Monday, August 08, 2011

Once again price control in medicine results in shortages,this time cancer drugs

There has been and continues to be shortages in some of the older well proven cancer drugs. See here for an explanation of what is happening there.

Dr. Ezekiel J. Emanuel blames much of the problem of the 2001 Medicare Prescription Improvement and Modernization Act.

Here is a quote from Emanuel's opinion piece in the August 6,2011 NYT Sunday Review:

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

The economist Arnold Kling is fond of saying that they teach all the important stuff in Econ 101 not saving any big secrets for more advance study.I'm fairly sure Econ 101 explains the effects of wage and price controls and that incentives matter.

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