And now, a drug shortage

 Drug shortages are approaching record levels. The FDA lists 137 drugs “currently in shortage,” including cancer drugs and one that reverses lead poisoning. Believe it or not, it turns out that a key part of the problem is low prices paid to manufacturers of many generic drugs. (Generic drugs are produced after a company's patent has expired. Their prices have fallen by about 50 percent since 2016.) Manufacturers’ profit margins are so thin it doesn’t make sense for them to invest in production. Some companies have shut down.

Here's why: drug manufacturers are squeezed by powerful wholesalers and buyer representatives that come in two flavors: pharmacy benefit managers and group purchasing organizations. These two types of organizations negotiate drug prices on behalf of their customers:

• Pharmacy benefit managers work on behalf of insurance companies and other payers to decide which drugs they will cover and how much they will pay for them. They mainly cover brand-name drugs sold in pharmacies.
• Group purchasing organizations represent hospitals, nursing homes, and other institutions. They negotiate discounts for generic drugs and biosimilars (nearly identical copies of the original product). They also negotiate discounts for medical supplies, such as needles and bandages. Manufacturers pay fees to these organizations for access to their customers (basically a kickback).

If a drug manufacturer wants access to the big markets, they have almost no choice but to go through one of these organizations, of which just a few dominate. Because the organizations have the power to demand low profits and high fees, they can shrink the manufacturers’ profit margins to the point where it’s barely worth the effort to manufacture the drugs. Many drugs are now produced offshore, especially in India, which has lower production costs. Some of these manufacturers are excellent; others are sloppy and corrupt with quality control issues.

As one congressman said, “We have an economic environment so unappealing to manufacturers that lifesaving drugs are produced by one, or at most two, companies worldwide, often at an unsustainable, artificially low price.”

Ridiculous: drugs are either too expensive or too cheap.

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