Drug Shortages Reveal the Free Market is Failing Our Sickest Patients

**Update, the NYT has an editorial in their Sunday edition recommending the passage of two bills in congress requiring advanced notice from drug manufacturers in event of likely shortage.

i-1ae05c713060a45402a652d348e56148-pngHealth affairs discusses the increasingly frequent shortages of critical, life-saving, generic drugs. This is a serious problem that seems mostly limited to the U.S. healthcare system, and may adversely affect you or someone you know.

Many of the same drugs are not in such short and unpredictable supply in Europe, where in some cases they carry higher prices. This provides one major clue to the root cause: It’s the money.

Three of every four drugs on the US government’s shortage list were sterile injectable drugs, according to a report by HHS. For the most part, these are relatively low-cost generics. Simply put, most of those drugs are not very profitable to produce and sell, or supplies of them would not have dried up.

At an online presentation for journalists in November, Valerie Jensen, associate director of the FDA’s Drug Shortage Program, provided a casebook example. She mentioned the price of the tried-and-true sedative propofol, a lethal dose of which was found to have caused the death of singer Michael Jackson: The cost is forty-eight cents for a twenty-milliliter vial. “The older, sterile injectables are not economically attractive” for manufacturers to produce and market, Jensen said. Other generic drugs can have higher profit margins.

Propofol, one of the most frequently used drugs by anesthesiologists, is in increasingly short supply. I get emails from my hospital about which drugs are in short supply as physicians then try to ration these drugs for the most critical cases. In my own experience in the last year I’ve seen shortages of everything from injectable calcium gluconate (for electrolyte deficits), to levophed (a life-saving pressor used in critical care), metoclopramide (anti-nausea), and fentanyl (a powerful and useful short-acting narcotic). The FDA has a full list of recent shortages and it’s scary. Parents are having trouble finding drugs for their kids’ ADHD, vital chemotherapeutics like daunorubicin and doxorubicin are in short supply, dexamethasone (a powerful steroid), valium, digoxin (a staple of congestive heart failure and anti-arrhythmic treatment), diltiazem (hypertension and anti-arrhythmic), phenytoin (anti-epileptic also often used in acute brain injury), furosemide (an ubiquitous diuretic), haloperidol (anti-psychotic and sedative), isoniazid (a antibiotic used in TB), ketorolac (an excellent anti-inflammatory and analgesic), levofloxacin (a quinalone broad spectrum antibiotic), methotrexate (immune modulator), midazolam (a great short acting sedative), naltrexone (for reversing opioid overdose), vasopressin (another pressor) all are in short supply.

The drugs affected span all classes, what they have in common is they are all generic. Since there is too much competition in generics and too little profit margin, drug companies do not have a financial incentive to maintain adequate stocks to keep the drugs cheap and available. Shortages, if anything, increase profits because then the prices become artificially inflated.

Manufacturers, not surprisingly, blame the FDA, however the FDA hasn’t changed its standards despite increasing problems with shortages due to contamination or impurity. And that’s just for manufacturers in this country, fully 80% of the medications are produced, or active ingredients are produced, abroad. The main problem seems to be a concentration of production to a handful of companies that have adequate production capacity to compete in the generic market:

There is also a high level of concentration in US manufacturing for such drugs. That leaves little redundancy in the market as there would be for, say, generic statins. Three companies in particular–Hospira, Teva, and the Bedford Laboratories division of Boehringer Ingelheim–have been involved in selling 71 percent of the sterile injectable market by volume, the government says.7 All three have had manufacturing problems in the past two years.

With such consolidation as well as tight inventory management practices, the specialized manufacturers of injectable drugs lack the flexibility to adapt to manufacturing disruptions. If one plant shuts down, it may overburden the limited remaining competitors or choke off the supply entirely.

It’s hard to estimate the effects of these shortages, I don’t have good data on the damage done nationwide, only my personal experience. In particular, I remember during an ICU rotation running out of levophed, an incredibly important pressor that helps patients who are in shock from becoming fatally hypotensive.

Shock is when there is evidence of end organ damage due to inadequate tissue oxygenation. It can be from blood loss, infection, severe neurological injury, cardiac failure, or anaphylaxis. When people are in septic shock, for instance, the body’s response to the infection is excessive, fluid pours out of blood vessels and into the tissues due to the release of inflammatory cytokines and capillary beds vasodilate as shock progresses leading to circulatory collapse. The patients can’t keep enough fluid in their vessels to continue to perfuse their organs. The mainstay of treatment is first fluids to replace the lost intravascular volume, but if severe, it’s often necessary to use pressers to keep up cardiac output and maintain vascular tone so the resulting hypotension doesn’t cause multi-system organ failure. Levophed (or Norepinephrine) is often the first-line pressor.

