Drug Shortages

by on June 14, 2011 at 7:35 am in Current Affairs, Economics, Medicine | Permalink

WP: Doctors, hospitals and federal regulators are struggling to cope with an unprecedented surge in drug shortages in the United States that is endangering cancer patients, heart attack victims, accident survivors and a host of other ill people.

Currently there are about 246 drugs that are in short supply, a record high. These shortages are not just a result of accident, error or unusual circumstance, the number of drugs in short supply has risen steadily since 2006. The shortages arise from a combination of systematic factors, among them the policies of the FDA. The FDA has inadvertently caused drugs long-used in the United States to be withdrawn from the market and its “Good Manufacturing Practice” rules have gummed up the drug production process and raised costs.

Here, for example, is an analysis from the summary report on drug shortages by the American Society of Health-System Pharmacists (ASHP), the American Society of Anesthesiologists (ASA), the American Society of Clinical Oncology (ASCO), and the Institute for Safe Medication Practices (ISMP).

Several drug shortages (e.g., concentrated morphine sulfate solution, levothyroxine injection) have been precipitated by actual or anticipated action by the FDA as part of the Unapproved Drugs Initiative, which is designed to increase enforcement against drugs that lack FDA approval to be marketed in the United States. (These drugs are commonly called pre-1938 drugs, referring to their availability prior to passage of the Food, Drug, and Cosmetic Act of that year.) Some participants noted that the cost and complexity of completing a New Drug Application (NDA) for those unapproved drugs is a disincentive for entering or maintaining a market presence. Other regulatory barriers include the time for FDA review of Abbreviated New Drug Applications (ANDA) and supplemental applications, which are required for changes to FDA-approved drug products (e.g., change in source for active pharmaceutical ingredients API, change in manufacturer). Manufacturers described this approval process as lengthy and unpredictable, which limits their ability to develop reliable production schedules.

and on GMP:

Manufacturing-related causes that contribute to drug shortages are multifactorial. Inability to fully comply with GMP, which results in production stoppages or recalls, was considered a major cause.

John Goodman at the Health Affairs Blog explains the details:

The Federal Food and Drug Administration (FDA) has been stepping up its quality enforcement efforts — levying fines and forcing manufacturers to retool their facilities both here and abroad. Not only has this more rigorous regulatory oversight slowed down production, the FDA’s “zero tolerance” regime is forcing manufacturers to abide by rules that are rigid, inflexible and unforgiving. For example, a drug manufacturer must get approval for how much of a drug it plans to produce, as well as the timeframe. If a shortage develops (because, say, the FDA shuts down a competitor’s plant), a drug manufacturer cannot increase its output of that drug without another round of approvals. Nor can it alter its timetable production (producing a shortage drug earlier than planned) without FDA approval.

Thus, it’s not any one thing that is causing the shortages but an accumulation of rules and regulations. The system plods along when all is normal, but when a novel situation develops the market can no longer adapt quickly and efficiently.  As Michael Mandel puts it:

No single regulation or regulatory activity is going to deter innovation by itself, just like no single pebble is going to affect a stream. But if you throw in enough small pebbles, you can dam up the stream. Similarly, add enough rules, regulations, and requirements, and suddenly innovation begins to look a lot less attractive.

Add to all these pebbles the fact that various price controls have become more binding over time and thus have reduced the profits from being in the business at all and you have a recipe for deadly shortages.

Margaret Hamburg June 14, 2011 at 7:45 am

The FDA is not a necessary evil, it is just evil. But it has 15 full time PR pros planting stories about how “rigorous” it is. Truth is, the bureaucrats there are morons. Their latest big thing is a jihad against 23andMe, Illumina, and the entire genomics industry.

Andrew' June 14, 2011 at 8:27 am

“against 23andMe”

I suspect they just want to capture some of the credit for it.

mdb June 14, 2011 at 7:55 am

You do not emphasize GMP and VALIDATION enough. I have worked at GMP facilities that are completely in compliance, but use 50 year old technology. The production could be modernized, costs would be lowered and the drugs could be made SAFER, but the cost of validating any process makes it cost prohibitive – so Americans are less safe due to the regs. Validation easily triples the costs pharma/biotech companies face when upgrading.

Rahul June 14, 2011 at 8:50 am

GMP is disaster that could only be unleashed by a paper pushing bureaucrat: the rules lay emphasis on paper trails and generating mountains of paper work and “procedures”. I’d rather if FDA put more effort into random quality checks on drug batches and get done with it.

Anne June 14, 2011 at 10:36 am

Agreed – random quality checks are about the only thing regulatory agencies are useful for.

Rahul June 14, 2011 at 8:05 am

Is that 246 drugs or 246 formulations? That’s an important difference. I suspect it is 246 brand-name formulations.

If Alkaseltzer (say) is in short supply that isn’t a big worry so long as competing aspirin formulations are available.

