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Alex Tabarrok has an important post this morning on the Food and Drug Administration's regulations that have helped to cause shortages of drugs. One of the contributors is the tamely named "Good Manufacturing Practices" regulations that the FDA is enforcing. This quote from health economist John Goodman is especially striking:

For example, a drug manufacturer must get approval for how much of a drug it plans to produce, as well as the timeframe. If a shortage develops (because, say, the FDA shuts down a competitor's plant), a drug manufacturer cannot increase its output of that drug without another round of approvals. Nor can it alter its timetable production (producing a shortage drug earlier than planned) without FDA approval.

When I read that, I remembered reading something Jagdish Bhagwati had written a few decades ago (I can't remember the particular source) about India's economy under its heavy regulatory regime pre-1991. Jagdish pointed out that to produce more than a certain amount of a good, an Indian manufacturing routinely had to get government permission and this permission didn't always come quickly.

As Goodman points out in his post, Obama official Cass Sunstein claims to be looking around for bad regulations to abolish or moderate. Here's his chance.

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CATEGORIES: Economics of Health Care

COMMENTS (3 to date)

Latest Comment

John Goodman writes:

This is administration is often good on rhetoric, but lousy on performance.

Posted June 14, 2011 12:16 PM

Devon Herrick writes:

The University of Utah tracks newly reported drug shortages. As more and more facilities are allowed to take advantage of the 340B drug pricing program, the shortage will only get worse. In 2002 around 8,000 clinics and hospitals qualified for discounted drugs. Under the Affordable Care Act, this number will increase to around 20,000. This will further reduce the profitability of generic injectable drugs and increase the shortage.

Health Affairs post: Rx Drug Shortages: Regulation Can Be Deadly

Posted June 14, 2011 12:41 PM

PrometheeFeu writes:

I have no idea why basic economics has not yet made its way to the FDA. They routinely enact policies which can only be described as stupid. (Not short-sighted, just stupid.)

For instance, they recently granted a monopoly on the production of an existing drug in the hope that it would reduce price and increase output! Of course, as we can all predict, (and by all I mean anyone who got a D- or above at the end of ECON101) the amount manufactured dropped and the price rose dramatically. Of course the FDA acted as though this was all because the manufacturer was acting egregiously instead of simply responding to the fact that the FDA just granted them a monopoly.

I think it's time we put the FDA in front of its responsibilities. They cause death out of recklessness and stupidity. They deserve jail time.

Posted June 14, 2011 2:23 PM

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