Those darn supply curves

From the British point of view this is just another of those oddities we must observe. From the American it is more important than that:

Under the NHS’s Voluntary Scheme for Branded Medicines Pricing and Access (VPAS), pharmaceutical companies agree to help subsidise the cost of the health service’s drugs bill if it rises by more than 2pc. The rate of how much companies are charged ultimately depends on how big the NHS’s medicines’ bill is and how fast it rises.

If drug prices rise then the drug manufacturers must “compensate” the NHS for those price rises. Or, if prices rise then prices must not rise. This has logical effects:

The repercussions of a sharp spike in these levies are prompting some less well known manufacturers to pull out of supplying Britain altogether.

This is particularly the case for companies manufacturing so-called “generic” drugs – medicines no longer protected by patents and so made and sold for far less. Generic medicines account for four out of every five prescription medicines used by the NHS and four in every 10 of them fall under the VPAS scheme.

“These companies run on very thin margins, so when the costs increase, including VPAS, it does make some products loss making,” says the British Generic Manufacturers Association’s chief executive Mark Samuels.

“At that point, companies will really look at whether that can supply the NHS, because no business can sustain supply of products at a loss for very long.”

We’re deliberately reducing the prices suppliers can charge. This moves us along the supply curve to where we get shortages of drugs. Oh well, there’s that basic economics shouting at us again. Shrug.

The Americans though, it’s long been an insistence that the Feds should be able to bargain with the drug companies over drug pricing. The NHS is offered as the justification, see, they do it therefore so can we.

Well, yes, the NHS does do it and see? Just like economics 101 states, reduce the prices to be paid and move along that supply curve. This might not be something that you want to do therefore. You know, don’t copy one of the - many - things the NHS gets wrong?