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Is Big Pharma Creating Drug Shortages and Price Gouging?


In 2007, the Food and Drug Administration published a list of 154 drugs that had become scarce at the time or no longer available in the U.S.  Five years later, the published list by the FDA had skyrocketed to more than 300 drugs in short supply.

Alternative treatments have become the first option to supplement the scarcity, but since 2015, this has caused budgets to overflow.  In late 2015, Fortune reported that U.S. hospitals had payed at least $230 million more than originally budgeted in alternative treatments.

The shortages have caused a reorganization in priority care, internally affecting staffing numbers in ICUs, and externally forcing outpatient sites to close as a result.

The reasons for reported shortages are many.  Combined, they have created a state of crisis in the U.S. of which hospitals and patients have suffered, whereas drug producing companies have capitalized on this current event by raising their prices by up to 400% of the original selling price.

But what are the reasons?  According to The National Center for Biotechnology Information, the main reasons are in part due to:

  • Manufacturing Difficulties – antiquated equipment becomes expensive or non-existential to upgrade, causing manufacturers to cut production of updated drugs.
  • Shortages of Raw Materials – this being the most common, especially when foreign affairs occur in imported source countries, causing delays or blockages of materials.
  • Voluntary Recalls
  • Natural Disasters – demand for particular drugs go up when there are victims involved; likewise, when a manufacturing facility is involved in a natural disaster, inventory and replacement can take weeks if not months to regain.
  • Supply and Demand – when an outbreak occurs, vaccines naturally become scarce and the production of them sometimes takes longer than supply can meet.
  • Regulatory Issues – the FDA’s role in regulating drug ingredients, allowed dosages, and overall determining what is considered a safe amount often leads to shortages as well.

According to Michael Williams, CEO, Global Healthcare IT, Inc. one of the main issues is that drug companies want to maximize profits, and shortages create opportunities for increased profits.  There is a fundamental conflict of interests when unscrupulous drug company executives see people’s misfortune as an opportunity to multiply corporate earnings.  The antics of Martin Shkreli and Turing Pharmaceuticals are well documented.  But this is the tip of the iceberg.  The strategy of firms like Valeant and Allergan has been to purchase existing drug companies or their products, and apply enormous price increases to those drugs.

The FDA’s hands are tied in many of these instances.  Whilst the FDA creates its own negative impact in regulating the drug market, their ability to police such price gouging is extremely limited.  It is somewhat of a misnomer for the FDA to provide assistance to companies facing a slow-down in production, when the companies’ real intent is to boost its ROI.

These shortages and price increases create tangible problems in the real world.  The deficits have caused a dent in biomedical progress.  Budgets have been redistributed accordingly to provide additional training to nurses in ICUs so that they learn how to administer alternative medications.  Connecticut hospitals are in current short supply of antibiotics, antipsychotics, intravenous saline, and morphine.

The prices for some medications have gotten so high that hospitals have stopped providing it altogether.  In May of 2015, Robin Miller of Atlanta was pending an appointment in which she would have received treatment for her bladder cancer but was contacted with a, “Sorry, we don’t have any.  We can’t give it to you.”  Along with Mary Greene, a patient with the same type of cancer, the drug BCG had become unavailable after manufacturers decided to stop producing the drug due to low profits recorded from the selling of this drug.

The Cleveland Clinic has been rationing a hemorrhage-preventing drug to patients undergoing open-heart surgery and only utilizing it on patients at risk.  The once standard drug had been administered to every patient about to undergo this type of surgery.  Families and patients who do not receive this drug are never told, according to Dr. Fitzsimons, an anesthesiologist at the Cleveland Clinic.

But when alternative treatments, rationing, or waiting for a drug to become available simply do not help, certain specialists have stopped using the drug altogether.  Dr. Edward Messing, a urologist in Rochester, NY has sought other medications that may not be as effective or as potent, but are readily available.

Awi Federgruen, a mathematician and operations researcher at the Columbia University Graduate School of Business has stated the solution to this problem would be eliminating government price controls, and increasing the FDA’s review and inspection capacities.  Suggested alternatives by opinionates is providing incentives to manufacturers to have them provide the drugs that are still able to be produced but do not provide a higher profit.  Lastly, research for synthetic or equally effective alternatives are an up and coming industry, however, the amount of research efforts in this area are not increasing as rapidly as the market would like.

Mike Williams said “One of the ironies of the shortage and price gouging epidemic is that many of the organizations doing this most frequently, are in fact providing little, or no money in product research, infrastructure development, or improved drug delivery”.  In this era of self-policing, the likely outcome of too many cowboy drug companies, will eventually mean increased federal control, stifling genuine pharmaceutical companies profitability, research efforts, and long term re-investment potential.