Tuesday, February 11, 2014

The Importance of Basic Economic Education

The reporters of the New York Times illustrate yet again the importance of a basic knowledge of economics.  By, yet again, showing what happens when "reporters" lack such basic knowledge.

A truly remarkable article.  Even by the appalling standards of the Times, this is terrible.

Pelsmin provides this commentary, via email.  I have underlined some points that made me giggle:

I've been following the NYTimes' coverage of drug shortages. I'm sure you've seen the stories about how critical drugs are running out, even generics. The lack of understanding of the most basic economic principles is funny, or maybe sad or pathetic. To me, there was only one POSSIBLE reason why widely manufactured on-patent and generic drugs could be running out; government interference. 

Sure enough, the reasons I've seen include factory shutdowns imposed due to failure to meet gov't quality standards and restrictions and hurdles placed on "over-prescribed" drugs like Adderal and certain pain killers. There is now a shortage of saline solution (!) and critical cancer drugs. 

The Times' coverage not only misses this but presents the government regulators as acting heroically to fix this. For example, the FDA proposed that a company with physical contaminants in a product FILTER the product and then sell it, instead of shutting down the factory, as if the company wouldn't have proposed this themselves. Now, not imposing a draconian restriction or condition on a company is considered innovative problem-solving by the government

Better is their feeble stab at the evil thinking by the drug companies. First, they blame "narrow profit margins" as one reason companies won't make vital drugs that are in short supply. I'm trying to picture the curve that explains this (currently reviewing some Escher drawings for inspiration...) The writer also states that "in a peculiarity of the generic drug industry, a drug is often made by only a few producers, making it difficult to mitigate the effects of a shortage". 

Think about that one; generic drugs are only made by a few producers, whereas on-patent drugs are -- what, made by hundreds? No, made by one company, typically, except for license deals. Other reasons indicate that either the writer understands factory production line optimization better than the companies, or maybe doesn't have a clue what she is talking about. Of course, the only way the wackier ideas of high-demand/low-supply/low price are possible is if the FDA has caused this (e.g. Medicare sets and enforces prices that have no bearing on costs or utility.) Yet the article cites praise for the government and "acknowledged that [the FDA] could not ultimately force drug companies to produce." Not yet, until the new five-year quotas are issued under executive order through the medical commisar.

9 comments:

Anonymous said...

The article is indeed bad, but this "rebuttal" is equally bad.

"To me, there was only one POSSIBLE reason why widely manufactured on-patent and generic drugs could be running out; government interference."

When all you have is a hammer, eveything looks like a nail. Alternate hypothesis: maybe the drugs in short supply are not as profitable as other drugs?

"Sure enough, the reasons I've seen include factory shutdowns imposed due to failure to meet gov't quality standards..."

Quelle horreur!

"...the FDA proposed that a company with physical contaminants in a product FILTER the product and then sell it, instead of shutting down the factory, as if the company wouldn't have proposed this themselves..."

Well, did the company propose it? It's not like companies have never released contaminated products.

Pelsmin said...

Anon,
Criticizing my economics understanding is one thing, but please don't say I'm as bad as the NYTimes. That really hurts.

On your first point, these drugs used to be supplied sufficiently, and were profitable enough for the companies to make them. Now that they are in shorter supply and higher demand they will be more profitable because the supply is shorter and demand is higher. 'Nuff said.

On the second point, the government standard may be good, or may be unreasonable. My point was that the companies didn't shut down because customers had a problem with the quality, or the factory wasn't satisfied. They shut down because the government told them to. I've since read that the FDA is short-handed, so factories can't be inspected for re-opening for a year in some cases.

On the last point, all manufacturers deal with quality issues. If they want to stay in business they need to fix problems in a way that customers find acceptable. I doubt some FDA bureaucrat shined a light on a solution the company couldn't figure out. They just stopped blocking them from applying the obvious solution. Yay government!

russell said...

i don't know how this could have happened. obama had the fda hire a bunch of people a few years ago to prevent this from happening. it's so hard to believe that didn't work out.

Anonymous said...

Very interesting. I was recently prescribed Doxycycline, which cost $79 for the generic version. When I asked the pharmacist why, he had not answer (this explains it), but did say that last year it was one of the medicines for which he did not charge anything. Now it's $79.

alanstorm said...

"... a 2012 law that gave the Food and Drug Administration more power to manage shortages."

So, basically, the FDA is doing its job!

You're just never happy...

Pelsmin said...

Alanstorm,
The only thing worse than thinking you're informed because you read something in the NYTimes is refuting a criticism of an article by citing information asserted in that article.

Read the 2012 law referenced. Section 1 raises the fees the FDA can charge drug manufacturers. Section 2 raises the fees the FDA can charge device manufacturers. Section 3 raises the fees...well, it goes on like that for a while.

Then there's a section banning bath salts, the latest fad drug.

The majority of the rest of the law describes significant additional burdens on companies wishing to make drugs; they must register earlier, file more activity reports, submit to additional inspections, etc.

There's a long section on what will happen to those who are considered non-compliant.

Now the good stuff; there lot's of talk of fast-tracking brand new drugs earlier in their trials. Nice, but I'll believe it when I see it, and not relevant to this point.

Then we get five pages on topic out of 100. Four and three-quarter pages address new requirements for drug companies to warn the government of shortages, and explain the penalties for failures to do so. Then, paydirt; the Secretary "may expedite" inspections or approvals of drugs in shortage.
Then lots more on task forces, reports, meetings, etc. Finally, section 11 closes the law, apparently without irony, by addressing gas production.

I guarantee you this reporter did not waste the 10 minutes of her life that I just did reading this stuff.

Alex B. said...

The absolute best line from the article is "What drives shortages is often a mystery."

Anyone who writes something like that, particularly in light of paragraphs detailing the actual reasons for the shortage, doesn't really display an critical reasoning skills.

Alex B. said...

Anon,

maybe the drugs in short supply are not as profitable as other drugs?

This doesn't make sense. If people prefer to buy drug A, rather than drug B, then less drug A will be produce drug A, but a shortage will not occur. People can still buy drug A.

Quelle horreur!

The absolute highest cost is lack of access. That you think it's a joke that government imposes this cost is cause for concern. If people want or need a drug, yet the government doesn't let them because the government has decided for patients that those drugs aren't "good enough" is indeed a crime. You make light of it all you want, but that only shows what a light weight you are when thinking about economics.

You seem to be under the misconception that FDA regulators actually care about patients. If they did, they would NEVER ban a medicine or procedure, but merely provide information to patients about the concerns they have and let the patients themselves determine if the risk is worth the reward.

Well, did the company propose it? It's not like companies have never released contaminated products.

With price controls imposed, claiming that it's the companies fault for not taking step that could easily take a drug into the red, is laughable. The long term effect would be to make the company fold, denying drug access to all drugs that the company would have provided. Yet MORE proof that FDA regulators care not a wit for patients.

last year it was one of the medicines for which he did not charge anything

This doesn't make any sense, as someone is always charged. The change merely reflects that now you are charged, rather than the cost of your consumption being hidden from you by byzantinne regulation.

Anonymous said...

Pelsmin, I never came back to check the thread - I'm the original commenter.

Thanks for your deeper reply, I appreciate your taking the time to write back so quickly and for providing a lot more information.