Some of the stuff on that list is puzzling. e.g. “Sodium Chloride” injections are reported to be in short supply. This is just “table salt” in a water solution maybe with some stabilizers. Even with sterility, packaging, logistics etc. how hard can it be to produce?! Something fishy here methinks. This especially makes me wonder if this is again a specific firm problem and the market has enough alternatives available?

bbartlog June 14, 2011 at 9:51 am

The fact that sodium chloride injections are in short supply isn’t ‘puzzling’ in this context. Most of those items are (from a chemical manufacturing standpoint) almost equally trivial to produce, i.e. pretty much all of the pre-1938 drugs can be synthesized in a garage. So it’s not a puzzle, it’s the whole point of the article – the overregulation is the problem.

‘If Alkaseltzer (say) is in short supply that isn’t a big worry so long as competing aspirin formulations are available.’

Funny that you mention aspirin…It’s largely a matter of historical accident that aspirin is available at all. If it came to trial today, the side effects (stomach upset, thinned blood) would almost certainly result in FDA rejection, as it is effective but not ‘safe’.

Noah Yetter June 14, 2011 at 9:55 am

“how hard can it be to produce?!”

As hard as the regulations can possibly make it.

Rahul June 14, 2011 at 10:03 am

My suspicion is that the reporting is misleading. There isn’t a shortage of Sodium Chloride; maybe just a few brands are in short supply.

Invisible Finger June 14, 2011 at 10:29 am

But is a pharmacist at a hospital allowed to just mix up a batch on his own at the request of a doctor? Or is it considered unsafe because of the process?

TallDave June 14, 2011 at 12:35 pm

IF: I think you’re already violating several regulations by even asking that.

Expect a knock at your door.

J.R. June 14, 2011 at 1:24 pm

Process Validations are part of the GMP. So I think the answer to your question is no. Unless of course, you have submitted your process to FDA approval and received the go-ahead.

Rich Berger June 14, 2011 at 10:54 am

I suspect there’s a great opportunity for you to meet the demands with Rahul’s Home-style Sodium Chloride solution. I know you have a great line there – “My suspicion is that the reporting is misleading.” Works for me – why provide any counter evidence or argument when you can just make an assertion?

Shorter Rahul June 14, 2011 at 1:48 pm

Surely there is no way the government can be at fault! It must be the evil corporations!

Andrew' June 14, 2011 at 2:53 pm

“But is a pharmacist at a hospital allowed to just mix up a batch on his own at the request of a doctor?”

Well, if you take more than one medication, that’s kind of what they do.

Bruce June 15, 2011 at 9:06 am

As a Pharmacist I can assure you that there is no way hell I would consider manufacturing Sodium Chloride for injection, or any other drug, as you suggest.
Take look at the U.S. Pharmacopeia’s (USP) Revised General Chapter Pharmaceutical Compounding—Sterile Preparations.
These rules take industrial GMP and apply them to hospital practice, including all the mountains of paperwork and specialized testing.
Failure to comply puts my license and livelyhood on the line, and in the State of Ohio, opens me to possible criminal penalties.
While we all expect and need to do the best we possibly can for our patients, friends and family, if it isn’t made by an FDA approved manufacturer, there is no way I will provide it.

Dean Sayers June 14, 2011 at 8:08 am

A lot of this article hinges on the fact of disincentives on these pre-1938 drugs. However, incentives to carry and push new (and proprietary) drugs are not at all unknown – and they are backed in tandem by government and industry regulation and interests. The value of pushing these drugs causes them to outstrip a lot of time-tested drugs which are easy to find in a generic form (and also experience market competition).

Really, we are seeing the generalized market tendency for proprietary, uncompetitive practices which increase the value of market shares wherever the model can be applied. It sounds to me that this FDA “phasing out” of drugs is more likely a symptom of its own graft with industry leaders – despite how the article naively tries to paint the simple picture of “government ignorantly making things unprofitable.” Don’t you think that pharmaceuticals would leap at a chance to declare certain competitive products “unprofitable” when they know that their disappearance will offer market shares to much more lucrative sales?

Andrew' June 14, 2011 at 8:16 am

This is why the government should run heroin production.

There wouldn’t be any.

FYI June 14, 2011 at 10:44 am

Andrew

You joke about it but it is somewhat puzzling to me how the same people who push for legalization also push for the end of FDA and such. What is the goal then? Private companies producing heroin and selling it to whoever wants to buy it?

Contemplationist June 14, 2011 at 11:25 am

Yes. Freedom…it can be scary! It’s how it was until 1911 I think.

Dean Sayers June 14, 2011 at 11:27 am

I keep forgetting how nobody has ever been exploited by drug pushers, especially not in 1911.

