The Government Should Take Over Generic Drug Manufacturing

A federally chartered corporation for generic drug manufacturing and marketing would create a single market for these drugs run by a company with no profit motive, in the public interest.

I am almost never in favor of more regulation. In fact when Voxsplainer-in-chief Matthew Yglesias tweeted how the House Freedom Caucus thinks that all regulations, by definition, are bad, I rather agreed with their definition.

The inconvenient truth, however, invades, like it does for the greenies who want to drive to the mall, operate their cell phones, computers, and watch IMAX movies in air conditioned theaters. These things require fossil fuels to run.

For small-government conservatives who hate regulation and government interference, certain truths also inconveniently emerge, like for-profit drug companies operate against the public interest when pricing their health- and life-preserving products. So I must defend the government’s right to regulate that, and even take it one step further, and claim that the government isn’t doing enough.

When 20 state attorneys general file suit against two enormous drug manufacturers for price fixing, that’s a pretty good sign that the system is broken.

A civil complaint filed by 20 states accuses the companies of conspiring to artificially inflate prices on an antibiotic and a diabetes drug, with executives coordinating through informal industry gatherings and personal calls and text messages. Officials said the case was a small example of broader problems in the drug business.

“We believe that this is just the tip of the iceberg,” George C. Jepsen, Connecticut’s attorney general, whose office started the inquiry that led to the charges, said in an interview on Thursday. “I stress that our investigation is continuing, and it goes way beyond the two drugs in this lawsuit, and it involves many more companies than are in this lawsuit.”

The difference between me and the average liberal is that I don’t blame the companies for doing what they did. The drug industry has been undergoing continual consolidation for at least a decade. The executives who survived this know each other and gather regularly for various events clustered around their central and coastal New Jersey offices. Who would expect that back-slapping and informal market carve-ups aren’t going on? I wouldn’t.

The suit’s focus is two drugs, a delayed-release form of the antibiotic treatment doxycycline hyclate, and glyburide, a commonly used diabetes drug. The price of doxycycline has surged in recent years, and it was singled out by members of Congress and others as a prime example of unexplained price increases for generic drugs.

One form of doxycycline, for example, went from an average market price of $20 for a bottle of 500 pills in October 2013 to an average market price of $1,849 in April 2014, according to congressional report.

The suit filed by the attorneys general says the investigation began in Connecticut in July 2014 and “uncovered evidence of a broad, well-coordinated and long-running series of schemes to fix the prices and allocate markets for a number of generic pharmaceuticals in the United States.”

A increase of over 900 percent in just six months for a broad-spectrum antibiotic used in just about every hospital in America is unforgivable. Real competition cannot possibly allow for this, nor can it allow for Mylan’s milking of the life-saving Epipen.

Clearly, generic drugs are being stupidly mismanaged by the federal government, despite the Federal Drug Administration bloated $4.7 billion budget, with $5.1 billion requested for 2017. The FDA spends more money and effort on things like food labeling, tobacco regulation, and regulating hand sanitizer than it does on making generic drugs widely available and inexpensive.

Perhaps a better model is required. Like the Internet was set up (before the government ceded control to international polyglots), using federally-chartered corporations to manage it, we could do the same with generic drugs. We could take our lessons learned from Fannie Mae and Freddie Mac, two examples of mismanaged and failed federal corporations, and do it better.

A federally chartered corporation for generic drug manufacturing and marketing, with funding and a mandate to purchase the licenses for these drugs, and the ability to negotiate with manufacturers to obtain the product would create a single market for these drugs run by a company with no profit motive, in the public interest.

Trump could appoint a “generic drug” czar and a CEO for this company, hand picked from the drug industry. User fees could be used to purchase patents and other licenses for items like the Epipen, AIDS medicines, and other drugs for which the for-profit companies have little incentive to sell cheaply.

The drug industry would even support this kind of arrangement if it was done correctly. They would rather have a stable, single place to market generics, with price fixing built-in, than having to maneuver surreptitiously and fight costly litigation and criminal investigations.

The price of generic drugs is driving up the cost of all healthcare. Insurance companies, drug store chains, and consumers face an increasingly complex and unstable environment, while some patients have seen drugs they need go from affordable to bankruptcy-inducing. I know of at least one case when an insurance carrier change forced one hepatitis patient to choose between unaffordable $1000/month treatments or being sick. Nobody should have to make that choice.

Drug companies try to offer their own programs, but the landscape is full of deep holes where patients can find no help. When it comes to single-payer national healthcare, that idea has been tried and proven to be a failure (look at the U.K.). We should not have the government providing all healthcare or health services.

But we should be smart, and in areas where regulation and government control is clearly needed, we should demand the government do more, not less. Small government conservative doesn’t mean inflexible and heartless, when the facts are inconvenient.

About the author

Steve Berman

The old Steve cared about money, prestige, and power. Then Christ found me. All at once things changed. But the Holy Spirit produces this kind of fruit in our lives: love, joy, peace, patience, kindness, goodness, faithfulness, gentleness, and self-control. There is no law against these things!

I spent 30 years in business. Now I write and edit. But mostly I love. I have a wife and 2 kids and a dog and we live in a little house in central Georgia.

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