For Once, It Is Bush's Fault

The February 10, 2012 New York Times reported on shortages of generic cancer drugs--and not years away, but weeks.  Kids are going to start dying of leukemia because of these shortages:

A crucial medicine to treat childhood leukemia is in such short supply that hospitals across the country may exhaust their stores within the next two weeks, leaving hundreds and perhaps thousands of children at risk of dying from a largely curable disease, federal officials andcancer doctors say....The drug is methotrexate, and the cancer it treats is known as acute lymphoblastic leukemia, or A.L.L., which most often strikes children ages 2 to 5. It is an unusually virulent cancer of white blood cells that are overproduced in bone marrow and invade other parts of the body.

So, why are makers not keeping up with supply?  An oncologist explained the problem last year in this August 6, 2011 New York Times article:

Only about 10 percent of the shortages can be attributed to a lack of raw materials and essential ingredients to manufacture the drugs. Most shortages appear instead to be the consequence of corporate decisions to cease production, or interruptions in production caused by money or quality problems, which manufacturers do not appear to be in a rush to fix.

If the laws of supply and demand were working properly, a drug shortage would cause a price rise that would induce other manufacturers to fill the gap. But such laws do not really apply to cancer drugs.

The underlying reason for this is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.
Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

So government price controls are doing what they usually do--encouraging makers of relatively low cost, low profit drugs to stop making them.  Dr. Ezekiel Emanuel suggests some changes to loosen up price limits a bit, but what the government screws up, the government has to fix, and who knows if Congress is capable of doing something that involves freeing up the market.