Over the past few months President Barack Obama has used the power of the executive order to initiate policy changes that are unlikely to gain traction in today's divided Congress.
A recent initiative of this kind is intended to ease a critical shortage of pharmaceuticals.
According to the University of Utah, today some 232 medicines are in short supply (compared with 70 in 2006). Most of these are what are called sterile injectable drugs, and most of them generic. Some of these are antibiotics, others are used for procedures such as chemotherapy. Dr. Scott Gottlieb at the American Enterprise Institute reports that a full 50 percent of the total market for generic sterile injectable drugs are in short supply.
Individual lives hang in the balance because of these shortages. Doctors are forced to delay treatments or use more expensive, albeit less effective substitutes. By some estimates, well over half a million cancer patients are impacted.
Because this is a critical shortage, Obama's executive order is welcome. It orders the Justice Department to investigate the grey market that has developed around sterile injectable drugs and it asks the Food and Drug Administration to speed up review for new production. This approach, however, is only going after the symptoms rather than the causes of the shortage.
We acknowledge that this is a multifaceted problem. But at least some of it stems from mutually exclusive policy demands. On the one hand, the FDA has asked manufacturers of sterile injectable drugs to significantly increase their quality control. Although these controls help to ensure the safety and reliability of the drugs, they also typically require manufacturers to spend significant sums on new plant and equipment.
On the other hand, government reimbursement schedules through Medicare control the prices of these generic drugs, putting caps on broad categories of drugs rather than looking at drugs individually and relying on historical average prices rather than actual costs.
Such blunt price caps make it challenging, if not impossible, for many generic drug manufacturers to benefit from additional investment in plant and equipment required by U.S. regulation to stay in these markets. Interestingly, some companies have found it profitable to continue domestic manufacture for relatively well-supplied foreign markets that have both more flexible regulatory standards and higher prices.
We understand that pharmaceuticals require special regulation for safety and effectiveness. But when such quality assurance comes with additional costs, firms must be able to recoup their investment. Mandated reimbursement schedules that effectively control prices appear to be standing in the way of providing supply, even though there is significant patient need and demand.
It will require congressional action to address the root causes of this problem. And even with swift legislative action, it will likely take years to build the required manufacturing capacity. Accordingly, we urge lawmakers to make this life-threatening shortage of drugs a legislative priority and eliminate the price controls on critical generic injectables. Suppliers deserve greater incentives to enhance their manufacturing, and patients deserve the resulting reliability of adequately stocked pharmacies.
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