Shortages and rationing indicate incentives too low for drugmakers, says Forbes columnist
“That headline is a fairly outrageous thing for someone to say, especially someone like me who doesn’t know all that much about the pharmaceutical drug industry and who isn’t employed to follow it,” admits an economics and public policy writer for Forbes magazine.
“We have a reliable economic sign that drugs are simply too cheap presently in the United States. Actually, it’s not in fact just a reliable sign; it’s a complete slam dunk. One of those things which, when you see it means that you can just go, ‘Oh yes, that’s because of this.’ You know, apples fall from the tree, that’s gravity; politicians are economical with the truth, it’s election season; we see shortages, then prices are too low,” contributing writer Tim Worstall added.
The American Society of Health-System Pharmacists currently lists inadequate supplies of more than 150 drugs and therapeutics, for reasons ranging from manufacturing problems to federal safety crackdowns to drugmakers abandoning low-profit products, according to Forbes. But while such shortages have periodically drawn attention, the rationing that results from them has been largely hidden from patients and the public.
The actual reasons, says Mr. Worstall, are these:
- Many drugs are made by only one manufacturer, so production or safety problems at a single plant can have big effects
- For another company to begin making the products and getting them approved by regulators requires the right combination of manufacturing capabilities and economic incentives
“Those economic incentives are the prices paid which make it worthwhile to do the manufacturing. It’s that getting approval from the regulators which increases the costs, reduces the profits possible and thus the incentives,” the Forbes column says.
“We might blame the patent system for the cancer drugs, but the others not so much. And some of the stories are of drugs that have been out of patent for decades. And yet still there are shortages, still there is this rationing. The only possible group left to blame are the bureaucrats at the FDA.
“At which point we’ve got to work out what to do as a matter of public policy. Raising the actual prices of American pharmaceuticals doesn’t seem like all that good an idea. Other advanced nations pay less for their drugs but don’t have these shortages. So it must be something unique to the U.S.: that FDA system of regulation,” Worstall argues.
However, restructuring the FDA would bring about large-scale problems of its own. Foremost is that the tremendous power pharmaceutical corporations maintain over the agency would be further multiplied.
The Forbes piece insists, though, that “From the economic point of view the obvious answer is simply to have more of a free market in drug manufacturing. And the easiest method of that is simply to reduce the FDA to an organization that approves drugs (preferably for safety only, not efficacy, but that’s another argument) and that’s that. Then any licensed manufacturer globally, should be able to manufacture them for the U.S. market. This will cure this problem overnight.”