Here’s a proposal from Sen. Elizabeth Warren to have the government manufacture generic drugs directly. (I was traveling yesterday and wasn’t able to blog this then). It’s clear that there are some problems with parts of the generic drug system that we have, so my first thoughts were (1) whether Warren saw the same problems I did and (2) if I thought that her ideas would fix them.
In order to work through these, though, you first have to whack this proposal with a hammer a few times to knock some of the rhetoric off of it. That’s a common problem with public statements from elected officials, of course, and it’s made worse by the fact that Warren is exploring a presidential bid in 2020 (along with a line of other possible contenders that stretches all the way around the corner). Many of the other contenders have introduced whack-that-pharma-industry ideas recently, by some odd coincidence. So the Washington Post op-ed linked to above spends a good amount of its space attacking the drug industry as a whole – generic firms, research-driven ones, we’re all evil bloodsuckers in case you had any doubts, and the only differences are our wingspans and the shapes of our fangs.
Once past all that – it takes a few paragraphs – you get to the idea itself:
The Affordable Drug Manufacturing Act would allow the Department of Health and Human Services to step in where the market has failed. HHS would manufacture or contract for the manufacture of generic drugs in cases in which no company is manufacturing a drug, when only one or two companies manufacture a drug and its price has spiked, when the drug is in shortage, or when a medicine listed as essential by the World Health Organization faces limited competition and high prices.
To save time, I’m going to reference this post of mine from earlier this year. That was in response to a rather similar plan by several hospitals/health care systems to try manufacturing their own generic drugs, to address the exact same problems. A point made there is that there are a lot of ways that generic drug availability can go wrong, and the solutions for the problems may well need to differ, too. For example, Sen. Warren’s idea is couched in terms of the government reluctantly riding in to save consumers from profit-hungry corporations (which is her default mode, to be honest – I live in Massachusetts and I get to hear a lot from Senator Warren). But in many of these cases, the high-price, low-supply or single-manufacturer situations are either side effects of other government actions or were, in fact, created by such actions as a matter of deliberate policy. My libertarian hat may be jammed on a little too tight this morning, but often enough Warren’s plan amounts to the Department of Health and Human Services saving us from the Department of Health and Human Services.
Let’s save time in another manner: this will not pass the Senate. So it’s not worth discussing as a bill, but what about as a policy? The shortages and price hikes in some generic medications are bad things: stipulated. The hospital proposal was much more targeted – they know which compounds they just can’t purchase in the quantities needed, and they want to step in to make them. As that earlier post says, there are some complications in that idea, but Warren’s plan seems almost entirely focused on prices instead.
Which is a different issue, and much more politically attractive. The latest estimate I have (US government figures) is that retail spending on prescription drugs was about 10% of US health care expenditures. That’s the total of out-of-pocket, employer-sponsored health insurance and other private health insurance, Medicare, Medicaid, etc. Hospital expenditures on such drugs are not captured in that figure, but estimates are that another 30 to 40% can be added to the retail figures to capture that. So let’s say that total drug expenditures are 14% of all health care expenditures. Generic drug spending appears to be between 20 and 25% of that. The portion of that affected by price spikes and shortages is smaller still. So a back-of-the-envelope figure would have Senator Warren’s plan addressing about 1% of total US health care expenditures.
I know that she’s fond of talking about “the other 99%”, but I don’t think this is what she has in mind. That 1% of expenditure, though, is a very visible and politically productive segment, and for an elected official of either party, I don’t think it’s out of bounds to suggest that this is a factor. Frankly, if we’re going to have people step in and manufacture generics to drive down prices and increase supply, I’d rather have that hospital consortium try it. At least they’re not trying to run for President.