Drugs and markets: A tale of two stories

Health care delivery in the US is experiencing yet another mismatch of supply and demand. This time it has happened within the realm of cancer treatment. As noted in this week's NEJM:

For the first time in the United States, some essential chemotherapy drugs are in short supply. Most are generic drugs that have been used for years in childhood leukemia and curable cancers — vincristine, methotrexate, leucovorin, cytarabine, doxorubicin, bleomycin, and paclitaxel.1 The shortages have caused serious concerns about safety, cost, and availability of lifesaving treatments. In a survey from the Institute for Safe Medication Practices, 25% of clinicians indicated that an error had occurred at their site because of drug shortages. (http://www.nejm.org/doi/full/10.1056/NEJMp1109772?query=O). 

 The reason for this shortage is not hard to determine.The authors go one to draw a simple conclusion.

The main cause of drug shortages is economic. If manufacturers don't make enough profit, they won't make generic drugs.........The second economic cause of shortages is that oncologists have less incentive to administer generics than brand-name drugs.

The regulated medical marketplace is heavily weighted to the regulated aspects and very light on the market aspects. Price fixing, particularly fixing margins to 6% for chemo drugs administered created a perverse incentive to administer the most expensive drugs one can practically get away with. A 6% mark up of an expensive drug yields more income that the same percentage mark up of an inexpensive one. With the such substantial incentives for physicians to administer expensive drugs, what in the upside for pharmaceutical firm to continue manufacturing low or no margin drugs when they can invest their resources to produce a better return on their investments.

Before the medical community cries foul, indicting the pharmaceutical industry for failing to produce drugs  because of limited margins, we should first look at ourselves. The medical community also directs resources primarily to generate financial returns. It is an existential thing. Those entities that fail to do so also fail to exist in the long term. Survival is not required. Entities whose business is based upon not making money have short life spans.

In contrast to the non-market for chemotherapy drugs where there are profound shortages, there is a separate universe where there are no drug shortages. The CDC reported that the number of deaths from overdose involving prescription opiates has reached record levels. (http://cdc.gov/mmwr/preview/mmwrhtml/mm60e1101a1.htm?s_cid=mm60e1101a1)  Here is a world where major efforts have been undertaken to limit use  the use of these agents and yet there is no evidence of drug shortages. It is quite the contrary. One of many things that the state cannot control is the price of street drugs. This should not be taken as an endorsement of  drug culture or illicit drug use. However, it is evidence of the power of markets and market pricing.

When shortages are present, it is more often the mark of dysfunctional regulatory states. If we want to make sure that cancer patients have access to affordable life saving drugs, we need to stop tinkering, stop making more rules, and let the power of markets fix the problems wrought by regulatory demons.