Makena & Big Government

This is part III, for some background read part I & part II first.

"I'm from the government and I'm here to help."  President Reagan called these the some of the scariest words in the English language.  The newly FDA approved drug Makena is a clear example of just how right Reagan was.

My wife and I are expecting our 7th child. Since my wife has a history of premature labor, we were hoping this time around that she would be treated using a form of progesterone known as 17P.  This drug was not specifically made for treatment of premature labor, but in recent years its use for this purpose has increased following some studies demonstrating its effectiveness.  Also, 17P was relatively inexpensive, in some cases costing as little as $10/dose. Sadly, our plan has been called into doubt due to a recent development.  Under a federal law known as the Orphan Drug Act, KV Pharmaceuticals sought and won FDA approval for their version of 17P, known as Makena.  Along with this approval comes 7 years of market exclusivity (that is, only KV can sell this drug) and the announcement that KV would sell Makena for $1,500/dose.

You can read my previous post on why the moral outrage over this dramatic price increase should be directed at KV, a distressed company that saw an opportunity to get healthy with a safe bet on Makena.  But who created the conditions that allowed them to make the bet in the first place?  Clearly in this case, the answer is the federal government.

Whether or not my wife is treated with Makena, the $1,500 price tag will mean that some women who need it won't get it.  Some people will look at circumstances like these and think they require a government intervention, but it was government intervention that allowed for the price increase in the first place. Some problems are not the result of "greedy business" or "heavy-handed government," but are actually the result of these two elements combining.  The Orphan Drug Act, a federal law, allowed KV to become the sole supplier of  a drug that was widely available at a relatively low cost simply by pushing it over the finish line of FDA approval.  Many people fear, and are willing to denounce, the market distortions that come with private monopolies, why shouldn't we be just as concerned over those created through government intervention?

Even if you prefer markets over government solutions, there is no need to demonize the federal intervention in this case.  It is not at all hard to believe that the lawmakers who crafted the Orphan Drug Act did so with the best of intentions in an effort to promote drug development for rare diseases. Because these diseases affect a relatively small number of people, markets for these drugs may not be large enough to entice private investment in research and development (I'm not sure premature birth really qualifies as rare).  But the result in this case is not a victory for anyone except KV Pharmaceuticals, since they will benefit from a government granted monopoly.

Unfortunately, what should be a cautionary tale about unintended consequences and the dangers of government intervention, will likely be used to call for even further government involvement (of one from or another) in this case.  This is a response that simply boggles my mind.  The opportunity for KV to profit from the marketing of Makena was a direct result of government intervention, so now we need more intervention to try and correct what went wrong the first time around?  It kind of reminds me of that children's song about the old lady who swallowed the fly.

I believe that markets are superior to government planning when it comes to deciding what we produce as a society and how much what we produce costs.  That is not to say the government can't or won't ever be involved in markets, it will.  When we contemplate government action we need to recognize that there will be unintended consequences. Some of which we will be good at anticipating and some of which will come as a complete surprise.  Given the power of markets and the potential dangers of government intervention, there should be a very high bar for government involvement in markets and an even higher one for times when the government is going to grant monopoly powers to a private business.

The story of Makena will have a human cost.  It will be reflected in the children born too soon because their mothers never received 17P, which just a few weeks ago was widely available at a fraction of the current price.  It is also the story of a private business seeking extra profits by using the power of the government.  Finally, it is a story that will be repeated many times over whenever big business sees an opportunity to use big government as a weapon to be deployed in pursuit of profits that would never exist in a competitive market place.