Andrew' June 14, 2011 at 12:31 pm

See, here’s what I’m thinking. If the FDA in its zeal to prevent any problem makes drug A unavailable so that the doctor has to prescribe drug B, that is going to cause problems of complexity if nothing else. Now, let’s say that drug B causes complications or is less effective than drug A. Now the FDA isn’t even achieving its stated goal of safety and efficacy. That is holding them to their own standard, not mine.

tkehler June 14, 2011 at 12:37 pm

There are some Chinese opium users pre-1911 who’d disagree about that!

PS: joking aside, I’m involved in an industry (health care) where bureaucratic and governmental regulations are increasing apace, and we’re now spending more time than ever — not helping the sick — but filling in forms and attending meetings learning how to tick off boxes in order to comply with ridiculously arcane regulations, etc.

TallDave June 14, 2011 at 12:37 pm

It was actually a lot harder when the stuff was legal.

A business is relatively easy to regulate. A criminal, not so much.

TallDave June 14, 2011 at 12:42 pm

I should stipulate, I think the FDA is necessary and proper. Prohibition, not so much.

The main economic incentive for dealers are the 10,000% profit margins created by the fact the drugs are illegal. If these things were regulated like tobacco and alcohol instead, our kids would be safer and criminals would lose access to a river of cash.

FYI June 14, 2011 at 7:31 pm

Just like I do with left or right extremists, the best way to ridicule you super libertarians is to make you say your proposals explicitly. Good luck with your quest to make heroin available to to the masses.

TallDave June 15, 2011 at 12:35 pm

The masses can already get heroin. The laws only create a lucrative black market.

Andrew' June 14, 2011 at 12:20 pm

Well, I don’t think the FDA as long as we have it should make sure drugs are inaccessible either. Is that inconsistent?

Andrew' June 14, 2011 at 12:23 pm

Btw,

Although I post way too much on here, I don’t think I push for much of anything. Aside from joking about having the government monopolize heroin production I haven’t pushed for anything in this discussion except that TC = FC + VC(n)

blah June 14, 2011 at 7:21 pm

You’re right about one thing. Take a freakin’ break and STFU for 5 minutes.

J Thomas June 14, 2011 at 8:22 am

Manufacturers described this approval process as lengthy and unpredictable, which limits their ability to develop reliable production schedules.

If manufacturers could be sure that their production methods would be approved on schedule no matter what they did, then their production schedules would be reliable.

I’m real unclear about all this. On the one side we have manufacturers who want to take shortcuts and cut their costs by anything they can get away with. On the other side we have regulators who may not understand which shortcuts are actually safe, and who have insufficient sympathy for businessmen who need to make a profit.

Who’s right? How could we possibly find out who’s right?

Noah Yetter June 14, 2011 at 9:57 am

There’s this thing called a “market” where producers and consumers weight costs and benefits. Perhaps you’ve heard of it? I think we should try it.

J Thomas June 14, 2011 at 10:58 am

So, Noah, next time you’re in the hospital you can judge the quality of the pharmaceuticals you’re given and perhaps ask the hospital to choose different manufacturers.

Yeah, that’s the ticket. Let the consumers judge pharmaceutical quality. They’d know.

kuant June 14, 2011 at 11:09 am

That is why there are doctors. They are supposed to be the experts. Have you ever had a mechanic say, “I don’t trust that brand. They do not make quality parts”?

dean_acheson June 14, 2011 at 11:13 am

Yes, I have. Often.

tkehler June 14, 2011 at 12:40 pm

I’ve heard mechanics say that all the time. But I’ve never heard doctors say that.

J.R. June 14, 2011 at 1:28 pm

tkehler,

You must be joking. I’ve heard doctors badmouth all sorts of products, from drugs to devices.

Andrew' June 14, 2011 at 12:07 pm

“Let the consumers judge pharmaceutical quality.”

I did it today. I’m not even shitting you.

Dan Dostal June 14, 2011 at 1:38 pm

You may want to actually tell us what happened then.

Andrew' June 14, 2011 at 3:26 pm

“You may want to actually tell us what happened then.”

No, not really. But it involved antibiotics if you can believe that shit.

J Thomas June 14, 2011 at 7:27 pm

“Let the consumers judge pharmaceutical quality.”

I did it today. I’m not even shitting you.

Ooookayyyy.

I’ll just assume that you have special skills so you can tell which medications are good and which are not.

Find the strychnine in the speed and the roach powder in the heroin etc.

Foobarista June 14, 2011 at 2:49 pm

I’m not specifically familiar with FDA stuff, but similar NASA “process” regulations often make things less safe by locking in old equipment and processes. Since it can take years and megabucks to get a process certified, old equipment will be used far longer than it would otherwise be used, and the processes are far more “manual” than they could be (due to extensive physical inspections).

One other effect of such regulatory complexity is to make the barriers to entry insanely high, reducing competition and locking in high prices.

DaveyNC June 14, 2011 at 8:40 am

No! It’s a conspiracy by Big Pharma to drive prices up! It’s not caused by regulatory actions!

