Cancer drug shortages

[deleted307836]

I was really glad to see this article on the NYT website today. I've been aware that there have been some pretty serious drug shortages in recent years especially with cancer drugs and anesthetics, but I've never really understood why manufacturers have had no incentive to produce these needed drugs until I read this:

If the laws of supply and demand were working properly, a drug shortage would cause a price rise that would induce other manufacturers to fill the gap. But such laws do not really apply to cancer drugs.

The underlying reason for this is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.

Historically, this "buy and bill" system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up "average wholesale prices." The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug's actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug's price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

The result is clear: in 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211. (These numbers include noncancer drugs as well. )

You have to wonder -- would we possibly be doing better if we had no such laws to interfere with the natural interchange of supply and demand? To me this is a clear illustration of the possible unforeseen consequences of setting limits on what the government will pay for certain drugs.

OTOH, why doesn't a cash market exist for these drugs? I discussed this issue briefly with an oncology nurse a few months ago, and she said that even life-saving drugs have had to be heavily rationed because the shortages are so severe. Anyone have some insight on this issue?

Here's the full article: Shortchanging Cancer Patients

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[911 Turbo]

Interesting read...

As always, money seems to transcend medicine

 

[deleted307836]

One of the commenters on the article wrote, "This is why we need to take the profit out of healthcare."

My view: Isn't that what this law did, and isn't the shortage the consequence?

 

[Astarael]

One of the commenters on the article wrote, "This is why we need to take the profit out of healthcare."

My view: Isn't that what this law did, and isn't the shortage the consequence?

If there was no profit to be made anywhere, then the companies (theoretically) would make all drugs in the amount demanded (since they would have no incentive to go after more profitable drugs).

In reality, without profit, most pharma companies would probably try to penetrate other markets.

 

[deleted307836]

If there was no profit to be made anywhere, then the companies (theoretically) would make all drugs in the amount demanded (since they would have no incentive to go after more profitable drugs).

If there was no profit to be made anywhere, how would these companies have the means to produce drugs at all? There would be no incentive to produce any single drug.

 

[Astarael]

If there was no profit to be made anywhere, how would these companies have the means to produce drugs at all? There would be no incentive to produce any single drug.

lol I agree with you. The commenter you quoted is definitely wrong. I was just thinking out loud, I guess.

 

[Slack3r]

Interesting read...

As always, money seems to transcend medicine

Welcome to the real world.