Free Markets and Drug Shortages

Earlier today I noticed a news story on the ABC News website about a critical national drug shortage, specifically of one of the drugs used to fight childhood leukemia. I hit the link expecting to see something about insurance companies not covering it or drug companies marking up the price in order to try to recover the R&D costs of inventing the stuff in the first place, but that’s not what I found. At least five different companies have been making the drug in question, and there appear to be generic versions available from other sources as well. The shortages are being blamed on problems in production, limited availability of raw materials, and even high demand, but the truth seems to be that there just isn’t enough of a profit margin on this drug for the companies to bother about making very much of it. The real question is what to do about the situation…

In a free market what usually happens is that as demand for a product rises so does the amount that people are willing to pay for it; eventually the price becomes high enough to make production of the product attractive, and more companies start producing it. This is what will probably happen in the current case, as well – but that will be cold comfort to the children who will die in the interim because there wasn’t enough of the drug available when they needed it. The American Cancer Society, through its Cancer Action Network, is supporting a measure in Congress that will allow the Food and Drug Administration to require advance notice from the drug companies of conditions that might lead to a shortage, but the ACS people admit that this is only the first step in dealing with the problem – and it isn’t clear what the next steps might be…

History indicates that it is possible for the Federal government to require production of specific drugs – in cases where national defense is at stake, for example – without disrupting the free market or putting the pharmaceutical industry out of business. But the government has no means of making drugs on its own, and requiring a company to make products that it can’t sell at a profit isn’t practical in the long run unless the government can make good the difference though the use of public funds. Healthcare providers can’t stockpile every potentially life-saving drug in every facility that might need some, and even if they could the price would be impossible. Patients can’t keep a supply of drugs around; even if they could somehow induce their insurance companies to cover the cost, many of these treatments (including the one in the story) are injection-only, and require professional supervision to use. And non-profit and NGO agencies have all of those issues and more besides…

What strikes me as ironic about the situation is that we normally associate artificial shortages like this one with cases where a single company controls the rights or patents to a specific drug and refuses to make more doses in order to support the price. Generic versions are supposed to combat these crises by increasing supply and lowering demand, but this is the first case I’ve heard about where the ability to create generics has lowered the market price to the point where no one can afford to make it anymore. It is literally the drug industry’s collective argument against generics come to life. I just hope the notification law works, because for years the industry has been claiming that any government attempt to control how much of which products they have to make would be the first step toward nationalizing the industry – and it turns out they were right all along about the generics…