Drug Rationing? Who Would Have Predicted It?

 

“Drug Shortages Forcing Hard Decisions on Rationing Treatments” reports The New York Times:

CLEVELAND — In the operating room at the Cleveland Clinic, Dr. Brian Fitzsimons has long relied on a decades-old drug to prevent hemorrhages in patients undergoing open-heart surgery. The drug, aminocaproic acid, is widely used, cheap and safe. “It never hurt,” he said. “It only helps.”

Then manufacturing issues caused a national shortage. “We essentially did military-style triage,” said Dr. Fitzsimons, an anesthesiologist, restricting the limited supply to patients at the highest risk of bleeding complications. Those who do not get the once-standard treatment at the clinic, the nation’s largest cardiac center, are not told. “The patient is asleep,” he said. “The family never knows about it.”

In recent years, shortages of all sorts of drugs — anesthetics, painkillers, antibiotics, cancer treatments — have become the new normal in American medicine. 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. But while such shortages have periodically drawn attention, the rationing that results from them has been largely hidden from patients and the public.

Rationing? Why might this be? Who could have imagined such a thing?

Published in Domestic Policy, Healthcare
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  1. Robert McReynolds Inactive
    Robert McReynolds
    @RobertMcReynolds

    Sarah Palin:

    https://www.youtube.com/watch?v=mfeuoiNlj-U

    • #1
  2. I Walton Member
    I Walton
    @IWalton

    Folks who know the industry and its economics will answer,  but when there is an enduring problem one must first ask what is the government doing that gave rise to it.   Government at some level is almost always the origin.  Short term problems fix themselves if the government isn’t involved.   They become enduring and require government fixes if the government is involved.   There must be an exception, anyone?

    • #2
  3. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    I Walton: Folks who know the industry and its economics will answer, but when there is an enduring problem one must first ask what is the government doing that gave rise to it.

    Put this story together with this one. You would have a hard time convincing me that this has nothing to do with rent-seeking and protectionism in the pharma markets. If it’s a decades-old drug, no matter what it is, there’s no shortage of it. They’re just not letting Indian manufacturers sell it in the US.

    • #3
  4. civil westman Inactive
    civil westman
    @user_646399

    I suspect all three mechanisms are at work. The government makes virtually everything in health care more difficult and costly with no assessment of cost vs. benefit. Surely, as well, pharma engages in rent-seeking and demands protection from competitors.

    I have definitely noticed that old, generic drugs have suddenly (over the past 5 years or so) become much more expensive, meaning 10 -15 times their previous price. Unfortunately, the so-called market for drugs has become so contorted – mainly by the heavy hand of the state and  corporate attempts to circumvent it – that it is anything but a market where supply and demand provide a mechanism of pricing.

    • #4
  5. Kozak Member
    Kozak
    @Kozak

    Claire Berlinski, Ed.: If it’s a decades-old drug, no matter what it is, there’s no shortage of it. They’re just not letting Indian manufacturers sell it in the US.

    I’ve had it affect my practice in the ER.  Basic staple drugs disappear.

    Right now just about all anti nausea meds are in short supply.  A year ago it was morphine.

    From allnurses.com

    “Thank you for that link to an American Bar Association article/publication. After reading it and its accompanying citation list, I went on to read one of the sources cited:

    http://www.fda.gov/downloads/AboutFD…/UCM277755.pdf

    This October 2011 document, “A Review of FDA’s Approaches to Medical Product Shortages” is worth reading, for anyone who’s interested. The section devoted to sterile injectable drugs (which comprise the vast majority of drugs of which there has been a shortage in the last decade) explains that the manufacture of these drugs is regulated in that FDA approval of ingredients, sources of ingredients, and actual physical inspection of existing and proposed new facilities used to manufacture these drugs is required by law.

    The report also explains that manufacturing facilities of sterile injectables typically run at near-maximum capacity. So while the FDA does not directly require pharmaceutical companies to manufacture x quantity of Drug A … the regulatory process does mean that production cannot be quickly increased to meet increased demand or to compensate for manufacturing problems.

    http://www.fda.gov/Drugs/DrugSafety/…/ucm050792.htm

    This very helpful page of the FDA website lists current shortages. There appear to be 11 manufacturers of Ondasteron, with several of these shortages expected to resolve within this month. “

    • #5
  6. Dan Hanson Thatcher
    Dan Hanson
    @DanHanson

    The report also explains that manufacturing facilities of sterile injectables typically run at near-maximum capacity. So while the FDA does not directly require pharmaceutical companies to manufacture x quantity of Drug A … the regulatory process does mean that production cannot be quickly increased to meet increased demand or to compensate for manufacturing problems.

    This.  I work with regulated industries from time to time (aviation, pharma),  and the difficulty in ramping up or changing production is much worse when the government is closely involved.  There are so many reporting requirements,  so many systems that have to be spun up to make sure every single regulatory requirement is met and so many inspections and approvals that it’s a very slow process to open a new facility.  That drives up costs because time is money and when you’ve sunk $100 million into a project and it’s delayed for a year or two it costs real money.

