Of the many health care policy issues to gain headlines in the past couple of years, perhaps the drug shortage issue is the most novel – a surprising and difficult to understand problem, which received almost no news until very recently. How is it that in the wealthiest nation in the world, hospitals and doctors are struggling to access life-saving pharmaceuticals?

As with almost everything in Washington, the answer is controversial. One common argument is based in neo-classical economics. The argument goes something like this: the price of some drugs is so low that too little of it is produced to meet demand, therefore shortages occur. The answer is to raise the price of the product to the point that more of it is made and demand is met. The narrative then follows that the price of drugs is too low because of federal policy, which artificially deflates prices. Once those policies are removed, the market will adjust and shortages will disappear.
According to this theory, one of the federal policies that “artificially reduces prices” is the 340B drug discount program – a program that provides discounted pharmaceuticals for outpatient drugs to providers who offer substantial care to low-income populations, including safety net hospitals, community health centers and others.

I love economics, and this simple, elegant argument holds a certain appeal. “Let the market do its thing, and the problem will be solved!” Unfortunately for proponents of this theory, the facts on the ground prove it to be totally wrong.
 
Please consider:

• Most of the drugs in shortage (80% or so) are generic injectable drugs, which are largely used in the inpatient setting – therefore, not eligible for 340B pricing.
• The price paid for generic drugs is often the same as, or lower than, 340B prices.
• The 340B drug market makes up only 2% of all spending on pharmaceuticals in the country – hardly enough to affect the market for a drug.

For these reasons, the FDA has never referred to 340B as a cause of shortages. Instead, they have found that most shortages had to do with short-term quality and manufacturing issues.

With three committee hearings in just two weeks, the issue has caught fire on Capitol Hill. Drug shortages are a problem that warrants a real discussion about what is causing it and what can be done to solve it. 340B isn’t the problem, nor is neutering it the solution. Serious policy makers should look elsewhere for answers.