In yesterday’s WSJ, Columbia Professor Awi Federgruen does a terrible job mixing up reimbursement rules as he tries to blame Obama for drug shortages. Ezekiel Emanuel clearly explained the cancer drug reimbursement issue in the NYTs more than six months ago; Federgruen adds nothing useful to the debate.
Reading the WSJ, you might get the impression that Obama imposed some new price controls that Republicans have always hated. That would be a false impression.
Oddly, Professor Federgruen jumps seamlessly between injectable cancer drugs and vaccines. One example:
First, the number of suppliers of generic drugs has dwindled. There were 26 U.S. vaccine makers in 1967; today there are only six.
Vaccine pricing in the US is bulk purchasing at a discount, not price controls. He says the CDC “pays as little for generics as it can negotiate.” How is that a price control? Private plans with less volume pay more; CDC negotiates a lower bulk rate. Sounds like the market.
But why are we talking about vaccines in the first place? All the media focus is on Part B cancer drugs, which are reimbursed under an entirely different system (Emanuel again).
His second point is to note the new user fees agreed to by the FDA and GPhA to speed generic approvals. Everyone is on board with this, except possibly Big Pharma. And this has absolutely nothing to do with shortages of cancer drugs.
Then he blames the Obama Administration:
It is clear that the way to resolve the shortage of critical drugs is to relax or eliminate government price controls …
No, it’s not clear. Proof for that statement? From earlier in the piece:
Low prices also tend to eliminate the rationale for investments in better manufacturing technologies and processes, as shown in my 2009 study in the Journal of Management Science. Government price controls on generic drugs limit the manufacturers’ margin to 6% in many cases.
The 2009 study is here. It doesn’t mention government price controls on drugs at all. What he is referring to is the limit on physician markup for generic drugs in Part B. This was an anti-fraud rule adopted by President Bush and the Republican Congress in 2003 in MMA when Medicare Part D was created. This was a famously partisan bill, with no Democratic amendments permitted (NEJM).
And the Obama Executive Order from October 2011? Federgruen really misses the mark here:
Unfortunately, the Obama administration has thus far pursued the opposite objective, at least as far as price controls are concerned. Last November, it issued an executive order instructing the FDA to report any violations of price controls to the Justice Department.
The Executive Order enforces the George Bush/Republican Congress anti-fraud rule and looks for price gouging by middlemen, not drug manufacturers:
Fighting Price Gouging
The President’s Executive Order also directs FDA to work with the Department of Justice to examine whether any secondary drug wholesalers or other market participants have responded to potential drug shortages by illegally hoarding medications or raising prices to gouge consumers. For example, the ranking member of the House Committee on Oversight and Government Reforms, when announcing his investigation into so-called gray markets, expressed concerns about a report that a leukemia drug whose typical contract price is about $12 per vial was being sold at $990 per vial – 80 times higher. A Premier healthcare alliance report released in August estimated that the typical gray market vendor marks up prices by an averaged 650 percent. At the extreme, a drug used to treat high blood pressure that was normally priced at $25.90 was being sold at $1,200 due to a shortage.
Changing the statute requires Congress to act.
h/t to Brad F.
[UPDATE – a thoughtful article on this issue from law professor Sharona Hoffman, Case Western]