In short, the 2003 Medicare act slapped price controls on drugs; and as always, price controls lead to shortages. Pharmaceutical companies simply stopped producing drugs on which they could not profit. Sterile injectable drugs — “the majority of drugs on shortage in emergency rooms,” according to the Post — are expensive to produce and store and thus are among the scarcest under the price-control regime.
Moreover, as then-Representative (now Senator) Bill Cassidy (R-La.) and Patrick Cobb, both medical doctors, wrote in a 2012 Wall Street Journal op-ed: “Due to the highly complex and expensive infrastructure required to manufacture and store sterile injectables, there is no incentive for new manufacturers to enter the market in response to a sudden shortage. Thus a single manufacturing glitch can result in an almost immediate shortage with no backup.”
Other federal price controls also contribute to the shortages. One program forces drug makers to give deep discounts to facilities treating a high number of indigent or Medicaid patients. “Furthermore,” penned Herrick, “manufacturers that increase brand-name drug prices faster than the Consumer Price Index are required to rebate the excess amount. This means they have little incentive to purchase new equipment to maintain or improve their manufacturing processes. As a result, some drugs become less and less profitable over time.”
ObamaCare, naturally, exacerbates these problems. First, it vastly increases the number of Americans eligible for Medicaid. Second, it expands the number of facilities that qualify for the discounts. Third, it creates the Independent Payment Advisory Board, whose task is to keep Medicare spending down by recommending reimbursement cuts. As Cassidy and Cobb observed, “One of the few areas the board can cut is drug costs. This will move the market for pharmaceuticals further away from market forces — and until market forces are acknowledged, drug shortages will persist.”
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