When Free Markets and a Grid-Locked Congress Threaten the Public Health

Because free markets are at heart designed to make profits, there are times when this principle of capitalism can negatively impact the health of the citizens of this country.  It doesn’t help either that our nation’s lawmakers are more concerned about ideology than doing what’s best for the people they serve.

We like to boast that we have the greatest health care system in the world even though other developed countries might dispute that.   Clearly however we have the most costly health care system and one that doesn’t serve the common good for those who can’t afford it without going into debt or losing their home if they incur any long term disability.  But even if you can afford it, it won’t be accessible if it’s not profitable.   Health care is and should be a right, not a privilege and here’s one reason why.

A good day may not look great when you’re ten months old and fighting leukemia like Elena Schoneveld. But 80 percent of children with her kind of cancer can be cured with the right medications.

Two months ago, her dad Mark Schoneveld was told her chemotherapy drug, methotrexate, was running out.

“You just pray that stuff is handled by the professionals, and people do their jobs and get it done,” he said to CBS News.

But, it’s not getting done. Dozens of cancer drugs are running out. The reasons include manufacturing problems and reduced production due to lower profits with generic drugs.   SOURCE


Did you catch that last part?  Reduced production, causing the shortage of a life saving drug is in part “due to lower profits with generic drugs”.  That’s the core principle and driving force of free markets – the profit motive.  Not only does there have to be a demand for goods but the cost of return has to be sufficient enough to drive market forces to make it.  Who could argue with this principle of capitalism.  I don’t think even the parents of a 10-month old child who may well die if she can no longer receive the life saving product would contest this.  What is clear here though is that market-based principles can sometimes be a deterrent to the general welfare of a nation.

I have argued many times about the inherent greed in the corporate mindset that puts people over profits, but that is not what’s going on here.  I find in this case that it has more to do with the political gridlock in Washington today and the attempts by the extreme right fringes now controlling the GOP to cut spending, especially in social programs like Medicaid and Medicare.  The cost issue is summed up here by Adam Fein over at the Drug Channels blog:

When drug shortages were in the news last fall, I (among others) cited the perverse economic incentives from Average Sales Price (ASP) as a key factor behind our very fragile generic injectable supply chain. See What’s Behind the Drug Shortage Epidemic.

To my surprise, politicians have heard the message. Senator Orrin Hatch (R-UT) is now drafting the “Patient Access to Drugs in Shortage Act,” which will change reimbursement for generic injectables from ASP + 6% to Wholesale Acquisition Cost (WAC) for injectable generics with 4 or less manufacturers.

Three items in [Senator Orin Hatch’s] draft legislation relate directly to the broken incentive system:

  • Price Stability—The Medicare reimbursement rate for generic injectable products with 4 or fewer active manufacturers would increase from ASP + 6% to WAC.
  • Medicaid/340B Rebate Exemption—Generic injectable products with 4 or fewer active manufacturers would be exempt from Medicaid rebates and 340B discounts.
  • Extended Exclusivity—Manufacturers who hold an approved application for a drug that would mitigate a shortage can extend by 5 years any period of exclusivity.

These fixes start to address the fact that the reduced return on investment from generic injectable manufacturing has created the enabling conditions for drug shortages.   SOURCE 


There’s a link on Fein’s blog too that has an article by Paul Howard of the Manhattan Institute who makes a pretty good case for allowing the free market to address this issue of shortages.  I am going to concur here, at least until we can figure something better to ensure a stable supply of life-saving generic medicines where there are only one or two suppliers.

To be sure, there are some profiteering attempts going on with key generic oncology and critical care drugs but that is in the secondary grey market.  See Fein’s report on that here.   The grey market is where counterfeit generic drugs are produced and unless caught can slip into the mainstream of national and regional pharmaceutical wholesalers.   But this is not what’s causing the shortage for critical injectable drugs like methotrexate that little Elena relies on to keep her alive.