Andrew' June 14, 2011 at 8:47 am

One of the basic principles of management is incentive, counter-incentive. As in, count the number of widgets and then count the number of bad widgets. The FDA should be held accountable for shortages.

Ironman June 14, 2011 at 9:06 am

There’s also the matter of Medicare’s Part D subsidies, which also began in 2006. The subsidies would act to accelerate the consumption of the supplies, ensuring that shortages would grow, especially if the regulators aren’t allowing the manufacturers to fully respond to the increased level of demand driven by the subsidies.

Another factor to consider – to try to fix the problem, the FDA is making drug shortages in the U.S. into a global problem, as they’re seeking to bring in non-U.S. stocks of critical drugs to try to address the shortages here, which in turn is contributing to short supplies of the critical drugs elsewhere in the world.

Rahul June 14, 2011 at 9:19 am

I don’t buy the second assertion: FDA being a bad guy and causing global shortages.

Lot of nations have a very dynamic drug industry (e.g. Israel, India) and are more than willing to get a boost in orders. There isn’t any element of coercion here just a voluntary transaction; Indian suppliers are surely making a decent profit on every sale of critical meds to the US.

The willingness to use non-US sources seems a good sign.

Rich Berger June 14, 2011 at 9:41 am

I guess if the FDA just steps up its efforts, it can make sure that we get all these drugs from non-US sources. Sí se puede.

Flaneur June 14, 2011 at 9:10 am

Don’t forget the role hoarding plays. I’m involved in a hospital pharmacy management company. When supply shortages or price rises are anticipated, our pharmacists will stockpile inventory, exacerbating the very shortages you describe. But supply shortages doesn’t mean patients don’t have access to drugs.

dnb June 14, 2011 at 9:22 am

Don’t forget the DEA also has a hand in the drug creation process when it comes to certain narcotics. But why isn’t the discussion of consolidation mentioned more in depth in this post. Is consolidation just a reliable excuse when it comes to markets not performing as well. I constantly hear that about farmers saying there are less companies to sell too, or is consolidation just code for FDA regulations.

bk, md June 14, 2011 at 9:32 am

Simple. consolidation doesn’t advance the anti-government party line.

this is an alex post, not a tyler post afterall

mdb June 14, 2011 at 10:00 am

Has there been one single drug discontinued because of consolidation? As someone that has witnessed FIRST HAND several drug company consolidations, profitable products are never cut, unprofitable or development products that have a positive cost/benefit analysis are never cut. The cost/benefit analysis in the drug industry has a MUCH higher cost component due to regs than most every other industry.

Blind believe in government goodness and evils of the market is silly. do you have an example?

dnb June 14, 2011 at 12:28 pm

Not sure of any specific drug that has been discontinued because of consolidation. But lets say a smaller company that made Calcium Gluconate and it was bought by a larger company. The smaller company was profitable at making the product but lets say its not worth a large company’s time to produce this product.

Big Government Crushes All Hope June 14, 2011 at 2:25 pm

Ok, I’ll bite. Let’s assume Big Pahrma acquired Little Pharma because Little Pharma had developed a promising substance or process, along with its other business lines (incl Galcium Gluconate). When BigPharma purchased LittlePharma ,the amount BigPharma paid was inflated by the value of the profitable business line, Calcium Gluconate (that’s basic economics). Unless BigPharma is run with the ineptitude of the FDA, if it wants to abandon the Calcium Gluconate business line, it will sell it to a competitor (if its profitable, its not something the business would wind up), or to the executives that run the division.

So, production continues; consolidation has not cancelled the business line, its production continues, since its profitable. By the way, a common reason for mergers is declining costs of production (ie, improved economies of scale), which would suggest that the business line would be sought by many competitors.

Andrew' June 14, 2011 at 3:52 pm

I would have to guess the answer is “it’s complicated”

If scale were a single linear variable then Big Pharma wouldn’t have to buy drug development from Little Pharma.

J Thomas June 14, 2011 at 7:32 pm

Unless BigPharma is run with the ineptitude of the FDA, if it wants to abandon the Calcium Gluconate business line, it will sell it to a competitor (if its profitable, its not something the business would wind up), or to the executives that run the division.

Yes! Let’s assume a priori that big businesses are efficient and competent, while FDA is inefficient and incompetent! It has to be that way, because big businesses are the private sector which always does everything right, while FDA is government which we know always does everything wrong.

It’s axiomatic!

Andrew' June 14, 2011 at 10:14 am

Please explain how a fixed cost of compliance wouldn’t ALSO cause consolidation?

Andrew' June 14, 2011 at 12:08 pm

If the government took over production of venerable off-patent drugs, I wonder if they would hold themselves to the same standards.