We have alternative drugs, at the time we used dopamine, which used to be the most commonly used presser before levophed. But it’s not as commonly used today even if still considered a first line medicine in severe septic shock. It can’t quite replace levophed, studies show fewer people respond to dopamine as they do to levophed and has different physiologic effects at different doses. At low doses it doesn’t have a significant pressor effect, but at intermediate and high doses it does. However, if you go too high the vasoconstriction becomes dangerous and you may see a drop off in kidney function. It was an interesting couple of weeks, and I began to miss levophed. I don’t think anyone was harmed by the loss but I definitely felt the drug was inferior, often requiring addition of a second pressor to obtain an effect, and given enough patients diverted to the drug I imagine you’d eventually see a negative effect.

We were lucky that we had alternatives, but for some patients there may not be a simple alternative drug to replace what they need, for instance chemotherapeutics in oncology:

The FDA and the American Hospital Association say that the shortages have already caused thousands of cancer patients to delay treatment and nearly every hospital to ration supplies or turn away new patients. Howard Koh, the HHS assistant secretary for health, said at a House hearing in September 2011 that hundreds of clinical trials have had to be halted or delayed for lack of drugs.

And the lack of anesthetics has cause cases to be cancelled, as well as poorer outcomes reported by anesthesiologists. Not to mention the problem of having to re-familiarize doctors with medications rarely used or outmoded by superior drugs for decades. One of the reasons we train for so long is because medicine is a practice. If you haven’t practiced with these medications you will be less familiar with their dosing, their side-effects and toxicities. And not just the doctors but the nurses and pharmacists as well will be less familiar with more rarely used medications.

Then there are the scalpers and gougers:

An online survey last year found 56 percent of 549 hospital purchasing agents and pharmacists reported receiving daily solicitations from gray-market sellers, and most bought drugs from them.9 “It is unreal to have to deal with ‘scalpers’ in health care,” one survey respondent said. In one case, a supply of propofol cost $25,000 instead of $1,500.

Another survey–in August, conducted by the Premier Healthcare Alliance, a group of more than 2,500 US hospitals and 80,000 other medical sites–found an average markup of 650 percent from contract prices, although some of the distributors challenged the survey.10 The profiteers are generally not believed to be responsible for the shortages but merely to be capitalizing on them–and spawning congressional and Department of Justice investigations.

Clearly there are problems with the profit-margin on generics. The result is manufacturers try to cut costs where they can, they export production abroad (and away from FDA oversight), and keep supplies low. Since so many shortages are due to contamination and impurity this certainly suggests decreased regulation is not the answer. We need to maintain stringent standards for drug quality. But de-regulation is not the only intervention to influence a market, and when it comes to pharmaceuticals it should be the last resort as we have evidence that defective drugs are being manufactured and deflected from the market by adequate FDA oversight.

So how can we resolve this problem? Currently the FDA is supposed to be warned within 6 months of an impending shortage so that alternative supplies may be found, but shortages due to contamination/impurity, sudden closings of factories, and unexpected loss of smaller manufacturers supply show that this system is ineffective. We need a better warning system for impending failures of the supply chain. Further we need to create economic incentives for manufacturers to produce adequate supplies of drugs that may have low profit margins, and to continue to produce drugs for rare diseases and chemotherapeutics. Allowing manufacturers a tax write-off for costs of maintaining an overstock of critical medications, or for producing critical cancer therapeutics might be in order. Increasing medicare disbursements on generic medications would also help, but both of these interventions will probably cost a lot of money. The alternative might be worse. Lives lost due to critical drug shortages. In the end medicine and medical care is not free. We are a capitalist society and medical manufacturing is a for-profit enterprise. Right now that enterprise is failing our patients, and before a larger crisis is spawned by this failure we have to acknowledge that generics are a critical component of health care, are cost-effective compared to drugs under patent, and generic manufacturing needs to be encouraged and supported in this country.

24 thoughts on “Drug Shortages Reveal the Free Market is Failing Our Sickest Patients”

  1. Your title is misleading. The free market is not failing sick patients, government is.

    FDA needs to streamline approval for new facilities. In order to increase capacity or even outsource capacity, the FDA needs to inspect and approve for each drug which sometimes can take up to 2 years.

    The free market salivates at relieving the drug shortage … what company wouldn’t want that extra volume?? But government slows the pace of increasing capacity.

