How Competition is the Key Solution to Drug Shortages
In a world where drug shortages have become all too common, it is crucial to understand the role that competition plays in resolving this issue. The belief that price controls lead to shortages is widely accepted, making it clear that government intervention is not the answer. Instead, it is time to embrace the power of competition and allow the free market to determine the supply and demand of vital drugs.
The U.S. Federal Trade Commission (FTC) recently launched a probe into distribution companies in response to shortages of essential hospital drugs caused by the COVID-19 lockdowns. However, this investigation is misguided and fails to address the root of the problem. By scrutinizing distribution firms and hospital purchasing firms, the FTC is essentially blaming the middlemen for a problem that could be solved through competition.
The demand for life-saving drugs has been on the rise, and in a market with minimal state interference, this demand would be met by existing producers increasing their capacity or new firms entering the market. However, when manufacturers are denied the ability to make profits by taking advantage of this demand, the delivery of new supply becomes difficult. It is important to recognize that treating healthcare as a right often leads to the removal of the profit motive from the production and delivery of medical goods and services. This goes against human nature and devalues the expertise and innovation of scientists, physicians, and businesspeople in the industry.
To truly address drug shortages, healthcare must be opened to customer scrutiny. When it comes to generic drugs, current laws make it difficult for consumers to make informed choices. Generic drugs lack clear branding and reputation based on past experiences, making it challenging for patients, pharmacists, and hospitals to make informed decisions.
The Hatch-Waxman Act of 1984 was a step in the right direction towards increasing accessibility and reducing prices of generic medicines. It promoted competition among generics, leading to lower prices and increased use. However, factors such as narrow profit margins and regulatory hurdles can still limit competition and contribute to drug shortages. The backlog of generic drug applications awaiting approval from the Food and Drug Administration (FDA) also hampers the introduction of new suppliers into the market. Trusting the approval process of other developed countries for imported generics could alleviate this issue and improve availability and affordability for Americans.
One example that highlights the impact of labor shortages and regulatory restrictions on drug supply is the case of the generic Adderall, a treatment for attention-deficit hyperactivity disorder. When Teva Pharmaceuticals faced a labor shortage in 2022, rival manufacturers were prevented from increasing production due to harsh production quotas imposed by the Drug Enforcement Administration. This prevented them from filling the gap in supply, further exacerbating the shortage.
It is crucial to recognize that the price of medicines is not always an indication of greed or profiteering. The cost of bringing a drug from invention to sale is astronomical, with about 90 percent of proposed medicines failing to make it to market due to safety concerns or lack of effectiveness. Pharmaceutical companies recoup their investments from the successful drugs, making it unsustainable to label all profits as obscene. By villainizing pharmaceutical companies and forcing them to cut revenues, we discourage innovation and risk-taking in the industry.
Government intervention and treating healthcare as a right only further exacerbate shortages. In order to ensure the highest quality of care for the maximum number of patients, it is essential to embrace the mechanisms of profit and price as necessary components of a free society. By keeping government interference to a minimum, we can foster competition, encourage innovation, and ultimately address drug shortages effectively. It is time to prioritize competition as the key solution to drug shortages.