    There’s also regime uncertainty.  People are hesitant to open major new manufacturing sites because they don’t know what the regulatory future is going to look like under such an activist government.  This is especially true in healthcare,  where new rules are being made constantly by the bureaucracy.  Government activism injects a lot of uncertainty into business decision-making in regulated industries,  and the response is often to just hunker-down,  run your factories at max capacity rather than build new ones, and wait it out.

    • #6
  7. Douglas Inactive
    Douglas
    @Douglas

    Oh come on, Claire. Hillary said rationing happens everywhere. It’s only fair.

    • #7
  8. George Savage Contributor
    George Savage
    @GeorgeSavage

    Retail pharmacies and distributors consolidate, turning the screw on the price of generic medicines. To cut costs, generics manufacturers sell off their manufacturing operations to a small number of CMOs (contract manufacturing organizations). To remain competitive, the CMOs trim costs to the bone and often fail FDA audits, usually on record-keeping grounds, interrupting supply. Eventually, some manufacturers discontinue certain drugs for cost reasons, particularly high cost sterile products or lower volume drugs–volume is key to covering costs in the generics business.

    Meanwhile, the FDA affords no relief from a byzantine multi-year, multi-million-dollar process required to make anything.

    In the end we can wind up with de facto single-sourcing for essential medications–either one manufacturer, or a couple with unalterable capacity constraints– at which point prices soar. New entrants are deterred since, after spending years and millions to compete, the incumbent(s), with production investments already fully amortized, can always cut price to maintain market share, stranding the new entrant’s investment.

    As usual, the government is the cause of the problem: first by encouraging rock-bottom generic drug prices, then by deterring new entrants or expansion of incumbent manufacturing capacity.

    • #8
  9. Eric Hines Inactive
    Eric Hines
    @EricHines

    Claire Berlinski, Ed.: Those who do not get the once-standard treatment at the clinic, the nation’s largest cardiac center, are not told. “The patient is asleep,” he said. “The family never knows about it.”

    [The cite is from the linked-to piece.]  What’s quoted is a major problem.  There isn’t much excuse for withholding this sort of information, not only from the family involved, but from the public at large.

    Claire Berlinski, Ed.: You would have a hard time convincing me that this has nothing to do with rent-seeking and protectionism in the pharma markets.

    Of course that’s a factor, likely even a major one.  But whence the environment that enables such rent-seeking and protectionism?  From an overreaching government with so many regulations that free market’s competition can’t work its magic.  Even monopolies, outside the exceedingly rare natural monopoly, crumble when an enterprising man or group of men find a way past the barrier to entry and begin competing.

    In the particular case, the overreach is clear.  Generic manufacturers and compounders already are working with a proven drug, yet they’re stuck with excessive regulation or threat of excessive regulation.  Excessive: more regulation than necessary to demonstrate that the genericizer or compounder actually is producing what it says it is producing and that it’s doing so in a safe, clean manner.  The sort of thing easily demonstrated with restaurant industry style “kitchen” inspections.

    Eric Hines

    • #9
  10. Herbert Member
    Herbert
    @Herbert

    Off topic, but I gotta rant….  How long has the practice of drug companies paying (by allowing consumers to forego co-pays or deductibles) consumers to stick with non generic expensive drugs so that they can stick insurance companies with the expensive drug, been going on?        Should I feel guilty because i’m cost sharing my designer drugs to avoid co-pays when generics would save the insurance company thousands of dollars?

    • #10
  11. captainpower Inactive
    captainpower
    @captainpower

    Herbert: Off topic, but I gotta rant…. How long has the practice of drug companies paying (by allowing consumers to forego co-pays or deductibles) consumers to stick with non generic expensive drugs so that they can stick insurance companies with the expensive drug, been going on? Should I feel guilty because i’m cost sharing my designer drugs to avoid co-pays when generics would save the insurance company thousands of dollars?

    Can you break that down a bit more?

    I only have a minute now, so maybe I just need to re-read it.

    But if you can elaborate I’d be happy to learn and understand more about this.

    [edit] read it again and I think I untangled it in my mind, but I still don’t really understand it, probably because I’m ignorant.

    Herbert:

    drug companies […] allowing consumers to forego co-pays or deductibles […] to stick with non generic [aka name brand] expensive drugs so that they can stick insurance companies with the expensive [aka name brand] drug

    I believe you are saying drug companies are allowing people to skip copay for expensive drugs.

    I thought the hospital/insurer determined the copay amount. Are you disputing this?

    Herbert:

    Should I feel guilty because i’m cost sharing my designer drugs to avoid co-pays when generics would save the insurance company thousands of dollars?

    Are generics truly the same? If so, what would compel the insurance company to continue funding brand name purchases?

