Obama to Sign Executive Order to Prevent Drug Shortages

By Douglas Main | October 31, 2011 1:56 pm

President Barack Obama will sign an executive order today aimed at reducing the number of drug shortages; between 2005 and 2010, the number of such shortages jumped from 61 to 178. Most of the drugs reported as coming up short are generic, injected medications like cancer drugs, antibiotics, and nutritional shots for hospitalized patients. Many of the shortages are due to manufacturing delays or quality control problems, like syringes found to contain glass particles or to be contaminated with microbes. The executive order will require the Food and Drug Administration to speed review of applications for changes in manufacturing protocol or to use new or different drugs in certain circumstances.

The order also instructs the FDA to work with the Department of Justice to report possible instances of price gouging, which could lead to prosecution of companies that illegally horde certain medications or overcharge for certain drugs in times of shortage. In one instance, a company charged $990 per vial for a leukemia drug that normal fetches only $12—an 80-fold markup.

CATEGORIZED UNDER: Health & Medicine
  • Gary

    See http://www.theatlantic.com/business/archive/2011/08/medicare-regulation-causes-shortages-of-cancer-drugs/243349/ for a discussion on why the shortages were an unintended consequence of government rule making in the first place.

    Going after ‘price gougers’ is a fantastic way to ensure more shortages. The solution is to reduce the barriers for other suppliers to enter the market. Robust competition solves the ‘gouging’ problem automatically.

  • John Kwok

    @ Gary –

    Yours is an astute assessment that I suspect is lost on Obama and his advisors. This is yet another example where he has opted to flout the Constitution by setting policy that should be left to Congress, the Federal courts and the states.

  • MT-LA

    @John Kwok: I wonder what you think is the goal – the end game – of Obama “flouting” the constitution? Congress hasn’t been able to get anything done of any kind of value. The federal courts would take forever-long to “set policy” – even longer than congress – and then get reamed for legislating from the bench. And the states wouldn’t be able to regulate anything outside of their own border, so it would need a high percentage of states making the same rules to have an appreciable effect.
    Congress may be the legislative route you would have preferred, but the reality of situation trumps ideals.
    You say he “opted” to take this route. To what purpose?

  • Geack

    @ Gary,

    What barriers can be removed? Quality-control and testing requirements aren’t something we can afford to skimp on, and the demand for many of these generics is sufficiently low relative to their production costs that manufacturers simply aren’t that interested in competing on them. Plus there’s no effective competitive market for much of this stuff on the buyers’ end; the Bush-era rule change in that Atlantic article was an attempt to stop spending tax money based on essentially fictional “average” prices set by insurers and determine what the REAL averages prices are. Apparently those prices were sufficiently low that when the government’s inflated-price tap stopped flowing, the manufacturers sold off their stock and then waited for shortages to drive prices back up. A system in which manuf’s profits are dependent on government payments above the private buyers’ true market price is not a free market, it’s a covertly subsidized market. We can argue whether subsidies are good or bad, but there’s no point in prescribing free-market solutions when shafting the taxpayers is part of the business model.

  • chance

    @Gary

    Oh your right, I’d much rather have foreign bacteria injected when I get my shot. Or shards of glass. wow…some people’s desire to hate government, far supersedes their ability to rationalize what government is trying to do.

  • John Kwok

    @ MT – LA –

    The columnist from that most astute “conservative” journal, The Atlantic, has made these salient points which Gary has linked to:

    “This is why it is so unwise to simply assume that you can identify excess profits in the health care system, and wring out those profits with a well chosen set of rules. The odds are good that you don’t understand the market quite as well as you think. And even if you did . . . in this case there seems to be a quite clear tradeoff between paying providers too much, or giving up inexpensive cancer drugs. You can’t have less of one without more of the other–I’m sure this rule is saving the government money on some drugs, even as it forces others off the market. (Though of course, to the extent that the government is now paying for more expensive brand names, this may be a windfall for pharma, and a net loss to the government.)”

    “What’s happening now is, by the way, exactly what many conservatives have predicted: crude rationing of needed care. Generally, they’ve been met by accusations of alarmism, if not indignant condemnation for giving aid and comfort to the “Death Panels” meme. With all that waste in the medical system, how could it not be possible to make things better if you put some really smart people in charge of identifying what works, and making smart rules about pricing and provision?”

