Drug shortages and Medicare role

An article in Bloombergbusinessweek (October 29,2012) describes reasons for shortages of drugs to treat meningitis. While the branded version of the product made by Pfizer continues to be available, generic producers shut down production for several months. The associated shortage was not accompanied by prices increases because Medicare had capped drug prices to be no more than 6% of total costs. Should Medicare permit price increases during drug shortage periods to provide the incentive to use branded alternatives ? Will such pricing flexibility distort manufacturer incentives to maintain supply ? Will the current law, that requires manufacturers to forecast shortages six months in advance, alleviate such shortages by enabling alternative sourcing plans ?

About aviyer2010

Professor
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