October 3, 2011 Liz Borkowski, MPH 0Comment

One thing that drove me nuts during the healthcare reform debate was the scare tactic of claiming that proposed legislation would result in rationing of healthcare. The problem with making such a claim is that healthcare is already rationed in the US. We ration healthcare based on insurance status and ability to pay. And, as a story from NPR’s Richard Knox points out, we ration when there are supply shortages — as there are now with several important drugs. Here’s Knox’s overview of the problem:

The shortages involve a wide range of medications: cancer chemotherapy agents, anesthetics, antibiotics, electrolytes needed for nutrient solutions, and dozens more. One drug currently in short supply is used in critically ill patients to bring down soaring blood pressure.

“We know this is a dire public health situation,” Assistant Secretary of Health and Human Services Howard Koh told NPR, “and there have been delays in care.”

According to those who are tracking drug shortages, there have been more than delays. Some patients have died.

That’s what the American Society of Health-System Pharmacists found when they did an anonymous survey of members. Last week the Associated Press reported that at least 15 people have died as a result of drug shortages.

And here’s what Knox has to say about causes:

Most drugs in short supply have been older generic drugs, which are generally less profitable. Hospitals are most affected, because many scarce drugs are intravenous forms, not pills dispensed in bottles.

But actually, officials at the Food and Drug Administration say only 11 percent of shortages happen because a company decides to stop making an unprofitable drug. Most shortages, they say, occur because something goes wrong in the manufacturing process that halts production.

The problem today is there are fewer companies making essential drugs. So when one manufacturer stops producing, there may be only one other supplier – and it can’t keep up with demand.

Oncologist Ezekiel Emanuel had more to say about the factors behind shortages of cancer drugs in a New York Times opinion piece in August. He points to Medicare reimbursement policies, which affect drugs that must be administered by healthcare providers, like cancer drugs given by oncologists to their patients:

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.

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 result is clear: in 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211. (These numbers include noncancer drugs as well.)

Emanuel notes that these drug shortages don’t occur in Europe, where generics are slightly more expensive than those sold in the US and brand-name drugs are cheaper. He suggests amending the 2003 law to give higher payments to cancer drugs that have been generic for three years.

The drug shortage problem exemplifies one of the central dilemmas of US healthcare: If we rely on private entities to meet our healthcare needs, we may reap benefits from competition and innovation, but we can’t be sure these entities will supply all the healthcare goods and services our population needs. Paying higher prices may increase our chances at having an adequate supply, but will also contribute to the alarming growth in healthcare costs.

This isn’t to say we can’t improve our reimbursement formulas; Emanuel’s suggestion sounds sensible, and there are worthwhile efforts underway to pay providers based on the value of the care they provide rather than just the quantity. Drug shortages should remind us that the US healthcare system is far from perfect, and that when it comes to healthcare there’s no easy way to have both abundance and affordability.

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