Rahul June 14, 2011 at 10:00 am

It’s a bit funny to hear the pharma industry cry about “price controls”. These same companies lobby vigorously for anti-competitive regulations such as longer term patent protection, restrictions on generic imports etc. So, regulation is OK when it props prices up?

Andrew' June 14, 2011 at 10:32 am

Businesses are self-interested: Check.

Andrew' June 14, 2011 at 10:34 am

That is to say, we don’t actually have to be with them or against them to understand that a fixed cost on the low end and a price control at the top end will affect the profitability of a particular product.

So, we are left with begging businesses to be altruistic, while also requiring their management to be fiduciary.

Dan Dostal June 14, 2011 at 1:43 pm

There’s a huge area between altruistic and acting in bad faith. Drug companies are acting in bad faith. Every drug commercial I see on TV is them acting in bad faith. I hate those things. Regular people do not have the necessary information to make good drug decisions without some serious investigation. Not saying the FDA is operating in good faith, but yes we can and should expect companies to operate in good faith.

Andrew' June 14, 2011 at 3:24 pm

“Regular people do not have the necessary information to make good drug decisions without some serious investigation”

No seriously, I did it this morning.

Andrew' June 14, 2011 at 3:41 pm

Dan Dostal,

How is it that patients cannot resist the doctor’s drug prescription while doctor’s cannot resist the patient demand for antibiotics?

Mike Moore June 14, 2011 at 12:14 pm

Rahul, you’re ignoring several crucial details.

First, the regulations such as patent protection that you label as “anti-competitive” are quite the opposite. Patents are issued on drugs because this is a drug companies intellectual property much like your business and your house are your property. The value of a drug company lies not in its brick and mortar, but in drugs in which it has invested great sums of money to develop. If patents were not enforced, the reasonable action for any potential competitor would be to allow some other company to invest its dollars into R&D and then copy their drug. That doesn’t foster competition. It fosters theft and discourages companies from innovating and being the first one to invent and develop a new drug.

Second, drug companies favor restrictions on imports because of pricing models based on Ramsey pricing theory which dictates that by selling drugs at lower prices in poor countries that could not otherwise afford the drugs, more units can be sold at profit than if these “discounts” were not given. This, in turn, allows drug companies to actually lower the prices charged to US consumers allowing more US consumers to purchase the drug.

The price controls that the pharma industry is complaining about are those imposed by the 340B program that has been expanded under Obamacare. Originally conceived by the short-sighted folks in Washington as a means to force drug companies to provide drugs at a discounted price to various facilities for their indigent patients, this has been abused by these facilities (including hospitals) who purchase drugs at the discounted 340B prices not only for their indigent patients, but for ALL their patients. Worse yet, these facilities, especially the hospitals, do NOT pass these discounts along to the intended recipients, but keep the difference for themselves as additional profit.

Dan Dostal June 14, 2011 at 1:44 pm

Patents are not property. They are government mandated monopolies. I am saddened that smart sounding people continue to spread the “intellectual property” lie.

Mike Moore June 14, 2011 at 2:02 pm

Dan, I understand that patents are government mandated monopolies, but perhaps you could suggest some other alternative that protects a drug companies sunk costs from free riders or are you of the opinion that all inventions should be public property (with all that entails)?

doctorpat June 14, 2011 at 11:23 pm

And real estate ownership is government mandated monopoly control over a piece of land.

Doc Merlin June 15, 2011 at 12:06 pm

Nonsense, in places without government control people still own land.

Bill June 14, 2011 at 4:41 pm

Mike,

Many goods are sold internationally. Few goods have an industry protection from cross boarder shipments. Some may call it gray market; others arbitrage, but it couldn’t exist without having special legislation sought by the industry to prevent importation of their own goods. Its not noble or ignoble; its just a fact. Its simple price discrimination based on the highest willigness to pay by each geographic segment, just in this case, government has been captured to serve as the policeman. Few other industries have the power to do this. Instead, they rely on warranties (your cannon camera purchased in Hong Kong will not be serviced by Cannon USA), or design modifications, etc.

This is not the only way drug companies can price discriminate. For example, they might give you a coupon based on your income, sponsor a non-profit and make a contribution to purchase their own drugs by making a contribution to the non-profit, etc.

The 340B comment makes more sense and I can understand it. But, I do not understand why the US, as a purchaser in effect of drugs for its seniors, does not do what other industrialized nations do, and negotiate with the drug companies. They are the payor. Foreign drug companies are great beneficiaries of this, not just US drug companies. Just ask the French and the British drug companies who sell higher to us than to their own citizens.