  2. Propofol is in short supply?? Are you serious? There is inventory sitting in warehouses with nowhere to go right now. I know that for a fact. Either do better research on your articles or get on the cases of the hospital buyers whose job it is to ensure proper supply for their facilities.

  3. Propofol is not in short supply this instant. But there was a shortage a few months ago (october if I remember). It was a big problem. These shortages, as I described are often transient, lasting a few weeks. But many of these drugs are critical, and as you can see from the FDA list, in the last few months many drugs have been in short supply. The most recent short supplies I’m being emailed about include amikacin, fentanyl, and metoclopramide.

  4. “Your title is misleading. The free market is not failing sick patients, government is.”

    The title is correct.

    Your government is only able to get “the free market” that the “free market” will allow.

    This is only a failure of government because your government buys into the fallacy of the free market, which fails.

  5. Hmmm. I wonder how the cost of storing drugs compares with the markup one can charge during shortages.

    Shortages happen. In a perfect world, we’d store some extra and charge a bit more to cover the storage costs, to make sure we have enough, like a farmer putting aside some extra food for hard times. If the drug company thinks that storing extra isn’t cost-effective, then maybe someone else with cheap storage space can buy the drugs and charge scalper prices when the shortage comes around.

    I don’t think that getting rid of scalpers is the answer.. since the scalpers are the guys storing extra for when it’s really needed. The profit to be gained from scalping is what drives the storage of backup supplies.

  6. “This is only a failure of government because your government buys into the fallacy of the free market, which fails.”

    Because all those government taxes and regulations on business are a figment of our imagination.

  7. You got to the heart of the issue in the first paragraph however a couple of your conclusions don’t follow. Yes, its about money. But the free market isn’t failing because there is no free market. The market is grossly distorted by prices that are controled by Medicare and free trade is thwarted by GPO control of purchasing and sourcing. Not even getting into the issues of the kickbacks and fees being siphoned off by the GPO’s. As to the secondary “gray” market distributors, they are about the only real free market agent present in the otherwise twisted and failing drug supply chain.

    You correctly note that the secondary distributors aren’t causing the shortages – which negates the analogy to scalpers. Most secondary distributors are simply acting as retail brokers moving scare drugs from locations where excess supply can be found and into the hands of those where supply has become scarce or non-existant. Mark-ups in the secondary distribution channel are typically consistent with retail mark-ups where there is a low volume of sales coupled with exceptionally high operating costs.

  8. Ah, the cry of the libertarian!

    It’s NEVER the free market, it’s ONLY government interference. A safe accusation since

    A) to avoid companies being looted, there have to be laws, requiring government interference in ‘the market

    B) no attempt to explain either the ‘intervention that ’caused the failure nor it’s mechanism of doing that

    C) no admission or even hint that the market itself did it: it’s by definition of the libertarian IMPOSSIBLE, so it doesn’t need to be considered.

    Or, cliff notes version: DEAD WRONG, KID

  9. I note the article says that 80% of production is now off shored. Remember the flu vaccine shortage? It also involved problems with a production facility overseas. Let’s wake up and realize that sending industries (with jobs) overseas is a national security problem, one in which the cat’s already out of the bag and over the fence. Adequate supplies of medicines are a national security issue, just as capacity to do heavy manufacturing is a national security issue. What was so degrading about all of those “making things” jobs that we were willing to watch them vanish? Oh, right. We weren’t watching. Now, if countries that don’t like us– and there are quite a few of them– decide not to export certain products to us, we’re screwed. And of course, we have no real control over production overseas where the FDA, EPA, and OSHA, never mind labor unions, can’t keep an eye on how those production facilities are operating. I’m furious with politicians of the last 30 years who drank the kool aid packaged as free trade and waved good bye to all the companies who packed up and left the us, knowing we would let their products back in without imposing barriers that protected our workers and our citizens.

  10. The market is grossly distorted by prices that are controled by Medicare

    You know what would happen without **anyone** but the for-profit companies, and insurance industry determining the costs of this stuff? Even less production, since it isn’t cost effective to produce “older” meds, instead of running medical companies like they are electronics companies, and shipping the latest iMed model, and when a shortage hits, it would be $250,000 not $25,000, to buy it from the asshole that has hoarded the stuff.

    Why is it that Libertarians only ever pay attention to the, relatively rare, cases where little or not regulation, and prices 100% controlled by the market, produce cheaper products, but the same quality, and ignore the 99% of the times when it either produces, at the same time, shittier quality, and/or stagnant/higher prices, new models every few months, at the same, or higher cost, and the disappearance of the old ones, within, in some cases, less than a year, so that they can’t even “find” the one that would not cost you $20, instead of $500. Or, if they handled drugs even stupider than described here, the $150 dollar shipment, instead of the new iMed $25,000 model.

