Bailing out drug shortages

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  • 02/07/2012
In Greece wise men speak and fools decide.
-- George Santayana

Poor Greece.

According to a new article in The Lancet:

The Greek Government's austerity drive has inadvertently triggered problems with the country's drug supply, causing shortages of hundreds of medicines.

But it’s not just Greece; drug shortages have been in the news in the United States and the EU. Also, in Saudi Arabia, some 2000 medicines are in short supply since 2008 and in Turkey some 350 medicines have been at risk of stock outs since arbitrary changes in pricing and reimbursement last November. 

Plainly speaking, artificially low prices cause drug shortages.

In the past few months, according to the PanHellenic Association of Pharmacists, 500 commonly used drugs are in short supply. Among them, there are drugs for hypertension, gastroenterological disorders, cancer, kidney diseases, and painkillers.

What’s causing Greek’s drug shortage problem? The same issue that causes it everywhere else – perverse market incentives.

In the United States, a government analysis of average sales prices showed that oncology sterile injectable drugs that experienced shortages since 2008 decreased in price from $56.17 per unit in Q1 2006 to $37.88 per unit in Q1 2011. Oncology sterile injectable drugs that have not experienced shortages have had relatively stable prices over this period.

Last year, the Greek government mandated lower drug prices to cut down its medical expenses. Medical expenses were €2·4 billion in 2004, €5·2 billion in 2009, and dropped to €1·65 billion in 2011, after the measure was taken.

However, the government's decision has fed the parallel trade market since
wholesalers prefer to sell their products in other countries where the profit is higher.

“Due to medicine shortage, the population's health is in great danger,” says Kostas Kouvaris, president of Pireaus Pharmacists Association. Theodore Abatzoglou president of the PanHellenic Association of Pharmacists points out that the recent government law for the prices of medicine has also caused hospitals to run out of drug stocks. And because of the extremely low prices set by the government, international companies are not interested in supplying Greek hospitals with medicine. Health institutes are now mainly being supplied by companies that sell generic drugs which, in many cases, represent older medical technologies.

But, generic drugs aren’t often what the doctor ordered.  Replacing an old generic drug for a modern innovator product may save a government money in the short term, but as patient outcomes worsen and hospitalization occurs, health costs skyrocket.

According to Greg Conko of the Competitive Enterprise Institute,

"Essentially all of the drug shortages that occur in the U.S. arise in the generics market, where profitability is fairly low … Compounding the problem is the fact that the 'buyers' of the drugs in question aren't patients but third-party payers -- insurance firms, pharmaceutical benefit managers, and government health programs -- all of which have a strong incentive to drive the prices paid for these products down as low as possible … So, for many of these drugs, the market can really only sustain a handful of manufacturers -- sometimes just one or two. So, when supply disruptions occur -- caused by a shortage of raw materials or more often a quality control problem in a manufacturing facility -- there aren't a lot of additional producers in the market to take up the slack.”

"The main cause of drug shortages is economic," says Mandy L. Gatesman, PharmD, of Virginia Commonwealth University in Richmond, and Thomas J. Smith, MD, of Johns Hopkins. "If manufacturers don't make enough profit, they won't make generic drugs.”

Let’s adopt a free-market solution and free physicians, pharmacists, and patients of the problem of needless drug shortages.

The government solution to a problem is usually as bad as the problem.              
-- Milton Friedman

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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