Mike Moore June 14, 2011 at 8:53 pm

Good points, Bill. Unfortunately, to an extent, US consumers are paying for the drug R&D that benefits the rest of the planet. In effect, we’re the last man (men?) standing. The “unfair” downside of this last man standing situation – our subsidizing drug development for the European free riders – is rather easy to see. The flip side is that – at least according to a 2004 report in The Economist http://www.economist.com/node/2388708 – American drug companies profit have gained relative to their European counterparts due to the fact that European companies have failed to innovate as a result of the more restrictive European price controls. But, you’re right. In effect, our government has effectively allowed the European nations to take advantage of us in this game of chicken. The libertarian streak in me says get the government out of the picture and force the drug companies to chose between raising prices for everyone and letting the rest of the world get angry at their own governments for effectively prohibiting certain treatments versus lowering prices for everyone, becoming less profitable and reducing innovation with the result that everyone suffers. I would, of course, favor the former.

In essence, the whole situation is akin to the bailouts. These are all temporary measures and eventually the house of cards will fall with a more cataclysmic result than if the governments had never intervened in free markets.

J Thomas June 14, 2011 at 10:59 pm

Unfortunately, to an extent, US consumers are paying for the drug R&D that benefits the rest of the planet. In effect, we’re the last man (men?) standing.

What would happen if we quit?

Say we spend much less developing new drugs. We continue to use the old drugs that work just as well as they ever did. (Apart from the antibiotics which have planned obsolescence.) The existing drugs become far less expensive as their patents run out, and during that time we learn how to use them more effectively too.

Where we lose is that the pace of improvement slows. But when we can hardly afford to pay for medical care, how much do we want to pay to keep expensively improving it?

So, say we stop granting patent rights for new medical procedures until we get the spending under control. Would that really be so bad?

hibob June 14, 2011 at 11:28 pm

“American drug companies profit have gained relative to their European counterparts due to the fact that European companies have failed to innovate as a result of the more restrictive European price controls. ”

I’ve been hearing that argument for years, yet it makes no sense. If GSK develops a drug, it gains the profits from higher priced sales in the US. If Pfizer develops a drug, it faces price controls in the EU. The only way EU drug companies would be at a disadvantage is if competing US drugs had a “homefield” advantage in the US market when it came to approval or marketing, which is completely different than price controls.

Bill June 15, 2011 at 9:27 am

Hibob,
I have no interest in increasing GSKs profitability with a US price umbrella.

If there is a case for drug subsidy to finance research, then the best way to do it is directly: subsidize research, like basic research through NIH or through R&D tax credits directed at US R&D, or US university research grants.

bbartlog June 14, 2011 at 10:08 am

Or it could be because consolidation is mentioned only once in the linked article? But in any case, you are naive. Consolidation is one of the results of high fixed costs that result from regulatory burdens. If it costs ten million dollars to get the approvals and do the paperwork associated with manufacture of some drug, it should be obvious that the market can only support a small number of producers. There are certainly other factors that can drive an industry towards consolidation but the cost of complying with regulation is not neutral in this regard.

Rahul June 14, 2011 at 10:12 am

I wonder how come there aren’t so many high profile anti trust cases in the pharma industry?

Dan Dostal June 14, 2011 at 1:45 pm

Because we have the FDA to monitor them.

Bill June 14, 2011 at 4:50 pm

Rahul,

There are many high profile antitrust cases involving drugs: they focus on payments by drug companies to other drug companies not to enter or delay entry, there are cases involving withholding information from the patent office; there are cases involving controlling resale prices; and of course there are merger cases.

Andrew' June 14, 2011 at 10:57 am

A fixed cost on individual drugs would militate to firms dropping their lowest profit drugs. Fixed costs on firms (e.g. consolidation of legal, etc.) is going to militate for consolidation of firms.

Considering we have consolidation of firms who are dropping drugs…need a lot more words to fill up the newspaper.

Lewis June 14, 2011 at 10:08 am

I can buy all kinds of drugs about two blocks from my house in Pittsburgh’s East Liberty neighborhood. Never any shortages.

Tom of the Missouri June 14, 2011 at 8:47 pm

Great point Lewis. Unfortunately I think your point is lost among about half the folks here who seem to have better detailed plans for regulating the drug industry. As they say: If only the really really smart people like them were allowed to be industry or economic dictators all problems and shortages would be solved. Whoops I forgot, those really really smart people were elected two years ago and most are straight out of academia and have never worked in the free market world and they are now after two years finally up to speed imposing all their grand schemes on all us little people our here in the hinterlands. God save us from their versions of Stalin’s Ukranian 5 year agriculture plans.

Andrew' June 14, 2011 at 10:36 am

Why did this post not emphasize Mexidogs? Mexidogs are awesome.

Albert Scovel June 14, 2011 at 3:10 pm

You win the internet.

Contemplationist June 14, 2011 at 11:26 am

In the leftist view, there are very few regulations, if any that have costs exceeding benefits even though most of the regulations are opaque or unknown to the proponent of the view. And any mention of costs of regulation can only be done by shills for that industry or a lackey of “the rich”

Chuck June 14, 2011 at 11:39 am

As a liberal, I would like to add that I favor licensing and regulation of industry shills and lackies of “the rich”. But I’ll go even farther and endorse licensing and regulation of lackies for “the rich” AND The Rich AND ‘the rich’.

