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This is a surprise, isn\’t it?

Patients with life-threatening illnesses are struggling to get vital drugs from their pharmacies more than a year after ministers promised to tackle the problem, the Observer has established.

The shortages are so acute that patients are reporting problems finding ibandronic acid pills – known by the name Bonviva – used to fight bone cancer. The Observer reported last year that breast cancer sufferers were struggling to obtain the drug Femara.

The Labour government held a meeting with drugs companies, pharmacists and medical experts and promised action to tackle the problem. The trade body Pharmacy Voice said the shortages of crucial drugs were widespread.

\”There are supply problems with about 50 medicines, including drugs to treat cancer, Parkinson\’s disease, schizophrenia, depression, kidney disease, high blood pressure and epilepsy.\”

Hmm. Shortage of manufactured goods. I wonder what could be the problem? In 2007:

The soaring cost of the NHS drugs bill will fall sharply if ministers agree to the biggest shake-up in pricing policy in more than half a century.

Uhnh Hunh

Drug companies, who make billions of pounds in profits each year, will for the first time be forced to link the price they charge the National Health Service to the value the medicine offers to patients.

The proposed change is being made by the Office of Fair Trading, which has been conducting an investigation into the prices of medicines since September 2005.

Price controls, I see.

Really, no one could see that one coming, could they? Never been known at all that if you set prices lower than the market clearing price then shortages develop?

I dunno, maybe someone could set up some specialised branch of knowlege to study such things.

6 thoughts on “This is a surprise, isn\’t it?”

  1. Oh come on: this is where Econ101 fails. The marginal cost of a dose of Bonviva is a fucksight less than the pharma company charges the NHS for it. If drugs were a free market, the NHS would pay much less than it does for drugs.

    Because governments impose restrictions on the free market to encourage drug development (which I agree with, given the alternative of a National Drug Development Service), companies feel they can charge $x for drugs *because they have a government granted monopoly on them*.

    In that context, it’s nonsense to describe negotiations between the monopoly seller and the monopsony buyer as anything to do with ‘market clearing’.

  2. I don’t understand. If the drugs companies are charging more than the value it offers to patients then it is good that they aren’t paying it and there are shortages. If there is a problem then it is that they decided what the value of the drug was wrongly…

  3. @john b – the companies *do* have a monopoly on the drugs they produce, called patent protection. Yes, the marginal cost of production is very low but IP rights are granted to allow big pharma companies time to recover the mind-bogglingly huge costs of research, development and testing that they have to incur to bring a new drug to market. If they aren’t allowed to recover those costs what incentive is there for them to invest in future products?

  4. Flatcap: Of course. But the situation where the state determines the levels of reward that it is appropriate to permit drug companies in order to encourage innovation, which is what the patent regime *is*, is not a free market in any case.

    So where Tim talks about a ‘market-clearing price’, the term is meaningless: the market-clearing price is marginal cost, but at that price the drug would never have been developed.

  5. I’m not sure the relationship between drug prices and availability is entirely straightforward.

    Unless something has changed during the last few years, drug companies spend rather more on advertising than they do on R & D., particularly in the U.S., which is why so many seniors import their medication from Canada.

  6. john b, apologies if I’m being thick, but just because drugs-under-patent isn’t a *free* market can’t you still apply some of the same principles?

    If the monopoly drug company wants to sell at £x in the UK, and the government forces the NHS to offer no more y (< x), the drug company is going to look at other countries to sell their stock. Ones where they can make a healthy profit before the patent expires. Or just call the government's bluff, refuse to supply at the controlled price, enforce their monopoly.

    Either way you still get shortages due to attempts at price control.

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