    “The administration always seemed to believe that there was a magic pot of money out there that did not come attached to an angry interest group, or any real costs to human welfare. And I see that they are apparently still convinced that the health care system is a world without tradeoffs. ”

    Her criticism begins with the George W. Bush’s signing of the Medicare prescription drug bill and ends with the current policies of Barack H. Obama. So, in order to “correct” this problem, Obama and his advisors have most likely exacerbated it.

    @chance –

    No, what Gary is advocating is a far more competitive playing field amongst pharmaceutical firms where prices are set more realistically based on free market conditions. The dire consequences you speak of are, I am sure, unacceptable to him.

    As for myself, I don’t hate the government, but I do support efforts to resist the growth of a radical Democratic Socialist state in lieu of our constitutionally mandated democratic republic, which seems to be the objectives of Obama and his closest advisors. I’m not a Tea Party Movement supporter, but I have more in common with them, than I do with Obama and his friends at Occupy Wall Street.

  • MT-LA

    @John Kwok: Your cut-and-paste was unnecessary since you answered my question in your last paragraph:
    MT: “I wonder what you think is the goal – the end game – of Obama “flouting” the constitution?”
    John Kwok: “…a radical Democratic Socialist state in lieu of our constitutionally mandated democratic republic, which seems to be the objectives of Obama and his closest advisors.”

    See…isn’t that more simple?

    John Kwok: “I’m not a Tea Party Movement supporter…” and water isn’t wet.

  • John Kwok

    @ MT – LA –

    I regard the Tea Party Movement as a far more legitimate political movement than Occupy Wall Street even though most of my friends, including several prominent writers, are strongly endorsing Occupy Wall Street.

    As for Obama’s political past, that’s an issue which the mainstream media opted not to investigate. Had it did, I suspect that either Hillary Clinton or John McCain would be the President now.

  • MT-LA

    @John: I agree…The Tea Party is much more legitimate as a political movement than OWS (and…why did you even bring up OWS?). And I also agree that OWS is probably not going to lead to anything even close to what the tea party was able to accomplish.
    Having got that out of the way:
    1) Do you agree that a corner-stone of the Tea Party Movement (TPM?) is to paint Obama as a socialist/communist/radical leftist?
    2) Do you agree that you share the view that Obama is a socialist/communist/radical leftist?
    3) Do you think the TPM’s success has actually improved the USA?
    And to your last point: Obama’s political past has even less to do with this post than either the Tea Party or OWS.

  • Gary

    @chance: Did you read the article I linked to? The shortages are a result of caps on price increases. This effectively chases alternative suppliers out of the market since it is no longer a profitable endeavour for them.

    This is Econ 101 stuff. If you constrain prices below the market clearing rate you’ll have shortages. If you let prices float then increasing prices will induce new suppliers to enter the market. More supply results in lower prices.

    @Geack, @chance:
    I made absolutely no suggestion that regulations or safety protocols should be changed–that may or may not be a problem but it isn’t what I was commenting on.

  • John Kwok

    @ MT – LA –

    Here’s my short responses to your questions:

    1) No. The Tea Party Movement wants a smaller, more responsive, Federal Government that adheres to fiscally sound policies by reining in its spending. It has been highly critical of Republicans too in case you haven’t noticed.

    2) Obama’s longstanding ties to the Radical Left are now well established, though it seems as though the mainstream American media isn’t paying attention. Had it done so back in 2008, then, as I noted yesterday, either Hillary Clinton or John McCain would be occuping the Oval Office now, not Barack Obama.

    3) The Tea Party Movement is merely advocating policies that date as far back as John F. Kennedy’s administration (when Kennedy correctly realized that he had to persuade Congress to pass a tax cut that would stimulate economic growth). Their activism will not be successful IMHO until and unless Obama is voted out of office in November, 2012, so the best answer to your question is an Incomplete.

    Unfortunately, Obama’s radical past is very much a part of his poltiical present (as I noted in reply to your second question). Unlike Bill Clinton, he remains an ideologue, unable to shift course when his agenda is in the midst of failing. Much to his credit, Clinton was a pragmatist and definitely governed as such through much of his presidency. Obama seems convinced that he, and only he, knows the answers, and has ignored contrary advice he has received from others, including Clinton. Instead of being true “Hope and Change”, Obama and his administration have acted in the best spirit of New York City’s Tammany Hall, and especially, Chicago’s Daley machine.

