Obama Orders Drug Shortages

Obama Orders Drug Shortages
By Robert M. Goldberg on 11.4.11 @ 6:07AM

He wants increased production of life-saving drugs while looking to punish any price increases. Good luck to us all.

With much fanfare and media attention, President Obama signed an executive order instructing the FDA to step up work to reduce current drug shortages and protect consumers. It's hard to argue with exercising presidential leadership to ensure cancer patients don't die waiting for drugs that could save their lives. The problem is the executive order will aggravate the conditions causing the shortage.

The executive order notes, "An important factor in many of the recent shortages appears to be an increase in demand that exceeds current manufacturing capacity." So the order directs the FDA to look for and report on potential drug shortages earlier and more regularly, speed up the review of applications needed to expand or start production and tell the Justice Department when about "possible instances” of collusion or price gouging.

In other words, the same companies the President is encouraging to increase production will also be suspected of criminal activity if they work together or raise prices in ways that -- to FDA or DOJ lawyers -- seem illegal. The only way to reduce your risk of being prosecuted or investigated is to keep prices where they are or ask permission to raise them first.

Ironically, the drug shortages the president wants to address were caused by a similar desire to prevent price gouging in 2003. Former Obama health adviser Ezekiel Emanuel recently noted:

The Medicare Prescription Drug, Improvement and Modernization Act of 2003… 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.)

Indeed, the government report on the cause of the shortages the President mentions in his executive executive order found that the greatest shortages and the steepest decline in product are among the drugs whose prices have dropped since 2004. Similarly, in the 1990s when the price of vaccines bought by the government was capped, there was a shortage of shots for childhood diseases. Once the price caps were lifted product rapidly increased.

The simple solution to the shortage problem is to remove the price controls that already exist and not adopt any policies that would increase government's role in setting prices. Prices should go up. The time and cost required to produce more drugs could go down by allowing companies to pool resources, production lines, share inventory, etc. That's what sped up and cut the expense of producing anti-flu medication in response to the possibility of bird flu pandemic in 2008. As a temporary measure, the Department of Health and Human Services could establish a special code for products in short supply to speed up reimbursement at rates reflecting the urgency of the situation.

Instead, as noted the President wants the FDA to monitor companies for evidence of collusion and price gouging. Additionally, the administration wants to impose price controls and rebates on all medications the government pays for. That would force a reduction in the price of injectible drugs other than the medicines for cancer and infections that are already in short supply. Finally, Obama wants to reduce the effective patent life of biotech drugs from 12 to 7 years. That could create a shortage of life saving drugs in the future relative to the demand.

While the President's effort to resolve the shortage is laudable, his executive order will make the shortage worse. And his proposal to extend price controls and reduce patent life on all other drugs now and in the future will ensure our nation faces a famine of pharmaceuticals for years to come.
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Obama's Drug Shortage Demagoguery
By Michelle Malkin
11/4/2011

President Obama couldn't wait to trample over the legislative process again. This week, he issued his 98th executive order on an irresistibly exploitatable policy issue: prescription drug shortages. Soon, "One a Day" won't just be a multivitamin. It'll be the rate of White House administrative fiats.

Federal officials darkly suggest that selfish industry "stockpiling" is endangering Americans' lives. "If we find out that prices are being driven up because shortages are being made worse by manipulations of companies or distributors," the White House further threatened, "agencies will be empowered to stop those practices. And the FDA and the Department of Justice will be investigating any kinds of abuses that would lead to drug shortages."

As usual, the underlying reasons for these marketplace conditions are gobsmackingly complicated. As usual, a significant portion of the fault lies with the government -- not evil corporate "abuses." And as usual, Obama's unilaterally imposed "solutions" promise to do more harm than good.

There's no question that drug shortages exist and that they have been on the rise. According to the U.S. Food and Drug Administration, 246 drugs are now scarce. It's a record. Why? I've rounded up just a few of the reasons:

-- DEA rules. In some cases, manufacturers have been ensnared by federal Drug Enforcement Administration regulations. Take Adderall, the attention-deficit hyperactivity disorder medication. As ABC News reported earlier this year, Shire Pharmaceuticals makes Adderall "and is under contract to provide the generic form of the drug to Teva Pharmaceuticals and Impax Laboratories, which mass produce the generic." According to Shire, their supplies have been hampered by DEA restrictions on the amphetamine-based medications, which are tightly monitored controlled substances.

-- FDA rules. According to the American Society of Health-System Pharmacists and other professional organizations, "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 industry experts point to additional new drug manufacturing approval processes that are "lengthy and unpredictable, which limits their ability to develop reliable production schedules."

-- Manufacturing problems and generic drug status. Sterile injectables such as Propofol, a widely used anesthesia drug, are notoriously difficult to make. The timeline is long; interruptions in manufacturing one drug can affect multiple products. Sterile injectables can be contaminated easily. Several batches have been recalled in recent years because of dirty particulate matter found in vials.

Recall and liability headaches have led manufacturers to get out of the business. Moreover, as low-priced generic drugs, sterile injectables just aren't as attractive to pharma companies already weathering tough economic times. When drugs go off patent, the prices decrease. The rest is elementary.

"If the costs associated with making a drug begin to outweigh the profits," the New England Journal of Medicine explained, "companies may wish to discontinue production of the drug in favor of a newer, more profitable product. If the number of companies making an older drug decreases, and there is a delay or problem in manufacturing, shortages can and do occur."

-- Bush-era Medicare price controls and Obamacare price controls. Everyone from the free-market Wall Street Journal editorial board to renowned death panelist Ezekiel Emanuel agrees that low prices yield inevitable shortages. President Bush and Republicans imposed a 6 percent cap on cancer drug price increases that took effect six years ago. Health care analyst John Goodman adds that Obamacare exacerbated a separate federal price distortion, which requires drug companies to provide rebates to certain hospitals and clinics "of 23.1 percent for brand drugs; and 13 percent for generic drugs off of their average manufacturer's price on qualifying outpatient drug use."

Emanuel, the controversial former Obama health care guru, provided an unexpected shot in the Democrats' market-bashing arm in a recent New York Times op-ed: "You don't have to be a cynical capitalist to see that the long-term solution is to make the production of generic cancer drugs more profitable."

But instead of a sober debate about the wildly divergent reasons for some of these shortfalls, Obama's perpetual campaign machine gave us taxpayer-funded videos that yank the heartstrings and smear pharmaceutical companies. Instead of an honest assessment of the proposed government "fixes," Washington bureaucrats are using patients as human shields to disguise new power grabs.

Unfortunately, the only cure for Team Obama's overdose of toxic demagoguery lies at the ballot box. We can't wait.
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To read another article by Michelle Malkin, click here.