Widespread Drug Shortages Projected to Worsen

Administration Orders to FDA Likely to Aggravate Shortfall

DALLAS - The major cause of the recent drug shortages can be directly linked to excessive government price regulations and the shortage is projected to get worse, according to a report released today from the National Center for Policy Analysis (NCPA).

“Although manufacturing problems are often cited as a reason for drug shortages, the primary reason is low profitability due to government regulations and price controls,” said author and NCPA Senior Fellow Devon Herrick.

President Obama recently signed an executive order directing the FDA to streamline the process of approving production changes and allowing the Justice Department to investigate alleged price gouging.  However, Herrick says these steps could make the situation worse.

“Previously, a 2003 federal law changed the way Medicare pays for drugs administered by a doctor. Due to this convoluted system, drug makers earn little on older, generic intravenous drugs and cannot project reimbursement rates for their drugs in the months ahead,” said Herrick.

“The government also requires drug makers to provide steep rebates for drugs sold to the Medicaid program. In many cases, these rebates result in payments below cost, sometimes as low as one penny a dose,” he added.

The number of newly reported drug shortages has been growing:

  • There were 74 newly reported drug shortages in 2005.
  • The number dipped slightly to 70 in 2006, then rose to 129 in 2007, 149 in 2008, 166 in 2009, and 211 in 2010.
  • In mid-2011 there were about 246 shortages.

Herrick said, “The only way to fix the drug shortage problem is to make generic drugs more profitable by reforming ill-conceived price controls.”

Full text of brief: "What to Do about Drug Shortages" http://www.ncpa.org/pub/ib104

Editors’ note:  Devon Herrick is available for interviews on the report.

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