With the cost of return issue now targeted by the government as one area that effects shortages, legislation in the House and Hatch’s bill in the Senate are set to correct this problem.  But as you would suspect, because the two Parties can’t seem to agree on anything today, that legislation has been stymied from reaching the floors of both Houses to be voted and then hammered out in conference to give a final bill to lay on the President’s desk for his signature.  When Party leaders  were approached about this delay by Dr. Jonathan LaPook reporting for CBS News, you could have choked on the circular rhetoric given by the congressional leadership.

Here’s House Speaker John Boehner trying to handle this hot potato.

“Well, the Congress is working on this,” Boehner told CBS News. “The Senate is getting ready to move a bill. The Energy and Commerce Committee is getting ready to mark up a bill in early May. But I would also ask: Where’s the administration been? Where’s the president of the United States been?”

Senate Leader Harry Reid made equally vague references about “the system” when questioned why there were delays with this legislation.  But notice in Boehner’s response his attempt to lay some of the blame on the White House.  Not even this issue is without the efforts of the GOP to demonize the President in order to fulfill Mitch McConnell’s desire to make Obama “a one-term president”.  What makes this laughable is that though the Obama administration has also been slow to respond to this crisis, the President did issue an Executive Order called Reducing Prescription Drug Shortages last October 31st empowering the FDA to tackle this shortage.

Fein noted this was basically a PR-friendly move that would “have only a limited direct effect on shortages”, but at that point Congress had yet to even enter the fray.  Not until February and April of this year did we see see legislation offered up in both Houses to correct what needed to be done here.  It should be further pointed out that to change reimbursement for generic injectables from ASP + 6% to Wholesale Acquisition Cost for these critical injectable generics requires approval from Congress, NOT the President.



Here is where I suspect the new mentality brought into Congress by the election of numerable Tea Party types has created an obstacle for this important life-threatening issue.  The fact that this would require raising costs for these drugs within the Medicare program was a red-flag to the GOP leadership, knowing that their TeaParty contingent would fight it tooth and nail.  So until this issue was made public by the “liberal press” Republicans in both Houses had no intention of addressing the need to ensure unabated access to life saving cancer drugs.  What a pity.

Some would argue that if the government wasn’t involved at all that there wouldn’t be an obstacle affecting price thus inhibiting production of these vital drugs.  Maybe, maybe not.  The prospect of profiteering is always out there under conditions where demand for a limited product exist.  I would also point out, who would be there to prevent the grey market from slipping in counterfeit products and creating a separate but equally hazardous threat to innocent children like Elena Schoneveld?  Do Americans really feel secure in the notion that the industry will police itself even when taking certain action means profits will suffer?


9 responses to “When Free Markets and a Grid-Locked Congress Threaten the Public Health

  1. Good for Orrin Hatch for taking the initiative and once again, politics is more important than lives. This country needs a priority shift, and we need it fast.

    • I wonder if old Orin wasn’t seeing the writing on the wall how old time Republicans like him are being canned by the far right (like Lugar of Indiana was the other day) so he decided to act compassionately and chose to do the right thing on this issue.

  2. I think healthcare is a right.

    I shouldn’t have to buy insurance, because healthcare shouldn’t be insured. It should be a government-provided service funded by tax dollars, just like the police, firemen or armed services. I don’t have to pay a private company to put out a fire, or arrest someone who burglarized my house or defend me from the armies of other nations, all because my government is responsible for my safety, or “life” as Thomas Jefferson more poetically phrased it.

    • If there were a ‘like’ button for comments, I would be emphatically pressing it now.

      And great job as usual, Lb. I have to admit, I am feeling a very slight twinge of optimism seeing Sen. Hatch attempt to do the right thing. But I have no doubt that feeling will soon be crushed by a gridlocked, petty, intractable and ideologically intransigent congress.

  3. kudos. When I was younger I was diagnosed with a rare disease… not life threatening, but , at the time, very deb debilitating. In my third year of treatment, the drug I needed was no longer available…. not profitable. Thank God for Canada. Capitalism and Health Care are a bad mix.

    • “Capitalism and Health Care are a bad mix.”

      Indeed. Under free market practices, when profits are suffering in health care that means patients will soon be feeling the same. In many cases, anticipation of low profits prevents actions that are beneficial to the health of consumers.

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