Andrew' June 14, 2011 at 12:34 pm

Why?

Anyway, we have this vicious cycle that goes something like this “Bad company wants to profit. Need regulation. Bad company raises prices. Need more regulation.”

Dan Dostal June 14, 2011 at 1:46 pm

Best not to lump useful regulation in with bad regulation. Or to pretend that all regulation is bad, which may be what you are doing. If “company” needs a modifier, then so does “regulation”.

Andrew' June 14, 2011 at 2:47 pm

Here is the problem with that, where is the incentive to address bad regulation?

Chuck June 14, 2011 at 11:36 am

Meanwhile, popular libertarians talk about the gold standard…

Andrew' June 14, 2011 at 12:00 pm

The gold standard is just another government price control.

Andrew' June 14, 2011 at 12:10 pm

Here is a question. Why should the manufacturing of drugs be held to a higher standard than the manufacturing of everything else. And if your answer is “right on, we should demand higher standards on everything else!” your answer is duly noted. But what I’m talking about is why is a one gram pill intrinsically more dangerous than a bushel of lettuce? In other words, I can understand why the design of a pill might be considered special, but why the manufacturing?

Mike Moore June 14, 2011 at 12:32 pm

Andrew, here’s the real story. Several years ago (approx. 2005), what were previously “guidelines” by one of the pharmacist associations were made more complex and demanding and were also made enforceable by law with penalties. This was done through scare tactics and the lobbying efforts of a few pharmacists working for the government agencies in charge of this issue. Not surprisingly, within a few months of these “guidelines” being changed to legally enforceable “rules” the government employed pharmacist(s) who were the architects of this change, retired from their government jobs and hired themselves out as guess what. Yep, consultants who could explain how to comply with the onerous rules they themselves had developed.

The higher standards are essentially scare tactics aimed at politicians lacking knowledge of the medical insignificance of minute contaminants. For example, some of the rules are so strict that they forbid the presence of ANY bacterial or foreign matter contamination of IV fluids, not even a single organism. While this sounds like a good idea – who wants bacteria in their IV fluids? – it’s absurdity is revealed when one realizes that ordinary activities such as brushing your teeth or defecating result in significantly more bacteria entering the bloodstream. The level of “safety” demanded by these rules exceeds what is prudent or medically relevant.

Dan Dostal June 14, 2011 at 1:47 pm

Are you a shill?

Mike Moore June 14, 2011 at 2:18 pm

No, are you a big government loving liberal? I was a consultant for a hospital when this happened and witnessed the ridiculous expenses incurred by several hospitals in complying with these regulations as they pertained to their pharmacies and drug delivery systems. In fact, many of the rules were contradictory and self-defeating. For example, one rule required a positive pressure environment in an area where drugs were mixed. We’ll call this area A This was so that outside contaminants (from area B) wouldn’t enter room A due to pressure differentials. Another rule mandated that certain drugs be mixed in a “hood” (we’ll call this C) – basically a box that someone can reach into – that is vented to the outside and that the hood has a negative pressure with respect to the room. The problem is that the pressure in the hood (C) is even lower the pressure in B and significantly so which overcomes the pressure differential between A and B and draws outside contaminants from B into A negating the costs of outfitting room A with a positive pressure system in the first place. The fact is that we have a large number of so called experts who claim to be protecting us, but are creating mountains out of molehills in order to line their pockets. I don’t need and I don’t want their pricey security blanket, thank you.

Mike Moore June 14, 2011 at 2:20 pm

PS – Regarding my initial question, nevermind. The answer is obvious from your other posts.

Andrew' June 14, 2011 at 4:11 pm

Ironically, I had almost that exact same catch22 in a research setting with a hood inside a clean room. We set the hood to a low flow rate to avoid contaminating the clean room. The hood people hated on that. Their solution was to put a big sticker on the hood saying “DO NOT USE THIS HOOD!”

tkehler June 14, 2011 at 7:03 pm

Good story. But learn to ignore idiots like Dan D.

J Thomas June 14, 2011 at 7:52 pm

In fact, many of the rules were contradictory and self-defeating. For example, one rule required a positive pressure environment in an area where drugs were mixed. We’ll call this area A This was so that outside contaminants (from area B) wouldn’t enter room A due to pressure differentials. Another rule mandated that certain drugs be mixed in a “hood” (we’ll call this C) – basically a box that someone can reach into – that is vented to the outside and that the hood has a negative pressure with respect to the room.

Did you report this problem so it could be fixed?

When people who set up regulations don’t put enough thought into it, we need feedback cycles to get them to correct their mistakes.

People who don’t try to standardize their behaviors tend to make lots of mistakes. It can help to mandate stuff that works, but it’s no good at all to mandate stuff that doesn’t work.