  • Tyrone Butler

    Since when is the government in the business of forcing companies to manufacture a product? How can the government regulate how much production they should make, or what the final cost should be? We act like every drug should be available to us for free and that gasoline should cost $1.00 a gallon. Next thing they will do is try to tell the farmers that they need to charge less for their crops. Drug companies (like all companies) are in the business of making money, not drugs. The way that they make that money is through selling a product. If they can’t make much money on a product, then they will either stop producing it or reduce the amount that they do produce.

    Drug companies spend millions of dollars to create medications. They spend decades trying to get FDA approval. Then they put the drugs out to the public and cross their fingers that thousands of people that never met the original test criteria, don’t get crazy sick or die. They also spend millions of dollars in insurance for that specific purpose. I would bet that half of a new drugs cost is in the insurance of that product. How many times have you seen a commercial stating “Did you or someone you love get all messed up because of taking Drug “X”? If so, you might be ENTITLED to a cash award.”

    It is not the presidents job to dictate how much product anybody makes.

  • John Kwok

    @ Tyrone Butler –

    Thanks for your comments; I concur completely. The sooner Obama wakes up and realizes that, the better off both he and the American public will be (And I am not singling out Obama for scorn; the Atlantic article which Gary had linked to does demonstrate that much of the blame also rests on Bush’s shoulders too.).

  • Jbible

    @John Kwok

    You need to do more research. John McCain should never have even been a president candidate.
    Go do your homework on him before making such statements please?
    Or are you aware that that he caused the financial problems in the 70’s?
    Anyways research is your friend America!

  • Cobain

    Whoa, lots of free-market kool-aid drinkers here. Let’s make one thing clear, there is no free market when it comes to pharmaceuticals. It’s a tightly regulated market, can you guess why? Still haven’t figured it out? If your feeble minds stumbled around the area of “safety” then give yourself a cookie.

    In such a tightly regulated market, with some drugs there isn’t enough demand to sustain more than one manufacturer, or sometimes there is enough demand, but one manufacturer drove the others out of business and now has a monopoly on production. At least two things make it difficult for a smaller company to compete, the first is economies of scale, and the second is the cost of receiving FDA approval. There’s not much to do about the first, but we could lower the costs of testing to secure FDA approval. Would we want to? In America when someone gets prescription drugs, they can be reasonably certain they’re safe, why would we want to change that? A perfectly free market could weed out bad manufacturers, since their customers would die quickly, but most rational people don’t view that as a solution.

    Given that monopolies are inevitable in the pharmaceutical industry, and that a corporation’s board and shareholders demand maximum profits, it’s easy to see the benefit of failing to meet demand. Maximum profits will not be acheived by producing enough of the drug to fill all the written prescriptions, but at a point where most of the prescriptions are filled, but due to scarcity the price is driven up. In a free market this is where a new competitor steps in, but due to safety concerns and economies of scale, this doesn’t happen in the pharmaceutical industry. The company holding a monopoly always has the option of flooding the market with excess supply to drive prices prohibitively low for any new competitors to survive.

    Of course, we already know that if the FDA deregulated the pharmaceutical industry and people started dying, the free-market kool-aid sippers would blame it on big government regulation and declare that the solution is more deregulation.

    One more point, respnse to:
    “What’s happening now is, by the way, exactly what many conservatives have predicted: crude rationing of needed care.”

    It’s remarkable how detached from reality this analysis is. Health insurance companies have been rationing care for decades, along with putting corporate beaurocrats between patients and their doctors. Obamacare will make this problem worse, not because it’s some leftist conspiracy, but because it’s founded on right-wing kool-aid drinking principles. The plan not only fails at establishing an alternative to for-profit health care rationing, it guarantees the for-profit medical insurance industry an enormous, endless supply of customers. The idea that government mandated private health insurance as a socialist ideal is breathtaking in it’s stupidity.

  • Cobain

    “Since when is the government in the business of forcing companies to manufacture a product? How can the government regulate how much production they should make, or what the final cost should be?”