  11. I don’t get it, Kagehi. If high prices are the result of shortages, then don’t those high prices then make it cost-effective to produce more?

    Or, put another way, if you could charge $250,000 for some meds which are normally available for much, much less.. what’s to stop you from buying it during normal times and selling it then?

  12. typical liberal timeline:
    1. Liberals introduce a government policy to limit prices
    2. The free market rationally cuts back
    3. The cut backs result in shortages
    4. Liberals decry the failure of the free market to maintain supply levels similar to that which existed before the price limits

  13. That Windchaser, is *exactly* what some people are doing. And the question then becomes, “How do they know they can profit from doing this, unless the shortages are a) predictable, or b) intentional?”

    Yeah sure Mike. Libertarian timeline:

    1. Reduction in regulation.
    2. Free market uses this opportunity to reduce quality, or even end production of said products, since its more profitable to sell new things, than to help people, and without changing the price at all for what they do still produce.
    3. The loss in quality has unintended, but predictable, consequences.
    4. Libertarians argue that the solution is to just buy from some other non-existent source, without knowing who to trust, or having any way to verify this, and claim the problem is “still too much regulation”.

    Or, have you failed to notice that this is *exactly* the BS we get already, every time something they said the “market would fix” fails, due to predictable problems?

  14. In oncology, we get warnings of drug shortages daily through the hospital. In the past few weeks, methotrexate (one of the backbones of leukemia treatment in children and adults), leucovorin (rescuing toxicity from the above), 5-FU (backbone of therapy for GI malignancy), ATRA (life-saving in the acute therapy of certain acute myeloid leukemias) have all come up. Taxol and adriamycin have been whispered about.

    As an aside, and to tap into one of Mark’s favorite topics, levo-leucovorin (half the dose, ten times the cost) is widely available.

    For the most part (ATRA aside), when treating the average patient, there is almost always an alternative (capecitabine for 5-FU, docetaxel for paclitaxel, etc.), albeit at much greater cost. However, these older regimens form the best-tested backbones of nearly every malignancy we treat – breast, lung, GI – and so are written into our study protocols. These are much more difficult to change than a simple point-of-care substitution. So the shortages, apart from adding significantly to the cost of therapy, threaten to bring drug development to a standstill.

    Finally, there is one issue that is unique to chemotherapy and its shortages. As a response to the outcry against middlemen significantly increasing the cost of chemo, the Medicare Modernization Act limited the year-over-year price increase for any chemotherapeutics to 6% or so. While this has its advantages (“chemotherapy scalper” is a really horrible way to make a living), it has had the unintended side effect of limiting the ability of the market to respond to shortages by increasing the price commensurate with the demand. Mark will be the first to admit that I’m not a free marketeer by any stretch of the imagination, but chemo shortages are one place where a well-meaning intervention had unintended consequences.

  15. With the ability of pharmaceutical companies to whipsaw the market for fun and profit makes me wonder how we might handle a really large scale emergency. A rouge nuke or tidal wave that struck a god part of the west coast could involve millions of injured.

    Sounds to me like what we need is a strategic pharmaceutical reserve. Important generic injectable medications are stockpiled by adding small amounts over a long time. This steady need to stock, and replace them as the expire, would increase certainty within the generic drug manufacturers by steadying the supply-demand curve.

    Drugs held within the strategic reserve and nearing expiration could be sold off in small lots at reduced prices to not-for-profit clinics, the VA, emergency services, state and local clinics.

    When there is a shortage the stock could be metered out to take the rough edges off of it and allow time for the pharmaceutical manufacturers to correct any problems.

    As far as the free market thing goes it has to be noted that every single major industry has had to be regulated. Many were regulated/reregulated after the industry itself ask for regulation. Look up the oil wars in the 1890 and early 1900s, before the ‘seven sisters’,or the way airlines were completely dysfunctional before the government came in and organized them. In other cases it was clearly necessary to protect the environment and consumers, as was the case with the Ohio river and the meat packing.

    Bottom line here is that industry has never been self regulating or shown sufficient restraint when unregulated to not harm themselves, their consumers, the nation. If you want to play football you need someone to establish what the field looks like, publish a set of general rules, assign referees. Business and industry need regulation to be function and have any chance of showing a profit. But they are going to bitch, moan use use regulation to excuse their own failures, at every turn. It is in their nature.