SteveBeaver June 15, 2011 at 1:01 pm

Mike,

The problem you describe is simply poor HVAC design (I do engineering work for a major pharmaceutical manufacturer). Room A needs more filtered air delivered to it so as to maintain positive pressure differentials with respect to Area A and Hood C. The bigger issue, is that by mandating these type of cascades (very common), the cost of compliance goes sky high. You now need an engineering firm to determine airflow requirements, larger fans or blowers, and differential pressure monitoring. And then you need responses for any loss of the pressure cascade.

The short answer is that the cost of adding a new room for furmulation goes from say $15k to $200k very quickly once you need dedicated air handlers that are designed and sized appropriately.

TallDave June 14, 2011 at 12:34 pm

I refuse to believe well-intentioned regulations could have negative unintended consequences.

No! I will not hear it.

Devon Herrick June 14, 2011 at 12:42 pm

The University of Utah tracks newly reported drug shortages. As more and more facilities are allowed to take advantage of the 340B drug pricing program, the shortage will only get worse. In 2002 around 8,000 clinics and hospitals qualified for discounted drugs. Under the Affordable Care Act, this number will increase to around 20,000. This will further reduce the profitability of generic injectable drugs and increase the shortage.

Mike Moore June 14, 2011 at 3:13 pm

Right. With the expansion of the 340B price controls, the chief source of profit for drug companies are single source drugs (those still under patent) that are sold outside of the 340B program. Why devote resources to making drugs whose price is controlled by the government and which yield little or no profit when you can invest these same resources into drugs you can sell for a profit. The drug companies aren’t doing anything “bad”. They are simply responding in a rational and predictable manner.

Sigivald June 14, 2011 at 3:30 pm

No surprises, really.

The FDA’s incentives all add up to things like this.

If any failure ever happens that gets someone killed or sick “because the drug was made wrong” or “because the drug was approved and was somehow harmful”, the FDA gets the blame.

When there’s a shortage, the FDA can shrug it off – assuming anyone (in the larger, political sense) even blames them in the first place.

They get hammered for approvals if there’s a problem, but take no hit from onerous rules that make shortages – guess which one’s going to happen?

ezra abrams June 14, 2011 at 7:04 pm

as a PhD who works in biotech, but not directly in GMP manufacturing facilities, i think all the complaints about the FDA and GMP and lack of drugs are overblown
1) The FDA, like the rest of us, is human. Hamstrung by clinton the DINO’s low funding, they do the best they can. They make mistakes, and people die; I don’t know about most of hte posters on this board, I make a mistake,it usually ain’t that big a deal.
2) GMP is probably the worst way to ensure quality – except for all the others. Look at the “quality” of the stuff you buy from Wal Mart or wherever – is that the quality you want in your cancer drugs ? And quality – drugs that are consistent in purity and concentration – is hard and $$. Again, people are human; all these people who say, just junk the paperwork bloat of GMP and go with something else and go with the random inspection system – probably the same people, who, thinking about O rings on the space shuttle, said, heck its good enough….
3) lack of drugs.
On an econ board, one would expect people to have at least some knowledge about the psychology of absence – you don’t hear about all the bad drugs that didn’t kill people, you just hear about the shortages. And I bet, underneath it all, most of hte short drugs probably aren’t that good (no surprise, the for profit pharma sector overstates how good their product is) and the reason they are in short supply is that the MBAs who really run pharma are cutting corners on quality and mfr

boo June 16, 2011 at 1:37 am

Have you ever been to a Walmart? I work in biotech, too, and I occasionally shop at a Walmart. They sell lots of things that are pretty high quality, complicated to make, delivered in a consistent fashion, and sold at a reasonable price, mostly through market mechanisms. To people on the left, I guess that is unforgivable.

Jack Q. June 15, 2011 at 12:22 am

Cytarabine, a drug for chemotherapy, is generic. The FDA isn’t inhibiting anyone making that. Three US companies make it, but they had to recall product after problems with it, and they didn’t ramp up production instantly.

Funny, other countries don’t have troubles getting their generic drugs on the market. But then, their companies are used to not being endowed automatic cash-ins like ours are with our insane laws that guarantee.

Doc Merlin June 15, 2011 at 12:08 pm

The US has the strictest drug and safety regs of any country on the planet. Its no wonder that other countries don’t have problems with generics.

Amy Alkon June 16, 2011 at 1:16 pm

There’s been a shortage of the generic for Ritalin, which I take, for about six months. I’ve read that it’s because some of the ingredients go into meth, or can. I just want to focus when I write.

Lloyd Johnson June 22, 2011 at 10:31 pm

What most people don’t realize is that the market is by a wide margin the most powerful regulator ever invented by man. And market self-regulation is by a wide margin the most effective and the most efficient. Bureacratic regulation is simply money down a rat hole.

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