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Drug Shortages, Price Gouging, and Our Broken Health Care System

Drug Shortages, Price Gouging, and Our Broken Health Care System

The shaming campaign that followed last week’s news of two generic drug prices somersaulting into the stratosphere after being acquired by private companies is not too surprising. The idea that a drug which cost $13.50 one day can cost $750 the next, seemingly on the whim of greedy Wall Street investors and pharma start-ups, is fodder for the outrage machine.

But what the outrage machine does not realize is the extent to which the generic healthcare supplies are constantly on the brink of shortage.

Every week I get a “ drug shortage report ” by email from my hospital. It lists the various items in short supply. Some drugs (for the most part generic ones) may even be absent from the shelves. And every week, the email also reminds me that there is a national shortage of normal saline.

Normal saline, for heaven’s sake!

What’s going on? Is our productive capacity in such a shamble that we can’t have the wherewithal to mix sterile salt and water and put it into a bag? Let’s go back to the basics.

Remember that in order for any product to be available in a sustainable way, there must be a supplier willing to make it and a buyer willing to pay for it at the price the supplier expects. Multiple buyers bid the price up, multiple suppliers bid it down.

It seems that for something as commodified as normal saline, making plenty of it should not be too much of a problem. After all, there is no shortage of #2 pencils, even if the profit margin on pencils is minuscule.

Welcome to our glorious world of regulated health economics.

On the buyer side, you have hospital administrators which have been trained to operate under the reality of fixed payments and onerous oversights. Every expense is a cost that cannot be passed on to the ultimate “consumer” of the good. Therefore, the lower the price of supplies, the better.

On the supply side, the regulatory apparatus overseeing the making of medical products is not known for its flexibility. The last thing...