    • #11
  12. Front Seat Cat Member
    Front Seat Cat
    @FrontSeatCat

    I am wondering why standard drugs that are more in demand are not stockpiled? It seems an ER situation means critical, so inventory should always be a priority. With so many more people now insured so says Obamacare, more people seeking treatment, so more drugs are needed.  I remember when we had the massive flu outbreak one year and they ran out of vaccines early in the season – a European co. had to go into overtime production to meet the demand. They were rationing and asking the elderly and most vulnerable to get it, and others wait.

    I am also wondering that since so many regions in the world are unstable, is it harder to get certain ingredients to make necessary drugs? I read something as simple as Vitamin C is mostly imported from China – we don’t seem to even make much of that!  It seems like something as serious as life saving drugs should not fall into a supply chain system that is unreliable.

    • #12
  13. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Herbert: How long has the practice of drug companies paying (by allowing consumers to forego co-pays or deductibles) consumers to stick with non generic expensive drugs so that they can stick insurance companies with the expensive drug, been going on?

    Like captainpower above, I, too, have no idea how this would work.

    Having been prescribed, at various points, several newer drugs in the $300-$500/month range (pre-deductible), while I’ve seen drug companies offer many deals to help customers pay for these drugs, either these deals have not been compatible with my prescription-drug plan, or they have been for such small discounts relative to the total price that they hardly seemed worth it. But maybe the deals Herbert is talking about tend to kick in with drugs priced at several thousand dollars a month rather than a “few” hundred?

    • #13
  14. Herbert Member
    Herbert
    @Herbert

    http://www.pcmanet.org/research/5-questions-for-brand-drug-copay-coupons-defenders

    • #14
  15. Midget Faded Rattlesnake Contributor
    Midget Faded Rattlesnake
    @Midge

    Thanks, Herbert. Yes, “copay coupons” are what some of the deals I’ve been offered are called. The few copay coupons I’ve been offered turned out not to be a good deal with my prescription benefits for some reason, but I can see how attractive coupon offers could keep people on prescriptions much more expensive than the ones they’d otherwise try.

    As of the new year, our plan’s formulary decided to steeply increase the price difference between a drug I’d been taking for years and its major competitor. It used to be a small-enough difference to justify paying a little extra to stay with the old tried-and-true rather than switching, but not anymore, not even with coupons.

    • #15
  16. Herbert Member
    Herbert
    @Herbert

    Midget Faded Rattlesnake:Thanks, Herbert. Yes, “copay coupons” are what some of the deals I’ve been offered are called. The few copay coupons I’ve been offered turned out not to be a good deal with my prescription benefits for some reason, but I can see how attractive coupon offers could keep people on prescriptions much more expensive than the ones they’d otherwise try.

    As of the new year, our plan’s formulary decided to steeply increase the price difference between a drug I’d been taking for years and its major competitor. It used to be a small-enough difference to justify paying a little extra to stay with the old tried-and-true rather than switching, but not anymore, not even with coupons.

    It’s interesting, I have Florida Blue, formerly Blue Cross  Blue Shield.  With my prescription  (which must be pretty unusual) drug plan,  I have to pay for the drugs up front and then i submit receipts for reimbursement to a drug plan administrator.   With these no co-pay programs,  the drug companies submit the charge to my insurance, and my insurance refuses to pay it(since they reimburse only to the insured).   In short, I get the drug with no payment at all.  The drug  company ends up getting absolutely no reimbursement from Florida Blue.

    • #16
  17. Dan Hanson Thatcher
    Dan Hanson
    @DanHanson

    Front Seat Cat:I am wondering why standard drugs that are more in demand are not stockpiled?

    Most drugs decrease in potency or otherwise degrade over time.  They have to be stored in controlled environments,  which is expensive.  If your stockpile is too large you have costs associated with wastage, as well as the cost of the capital sunk into the inventory and infrastructure.

    A much better idea would be to ease off on the regulatory burdens and let the market breathe a little more.   The core problem here is that drug certification costs and patent lifetimes almost guarantee that every new drug will be hideously expensive.

    The real answer is to find a way to speed up drug certification,  which lowers the cost of R&D and increases the amount of time the company gets to earn revenue before the patent runs out.  Those are the critical numbers in this whole debate:  the cost of R&D and production vs the length of time the patent owner is allowed to profit before generics flood the market.

    Ease regulatory burdens that inhibit expansion of drug production.  Let the market work as much as possible.  Grocery delivery is a free market,  and there are never shortages of Count Chocula.

    No one knows how to make these efficient systems,  but we do know what conditions are necessary to allow these systems to grow on their own.  You need free markets and incentives aligned correctly between producers and consumers.   You need to ensure that information can move freely,  including information transmitted through profit and loss and wealth accumulation.

    If we can’t solve the core problem of the cost of creation vs the cost of delivery,  we will always have high drug prices, shortages, and gluts.  Because that’s what happens when you replace the forces of distributed, individual human action with a top-down command economy.

    • #17
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