline, the flow of drugs dries up. In response, middlemen and end-users resort to stockpiling, which only makes the shortages worse.  Finally, since generics aren't available, physicians have ironically turned to using more expensive brand name drugs.

And this outcome is surprising?

The U.S. Congress and the Administration have responded with characteristic pretzel logic: if government intervention and regulations have failed, the answer is more intervention and more regulations.  By recent executive order, manufacturers are now being forced to announce impending shortages (which has been criticized as likely to prompt even more stockpiling), maintain redundant production systems (which is probably one more barrier to running a profitable business) and, while keeping price controls in place, allow for more of a profit margin (which, of course, will be unilaterally set by deficit-ridden Uncle Sam in no mood for generosity).

But wait! 

None other than physician and former White House Health Policy Golden Boy Ezekiel Emanuel penned this opinion piece back in August. While not explicitly endorsing the idea that the Feds should get out of the way, he does want his former boss to reconsider:

"A more radical approach would be to take Medicare out of the generic cancer drug business entirely. Once a drug becomes generic, Medicare should stop paying, and it should be covered by a private pharmacy plan. That way prices can better reflect the market, and market incentives can work to prevent shortages."       

The DMCB finds it telling that such an ardent supporter of health reform would even consider such a notion.  Yet, when taxpayers are being forced to choose between the two extremes of a decidedly unsophisticated approach to overseas generic drug manufacturing with unintended consequences versus a competitive market-based laissez faire approach, maybe Ayn Rand had a point.

It's enough to make the DMCB think about becoming a nutcase ideologue.

But not yet.