False Scarcity

Recent scandals like those surrounding Martin Shkreli’s AIDS drug and Mylan’s EpiPen have raised popular awareness of pharmaceutical price gouging. But pharma has more tricks up its sleeve than just drug price increases. Take GlaxoSmithKline, which makes the popular anti-nausea drug Zofran: the company spent a decade working to create a shortage of generic anti-nausea medication so it could corner the market and secure contracts with a majority of American hospitals. Pharma companies have learned that sometimes a shortage works just as well as an egregious price hike to maximize profits.

The case of Baxter Healthcare bears similar markings. Baxter is the nation’s largest manufacturer of saline bags. It competes with only two smaller companies, Hospira Infusion Systems and B Braun. These three manufacturers are in little danger of being disrupted by new competitors: sterile saline plants are very costly and difficult to build. So they alone monopolize the supply of saline bags in American hospitals — and as anyone who has visited a hospital can tell you, saline bags are a staple of health care delivery, used to clean wounds, treat dehydration, mix medications, and more. Without them, normal hospital operations would grind to a halt.

In 2014, unsafe particles were found in Baxter saline solution, leading to a product recall and intensified FDA scrutiny of all three manufacturers. As a result, production dropped and hospitals began experiencing severe saline shortages, endangering patients — dialysis recipients, for instance, need four liters of saline per week to stay healthy, and can die without it. The shortage had health care workers scrambling. “Technicians worked through the night to mix saline by hand,” reports the Financial Times, “while nurses injected the solution of salt in water into patients using syringes — a task normally done by the metal stands and plastic bags used for intravenous drips.”

Hospitals had temporary contracts to keep the price of saline steady, but Baxter still found a way to use the shortage to its advantage, according to allegations being investigated by the Justice Department. Hospitals say that at the peak of the shortage, Baxter dispatched sales representatives who pressured them into buying high-priced saline delivery products they didn’t need, including pumps, tubes, catheters. “If they did not agree to purchase the additional merchandise,” the Financial Times reported, “hard charging sales reps suggested they could see their supplies of saline cut.”

The cost was enormous in some cases, but hospitals felt they had little choice. Afraid of losing access to a health care necessity, some hospitals agreed to the new purchasing terms. Worse, when its contracts with hospitals expired, Baxter nearly doubled the price of the saline bags themselves.

Baxter’s revenue increased 12.5 percent between 2015 and 2017. Meanwhile hospital expenditures also increased — costs that are eventually passed down to patients, with no improvement in the quality of care they receive. Instead of spending billions on expanding health services or adopting new medical technologies, the US health care system spent it on bags of saltwater.

Unnatural Disasters

The Baxter factory that supplies saline bags to American hospitals is located in Puerto Rico. When Hurricane Maria hit last year, the facility was damaged — not totally, but enough to slow down production and cause another saline shortage.

Again, this put Baxter in a position not of weakness but of strength. And it wasn’t alone: Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, and others also have plants in Puerto Rico, where they make drugs for blood pressure, organ transplants, cancer, HIV, and more. The hurricane highlighted the degree to which sick patients are at the mercy of private pharmaceutical manufacturers that have a material interest in taking advantage of shortages, and indeed of patients’ desperation.

This state of affairs is considerably worsened by the fact that, as Maryn McKenna writes at Wired, the US “has allowed the manufacturing of most of its drugs and medical devices to drift offshore, at the end of long, thin supply chains.” Two trends are happening at once: first, pharmaceutical companies are becoming more adept at cornering markets and erecting temporary monopolies on specific treatments and supplies. And second, they’re drifting further afield in search of cheaper labor and tax breaks, leaving the supply chain vulnerable to interruption from factors like logistics hiccups or natural disasters. This combination makes the US health care system increasingly vulnerable to shortages — and to opportunistic price gouging when those shortages hit.

As a solution, the Financial Times suggests that, in the specific instance of saline bags, supplies could be regulated as a “utility” instead of a drug, since they’re so essential. It’s a sensible idea. But aren’t blood pressure medications and cancer treatments essential, too? Certainly they are to the people who rely on them. We don’t need a saline-bag exception to the rule; we need a new set of rules entirely. We need a government that will intervene in health care markets to regulate prices and production in the interests of the sick, rather than those of corporate shareholders. We need a health care system built around the needs of society, not the needs of capital.