  16. Kagehi,

    It’s quite easy to make money off of stochastic events, if the price is right and you know roughly how often they occur. And it shouldn’t be too hard to get an idea of how often shortages occur, if you look at previous shortages…

    I was going to write up a test scenario, describing a hypothetical distribution of shortages, the amount of markup you could pay, the shelf-life of the medicine.. but I think you can get the picture without that. The basic story is: if you can charge enough during shortages, it becomes worthwhile to stockpile. Think of it like the insurance industry, but in reverse – in both cases, the industry works by smoothing out the prices for people, and deals with quasi-random events.

    Art’s suggestion makes a lot of sense.. except for one part. I’m curious / don’t understand – why don’t the hospitals already stockpile the drugs they need?

  17. Windchaser @16

    “Art’s suggestion makes a lot of sense.. except for one part. I’m curious / don’t understand – why don’t the hospitals already stockpile the drugs they need?”

    Hospitals are mostly, quite often, run by the bean counters seeking to maximize profits or, if not-for-profit, to maximize limited budgets. Storage space is limited, inventory and stock control are labor intensive, mistakes are quite expensive. Hospitals have adopted the same just-in-time methods as most other industries.

    Most also do everything possible to keep beds full as empty beds are considered waste. A simple lack of beds is another major obstacle to handling any large scale disaster. But that’s a discussion for another day.

  18. This is so predictable in the new “Greed for Profit” Era. Corporations have no Conscience. They also have no Accountability.
    If decisions about increasing or decreasing the output of a drug depend on Profit, then you create the Current Market. It is totally controlled by Big Pharma, which is intent on Profit. No one person is held up to Public Scrutiny for the deliberate decision that leads to Children dying.
    The intent of Generic Drugs was to give the customer a reasonably priced drug, after the Corporations had made their profits. No provision was made, or thought necessary, to counter the Drug Industry’s dropping meds when they go Generic. The Government also did not anticipate generic type “Orphan Drugs” being bought up and prices jacked hundreds of times.
    Government Regulation is needed. With so much emotion involved, even the Republicans couldn’t Spin a reason why they would not support Regulations on this matter.

  19. Regulation of the safety and advertising of the drugs is fine. But regulation of the market of drugs – of the prices or supply? You’ll have a hard time arguing that the government will do a better job than the free market.

    Of course the free market has failures. To counter that, we could make a strategic medical reserve or regulate the cost of drugs. And, while these might look appealing on the surface, we humans are pretty bad at intuitively assessing risk and cost. When evaluating the benefits of such regulation, we may forget to also look at the associated government costs or the benefits of the free market that are lost.

    If, on average, the government operates a medicine reserve less efficiently than the free market would – and it would indeed do so – then having a medical reserve wastes resources that could be spent on other things. Things like more cancer research. There’s no free lunch.

    Ms. Justin Smith says:

    Government Regulation is needed. With so much emotion involved, even the Republicans couldn’t Spin a reason why they would not support Regulations on this matter.

    That’s the problem, isn’t it? There’s so much emotion involved. Are we really likely to make the wisest decision about how to use our resources, if emotions are the driver behind our political decisions?

  20. Whenever you blame shortages of highly desired manufactured goods on market forces, something is wrong with your analysis.

  21. One could make the argument that regulation is affecting chemotherapeutics as Brandon K notes, the limits on compensation from medicare have created false price controls. But it doesn’t explain all the other shortages. And Juice, these medications are not highly desired. Compared to medications like statins or anti-hypertensives, these drugs are minimally prescribed, usually only for the sickest patients, certain cancer patients or in intensive care units. It is not a large market like meds for hypertension, diabetes, depression or ED. Some of these drugs may only be prescribed to a few thousand patients a year.

    The market is to blame, generics profit lines are slim. Manufacturers are not financially benefited by keeping an excess of stock, if anything the incentives are to make and store the bare minimum. Government could be used to keep the incentives high for maintaining stocks of critical medications that there is not a huge profit incentive to maintain.

  22. “the limits on compensation from medicare have created false price controls. But it doesn’t explain all the other shortages”

    Look what happened when the Indian government said “If you don’t supply at the price we gave you, we’re just going to make the drug ourselves”. IIRC for the bird flu shots.

    Oddly enough, no shortages then and no problem with the price.

    The government is a captive customer: no marketing required and a guaranteed income. Why not cheaper?

  23. Juice — only if all else is equal. It’s not. If the profit margin on a product is low and there is greater profit on another product that would use the same manufacturing line, a manufacturer has a decision to make. And it’s usually a fairly straightforward one.

    Plus, as noted earlier, these products aren’t necessarily that highly desired. They are desired in quantities exceeding the supply (and those who desire them desire them very acutely), but it’s nothing like the market for, e.g., ibuprofen.

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