    You do realize, I hope, that virtually all pharmaceuticals were and are developed using taxpayer money? Oh sure, drug companies spend some on R&D (although less than they do on marketing). Their R&D puts the last rung on a ladder constructed from medical research financed by government agencies like the NIH. That goes for most medical procedures as well. It’s interesting that free-marketers always fail to bring this up, since it’s a form of reverse socialism. All taxpayers contribute to medical research, but only those with health insurance can fully realize the benefits of that research. An honest free-marketer would call for the abolishment of the the NIH and all government funded medical science research, but then consistent, rational thinking isn’t a trait of free market ideologues.

  • John Kwok

    Jbible –

    Whether McCain should or should not have been the Republican presidential candidate is a decision that isn’t mine, but rather, those fellow Republicans who were active participants in both the primary and national campaigns.

    As for causing “financial problems in the 70’s”, if you are referring to the “Keating Five” scandal – which was in the late 1980s – he was exonerated. Speaking of research, I think you need to do yours.

  • John Kwok

    @ Cobain –

    Speaking of “free-market kool-aid drinkers”, one of them was none other than Charles Darwin, who was inspired by Adam Smith’s thought in conceiving of his “economy of nature”, as noted by noted skeptic Michael Shermer in his “Why Darwin Matters: The Case Against Intelligent Design”.

    As for pharmaceutical R & D, the major companies still invest a lot of their money in that.

    I respectfully submit that your anti-free-market capitalism screed is replete with a lot of the irrational thought I have read that emanates from diehard, lunatic Marxist-Leninist sympathizers who claim that they are genuine Democratic Socialists. Judging from your irrational commentary that borders on hysteria, you’ve demonstrated here that you are most likely one of those sympathizers who cling stubbornly to a failed political philosophy that was soundly rejected in what is now the former Soviet-occupied portions of Europe and Central Asia.

  • Geack

    @18 John Kwok,

    Cobain, whatever you think of his politics, made some very specific points about how and why the drug market is NOT a free market in any meaningful sense of the word. Your response is to ramble about Marxists and Darwin?

    Can you point out which of his claims about how the drug market works you believe to wrong, and why?

  • Geack

    @10. Gary,

    I figured you weren’t suggesting we should scrimp on quality control. That’s why I’m asking – what barriers do you think exist that could be eliminated?

    That Atlantic article you linked to was interesting, because it touched on both the problem of unintended consequences (which was your point), and the existence of an opaque, captive, essentially dishonest “market” that the government was trying to get a better look at with its refusal to pay more for drugs without proof that everyone else was paying more as well. As soon as the government stopped allowing itself to be ripped off, we got shortages. It’s difficult to interpret this situation as the government’s fault.

  • John Kwok

    @ Geack –

    According to those I know in the pharmaceutical industry, not all drug trials depend on federal funding from government agencies like NIH. And when they do, more money is spent by the pharmaceutical firms themselves than from money acquired via Federal funding (which is awarded primarily to those scientists and doctors involved in studies that will yield marketable drugs). Neither you nor chance nor MT – LA have replied credibly to Tyrone Butler’s observations regarding the pharmaceutical industry. May I suggest that you address his comments too, before making such demands from me?

    As for my observations pertaining to Darwin and Marxism, they are on the mark. Darwin relied on Adam Smith’s thinking on free market capitalism, along with Thomas Malthus’ “Essay on Population”, in developing his Theory of Evolution via Natural Selection (As an aside, independently of Darwin, Alfred Russel Wallace relied on Malthus too in developing his version of Natural Selection, but his wasn’t nearly as fully developed as Darwin’s.). So if Cobain wishes to lash out at those of us who accept the economic validity of free market capitalism, then does he want to include too, Charles Darwin? Cobain’s insipid form of reasoning is all too similar to those I have encountered from fanatical “conservative” creationists elsewhere online; whereas they belong to the loony Right, Cobain’s remarks, so pregnant in their breathtaking inanity, demonstrate that he belongs to the loony Left that’s dominated by diehard Marxist-Leninist fanatics and others of their ilk, including many, but not all, Occupy Wall Street participants.

  • John Kwok

    @ Geack –

    IMHO the Atlantic article does demonstrate the folly of government’s involvement in attempting to set prices or to determine how much medication should be made, which Gary, Tyrone Butler and I recognize. This is a key point you’ve missed and one that should be taken seriously, especially when the Atlantic is not a “conservative” journal.

  • Amos Zeeberg (Discover Web Editor)

    OK, I think we’ve heard the perspectives here. Going to close this thread, but there are lots of other 80beats posts that would like to know what you’re thinking.

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