Obama Drug Shortages

After recently suffering with a seemingly benign case of an itchy outer ear irritation, it developed into a dangerous bout within forty-eight hours into a full blown staph infection with an ambulance ride to the emergency room. It then required around-the-clock hospitalization with intravenous administered drugs, Rocephin and Vancomycin IVs, to knock out the deadly celluitis skin infection. I really learned first hand why it is important to have the best and most powerful drugs at one's disposal in a dire emergency, after all it's your life at stake.  That is the reason for me to get the word out about the "drug shortages" in the United States.

Blame Bush

The October 31, 2011 executive order from Obama directing the FDA to broaden reporting of potential shortages illustrate to us, in the great unwashed, how much better things are when only the President just goes ahead by himself, without having to take the legislature into account, and does all what he deems that needs to be done. Obama's unilateral Presidential action to fix the drug shortages have been plaguing American hospitals since 2005 ...And why 2005, seven years ago? ...And not before?

Well, President George W. Bush signed into law the Medicare Modernization Act, Section 303(c) which took effect on January 1, 2005. It is curiously somewhat surprising that this time President Obama failed to take full advantage of the occasion. Namely, Obama did not blame George Bush for the drug shortages. He missed a real opportunity there, because had he done so he would have been more correct than usual ...But why not blame Bush?

I believe this is another "Black Swan" Event that Obama capitalized upon because it fits into his socialist medicine agenda of the Federal Obamacare Program "explaining after the fact" (a Black Swan function) why the need to control healthcare. Obama now tightens his stranglehold further around the necks of the drug manufacturers by another executive order to centrally control medicine further while bypassing congress again.  Hmmm....

Drug Shortages

Shortages of certain critical drugs have become a serious problem over the past seven years or so. Generally speaking the drug shortages have involved sterile, injectable generic drugs. Sterile injectables are relatively expensive to make, and because the requirement for sterility dictates they must have a finite (and relatively short) shelf life, they are relatively expensive to manage logistically after they are made. Progressive Liberals do not bring to the light of day this distinction about drugs as injectables verses pills in general, instead opting to categorically villify the "Big Pharma" company greed in their attacks.

The shortages are in some of the more important and critical drugs used in medicine, including “crash cart” cardiovascular drugs, antibiotics, and important chemotherapy agents used for cancer. In recent years increasing numbers of patients with life-threatening illnesses have not been able to receive the drugs they need to optimize their odds of survival, and they have had to receive some substitute therapy, that is, instead of getting the drug they ought to have, they get a drug that is available. When your life is in the balance this is not a pleasant thing.

The reason for the shortages is said to be “multifactorial,” and includes: insufficient production space, disruptions in the supply of raw materials, several drug makers opting out of the generic drug business, and a spate of manufacturing quality issues that have resulted in prolonged production interruptions. The term “drug company greed” often hovers just beneath the surface of such explanations.

The formal position the FDA has taken to explain the growing drug shortages invokes all of the above multifactorials.   And since none of these manifold causes are under the direct control of the FDA, the agency concludes, clearly it is not to blame, but no one brings up the Medicare Modernization Act of 2003 mandating the intrusive powers of the FDA authority and the volumes of onerous regulations in the multifactorials. See the FDA Official Site.  Hmmm....

The FDA keeps an on-line list of current drug shortages, which can be found here. The list is impressively long.

Medicare Modernization Act of 2003 - Section 303(c)

We find that a recent Medicare law (Section 303(c) of the Medicare Modernization Act of 2003 strictly limits the price Medicare will pay for “injectable” generic drugs. Prices for these drugs can still rise, but only by 6% or less, and only once every six months.  Congress (in its great wisdom and expertise in matters economic) made the judgment that this kind of price rise would be sufficient to balance market forces. But, Congress got it wrong.

The margins companies get for generic drugs are already low. And the cost of making (and managing the distribution of) sterile, injectable drugs is inherently higher than for most generic drugs. So the profit margins for these drugs, already low, was severely challenged by these new price controls.

The industry reacted quite rationally and predictably to this new law. The big companies, which could maximize their profits by devoting their manufacturing space to other products, got out.

The root cause of any persistent product shortage is almost always the same. For one reason or another, the cost of providing the product has outstripped the price the product-maker can get for selling the finished product.

In general, truly persistent shortages will only occur when the product-makers cannot increase the price they get for their finished product sufficiently to keep up with a rising cost of production. In this case profit margins shrink or even become negative, and the incentive to expand production, or even to stay in that business, A Taxpayer Paying his Obamacare Billdisappears. This is a true shortage – the demand is still there, and customers are willing and able to pay the price being asked, but the product-makers are no longer able to supply the product at that price. Unless the mismatch between the cost of production and the price of the finished product is repaired, the product shortage becomes persistent or even permanent.

Such a persistent cost/price mismatch does not occur in a free market. It occurs when some Central Authority acts to control prices (often, to be sure, while simultaneously acting to increase the cost of production).

A Central Authority can cap effective price a product-maker can get for his/her product by implementing overt or hidden price controls; by increasing marginal tax rates high enough to push the product-maker’s risk/reward calculation to favor inaction; and by instituting windfall profit taxes that do the same thing -- The companies are forced to stop drug production and thereby create shortages.

~  REMEMBER... 

VOTE 2012!  ~